The surprising similarities of the Japanese electronic industry in the 1990s and the German car industry today.
Here's a stunning example from Germany to understand the challenge every modern society and company are facing: How can you transform yourself fast enough when you reach the top? More specifically, how can you question success and prepare the future when past investments anchor you into existing social structures and technologies and the risks linked to innovation are so high that major decisions become a choice between life and death?
Today, the car industry everywhere is facing a major challenge thank to a social and relatively artificial goal to move from gas or diesel to electric engines. Eventually the battery obstacle will be solved although putting affordable electric cars on the road will be more difficult in Germany than in China as the in-depth and very up to date documentary below makes plain.
Beyond that, the smart car will require a complete rethink of our mobility. And although this too is approaching fast, the interviewers carefully avoid the subject to stay focused on the transition from gas to electric.
And this I agree, is a challenge which needs to be understood in its context so let's rephrase the fundamental question which lurks behind:
Are societies and companies necessarily condemned to fail when they reach the top? From Portugal's explorations in the 16th century to Britain ruling the waves in the 19th century. From the IBM mainframe revolution in the 1960s to AOL opening the door of the Internet for all in the 1990s. It seems that investment rides on a wave of new ideas creating a new paradigm which flourishes, then matures and finally dies usually without being able to reinvent itself in the process. Exceptions are few and far between.
Of course, the most striking and recent example of this is Japan.
In the 1960s and 70s, following the war and an excruciating defeat which destroyed both its urban and industrial infrastructure, Japan rebuilt itself. But contrary to the consensus at the time, the country did not just imitate to build cheaper, junk products, it transformed the industrial process while doing so. Inventing new concepts like the Kanban system and Zero defects which quickly helped major companies like Toyota and Toshiba reach the pinnacle of their respective industries before being implemented around the world soon after.
Then the financial bubble burst in 1990, investment stopped and the decline of Japan started. Having followed the rise and decline of the country up close, I was amazed to see how quickly winning solutions became handicaps. How for example, the well educated but docile, conservative and unimaginative workforce which was one of the major strength of Japan 10 years earlier became its main weakness in the later half of the 1990s, when companies moved from hardware to software centric at the turn of the 21st century.
In 1992, in Osaka, Sharp was presenting the very first color LCD panels which were going to revolutionize TV and computer screens first then basically every machine with better, clearer interface. As the same time, the company was selling an early organizer, "the wizard" which looked uncannily like an early I-phone but without the functionality. Hard not to believe that this was the future.
But this inability to develop attractive and useful software soon after turned out to be the problem. While hardware for which the Japanese were ahead was progressing slowly, software where they were not was progressing exponentially. Within 10 to 15 years, every company in the world would be offering hardware made in China or Korea with software made in the US. Finally, in 2016, Sharp was sold to Foxconn, a former part supplier based in Taiwan. This example was repeated countless times by a long list of Japanese companies, insuring that the lost decade of the 1990s morphed into the 2000s and finally into the 2010s with little hopes of a resurgence today. Amazingly, Softbank, the sole software giant in Japan announced last week that they would be sinking another 4 billion dollars into WeWork!
Based on this example, what are the chances that the German automobile industry will succeed and transition smoothly to electricity? The analyst in the documentary thinks the chances are 50/50 but in reality, experience and multiple examples as we just saw indicate that the chances are much lower. The weight of past investments, inertia, sclerotic ways of thinking, lack of agility, almost every factor acts as a brake on innovation. The very last, optimum diesel engine will most probably be German but by then it could represent less than 1% of the world automobile market. Just as today's Japanese TV screens!
Then again, the gas engine niche may remain larger than expected and Germany may succeed in facing the electric challenge. The future is not written yet, but this would be a rare exception, not the rule! It would imply a complete rethink of what a car is, not just changing the engine. Will such a revolution happen in Germany or in China? What are the odds?
