Last time, we began the discussion about how companies will have to define their core competencies in this new global workplace. In reading about how this phenomenon has been developing in world-class companies, I was surprised how far one of the most highly regarded car companies in the world has gone in this regard.
BMW focuses on its core strengths of critical engineering, marketing and managing its partners. Its partners or suppliers make most of the components and increasingly manage the assembly of the final vehicle. It turns out that a company called Magna International can assemble a vehicle faster and cheaper and with better quality than BMW itself. Today, innovation is shifting from mechanical engineering to digital electronics. BMW estimates that 90% of its new innovations will come from digital electronics, which they must consider as part of their core competence.
BMW and Boeing are not giving up on innovation by any stretch. They are using the resources that they have freed up to focus on new challenges. But this is nothing compared to another story I read, which is about the motorcycle industry in the city of Chongqing, China, a city of some 31 million people. In this smoggy industrial city in western China near the Yangtze River, the Lifan motorcycle company employs 9,000 workers and builds 700,000 bikes a year for customers in 112 countries. But it is how this was done that is particularly pertinent to this discussion.
The original designs for motorcycles in China were, of course, reverse-engineered from the Japanese designs. The Japanese should not have found this too surprising since much of their industry has a long history of reverse-engineering. But in Chongqing, several innovations made this a more collaborative project. The approach was to emphasize a modular motorcycle architecture that enables suppliers to attach subsystems to standardized interfaces. High-level designs set out the blueprints that allow suppliers to make changes to components without modifying the overall design. At every step, suppliers of adjacent parts take joint responsibility to ensure their components are compatible.
It sounds like chaos, but face-to-face relationships, which from my own experiences in China are crucial to all business activity, make it work. The result is that the modular architecture creates the opportunity for increased specialization, which drives innovation and improvements in quality and performance, keeping costs to a minimum.
Chongqing assemblers build bikes for export to Asia that have fallen in price from $700 to $200, dropping Honda’s share of the market from 90% to 30%. Sounds like Henry Ford and his Model T maybe?
But Lifan is also now in the automobile business as well. The Lifan 520 midsize sedan is equipped with leather seats, dual air bags, a huge trunk and a DVD system with a video screen facing the front passenger...all for $9,700.