methodology for building-up technological core ...

F2014-MVC-048

METHODOLOGY FOR BUILDING-UP TECHNOLOGICAL CORE COMPETENCIES USING THE ELECTRIC POWER TRAIN OF VEHICLES AS AN EXAMPLE Wowreczko, Danuta; Prof. Dr. Kampker, Achim; Dr. Burggräf, Peter RWTH Aachen, Laboratory for Machine Tools and Production Engineering (WZL) - Chair of Production Management, Aachen, Germany

KEYWORDS – Technology innovation, disruptive change, core competencies, electric power train, emobility

INTRODUCTION Today, more than ever, enterprises are facing the challenge of a rapidly changing business environment. Manufacturing enterprises are more than ever challenged by the pace of technological change which causes them to realign themselves with regard to their product knowledge and technological expertise. Telling examples can be found in the mobile phone industry: Nokia and BlackBerry lost their market leading positions due to their inability to adjust to new innovations. Kodak, once a leading enterprise in the camera industry, declared bankruptcy in early 2012. The replacement of film cameras by digital ones and the cannibalization of cameras by smartphones brought ruin to the enterprise. Currently, potentially one of the most significant technological innovations in the automotive industry is the transition from the conventional power train to the electric one. For the established enterprises in the automotive sector this transition will have far-reaching consequences with regard to their technological know-how about products and processes. Renowned automobile manufacturers have already recognized the signs of the time and reacted in different ways to this technological shift. On the one hand, BMW has started to develop the necessary skills and technologies internally. On the other hand, Daimler and Toyota invested in Tesla Motors, an early pioneer in the field of electric mobility. The foundation for the theoretical perspective of the practical problem of how to build up new core competencies in a structured way has been laid by Hamel & Prahalad in their 1990 Paper "Core Competence of the Corporation". Their approach of explaining competitive advantages of enterprises through the enterprises´ core competencies quickly became a widely accepted theory in the field of strategic management. Based on the works of Hamel & Prahalad, many authors tried to enhance the concept of core competencies. First, the scientific work on the subject dealt with the problem of defining and identifying core competencies.1 This phase was followed by effort to develop a holistic core competence management approach.2 The core competence theory was quickly adopted by practioners and executives as a tool for strategic corporate decision-making. Despite the acceptance, the concept has gained in corporate practice and regardless of enterprise environments that are changing at an ever faster pace (characterized by technological shifts and changing consumer demands), it is surprising that the topic of building-up new core competencies has received little attention in literature. This paper is aimed at addressing the lack of such a methodology. We agree with Zehnder that the development of core competencies is 3 not “[...] the product of chance“ , but the result of proactive management: "In enterprises, competencies do not arise by themselves. They are developed purposefully through the bundling of corporate skills for a specific 4 application." Numerous practical examples from the industry show that the deficit of an insufficient operationalization of the approach for building-up technological core competencies is not only a theoretical research gap but also a practical problem. Hümmer states: "The difficult operationalization remains the main source of criticism of the 5 resource-based view (RBV) and the core competence approach ".

1 Hamel und Prahalad 1994; Rasche 1994. 2 Zehnder 1997; Deutsch 1997; Krüger und Homp 1997; Nasner 2004. 3 Blohm 2000, page 2. 4 Zehnder 1997, page. 37. 5 Hümmer und Dowling 2001, page 121.

On the basis of the identified practical and theoretical problems, this paper is aimed at developing a practicable methodology for building up core competencies. The focus of this paper is not to establish a new theory of core competence management. On the contrary, this paper is building upon and further developing the existing theory of core competence in a practical way. There is a need for further research at the interface between strategic core competence planning and operational implementation management.6 The paper at hand focuses on technological core competencies of manufacturing enterprises which, when faced with a disruptive technological change, need to realign themselves with regard to their product knowledge and process expertise in order to benefit from the shift and to establish new competitive advantages. In developing the methodology, special emphasis will be placed on its practical character by applying the methodology to the production of electric traction motors in electric vehicle power trains as an example.

