What matters most : researching the critical factors for maximizing automotive innovation profitability, and their implications of systems-based innovations

Abstract

It is predicted by many in the industry that over the next decade automotive OEM's will look more and more like "vehicle-brand owners," focusing efforts on branding, marketing, and building a stronger retail channel. This is especially true of the U.S. automakers, who are today entrenched in a desperate struggle to reclaim their declining market shares from foreign counterparts. As a result, demands placed on tier-one suppliers have increased, competition throughout the supply-chain has intensified, and new strategies for sustainability are needed. The myriad engineering, development, and validation responsibilities passed down by OEM's have resulted in the formation of a new first-tier supplier - the systems integrator. The transition from components to integrated systems and modules has definite implications on the firm's innovation and product development processes. This paper focuses on supplier innovation strategies, and argues that the proper alignment between value creation and value capture aspects of an innovation are required to maximize its profitability potential. Ten ArvinMeritor (tier-one supplier) innovations are examined in attempt to determine what critical factors had the most impact on profitability (or lack thereof). The results are then placed in a systems context, and a framework is generated to conceptualize the critical inputs to the systems innovation process. The foundation of the framework is depicted as two rotating wheels, the System Architecture (value creation) wheel, and the Revenue Architecture (value capture) wheel. The wheels gain momentum from a number of critical interdependent inputs to the value creation and capture processes, and furthermore, the sustained momentum of each wheel

(cont.) is needed to keep the other in motion. These framework inputs are discussed in detail, and collectively represent a conceptual path forward for ArvinMeritor as it continues its transitional journey to the realm of the systems integrator.