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R&D philosophy has swung from the “ivory tower” to “all hands to the pump”. Now, industrial research managers are pursuing a balanced portfolio but emphasizing innovation.

Today is an exciting time to be a part of the automobile industry, even though the demands on the business have never been greater. Customer expectations of vehicle quality, reliability, safety, and utility are at an all-time high. At the same time, worldwide overcapacity has put pressure on the industry to maintain, and even reduce, vehicle price.

In the United States, for example, the average monthly vehicle payment as a percentage of average household income has dropped from 12.5% in 1980 to about 7.5% today—a 40% decrease. Environmental concerns, including tailpipe emissions, carbon dioxide production, and recycling, remain critical elements on the manufacturer’s agenda. Another challenge gaining increased attention is the rising price of petroleum, as has been very recently observed in the United States. Urban congestion is a growing issue around the world, potentially limiting the use of cars in many large cities.

We are witnessing major structural changes in the automaking business, too. Globalization of the industry is being realized through business alliances and industry–academic–government partnerships that have realigned the world’s vehicle manufacturers into six major groups. This process is currently sorting itself out. Once it is concluded, only a few companies will survive independently because they occupy a unique market niche or possess a special competence. For examples of General Motors’ worldwide activity, see the box, “GM goes global”.

With these developments, the industry is on the verge of major change, in both its products and business structure. The rapid rate at which GM has formed new alliances and new business entities demonstrates that the world’s largest automobile manufacturer can be fast and innovative. For instance, since early 1998 GM has broadened its OEM (original equipment manufacturer) alliances by increasing its existing equity positions in Isuzu and Suzuki, acquiring minority equity stakes in Fuji Heavy Industries (Subaru) and Fiat, and completing its acquisition of Saab. GM also formed nonequity technical alliances with Toyota and Honda. In addition, e-GM and COVISINT rely on strategic alliances. Speed and innovation are key requirements of doing business today.

The importance of innovation

An important outgrowth of the new global forces taking shape is an increased focus within the industry on R&D. In fact, this increased emphasis is appearing in almost every industry—as evidenced by a recent survey by the Industrial Research Institute (IRI), the umbrella association for U.S. research organizations (1). The IRI survey found that the top three challenges facing R&D organizations today include

• managing R&D for business growth,
• accelerating innovation, and
• integrating technology planning with business strategy.

Today’s “hypercompetitive” business environment has rekindled the spark at GM R&D. In response to pressing business and technology needs, the R&D Center is playing a critical role in GM’s “innovation process”. This corporation-wide process was developed in 1998 after GM management recognized that the company needed more innovative products to grow its market share around the world. As a result of serious financial problems in the early 1990s, GM’s product portfolio had slipped to a point where, by the company’s own measures, only about 5% of the products in the portfolio were considered truly innovative. That was a dramatic decline, especially considering GM’s heritage, which includes a steady stream of innovations dating back to the formation of the R&D Center (see box, “GM’s heritage in innovation”). Clearly, GM needed to step up its innovation to regain the product excitement of the past.

The GM innovation process

The new process was introduced to rejuvenate innovation within the company. The process is based on a “sense– respond–learn”approach (Figure 1) (2), which is unlike the “forecast–make–sell” business model that traditionally has been used in the industry. It works in this way:

• We gather data from customer clinics and marketing surveys and combine this information with formalized assessments of new technology. These analyses are used to guide vehicle and feature concept studies, which are critically reviewed to determine appropriate responses to emerging market and business opportunities.
• A response can be that no action is taken on a particular idea if we don’t think it will yield true value for the customer. But more typically, the response leads to action, which is taken along one of two paths.

The first path is to “get it into the product now”. This route is taken if the technology is ready and getting it into a product is just a matter of final development and vehicle integration. In this case, it is targeted for a production date and becomes part of the product plan.

The intent of the innovation process is to ensure that a steady stream of product and technology options is developed on the basis of the company’s sense of where the market is headed. These options are potential responses that GM can use to capitalize quickly on new opportunities. The process is designed to be dynamic, with new information and ideas moving continuously through the system. Each time the company goes through an innovation cycle, we gain knowledge and discover new ways to apply it to subsequent product and technology programs.

