Mature companies often lack the vision and resolve to fully commit to new technologies — even when consumers are ready for them. This leads companies to develop watered-down products with limited capabilities and leaves them exposed to upstart competitors.

Technological transitions are challenging, particularly for companies in mature industries. Incumbents are frequently blindsided by new technologies, fully missing opportunities to enter emerging markets early. While some established companies do possess the awareness and dexterity to become early adopters of new technologies, they typically lack the vision and the commitment to become leaders. Too often, they cling to the familiar, developing hybrid products that combine elements of the old and the new. The trouble is, hybrid strategies put even the best incumbent companies in a weak position when the market finally embraces the new technology. We call this the “hybrid trap.”

The transition from internal combustion engines to electric vehicles (EVs) demonstrates the dangers of hesitating to embrace the new. Several internal combustion engine makers, such as General Motors Co., and Honda Motor Co. Ltd., entered the EV market early, but they backed away from these projects in favor of continued emphasis on established technology. Gradually, most of the automakers focused on hybrid cars that combined old and new technologies. This opened the door to new competitors that pursued solely the EV technology, most notably Tesla Inc. It wasn’t until established players saw the market’s interest in Tesla that they began to question their hybrid strategies and realized that electric cars had the potential for broad market appeal. By mid-2017, nearly every old-line engine producer was playing catchup on EV technology, working to release new electric models in the next two to five years.

Meanwhile, Tesla, having established a strong brand in EV, continues its move down market as a more direct threat to incumbent automakers.

Tesla’s first mass-market car, the Model 3, was announced in March 2016, and by summer 2017, it had a waiting list of more than 455,000 units. Although it is too early to know if Tesla will be successful in the long run, its clear leadership in EVs has exposed a fundamental weakness in the approach incumbents commonly take when faced with industry transformations, with lessons that apply to other industries that face similar transitions.

Conviction vs. Opportunism

New markets are often enabled by technological change and exploited by minds that can envision futures that are far different from the status quo. More so, they are convinced that such a future must happen. Amazon.com Inc.

References

1. M. Chafkin, “A Broken Place: The Spectacular Failure of the Startup That Was Going to Change the World,” July 4, 2014, www.fastcompany.com.

2. J. Davis, “How Elon Musk Turned Tesla Into the Car Company of the Future,” Sept. 27, 2010, www.wired.com.

3. K. Naughton, “Bob Lutz: The Man Who Revived the Electric Car,” Dec. 22, 2007, www.newsweek.com.

4. T. Friend, “Plugged In: Can Elon Musk Lead the Way to an Electric-Car Future?” Aug. 24, 2009, www.newyorker.com.

5. G.R. White, “Management Criteria for Effective Innovation,” Technology Review 80, no. 4 (1978): 14-22.

6. C. Mui, “How Kodak Failed,” Jan. 18, 2012, www.forbes.com.

7. K. Kokalitcheva, “Ex-Blackberry CEO Admits Why Its Most Important Device Failed,” June 10, 2015, www.fortune.com.

8. L. Josephs, “Long Before the Combustion Engine, the Hybrid Car Is Facing Obsolescence,” July 14, 2017, www.qz.com.

9. White, “Management Criteria for Effective Innovation.”

10. Ibid.

11. N. Tajitsu, O. Tsukimori, and S. Navaratnam, “Toyota Eyes Mass EV Output in China as Early as 2019: Report,” July 22, 2017, www.reuters.com.

12. D.J. Teece, “Profiting From Technological Innovation: Implications From Integration, Collaboration, Licensing and Public Policy,” Research Policy 15, no. 6 (1986): 285-305.

13. M.J. Martin, “Managing Technological Innovation and Entrepreneurship,” (Reston Publishing Co., 1984).

14. Lanny Hartmann, “2017 Update: Geographic Distribution of DC Fast Chargers,” Sept. 12, 2017, http://pluginsites.org.

15. D. Herron, “Range Confidence: Charge Fast, Drive Far, With Your Electric Car,” 2015, www.greentransportation.info.

16. N.R. Furr and D.C. Snow, “Intergenerational Hybrids: Spillbacks, Spillforwards, and Adapting to Technology Discontinuities,” Organization Science 26, no. 2 (2014): 475-493.

3 Comments On: The Hybrid Trap: Why Most Efforts to Bridge Old and New Technology Miss the Mark

  • David Teich | March 19, 2018

    This is nothing new. For a view of one of the earliest examples in tech, go read “Fumbling the Future” by Smith and Alexander.

  • Edward Hanawalt | May 31, 2018

    I have a very hard time with the credibility of this analysis. For example, your chart titled “Tesla’s Growth in the US Electric Vehicle Market” fails to show the Chevrolet Bolt sales for 2016 and 2017. The Bolt sold over 23K units in 2017, placing second to the Model S . This is a glaring error and misleading to the reader.

  • Fernando Suarez | June 4, 2018

    Some clarifications are in order following Mr. Hanawalt’s comment above. We originally submitted our article to MIT SMR with a graph that had data up to 2016. The Chevy Bolt sold only a few hundred units during that first year, so it did not make it to our graph of top EV sellers. By the time we interacted with the SMR editors and our paper was accepted, 2017 data had become available and, right before the final submission, we quickly updated the graph, involuntarily leaving the Bolt out since it was not in the 2016 graph – our mistake. However, even including the Bolt data (23,297 units sold in 2017), the main points of our analysis remain unaffected. Indeed, it can be argued that these data make our points stronger. If GM can only sell about the same number of units of a car with a price (MSRP) around $37,000 than a car like Tesla’s Model X that sells for over $100,000, and less units than the Tesla Model S that sells for over $90,000, then the situation is not very encouraging for the Bolt — let alone the fact that it is like comparing apples and oranges. We had purposely reported EV unit sales data, as opposed to EV revenue figures, precisely to avoid showing Tesla with a very large advantage over all other EV competitors. For an apple-to-apple comparison, Mr. Hanawalt may want to look at the latest available EV figures. According to InsideEVs.com. In May 2018, the latest month available, the Tesla Model 3, priced very similar to the Bolt, sold 6,250 units, while the Bolt sold only 1,125 units- a greater than five-to-one ratio. As Tesla continues coming out of Musk’s self-proclaimed “production hell” into “purgatory” or further up in the taming of their production process, this already large advantage of the Model 3 over the Bolt will continue to expand. *** Having said all this, it is important to also clarify that our article is not predicting that Tesla will ultimately be a winner (we clearly state that “it is too early to know if Tesla will be successful in the long run”). But our key points about the dangers for incumbents of falling in the “hybrid trap” and thus giving new entrants enough time and space to gain multiple strengths and recognition are still valid… even if Tesla ends up being unsuccessful.

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