Existential Threat of Risk Avoidance

I've been thinking a lot recently about innovation and the challenges associated with trying to innovate. Because I work mostly with engineering companies, I focus mainly on the challenges in that area. This is a summary of some of my thoughts in this area and how my thinking is starting to change.

In the beginning...

I used to work for a major car company until 2005. Let me start by saying that despite the impression that this essay might leave, I thought this company was a great company and I still do. The point here is not about good companies vs. bad companies but about the dangers of risk aversion.

I want to start with a brief anecdote about when I first starting working in this area. Somehow (I don't remember how, because this wasn't my area), I ended up in a meeting where we were discussing collision warning systems. The basic idea here was that the car could be equipped with a sensor that could determine if the car was getting too close to an adjacent vehicle (this was back in 1995 when this was "new"). I remember saying at the time what a great idea this was and I remember getting some "hold on their young fella" push back. "It isn't that simple" was the message.

It was then explained to me that if you had such a system you had to find some way to indicate to the driver that this collision was about to happen. My response was "well that seems simple enough". But they didn't see it that way. The gist of their argument was you can't just add a light to the dashboard or an alarm sound. People might freak out. They might misunderstand. They might over-react.

You won't get any argument from me that safety comes first and we absolutely need to consider the safety implications of innovations before implementing them. After all, I put my family in these cars and so do other automotive engineers. In my experience, nobody at an automotive OEM is cavalier about safety.

But this was a case, ironically, where the risk of being sued was actually preventing an innovation related to safety from being implemented. I saw many examples of this. So called "intelligent cruise control" (where the car maintains a safe distance from the car ahead of it) was one example. I also saw prototypes of "heads up displays" that enhanced the drivers view at night so they could more easily spot hazards. These didn't make it to production and, at least from where I was sitting, the main obstacle was risk. Not only did you have to worry about what happened to drivers of cars that had these features suing you because they didn't work (in a way the driver expected), you also had to worry about lawsuits where people sued because their cars didn't have that feature. I say this because that was the case, at that time, with airbags. There were lawsuits from people who sued because their cars didn't have airbags. As a result, if you put a safety feature in one car (i.e., a luxury car where people were willing to pay the incremental cost of the safety enhancement), you risked getting sued by buyers of other (cheaper cars) for not installing those safety features in their cars. In such circumstances, it was actually less risky for the company to simply avoid innovation altogether.

All of this happened quite a while ago and I suspect that the corporate culture embraces such innovations a bit more now with the growing importance in-vehicle technologies. Furthermore, it is easy for me to throw stones because I didn't have to deal with the fallout of the risks and I didn't have any quantitative data on which to base my conclusions about the wisdom of any of these decisions. All of this is anecdotal, so take it with a grain of salt.

Silicon Valley

But one thing I learned while working for an OEM is that car companies in Detroit are full of very smart people. I tell people that whenever somebody says "Why can't Detroit figure out how to ___", the answer is always the same: cost. It might be manufacturing cost, it might be the legal risks. But the key point is that it was rarely the case that they didn't know how to do it, it was that they didn't know how to do it cheaply.

My experience was that it was a very common theme in the media to bash US car companies. I've seen plenty of unfair comparisons between Japanese and American car companies. So I suppose it was inevitable that, when companies like Fisker and Tesla started out, we'd be treated to a wave of "Detroit vs. Silicon Valley" comparisons as well. I heard plenty about "Silicon Valley is going to teach Detroit how to make cars" sentiment.

My response was always the same. I would point out that the car industry isn't so much about technology as it is logistics. Success is in building cars efficiently and cheaply. That means volume, marketing and supply chain management. To be a real car company, you have to be able to sell cars that a fresh college graduate can afford. Until then, you are running a boutique operation.

But people rarely recognized this. Instead, they always had a narrative about how Detroit was going to be "taught a lesson" by newer, smarter companies. For example, there was plenty of optimism in this Fisker announcement from 2009:

Production is scheduled to begin in late 2012. Fisker Automotive anticipates Project NINA will ultimately create or support 2,000 factory jobs and more than 3,000 vendor and supplier jobs by 2014, as production ramps up to full capacity of 75,000-100,000 vehicles per year. More than half will be exported, the largest percentage of any domestic manufacturer.

...it turned out that they were getting a bit ahead of themselves. After all, they went bankrupt in 2013.

Tesla is a different story. They are definitely a boutique operation (even today). But we'll come back to them. Let's talk a bit more about the US OEMs first.

Enterprise Thinking

I've worked for several companies in my career. I've worked for small companies and large companies. Even though I prefer small companies and I'm about to rant about the drawbacks of large companies, I want to make clear that I think these issues are unavoidable in large companies. I'm not faulting them for having these issues, but I will fault them for not recognizing them and/or doing enough about them.

When I worked for an automotive OEM, we used to have annual reviews and one of the things we were assessed on was "Enterprise Thinking". The criteria here was that you didn't base your decisions and actions on the potential benefits to your local organization but to the potential benefits to the organization as a whole.

I think this is an extremely important quality and it was an excellent idea to rate people on it. But I have to say that I didn't see much Enterprise Thinking. My experience (which may have been unique to me or my particular organization) was that if you collaborated with other organizations you were less likely to get a pat on the back as you were to be seen as a backstabber. This is an entirely natural and predictable consequence of organizational dynamics in a large companies. So I don't see this as a "character flaw" so much as simply a challenge to be recognized and overcome.

Organizations were very protective of their own and they tended to be pretty insular. Most of the people I saw in leadership positions had been with the company quite a while and they seemed more interested in riding out their time to retirement than on taking on challenges. It was usually easier to pass the buck to your successor than deal with difficult changes. We actually had a name for this: "R.I.P." which stood for "retired in place". Again, pretty predictable and probably no worse than in any other large organization.

