A Cautionary Tale of the Limits of Innovation

By Peter Lindfield, published in the Telegraph-Journal 27th April 2012

An innovative product and proposal does not always guarantee a successful bid. That hard lesson was learned in no uncertain terms by an automobile manufacturer recently. Its unsuccessful proposal calls into question the business model used by smaller players in a fiercely competitive bidding environment, even if they are fast followers.

New York City Mayor Michael R. Bloomberg recently announced that Nissan had won that city’s Taxi of Tomorrow competition. The Nissan NV200, a light commercial vehicle already in use on streets in Asia and Europe, beat contenders from Ford and Karsan, a little-known Turkish vehicle manufacturer. Over a three year period beginning in 2013, the NV200 will replace the current vehicles and carry the official New York taxi designation for 10 years.

New York’s yellow cab fleet numbers more than 13,000 official vehicles, the majority of which are Canadian-made Ford Crown Victoria sedans. Crown Vics are an impressive transportation incongruity in the world’s most famous city. Crashing over the thousands of craters that disfigure the city’s road network, passengers can enjoy a full madrigal of squeaks, groans and rattles that is emblematic of Gotham’s taxis.

Although it lost out against its Nissan rival, Karsan’s V1 arguably was the most innovative solution in the competition. Its rear-mounted 2.4-liter 4-cylinder engine contributed to a more efficient and space-saving platform and a Karsan spokesperson stated that it could run on compressed natural gas or accommodate a hybrid or purely electric powertrain. The firm showed off the V1’s ability to load and carry a wheelchair passenger by utilizing a ramp mounted under the taxi’s body, which could be deployed to either side of the vehicle. Neither the Ford nor Nissan models were designed to meet the New York Taxi and Limousine Commission’s request to make their vehicles compliant with the Americans With Disabilities Act.

Promises of economic development benefits were intended to reinforce the value of its proposal. Karsan received substantial support for its bid in Brooklyn where the company had committed to building a factory that potentially would have created hundreds of jobs.  Nissan, which has its American headquarters in Tennessee, plans to build the NV200 in Mexico.

So on the face of it, Karsan’s bid had the twin benefits of an innovative design and the promise of job creation. What went wrong?

Karsan is a relative newcomer to vehicle manufacturing. Founded in 1966, the firm builds vehicles in Turkey for Peugeot, Citroën, Renault and Hyundai. But the Karsan model was rejected after officials decided that the risk associated with awarding the contract to a company with little experience in the American market would be too great. New York City commissioned the global automotive consulting firm Ricardo Inc. to conduct an analysis which concluded that while Karsan had demonstrated “the will and technical capability” to build its proposed taxi, the company was “a new manufacturer, with a new manufacturing paradigm, not familiar with the U.S. regulatory framework, with no current sales, service or support infrastructure” in the United States.

Karsan’s bid was dealt a further blow when Mr. Bloomberg stated that he was not optimistic about whether Karsan’s proposal for a Brooklyn taxi factory was even feasible. “I don’t think between now and two years from now we could site a new school, much less a new industrial plant,” Mr. Bloomberg said.

An overreliance on its innovative product figured prominently in its losing proposal. Could Karsan have mitigated the perception that it was not yet ready for prime time? Auto industry analysts will question why Karsan did not choose to forge an alliance with Hyundai, with which it was already doing business and which has the necessary sales, service and support infrastructure.

Rather than choosing to go it alone, firms in every industry increasingly are leveraging joint ventures, consortia and other alliance arrangements to compensate for operational shortcomings. Doing so could have helped to address New York’s concerns about whether Karsan had “fully evaluated the risks and countermeasures required to ensure that their product will deliver and maintain the same level of maturity as that of their competitors over the life of the contract.”

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Filed under Automotive, Business strategy, Innovation strategy

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