Let’s define innovation

Lawrence Burns, GM’s vice president for R&D and planning, is also in charge of GM’s global product plan, and he has been given the challenge of delivering a global product portfolio that, over the next five years, contains 50% innovative cars and trucks. In addition, the remaining 50% of our mainstream products must offer innovative product features or technologies that provide significant customer benefits and reinforce a vehicle’s brand character (i.e., its product image). That is a big jump beyond 5%. Using its new innovation process, GM has been able to meet the 50% goal in its current plan (which covers new product entries for the years 2000–2004).

What do we mean by an innovative car or truck? There are several ways to create innovation in the automotive market: We can redefine existing products and market segments, create new ones, and attack competitors’ strongholds, those products with which a manufacturer captures a significant portion of the market.

For example, introducing a small third door on the Saturn coupe redefined the traditional coupe and provided a distinct benefit to customers—easy access to the rear seat. Interestingly, a GM dealer’s son came up with this idea; using it is a good example of sensing and responding to market feedback.

The Opel Zafira minivan exemplifies creating a new market segment. The Zafira has a seven-passenger capacity, yet all seats but the driver’s can be removed. The simplicity of changing the seating configuration is unparalleled. This vehicle has been a tremendous hit; more than 100,000 were sold in Europe in 1999, the year it was introduced. Sales for 2000 are even stronger.

Using a materials technology that had its start at the R&D Center, GM is attacking a stronghold: full-size pickup trucks. Truckers like to toss things in the bed of their vehicle, but they do not like it when the bed gets scratched or dented. GM will offer an all-composite pickup box (i.e., cargo bed) that eliminates the need for a bed liner and can take much more abuse than conventional sheet metal beds. This new lightweight, tough composite box will be offered as an option later this year on the extended-bed Fleetside Silverado, significantly enhancing Silverado’s “Like a Rock” brand image.

The role of R&D

For decades, the industrial research community has explored the role of R&D by asking such questions as “How do we handle emerging technologies that might have an impact on business but are not yet ready for product introduction?” and “How do we conceive ideas that could lead to game-changing product, process, and business innovations for the corporation?” These are questions that have been explored by the entire industrial research community for decades. In the course of their existence, most industrial labs have moved across the spectrum of R&D management philosophies in attempting to achieve desired results.

At one extreme was the lab that operated somewhat in isolation (as an “ivory tower”), with a primary focus on technology just for the sake of continuing to advance the state of the art. Little thought was given to the ultimate user, the customer. This has been called first-generation R&D (3). Although this approach did indeed lead to technology innovation, it was slow in getting new technology to market because of R&D’s weak connection with engineering and marketing.

At the other extreme is second-generation R&D, which is characterized by short-term incremental technology advancement that is driven by short-term goals (such as bottom-line profit). The GM R&D Center went through such a cycle when GM was in financial trouble in the early 1990s. At R&D, we called this the “all hands to the pump” exercise. Obviously, the disadvantage of a short-term research focus is that the company can miss a potential game-changing technology or innovation. In fact, in many companies today, the focus of the R&D organization is to make key products in the current business obsolete.

Which is the right approach for industrial research? Today, most industrial labs have a balanced portfolio of projects, with some of the work aimed at short-term needs and other work directed at breakthrough ideas and technology. The most exciting emerging trend is the focus on product and business process innovation.

Portfolio management of R&D work

The R&D Center’s science labs support GM’s innovation process; innovation programs and research projects use a portfolio approach. (See box, “GM R&D Center organization”.)

About 30% of the budget is devoted to exploratory projects, which are intended to develop game changers. In line with the ideas on innovation of Kevin Kelly, executive editor of Wired, these projects focus on new products, new categories of products, new methods to make products, and new business opportunities (4). Some current examples are

• eliminating the conventional painting process for vehicle exteriors,
• developing a suitable material for on-board hydrogen storage for fuel cell application, and
• developing an on-board electronic software architecture that will enable plug-and-play options for various vehicle information systems, such as the features offered by GM OnStar.