THE CORE COMPETENCE APPROACH Deriving from the RBV7, the core competence approach with its inside-out-perspective focuses on the enterprise itself as opposed to the market-based view (MBV). In the core competence theory a enterprise is seen as a bundle of competencies: „A company must be viewed not only as a portfolio of products or services, but a portfolio of competencies as well” 8 . Hamel & Prahalad use a tree model to illustrate the core competence perspective which explains as follows: “Think of a diversified company as a tree: The trunk and major limbs as core products, smaller branches as business units, leaves and fruits as end products. Nourishing and stabilizing everything is the root system: core competencies” 9 . „Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies”10. As an example, the internal combustion engine can be thought of as a core product that can be deployed in the end products of the following business units: cars, trucks and motorcycles. In order to define and describe core competencies, Homp investigates these with regard to two dimensions: The competitive and the structural dimension.11 While the competitive dimension describes the market effects of core competencies, the structural dimension deals with the structure of core competencies, meaning the building blocks of a core competence and the interrelations of them.12 In the competitive dimension, competencies must have the following characteristics in order to be considered "core": •

Provide access to a wide variety of markets (transferability),

•

Difficult to imitate for competitors,

•

Difficult to substitute,

•

Make a significant contribution to the perceived customer benefits

and thereby generating a competitive advantage for the enterprise. In addition to the competitive dimension, there are several models which describe the structural dimension of core competencies13. The basic idea of these models is illustrated by Figure 1 and is explained by the following quote: „On the lowest level of this hierarchy are the resources, which are the building blocks of competencies and inputs into the organization’s value chain. Each corporation has various resources, but enterprises differ in how they leverage them. At this point we come to the second level of the hierarchy: Capabilities refer to the corporation’s ability to exploit its resources. They consist of a series of business processes and routines that manage the interaction among the enterprise’s resources. A distinctive feature of capabilities is also that they are functionally based. Competencies, the third level in the hierarchy, is a cross-functional integration and coordination of capabilities. Competencies usually result from the interfaces and integration among the SBU’s functional capabilities. Finally, on the highest level of the hierarchy are core competencies. Core competencies cross SBU boundaries and they result from interaction between different SBUs’ competencies. A core competence is therefore a collection of competencies that are widespread in the corporation“14. 6 vgl. Nasner 2004, page 257 f. 7 Rasche 1994, page. 91. 8 Hamel und Prahalad 1994, page. 221. 9 Hamel und Prahalad 1994, page. 1. 10 Hamel und Prahalad 1994, page. 4. 11 Homp 2000, page. 13 ff. 12 Homp 2000, page. 9 ff. 13 Fearns 2004, page. 85. 14 Torkkeli&Tuominen (2002), The Contributionof Technology Selectionto Core Competencies, page. 274.

Technological core competencies

Technological capabilities

Technological resourses

Value, Company specification, Time

Technological competencies

Figure 1: Aggregation levels of building blocks of technological core competencies

THE BUILDING-UP OF CORE COMPETENCIES After considering the historical background of the core competence approach and especially the two dimensions, the focus shall now be placed on building-up technological core competencies. The building-up phase is one of several phases within the holistic core competence management cycle (sources from: Hamel &Prahalad 15 , Zehnder16, Homp17, Nasner18 etc.). The result of the attempt to consolidate the existing models is shown in Figure 2. Within this model four phases can be discerned: Building-up Identification

Planning

Procurement & Aggregation

Utilization

Protection

Figure 2: Phase model of the core competence management

The task of identification core competencies is a necessity that has to be executed at the beginning of the core competence management model. The subsequent task of building-up core competencies has suffer, despite its immensely high practical relevance, significantly less attention in research. The tasks of the utilization and protection of core competencies is not further investigated in this paper. Some of the existing approaches of the holistic core competence management do not go beyond mentioning that there is a necessity of building-up core competencies. Thus, concrete work contents and procedures are not often discussed in detail. The existing approaches which focus on the building-up phase, often advise using comparatively simple tools for e.g. decision-making processes. Normally, methods of the portfolio analysis are presented, which confront internal and external enterprise dimensions with each other, to then derive standard strategies. Such recommendations do not fulfill the demands of business practice. The majority of the existing approaches place emphasis on the option-theoretical perception. This means, that the explanation to eliminate the once identified resource and competence gaps are applicable for alternative ways of procurement (e. g. internal development, joint venture, purchase etc.). In some cases, the explanations do not go beyond mentioning these options. In other cases, the various options are considered in greater detail, e.g. by listing and describing the pros and cons. Caused by a strong focus on the possible options, the impression is given that the building-up of core competencies is completed by the decision of the procurement opportunity. Actually, this decision is only

15 Hamel und Prahalad 1994, page. 224. 16 Zehnder 1997, page. 35. 17 Homp 2000, page. 79. 18 Nasner 2004, page. 254.

one of many steps which are necessary to build-up technological core competencies. Furthermore, none of the existing approaches of building-up core competencies include disruptive conditions. The V-model for building-up core competencies, which will be described in the next chapters, distinguishes itself from the existing approaches by the following four points: 1.

