Dew We Think Detroit Ready for Next Year's Modules?

Charles C. Mann writes in the June 2009 issue of Wired about the need for fundamental change in how Detroit manages technological innovation and the explosion in automotive related start-ups. Venture capital supplied roughly $300 million to fund auto-related companies in 2008, a 3,750% increase from the $8 million invested in 2003. New enterprises like California-based Tesla Motors and Transonic Combustion are bringing new innovation and a garage-shop, Mountain Dew and pizza-fueled entrepreneurial excitement to an industry that's been mostly hostile to outside innovation.

Mann writes...

If a domestic auto industry is to survive, it will have to incorporate and encourage breakthroughs from outsiders....Automakers will need to transition from a vertical, proprietary, hierarchical model to an open, modular, collaborative one, becoming central nodes in an entrepreneurial ecosystem. In other words, the industry will need to undergo much the same wrenching transformation that the US computer business did some three decades ago, when the minicomputer gave way to the personal computer.

By shifting away from vertical integration, [the American car makers] will inherently play a smaller role in the overall industry. As system architects, they would lay down the framework in which independent developers work, communicating and enforcing those standards with would-be suppliers.

...[I]n seeking a model for outsourcing in a heavily regulated industry, automakers might look to pharmaceutical companies, which also operate under severe regulatory, legal, and safety constraints. Manufacturing is simpler for drug companies, but the process of testing new products with clinical trials is nightmarishly complex and costly. Yet this has not prevented drug firms from relying on outsiders; they routinely buy startups and test out their technology. Many or most of the acquisitions prove unusable, but the successes pay for failures. Managing and using outside innovation is difficult, but it has helped keep the US drug industry alive in a climate of unforgiving competition.

Mann makes a strong case, but there hardly seems to be support for this revolutionary approach to innovation within the industry. Although hit hard by the economy, Toyota and Honda still rely on internal and their traditional suppliers for innovation and have made no attempts (at least publicly) towards using the pharmaceutical model for new innovation. Ford, the most likely of the Detroit 3 to survive without bankruptcy protection, or Fiat, who will soon control Chrysler, are not publicly signaling such a radical shift in their engineering innovation processes. Perhaps the remnants of GM will bite, but it sure seems like a long shot to get Detroit to give up percolated coffee for Mountain Dew as the innovation beverage of choice. The very interesting thing is -- it might not matter what GM, Ford, Chrysler/Fiat, Toyota or Honda do, as their ability to dominate an industry has been severely compromised.