Attention OEMs: The Age of “Catalog Engineering” is Over
Excerpt of an article posted to the Memos by Heller House website on 7/27/22
In their book The Innovator’s Solution, Clayton Christensen and Michael Raynor cite the example of IBM as a cautionary tale against outsourcing activities that “might seem to be a non-core activity today” but that “might become an absolute critical competence to have mastered in a proprietary way in the future”.
IBM decided to outsource the microprocessor for its PC business to Intel, and its operating system to Microsoft. IBM made these decisions in the early 1980s in order to focus on what it did best – designing, assembling, and marketing computer systems.
In the process of outsourcing what it did not perceive to be core to the new business, IBM put into business the two companies that subsequently captured most of the profit in the industry. How could IBM has known in advance that such a sensible decision would prove so costly?
Today, we are witnessing this struggle between integration and modularity play out in the auto industry. Like IBM, traditional OEMs such as Volkswagen, GM and Ford are good at “designing, assembling, and marketing”, yet perform very few functions in-house.
The shift to electrification and autonomy, however, shifts the basis of competition. Many suppliers and components simply do not exist. In its Q3 2020 earnings call, Elon Musk called the modular approach of incumbents “catalog engineering”. The industry evolved towards catalog engineering over 100 years of innovation and consolidation. In the new basis of competition, there is no catalog. You have to make the machine, that makes the machine, that makes the machine that makes the part that is needed.
(This is Blog Post #1248)
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