Explicit consideration of disruptive conditions (high time pressure, altered value system, high market and technological risks) Focusing on technological core competencies of manufacturing enterprises Avoiding the option-theoretical perception through a targeted selection of the option „internal developing and building-up“ and the development of an aligned model which is based on this option Highlighting the practical character of the model illustrated by the example of the electric traction motor production for electric vehicles

2. 3. 4.

V-MODEL FOR BUILDING-UP OF CORE COMPETENCIES

Strategic reference

Figure 3 shows the process model for building-up technological core competencies in manufacturing enterprises under disruptive conditions:

Operational reference

Organizational Initiation

Control

Retrograde Product Decomposition

Abstraction

Process Chain Analysis

Transformation Resource Generation

Planning

Procurement

Accumulation

Verification

Figure 3: Process model for building-up of technological core competencies

The model for building-up core competencies can be illustrated as a “V”, what will be explained in detail in the following: In principle there are two dimensions of the V-model: The vertical and horizontal dimension. The vertical dimension describes the degree of the strategic and operational reference of the single phases. For example, it connects to the strategic objectives of the enterprise management and points out that at the beginning (upper end of the left branch of the "V") there is a high strategic reference The step of the resource generation, which is arranged between the left and right branch, is characterized by a rather more operational reference. The V-model follows in principle the proposed approach by Osterloh & Frost „Top-down for targets – bottom-up for how to do it“19. Aside there is the horizontal dimension, with the planning phase as a preparatory activity, the procurement and the accumulation phase as executive activities and the verification phase as controlling activities. As already mentioned, the V-model begins with a strategic decision of the top management regarding future target markets and ends with the use of the builded-up core competence in different products. 19 Osterloh und Frost 2006, page. 238 ff.

Within these two dimensions, seven steps are arranged. The first three steps are "Organizational Initiation", "Retrograde product decomposition" and "Process chain analysis", which belong to the planning phase. They represent the left branch of the V-model, which follows a top-down direction – starting from the strategic decision of the top management up to the operative level which is necessary to generate resources. The procurement as a second phase of the V-model contains the step “Resource generation”. The accumulation phase comprises the steps "Transformation" and "Abstraction". Together with the step "Control", they form the right branch of the V-model. This branch follows a bottom-up direction of action, which is not about further analysis in terms of investigation "from rough to detail". Rather a synthesis of the identified and procured resources blocks takes place within these steps. Through a consolidation of the several resource blocks, the weight can be higher than the sum of weights of each resource block (see also Figure 1). The several steps are not to be understood as a strict sequence. Rather, this steps may overlap in time (can be done parallely) in order to shorten the building-up process. ORGANIZATIONAL INITIATION As already mentioned, the organizational initiation is the first phase for the building-up of core competencies. Because the choice of the organizational form depends amongst others on the pursued enterprise strategy, it is necessary to respond to this first. In this case it is necessary to place the emphasis on the time factor as well as the market and technology risks, because these aspects are of particular importance in disruptive changes. This point of view conforms with the opinion of Christensen: „In sustaining technologies, in fact, evidence strongly suggests that enterprises which focus on extending the performance of conventional technologies, and choose to be followers in adopting new ones, can remain strong and competitive. This is not the case with disruptive technologies, however. There are enormous returns and significant first-mover advantages associated with early entry into the niche markets in which disruptive technologies are initially used”20. Based on the chosen niche strategy (disruptive technologies often do not fulfil the requirements of mainstream customers from the beginning) and the first-mover strategy (time factor), an appropriate form of organization has to be determined. It should be noted that the building-up of core competencies, in form of a “rebuild process”, normally is unique, time-limited and includes new tasks for the enterprise. The "line" as primary organization deals with the daily tasks of the enterprise and is usually barely able to provide free capacity that are necessary to cope with the additional burden of projects, such as building-up of a core competence. Because the V-model aligns on the conditions of disruptive technological changes, the presented possibility by Christensen "Spinning off an independent organization“21 is recommended. Based on a niche and pioneer strategy it is recommended to brace organizationally the building-up of core competencies as a project within a spin-off22.

