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Self-driving cars may be the new frontier for tech companies. A handful of companies are developing their own versions – Uber, Google, and Tesla have been experimenting with autonomous vehicles. A recent New York Times article highlighted how big companies outside of Silicon Valley like Ford are embracing new business strategies to get ahead in the race for autonomous vehicles. In May this year, Ford hired a new design-minded chief executive, Jim Heckett, who previously was chief executive of Steelcase, an office furniture company that is credited with popularizing open-plan offices. Ford has been quietly investing in small startups that develop software related to all aspects of the self-driving car industry.  

Tufts Gordon Institute recently spoke with Kevin Oye, Director of the M.S. in Innovation in Management program, about how companies are embracing new service-based business models, using design thinking, and what the role of innovation is in companies outside of Silicon Valley.

Q: What is notable about what Ford is trying to do in the self-driving car movement?

A: It’s impressive that Ford had the foresight to bring in someone from the outside to help transform the vision of the company. It’s also fascinating that they brought in someone who came from a design background—in this case industrial design – who may not necessarily have deep roots in technology. Rather, he is steeped in the design-thinking ethos of connecting directly and deeply with customers. This is a philosophy that starts with people first – a focus on discerning their deepest, often unspoken, needs, and creating solutions based on your deep empathy with customers.

Q: As technology advances, how should companies like Ford embrace new business models?

A: This is an opportunity for a company like Ford, and any large company that has a very successful product stream, to transform their business model, from one that may have worked in the past, to one that is optimized for the future. Right now, the business model is based on selling physical cars. But the future business model for a company like Ford might be something fundamentally different. It may be that they don’t sell any cars – they sell a service called ‘transportation.’ They sell a service that gets you from point A to point B – the same function as cars. But they sell little to no physical things.

This may be a great opportunity for car companies to test a new approach where they completely flip their business models by focusing on what job customers are trying to get done when they buy a car. There are probably three things: They need to get somewhere, they’re trying to move something, or they are buying jewelry – an accessory.

The first two are utility functions, which could be replaced by a service – it will take a visionary company to set up and navigate that transition from selling goods to a business model of selling a service. The last one may be what today’s car business model becomes, one that may become a niche boutique where customers who enjoy buying, owning, driving, and caring for physical cars can still do so, but they may be a much smaller number than today’s car buying consumers.

Q: What are some characteristics of a company that will excel with this new business model?

A: In the M.S. in Innovation & Management program, it’s our belief that to truly make innovations like this happen, you need to wear a three-cornered hat. You have to not only understand the needs of the customers– that’s the empathy part of design thinking – you also have to deeply understand technology so that you can bridge a deep customer need with a compelling solution that leverages technology wisely.

The third aspect is the business model – being able to translate that vision you have for your solution into a business model that makes sense, one that  can scale and make money for your investors and shareholders. Finding people who have fluency in all three dimensions- customer discover, technology, and business modeling and planning – will dramatically increase a company’s success with innovation; the goal of the MSIM program is to nurture such three cornered innovation leaders.

Q: There may be a general assumption that most innovation is happening at tech companies like the ones in Silicon Valley. What role does innovation play in big companies like Ford? 

A: In a big company like Ford, it’s critical to have innovation, because historically big companies run on momentum. If you look at the data, only 20 percent of the top 50 companies from 50 years ago are still in the top 50 today. If you look at the trajectory of these companies, they all have great momentum around a single area, and then that area becomes outdated. For example, Microsoft made tremendous money on Windows and Office. Now they are looking for what’s next. One could argue that even Apple is still struggling for its next big hit.

Being able to juggle innovation or create new things within a multibillion top dollar company is a challenge. And very few companies have met that challenge.

Q: What companies have used innovation to its advantage?

A: Classically, when academics look at a company’s success, they see successive waves, with very few companies achieving the second and third waves. Amazon is one of the few companies that has. They started off as a bookseller, then broadened into other retail categories online, and are now into video streaming, cloud computing, home voice control, etc.

They’ve made mistakes along the way, but that’s part of their secret, their willingness to experiment and to test new business models and let the market decide. Using frequent, rapid, iterations versus infrequent, big bang deliverables, is a much faster and more productive way to discover new markets.

Q: What else can companies do to encourage innovation? 

A: It’s hard to schedule creativity – it’s essentially unpredictable. Therefore, to increase the probability of uncovering innovation, increase the rate of experimenting with new ideas. Rather than try and pick your winners early, encourage frequent and fast testing of ideas, and over time, as experiments yield successes, continue to feed and scale up the ideas that get traction, and allow the ones that don’t to gracefully fold. By having a funnel of multiple experiments, companies will be increasing the probability of striking success, and potentially improving the productivity and return on their people and capital investments. The combination of lean design thinking with agile development principles can be the basis for a rich innovation culture.