Integrating product mix and technology adoption decisions: a portfolio approach for evaluating advanced technologies in the automobile industry

Abstract

AbstractInteractions with managers in the automobile industry indicate that efforts to bring potentially profitable new technologies into production are often frustrated by the traditional unit cost‐based approach that is used for evaluating new technologies. Opportunities for timely introduction of valuable or even preemptive technologies can be missed because unit cost comparisons, typically applied to a limited set of vehicle configurations with volumes based on current demand figures, invariably favor incumbent over new technologies. In this research, we develop a more complete technology adoption decision model that integrates product mix and technology adoption decisions. Specifically, we recognize that product mix and volume are important variables in determining the cost effectiveness of new technologies, and include in the model customer demand projections that reflect market trends (e.g. growing demand for increasingly sophisticated features and functions in vehicles). Anticipated experience benefits are then applied to the appropriate production volumes to more accurately predict the profit impact of adopting new technologies. The introduction of automotive multiplexing, a technology that is characteristic of current technological advances in the industry, provides a context for considering insights that can be derived from the decision model. Our interaction with a global Tier I automotive systems supplier allowed us to obtain representative cost data and other information relevant to the technology adoption decision.