at home. In the developed world the household will again become an increasing focus for work, as well as for consumption, but working at home will only be for the minority. • There will be a growing importance of lifetime education, with periodic retraining and re-education. This will be associated with a more frequent change of job and occupation. It is possible to draw out in detail the full implications of each of these tendencies. Scenario building is premised on such a view of the world. Case Study A clean vehicle – the hybrid electric vehicle (HEV) 5 Identifying opportunity and risk 193 The first question is why should anyone buy and use an HEV? This is a question of the advantages which such a vehicle offers. Advantages These are mainly environmental, but are achieved at some damage to those attributes of the vehicle which are highly valued by users: 1.There is a significant reduction in the emission of air pollutants, as much as one-third to one-half, compared with vehicles with internal combustion engines only. This is because the combustion engine is never used for idling, short trips or when the engine is cold. 2.There is a massive improvement in fuel economy. HEVs can achieve as much as twice the kilometres per litre or gallon that a conventional vehicle can achieve. HEVs are also more energy efficient, since they convert forward momentum during deceleration into energy used to recharge the battery system. 3.For personal and light commercial use in urban areas, HEVs have the flexibility of normal combustion motors. They can even be used for some commercial hauls over longer distances. 4.HEVs address the main deficiency of electric cars – their limited range of about 80–140 kilometres and the significant downtime required for the recharging of batteries. Disadvantages 1.There is an additional weight of several hundred kilos because of two power sources, including generator, electric motor and batteries. This is already taken account of in the estimate of fuel efficiency, but there is a consequent reduction in the availability of space. 2. The maximum horsepower of the combustion engine is only used about 1% of the time, during acceleration. 3.There are currently additional costs reflected in the high price of HEVs which reflect particularly the high level of R&D expenditures and the low volume of sales. Probably the most significant technical development in this area is the cooperative project developed between the Department of Energy in the USA and the main automobile producers, GM, Ford and DaimlerChrysler, called the Partnership for a New Generation of Vehicles (PNGV). This was established in 1993 as a five-year, shared-cost programme. The brief of the partnership is to pursue any technology which will improve fuel consumption by motor vehicles. It has a specific objective of tripling fuel efficiency to 80 mpg or 3 litres/ 100 km for the standard motor car from the norm of 27.5 mpg or 9.5 litres/100 km at present. It sees the HEV as an instrument for achieving this target. The project has received US$319.6 million in funds for research and development. The work of the Partnership is supplemented by other initiatives. The Department of Energy has, through the Cooperative Automotive Research for Advanced Technology (CARAT), dispensed more than US$3.7 million in grants to small companies, universities and institutes of technology to develop low-cost, advanced automotive components and subsystems. The USA’s National Renewable Energy Laboratory (NREEL) also assists the Partnership with technical support. In January 2003, President Bush announced that his government would spend $1.2 billion so that ‘America can lead the world in developing clean, hydrogen-powered automobiles’. Competition What has already been achieved? Table 5.4 shows the features of the two HEVs on the market in mid-2002. 194 Strategic Environments and Competitive Advantage The Honda has been selling poorly, for the reasons indicated above, whereas the Toyota has accumulated 70,000 sales internationally since 1997. At 2003 petrol prices, neither vehicle is likely to repay the additional cost of purchase, nor are they the ultimate environmental answer since both still need unleaded petrol. They are very much pioneers, showing what will be the norm in five to ten years. These two vehicles will soon face major competition. There are two types of competition for the existing HEVs: competition from HEVs produced by rival automobile producers; and competition from vehicles using alternative technologies, including improved versions of the existing technology. The American HEV programme is about to bear fruit. General Motors has at least three versions of HEV vehicles in the pipeline, including passenger and light commercial vehicles. Ford has two models, the Escape and the Prodigy. DaimlerChrysler has two passenger and one light commercial vehicle under construction. Other automobile manufacturers that are not far from