RETROGRADE PRODUCT DECOMPOSITION The aim of the retrograde product decomposition is on the one hand to gain knowlege about the function of the product and on the other hand to identify a part of the resource base which is needed to build-up core competencies. Especially the V-model refers to the manufacturing enterprises, the end or core product is fixed as output and is used as a starting point for further investigations within this paper. Starting from the default of the enterprise management, to expand the business activities into another market, the approach for the physical decomposition of the end or core product into its components and finally into its single parts is presented. Here the example of the electric traction motor is used as a central element of the electric power train. It becomes clear that in this analysis step the top-down direction "from rough to detail" is taken. The analysis of the physical product is a first essential step in implementing the defaults of the top management. This type of decomposition allows the transition from the planning and strategic level of the enterprise management to an executive and operational level of the resource base. This contributes to the operationalization of the core competence approach and also for the avoidance of generic statements. A physical decomposition of the main components of an electric traction motor is illustrated as an exploded view in Figure 4.

20 Osterloh und Frost 2006, page. 113. 21 Christensen 1997, page. 167. 22 In German also as an offshoot or referred spin: spin-off of a business unit of a company and business creation with this part into an independent company.

Figure 4: Exploded view of a permanent magnet synchronous motor

Among the represented components the rotor and stator are of particular importance. The principle of " rough to detail" is now pursued by taking the rotor of a permanent magnet synchronous motor as object for a more detailed analysis. By demounting the rotor into single components, it can be seen that the rotor amongst others consists of a rotor package and permanent magnets. The stacking of several single sheets form the rotor package. PROCESS CHAIN ANALYSIS Another step towards an operational level is represented by the analysis of the process chain. This is the last step of the planning phase. Based on the regarded product, the necessary manufacturing and assembly processes will investigate. For a further detailing, single process analyses are conducted. In the following, similar to the retrograde product decomposition, not all processes that are required to manufacture an electric power train or an electric traction motor will be investigated. Rather one process is now chosen as a representative process which will be analysed in detail. At this point the process “Magnetization & Assembling” within the rotor assembly (Figure 5) will now be in focus of the discussion.

.

Rotor cage manufacturing Manufacturing of laminated sheet packages

Asynchronous motor Synchronous motor Magnet manufacturing

Assembling of rotor and shaft

Balancing

Magnetization & Assembly

Figure 5:Generic process chain of the rotor asembly

For the single-process analysis, the option of the buried and pre-magnetized magnets will be explained in detail as a representative example of several possible manufacturing alternatives (Figure 6). At this point, the level of detail is reached at which resources are considered as smallest blocks of a core competencies. These blocks are now in the center of attention. In the following, these will be divided in tangible and intangible resources. Tangible resources include the rotor package, the magnets, the slider, the guide rail, adhesive as an auxiliary

substance as well as proper handling systems. To automate the process, also intangible resources in terms of knowledge are necessary. For example, the necessary know-how concerning sensor technology in order to receive and assimilate signals that can be important e.g. for the right dosage of adhesive. As another intangible resource the knowledge concerning software development in order to program the machinery can be mentioned. The process chain analysis at the electric traction motor as an example has illustrated how to identify required resources for a certain application. In this way, the lowest level of the hierarchy model of core competencies, shown in Figure 1, can be determined.

