The Innovation Odyssey: Lessons from an Impossible Project 103245430X, 9781032454306

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THE INNOVATION ODYSSEY

THE INNOVATION ODYSSEY LESSONS FROM AN IMPOSSIBLE PROJECT Christophe Midler Marc Alochet Christophe De Charentenay

Boca Raton and London

First edition published 2023 by CRC Press 6000 Broken Sound Parkway NW, Suite 300, Boca Raton, FL 33487-2742 and by CRC Press 4 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN CRC Press is an imprint of Taylor & Francis Group, LLC © 2023 Christophe Midler, Marc Allochet, and Christophe De Charentenay Reasonable eforts have been made to publish reliable data and information, but the author and publisher cannot assume responsibility for the validity of all materials or the consequences of their use. Te authors and publishers have attempted to trace the copyright holders of all material reproduced in this publication and apologize to copyright holders if permission to publish in this form has not been obtained. If any copyright material has not been acknowledged please write and let us know so we may rectify in any future reprint. Except as permitted under U.S. Copyright Law, no part of this book may be reprinted, reproduced, transmitted, or utilized in any form by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying, microflming, and recording, or in any information storage or retrieval system, without written permission from the publishers. For permission to photocopy or use material electronically from this work, access www .copyright.com or contact the Copyright Clearance Center, Inc. (CCC), 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400. For works that are not available on CCC please contact [email protected] Trademark notice: Product or corporate names may be trademarks or registered trademarks and are used only for identifcation and explanation without intent to infringe. Library of Congress Cataloging-in-Publication Data A catalog record for this title has been requested ISBN: 978-1-032-45430-6 (hbk) ISBN: 978-1-032-38746-8 (pbk) ISBN: 978-1-003-37695-8 (ebk) DOI: 10.1201/9781003376958 Typeset in Adobe Garamond Pro and Avenir Pro by DerryField Publishing Services

Trademarks Used in This Book Build Your Dreams is a registered trademark of BYD Company Limited. Dacia is the name of one of the Renault Group brands. Fluence is a registered trademark of Renault Group. Fortwo is a registered trademark of Smart Automobile Co., Ltd. Hozon is a registered trademark of Zhejiang Hozon New Energy Automobile Co., Ltd. Kodak is a registered trademark of Eastman Kodak Company. Kwid is a registered trademark of Renault Group. Logan is a registered trademark of Renault Group. Mercedes-Benz is a registered trademark of Daimler Ag. NIO is a registered trademark of NIO Co., Ltd. Northvolt is a registered trademark of Northvolt Ab. Powerpoint is a registered trademark of Microsoft Corporation. Renault is a registered trademark of Renault S.A.S. Saft is a registered trademark of Saft. Spring is a registered trademark of Renault Group. Stellant is a registered trademark of PSA Automobiles SA. Tesla is a registered trademark of Tesla, Inc. Uber is a registered trademark of Uber Technologies, Inc. Xpeng is a registered trademark of Guangzhou Xiaopeng Motors Technology Co., Ltd. ZOE is a registered trademark of Renault Group.

Contents Contents

vii

List of Figures and Tables

xiii

Foreword by Denis Le Vot

xvii

Preface

xix

About the Authors Introduction

xxv xxvii

Part 1 The Odyssey of K-ZE

1

Chapter 1: The Long March of the Accessible Vehicle Concept for China

5

The Explosion of the Chinese Market: A Promised Land for Automakers

6

Twenty Years of Attempts to Penetrate the Chinese Market

7

The Electric Vehicle as Essential to the Conquest of the Chinese Market

8

From Emergence to Affirmation of the “Access EV” Concept for China Conclusion: the Emergent Strategy and Its Relationship to Projects

Chapter 2: Preliminary Project: Exploring the Unknown

9 11

13

An Exploration Driven by Economic Factors

14

Framing the Research

15

Researching the Supplier Base—Key to the Feasibility of Design-to-Cost 21 Choice of the Manufacturing Plant

23

Monitoring the Dynamics of Chinese Electric Vehicle Standards

25

vii

viii The Innovation Odyssey

A Prototype Prepared in France, and a New Modular Battery

26

Multi-Brand Marketing, but Volume Forecasts Remain Uncertain

26

September 28, 2016, Meeting

27

Conclusion: The Preliminary Project Is an Integral Part of the Whole

31

Chapter 3: An Innovative Framework for a Cooperative Design

33

eGT, the Operator of the Project

34

An Original Business Model

36

The Constitution of the Project Team

41

Team Management: Multicultural Integration and Cohesion

46

Conclusion: Power and the Limits of Formal Project Framing

47

Chapter 4: An Agile Development in an Unprecedented Context

51

The Challenges of Working Outside the Norms

51

Product Definition

52

The Inexorable Inflation of Performance

52

Adapting the Platform

54

Ambitious Volumes that Increased as the Project Progressed

55

Differentiation Management

56

Co-Design with Suppliers

56

The Design-to-Cost War Machine

57

Battery Crisis From Investment Decisions to the Start of Mass Production: K-ZE, a Vehicle Without a Plant?