launching their own HEVs include Fiat, Daihatsu, Mitsubishi and Renault-Nissan. The use of compressed natural gas (CNG) is another source of competition, particularly for light commercial vehicles including taxis. In the USA there are already well over 100,000 vehicles using CNG and the number is growing rapidly. CNG has a similar environmental impact to the HEV and is currently much cheaper. Present technology From the mid-1950s to the early 1980s a complacent industry dominated by the large American producers made little effort to improve the technology of the internal combustion engine. During this period there was no increase in the horsepower per litre of car. Three things happened to change this situation. The oil price hike made energy efficiency important. The amended US Clean Air Act of 1990 began the effort to reduce emissions from cars. The flood of Japanese automobiles pressured the Americans to lift their game. From 1980 to 2002 there was a doubling in the net horsepower per litre. The annual rate of gain was as high as 1.5%. The cost of running a car and the emissions fell. All emissions, apart from carbon dioxide – the Achilles heel of the internal combustion engine – have fallen 90% since 1968, prompting Ealey and Mercer (2002: 51) to say: ‘by 2000, late-model cars emitted less pollution while running than 1970s-era cars did while turned off.’ This was because the older models leaked large amounts of fuel vapour. Table 5.4 Characteristics of existing HEVs Honda Insight Toyota Prius Price A$48,900 A$39,990 (equivalent to over US$20,000) Features 56kW 1.0-litre three-cylinder 53kW 1.5-litre fourengine cylinder engine 10kW electric motor 33kW electric motor Trip computer Other usual features – dual airbags the same – anti-lock brakes the same – air-conditioning – CD player – power windows – remote central locking – power steering Pluses Impressive fuel consumption – 3.0 litres/100 km/(47–8 mpg) 5.9 litres/100 km/ – digital dashboard includes a (54 mpg) computerized fuel consumption readout Decent luggage space Minuses For urban areas only Handles much better Feels gutless but surges Terrible ride quality and handling Poor styling (aims for least Looks better aerodynamic drag) Seating for only one Seating for four passenger passengers (five doors) High purchase price (three Still relatively high price times the basic small cars) Assessment Impressive technology Same kind of technology but impractical but much more practical Positive from green Somewhat less perspective environmentally friendly Price more acceptable 5 Identifying opportunity and risk 195 Patents for the internal combustion vehicle have risen by 25% in the past five years. There are still significant new gains to be had: 1.The use of 36- and 42- rather than 12-volt alternator systems 2.Continuously variable transmission 3.Infinitely variable valve lift and timing 4.Direct fuel injection (diesel, and gasoline (US)) 5.Plasma ignition system (gasoline) 6.Turbo-charging and after-cooling 7. Cylinder disconnecting with variable camshaft timing. There is also the opportunity, pioneered by Airbus for airliners, to introduce what is called drive-by-wire, a system which replaces an automobile’s hydraulic and mechanical system, such as the braking, throttle or steering systems, with fully electrical systems. This requires a high voltage system, such as the fuel cell, which is scalable by the introduction of additional plates, or the use of 36- or 42-volt alternators. Drive-bywire is therefore compatible with either system, the internal combustion engine or the fuel cell. The bestknown example of drive-by-wire is GM’s Hy-Wire. Fuel cell technology In this system the hydrogen cell is the source of power. In the hydrogen cell the proton-exchange membrane (PEM) stack electrochemically converts hydrogen and air into electricity and water. The catalyst in the conversion is usually platinum or another rare metal, which explains the current high cost of such vehicles. Advantages 1.It is clean, with no emissions, at least from the car. There may be emission if the hydrogen is extracted from carbon fuels elsewhere. 2.There are few resources needed to make the system work. 3.There is an instant on torque response. 4.The vehicles are less noisy than the internal combustion vehicles. 5.Maintenance is cheaper. 6.There is greater energy efficiency. Disadvantages 1.It is an expensive producer of energy. The cost per kilowatt produced is $500–2,500 compared with $30–35, although ten years ago the former was $500,000, so the cost is coming down rapidly. 2. Under driving conditions the reliability and durability of the system are both suspect. For example, the stack currently does not generate power at low temperature. 3.The fuel cell has been, and still is, a very significant absorber of R&D funds, both government and private. 