Figure 6: Single Process Analysis - Magnetic mounting

RESOURCE GENERATION In the step “Resource generation” resources for the intended processes and competencies have to be procured. This step represents the first executive step and shows the strongest operational reference of all steps within the V-model. Tangible (e.g. tools) and intangible resource blocks are distinguished from each other. While the procurement of tangible resource components on factor markets can be decribed as quite easy because of its physical tangibility, there is a need of explanation for the procurement of intangible resources. Within the Vmodel, knowledge already has been established in the steps retrograde product decomposition and process chain analysis because new findings about the construction of an electric traction motor, the needed manufacturing processes and the underlying resource base have been found. It is probable that in order to perform these first steps external services have been engaged. This can be intended by consulting enterprises with a technical focus or university institutes. Thus on the one hand gaining knowledge can be done by short-term engagement of experts. On the other hand, knowledge that is bounded to people can be traded to a certain degree on the recruitment market. In addition to the mentioned possibilities to gain knowledge on the recruitment market, R&D (research and development) is the way to obtain knowledge that is most likely understood by the term “internal knowledge generation”. However, it should be noted that due to the disruptive conditions on which the V-model is aligned, the time spent on R&D activities is significantly higher than on the previously mentioned alternatives. TRANSFORMATION The “Transformation” as the fifth step of the V-model represents the first task of the accumulation phase. The resources procured in the previous step now have to be bundled to build-up the desired end or core product. The resource blocks experience an increase in value through this bundling and gain thereby more and more strategic relevance. It arises the question for the top management what specific measures can be taken to steer the aggregation process actively (Figure 1). Probst et al. write: "Rather than understand the organizational learning processes, managers need methods by which they can steer organizational knowledge and influence in its development"23. Against this background, Figure 7 shows an overview of suitable suggestions for improvement for the management, which shall help to guide and support the transformation process:

23 Probst, Gilbert J. B et al. 2012, page. 29.

Integrated product and process design Continuous process improvement

Early product testing Suggestions for improvement for the transformation process

Resource allocation

Incentive system

System support Figure 7: Suggestions for improvement for the transformation process

ABSTRACTION Within the step “Abstraction” a specific application like the production of a concrete product, will be raised to an abstract skill or competence, that can be in best case applied into a variety of products. Thereby the abstract skill or competence is not behold as a direct element in the value chain. Rather, they can be observed as indirect input for the value chain of entreprises which contain the potential to perform the necessary processes. For example next to the application in parcel delivery vehicles as an initial niche market, electric power trains can be applicated in various fields. These include, for example, electrically powered street vehicles, electrically powered bicycles, forklifts e.g. In consideration of the production processes of an electric traction motor, it is also possible to decouple the process competence “magnet assembly” entirely from the product, to use this competence to produce other intermediate goods such as a rotor. CONTROL Finally, the step “control” as a verified activity is necessary to see, whether the process of building-up of core competencies was successful or not. This can only be determined in retrospect. The competence which fulfills the already mentioned characteristics of transferability, difficulty of imitation, difficulty of substitution as well as a significant contribution to the perceived customer benefits, shall be considered as a core competence. As a appropriate tool for maintaining the validation process e.g., the Analytic Hierarchy Process (AHP) the can be used.

SUMMARY AND OUTLOOK In the relevant literature, there are already approaches of core competence management cycles and approaches with the focus on the building-up phase of core competencies. However, all of the existing approaches do not correspond to the requirements of a disruptive change of technology. This technological change necessitate for enterprises to build up completely new technologies instead of modifying or enhancing them. A disruptive technology is built up upon an altered system of value. This is often combined with a high market and technology risk for enterprises, so disruptive technologies are initially often established in niche markets and not in mass markets. Furthermore, to make use of the competitive advantage as early as possible and as long as possible, there is a high pressure of time for building them up. The introduced V-model inspected the special requirements of a disruptive change of technology. Moreover the presented approach tried to show concrete recommendations for actions and provides these with practical tools and methods. For further research work, deeper focusing on building up intangible resources, like skills and knowledge in the step “Resource Generation”, can be noted. In this context, there can be differentiated between explicit and implicit knowledge. For a best possible education and training of employees as knowledge holders, it is necessary to deploy appropriate learning theories (such as behavioristical, cognitive or constructivistical learning theories) as well as appropriate forms of learning (such as individual learning, collective learning or organizational learning) in the enterprise. In this context, a make-or-buy decision logic can be developed to build

up skills and knowledge of employees, also known as depth of knowledge, and not physical products, under the already mentioned requirements. Finally, it has been demonstrated in the context of a critical reflection, that the V-model come up to the requirements caused by disruptive conditions. For that reason it can be used as a practical model for building-up technological core competencies by manufacturing enterprise. Thus the V-model makes a further contribution to the operationalization of the core competence approach.

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