How to hit a moving target

Image: How to hit a moving target

Constant change requires a business agility model—a method of evaluating your options for the next market disruption.

Download Technology Forecast: Fall 08

the us auto industry might be in better straits today if it had adopted business agility models a decade ago. during the 1990s, the highest profit margins were on sport utility vehicles (suvs) and pickup trucks, which americans couldn’t buy fast enough. some warned that heavy dependence on sales of gas guzzlers was a risk because fossil fuels would become scarcer. it was not
a matter of if, but when. as figure 1 shows, this was a prescient warning.

then 9/11 happened. the iraq war took a major source of petroleum offline. prices started to skyrocket. face into the wind, us automakers continued to rely on mostly large, gas-guzzling vehicles to meet american demand. the us manufacturers clearly weren’t ready for a market change toward fuel efficiency in 2008.


Chart: The price of oil, 1987–2008

Figure 1: The price of oil, 1987–2008 Sources: Energy Information Administration and Bureau of Labor Statistics, 2008, as used on Wikimedia Commons, 2008

 


It is apparent today, with 20-20 hindsight, that they needed to find a way to meet US demand for trucks and SUVs, while building into their operations some options that would have allowed them to respond quickly to market changes. Serious agility modeling could have led them in one or more strategic directions.

For example, they could have invested more heavily in developing fuel-efficient engine technology, including hybrid. Such technology would have improved customer value at the time while anticipating customer demand of the future.

They could have designed their European cars to more easily adapt to American needs (with snap-in pieces for mutually exclusive requirements). The economies of scale from this approach would have offset the increased cost of harmonizing the platform.

Similarly, they could have mass-manufactured standard platforms in strategic locations and used various sheet metal “skins” for each local market. This approach would have provided greater agility on a regional basis.

With business agility modeling, the automakers would have had a method for deciding which investments were worthwhile and when to make them. Agility modeling is all about anticipating alternative future scenarios and taking steps to ease the adjustments needed should those scenarios occur.