4.There is almost no infrastructure for the upkeep and maintenance of fuel cell vehicles or the supply of hydrogen, or enough work done on how the latter might be achieved. A reliable infrastructure might cost as much as $100 billion to install. It will require government action. 5.There are problems in extracting hydrogen from relevant compounds. 6.There are serious safety hazards. 7.Hydrogen tanks are heavy. The future It would be simple to construct a future scenario exercise on the possible options. There is a question mark about whether there is a genuine market for the HEV. In 2001 Honda sold only 3,788 hybrids in the USA and Toyota 15,556, a good proportion of which probably went to local municipalities and corporate fleets. Honda itself thinks that its 2003 Civic SULEV will match the emission status of the Civic Hybrid and will at the same time achieve better fuel efficiency. There is preference in the American market for large cars, in particular pickups and SUVs. There is a claim that the saving on petrol from the operation of an HEV is only about 12% and that this saving could easily be achieved using existing power sources. If the saving is as little as this, then the high initial capital cost means that the extra cost would not be recouped for many years. Table 5.5 shows the relative performance of different technologies. GM has claimed that it will start to put fuel cell vehicles on the market as early as 2010. Other producers think that it will be five to ten years later. The Japanese government has an ambitious goal of having about five million fuel cell vehicles on Japanese roads by 2020. The biggest problem is the lack of an infrastructure similar to that currently supplying petrol. The general expectation is that as late as 2015 as many as 90% of new vehicles sold in developed countries are still likely to use the internal combustion engine. For a decade after that they are likely to remain dominant. There is one critical uncertainty which could produce a different outcome, government regulation. If governments were to opt for zero emissions, as the state of California has already, then only the fuel cell could achieve this. Government could push the manufacturers who are already spending very large sums on new technology to accelerate the process of introducing the new generation of vehicles. Otherwise, whatever the 196 Strategic Environments and Competitive Advantage R&D funds expended on the fuel cell, and these will be large, both in the public and private sector, and whatever the tax credits given to car purchasers in order to persuade them to choose the fuel cell, in the immediate future the situation is unlikely to change more than marginally. Case Study Questions 1. What are the main features of the external environment influencing the strategy of automobile manufacturers in designing new vehicles? 2. How will these features have an impact on the choice of vehicle made by consumers? 3. Using the steps of the analysis described in Chapter 4, carry out a scenario-building exercise on the future of the motorcar. 4. What implications do the different possible futures have for the strategy to be pursued by the automobile manufacturers? 5. What is the relevance of government strategy to the choices made by automobile manufacturers? Reading Armstrong, L., ‘A mean green machine’, Business Week, April 22, 2002: 63. Ealey, L. A. and Mercer, G. A., ‘Tomorrow’s cars, today’s engines’, McKinsey Quarterly, 2002(3): 40–53. Flint, J., ‘Don’t count on hybrids’, Forbes, 06.03.02. Nakamura, A., ‘Fuel-cell cars now have a place to fill up’, The Japan Times, March 13, 2003: 9. O’Dell, J., ‘GM hydrogen-fuel car looks lean, mean’, The Japan Times, March 4, 2003: 9. Rifkin, J., ‘The forever fuel’, The Australian Financial Review, November 1, 2002: 1–2. Watanabe, H., ‘Toyota FCHV – the first step toward the hydrogen society of tomorrow’, Special Report on Toyota’s website. Table 5.5 Relative performance of different technologies Fuelling hope Miles per gallon, 2001 Carbon dioxide emissions, 2001 or fuel cell equivalent grams per kilometre Conventional internal 28 72 combustion engine Advanced ICE Gasoline 49 42 Diesel 56 37 Hybrid ICE Gas 71 30 Diesel 83 27 Fuel cell engine Compressed hydrogen 94 34 Onboard refiner 42 49 Source: Ealey and Mercer, 2002: 46. • There are differences between the general environment and the industrial or competitive environment and different ways in which the general environment can be divided. • Strategists should consider the rate at which the general environment changes and quickly recognize the implications in terms of opportunities and threats and complexity. • A prerequisite for business success is to anticipate the different patterns of change and manage the implications of change. The transitoriness of business success indicates the failure to achieve this. • It is useful to divide the environment into four segments: the social, technical, economic and political. • There are ten main tendencies which may be Key strategic lessons

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