So I accept that change in a large organization is hard. But that isn't an excuse for not trying. Many of my friends in large companies are so jaded now that they have given up on meaningful change in the same way that many of the electorate have given up on finding politicians who aren't complete narcissists. In the automotive business, we often talked about the need to avoid "change for the sake of change" or the need to focus on "continuous improvement, not continuous change". I agree that we sometimes embark on new approaches that don't actually produce any tangible benefits and it is easy to become jaded after witnessing that a few times. Nevertheless, another key leadership ability is the willingness to embrace and promote meaningful change in an organization. I always found that, along with enterprise thinking, in pretty short supply.

Strategy and Innovation

There is a point to all this and I'll try to get to it soon. But I want to introduce a few more observations. Although much of this is related to my experience in the automotive industry, I suspect there are many parallels in other industries. So hopefully people in other areas can relate to this (or hopefully not, I should say).

I found that within an automotive OEM there was a fair amount of strategy and vision related to the logistical side of manufacturing. Lots of energy was spent on figuring out efficiency in the supply chain and keeping costs low.

The Rockr moved Wired to headline their profile of the phone with the question "You call this the phone of the future?"

As far as "in-vehicle" technology is concerned, I think many people have experienced the frustration that the systems in their car seem to be so much more primitive than other consumer electronics they have. When in-vehicle phone integration first came out, it was pretty awful. I'd say it has risen to "not bad" in many ways with current Bluetooth integration. But I think you'll find that in-vehicle systems still lag behind their consumer electronics counterparts. Apple's CarPlay is an attempt to build bridges into that space. Apple's is clearly turning their attention to the car business and it is hard to know exactly what their plans are. But it seems entirely plausible that CarPlay is the Rockr of Apple's move into the automotive market. The question will be, are they just biding their time until they make cars of their own?

Where I really see these issues being the most problematic is the area of internal technologies. I've written before about some of my frustrations with the way engineering companies do IT. Not much of that has changed.

But an additional example that I've been wondering about more and more lately is the ineffectiveness of collaboration. Part of it is related to the issues surrounding "enterprise thinking" that I talked about before. But another aspect (related to this issue of risk) may be that people within these organizations are partially afraid to share what they are working on (or support the ability of others to do so) because of issues regarding "document retention". For those who aren't familiar with this how this works, companies frequently implement document retention policies to ensure that documents older than some specified amount of time are collected and disposed of. This isn't as nefarious as it might sound. I've been involved in plenty of such purges but I've never seen a case where it was driven by the need to destroy or cover up anything. It is more related to ensuring that there aren't "partial" records of things. The need to actively dispose of these documents also comes from the need to be consistent about getting rid of records so it doesn't look like you were intentionally trying to destroy a particular test result or design but were instead applying this process consistently to all corporate documents. But, of course, such policies are, again, mainly to avoid risk (of having it somehow be used against you). Whenever you make a permanent record of something within a company people will be concerned about the long term consequences for record retention and the potential to misunderstand or misinterpret that information (sometimes deliberately).

What is your point?

If you are still reading this, I'm impressed. Let me try to finally get to the point of burdening you with all this anecdotal material.

I said earlier that I always looked at a company like Tesla (or perhaps Apple) as not much of a threat to the legacy auto makers. The point of this article is that I'm starting to change my mind.

Of particular interest to me was Tesla's recent announcement of their Autopilot functionality. I have to say that having spent almost 10 years working for an automotive OEM, I never imagined I would see a day where somebody would implement this functionality in a car that was driving on ordinary roads. I always assumed this would come only with the advent of elaborate infrastructure that would require massive capital investments (which seems unlikely in the face of the US' crumbling infrastructure, but that is a whole other story).

Why did I never expect to see this? Risk. I still cannot imagine how Elon Musk got this past the legal department at Tesla.

Don't get me wrong. I think computers have the potential to be much better drivers than humans. So I am not personally that concerned about the risks associated with such functionality (and Google's self-driving car accident data seems to substantiate this).

While I historically found Tesla to be a boutique car manufacturer (and they still are, at least for the moment). What has really impressed me is their willingness to take risks. I've been to Tesla and I know that this willingness to try new things isn't just limited to the car itself, but also the process by which the car is designed and that, I think, is the existential threat to legacy car companies. I'm sure all the car manufacturers can get to the point of building self-driving cars on par with Tesla and others. What I'm not so sure of is whether they can transform internally so as to compete with the potential efficiency gains that I think rethinking the design process has to offer.

Do I think that this a case of the classic boiling frog? Probably not. I think that if car companies continued as they are going today, they could actually be toppled by newer car companies in the same way that seemingly dominant Research in Motion was crushed by Apple. But I don't think that will happen. I think legacy car companies will be forced to change. But not now and not without a lot of hand wringing and hard knocks. Change is difficult and takes a long time once you recognize the need to change. Not only that, it won't be enough to implement change internally. I suspect they'll also have work to do in getting their brands back on track in the same way they did when they first started taking fuel economy and quality seriously (i.e., they have to change the minds of consumers as well). The question I have is how long will it take these car companies to rise to the occasion and how tarnished will they be by their slowness to respond?

My hope is that this threat will stoke the flames of innovation within these companies now rather than later and that the engineers within these companies might finally start reaping the benefits of the amazing innovations in the software and IT space that could help transform their internal processes. I even dare to hope that they recognize that such transformations need to be driven not by existing large, monolithic legacy partners, but by companies who have staked their existence on innovation and transformation.

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