Once an exploratory project team has shown the technical feasibility of its idea or concept, an innovation team is assembled to scale it up to the vehicle level and make it ready for production. The innovation programs require more resources than exploratory projects and typically are managed by someone from a product unit to ensure a smooth transition into production. Each innovation program has a technology road map that highlights the key technologies needed for the entire system. The road map also links the technology development with the product plan; for example, setting a target production date obviously helps create a sense of urgency. About 50% of the R&D Center’s resources are focused on innovation programs. Two examples of innovation programs are

• GM’s Partnership for a New Generation of Vehicles hybrid technology, which led to the GM Precept concept vehicle shown at the North American International Auto Show in Detroit in January 2000 (shown at the top of page), and
• StabiliTrak, an advanced chassis control system that integrates steering, braking, and stability control into one package. Originally introduced on the Cadillac Seville in 1998, this feature is now in its second generation (Figure 2).

Figure 2. Schematic of the StabiliTrak Chassis control system in a 2001 Seville.

The remaining 20% of GM R&D’s resources are devoted to development projects. These critical projects focus on moving validated technologies into production for the first time, smoothly and quickly. One example of this type of project is the all-composite pickup box mentioned earlier.

Although it is useful to explain GM’s R&D work in terms of exploratory research, innovation programs, and development projects, there are no formal boundaries among the different kinds of projects. In fact, many researchers work on multiple projects; for example, a researcher may split time between an innovation program and an exploratory project.

On extremely fast-moving programs, the researchers may be working directly with the business unit and doing the research simultaneously. For example, the R&D Center has provided assistance to ongoing work at GM OnStar, e-GM, and a recent online “order-to-delivery” initiative. In these cases, instead of “research and develop”, the idea is to “connect and develop”, which is one of the best ways for the company to be truly fast.

Collaborative research

Under the “connect-and-develop” concept, GM works with some of the best researchers in the world. The R&D Center has always had excellent communication with experts in key technical areas, but recently this process has been formalized by creating satellite labs. These are key “centers of expertise” (usually universities), by means of which GM R&D can tap into an existing technological environment. For example, GM has a satellite lab at the University of Michigan, Ann Arbor, in the areas of advanced body engineering and advanced engine technology. A satellite lab at Carnegie Mellon University focuses on “smart vehicle” technology. GM also has intellectual property agreements with more than 60 universities worldwide. The R&D Center has active contracts with most of them, including universities as far away as China.

GM partners with suppliers, energy companies, government labs, and even competitors, in addition to universities. The collaboration of GM, Ford, and DaimlerChrysler with the federal government in the U.S. Partnership for a New Generation of Vehicles is a perfect example of joint research in support of advanced vehicle technology. GM recently announced a breakthrough on gasoline reforming technology achieved through a research collaboration with ExxonMobil. This technology, which produces hydrogen on board the vehicle, is an important milestone on the road to development of a practical fuel cell vehicle. GM has also begun to cooperate on research with its alliance partners. For example, research programs have been established in Japan with Suzuki and Fuji Heavy Industries. Of course, as noted earlier, GM and its subsidiaries around the world have worked closely for many years.

How it all adds up

All of GM’s innovation initiatives—the creation of a corporate innovation process, a new organizational structure and focus for the R&D Center, portfolio management of R&D work, and collaborative research partnering—ensure that GM is well positioned to provide critically needed technologies. These developments support the company’s renewed thrust toward innovative products, processes, and services that will meet the needs of and delight customers around the world.

References

1. Larson, C. F. R&D in Industry; http://www.iriinc.org/Template.cfm?Section=Knowledge_Center.
2. Adapted from http://www.gm.com/experience/technology/research/overview/overview.jsp (accessed Aug 18, 2000).
3. Roussel, P. A.; Saad, K. N.; Erickson, T. J. Third-Generation R&D: Managing the Link to Corporate Strategy; Harvard Business School Press: Boston, 1991.
4. Kelly, K. New Rules for the New Economy: 10 Radical Strategies for a Connected World; Penguin Press: New York, 1998.