Innovation Type

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Introduction
Honda was founded in Japan in 1946 as a development in institute for motorized bicycles. Three years later the company produced its first motorcycle, and ten years onwards they had also entered the US automobile market. They are one of the biggest brands in the market today, having used a strategy of building local factories in over 30 countries, in order to adapt to local customer needs. The field of energy-efficient cars has been around for a couple of decades now. Honda has always promptly stood up for the challenge emphasizing commitment for developing environmental friendly cars such as the hybrid electric vehicles (HEV), solar, or fuel call cars. Honda is a motor company with traditionally extensive research and development department. Their series of offerings for the low-emittance sector in driving, the hybrid electric vehicles, are the latest from the long history in this category. Honda has been persistent in developing environment-friendly cars, no matter how well or badly the first prototypes did on the market. In 1996, they introduced a solar-powered prototype, and two years later it was launched on the marketplace. The electric car not being an instant success didn’t dispirit the company, and today they are a world-renown brand in everything that has to do with low-emittance cars. On the other hand, Honda’s big rival Toyota could be praised in many same ways. Toyota, however, chose different hybrid engine design – focusing more on reducing emissions during urban driving, rather than gas-consumption. Moreover, they chose collaboration in technology development, and are hardly likely to be left alone with its decisions, production methods and products. One could argue that the dominant design is more likely to end up in the hands of Toyota’s innovation group than the lone Honda’s. The former company is already getting considerable profits from licensing to for example Ford and Nissan. As result, by 2005, Toyota’s sales of hybrids outperformed Honda’s three times. There is much threat of choosing the wrong way of developing the engine alone, and eventually being left on your competitors’ mercy if things go wrong. There is also much uncertainty about 1

with which standard the field will start revolving around, and consumers do often prefer the traditional automobiles. This could be something dangerous for a company like Honda, who insists on closed innovation (Chesbrough, 2003). Another obstacle for hybrid cars is the adoption of environmental friendly vehicles by consumers. Number of sold HEVs is very low in comparison to traditional vehicles, however, the sales has been slowly increasing. This leads to another big question mark and problem: the prices of the cars. Honda hasn’t been able to achieve economies of scale for the hybrid cars, due to the sparse demand for them. One estimate calculated Honda losing 8 000 USD per car because of this. The sales in the US grew nine-fold from 2000 to 2004, but even that doesn’t seem to be quite enough. Therefore, the main questions we will try to answer are: what are the obstacles Honda is facing and what are the solutions to overcome them, and how important are the business models? Simultaneously, we focus on 1) classification of HEV as radical or incremental innovation; 2) factors influencing adoption rate of HEVs by customers, 3) simultaneous development of HEV and FCV. HEV technology: radical or incremental?

The degree of novelty can be described as incremental (new), really new or radical (Garcia and Calantone, 2002) or as a continuum ranging from incremental change (doing things better) to radical change (doing new things) (Tidd et al., 2005). In this case, HEV’s technology can be perceived as incremental innovation since it is built on existing engine technology which does not require significant changes in fueling infrastructure or in consumer behavior. The users will remain with the same driving habits and this technology will not affect the...
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