59 62

Construction of the New Body Shop, from Blockages to Spectacular Recoveries

63

Plant Startup: Heavy Weather in Shiyan (Fall 2019)

64

The Battle for Quality

67

Passing the Quality Milestones on K-ZE

67

Improving the Quality of Suppliers

68

Spring Development: Mission Accomplished

70

Conclusion: Toward a Model of Development Compatible with Innovation

72

Chapter 5: A Project in a Perfect Storm

75

A Promising Commercial Launch

75

Four Shockwaves in the Chinese Market

77

The Financial Crisis at DRAC, the Project’s First Client

77

Contents ix

The Networks of Other Chinese Subsidiaries Break Their Commitments

79

COVID-19 Hits

82

Change in the Criteria for Granting Subsidies

83

Storm Clouds Gather at Renault and Nissan Headquarters

83

In the Face of Headwinds, the Project Pivots to Europe

84

Conclusion: A Truly Resilient Project

85

Chapter 6: The Phoenix A Difficult Trip to Europe

89 89

Engineering for European Launch

91

A Product That Arrived at the Right Time

92

Dual European Deployment

94

The Marketing of the Dacia Spring

97

Conclusion: Dacia Spring, the Accessible Electric Vehicle That Is Changing the Market

98

Conclusion of Part 1: Evaluating Innovation Projects

101

Part 2: Learning from Projects

105

Chapter 7: Societal Innovation and Administered Darwinism

107

The Dynamics of the Electric Vehicle Market in China and Europe

109

Electric Vehicle Regulations in Europe and China

113

European Regulations

113

Emission Regulations

114

Support for the Battery Industry

117

The Deployment of Charging Networks

118

The Provisions Supporting the Application

119

Chinese Regulations

119

Emission Regulations

120

The Deployment of Charging Networks

121

Support for Demand

122

Europe–China: Contrasting Modes of Public Intervention

124

Europe: Support for a Gradual Transition That Becomes More Radical after 2015

124

China: The Implementation of an Administered Darwinism

125

Conclusion: Technological Neutrality and Administered Darwinism

127

x The Innovation Odyssey

Chapter 8: The Project as a Means of Strategic and Cultural Integration

129

Project Management and Strategic Alliances

130

Cooperative Innovation Projects: Opportunities and Constraints

130

Inter-firm Cooperation: A Contemporary Necessity for the Growth of Multinationals . . .

131

. . . With Inconclusive Results

132

Project Management: A Forgotten Variable in the Success or Failure of Alliances

132

The Societal Contingency of Management

133

Management of Strategic Complementarities in the K-ZE Project

136

Strategic Cooperation between the Renault-Nissan Alliance and Dongfeng

136

The Project as a Factor in the Integration of Strategic Complementarities

137

Institutional Framework: eGT, Project Operator

137

The Integrative Management of the Team

138

The Key Role of Intervention by Central Entities

139

Demonstrating the Importance of Governance at the Top

139

The Project as a Factor of Cultural Integration: From Initial Stereotypes to Shared Identity

140

The Dynamics of Joint Action in Agile Problem Solving

143

Conclusion: The Project as Generator of a New Identity

144

Chapter 9: Global Innovation Strategies and Lineage Management

147

From Local Innovation to Global Deployment

148

Innovation Deployment and Lineage Management

149

The Accessible Vehicle at Renault, 1945–2021: Four Seasons

150

Season 1: The Small Popular Car, Renault’s DNA

150

Season 2: Twingo, and an Organizational Revolution in Project Management

151

Season 3: Logan, and the Building of the Access Lineage

152

Season 4: Kwid, or the Maturity of the Breakthrough Concept

155

Taking on the New World

156

Spring: Accessible Electric Mobility

157

Continuation of a Strategy Driven by International Growth?

157

From Product Strategy to Mobility Services: Toward a New Lineage?

159

From the Middle of the Pyramid to the Bottom of the Pyramid?

161

Conclusion: Reconciling Local Innovation and Global Deployment

162

Contents xi

Chapter 10: Innovation and Entrepreneurial Capability in Large Companies

163

Introduction

163

An Effectual Growth Strategy

164

Intrapreneurial Capability—The Driving Force behind Program Management

165

Design Performance to Support Entrepreneurial Capability

168

Governance Ambidexterity

170

Conclusion of Part 2: Reenergizing a Large Firm

173

Conclusion

175

Afterword

179

List of Interviewees

181

Glossary

183

Bibliography

185

Index

193

List of Figures Figure 1.1

Evolution of China’s place in the global automotive market

6

Figure 1.2

“Access EV” Project Starting Equation . . . or Identifying a Credible Playing Field

11

Figure 2.1

Design-to-Cost

14

Figure 2.2

Competitive Analysis at the K-ZE Seminar in Wuhan in January 2016

16

Figure 2.3

Cost Positioning of the K-ZE in Relation to the Market

21

Figure 2.4

Changes in Supplier Prices Following the Application of the Design-to-Cost Approach in Spring/Summer 2016

23

Figure 2.5

Locations of Industrial Sites Explored.

24

Figure 2.6

Proposed Schedule at the “China Summit” on September 28, 2016

30

Christophe de Charentenay (eGT CEO), Jun Seki (Nissan), and Zhenghao Gao (Dongfeng), Visiting a Supplier in Shiyan

36

Figure 3.2

K-ZE Project Business Model

38

Figure 3.3

Business Model Leverage

39

Figure 3.4

eGT Organizational Chart

42

Figure 3.5

eGT’s Three Department Heads—Jérémie Coiffier (Engineering, France), Fan Ruiqiang (Production Engineering, China), and Donghyeon Kim (Purchasing, Korea) 44

Figure 3.6

Distribution of Resources on the Project in 2018

44

Figure 3.7

Distribution of Personnel of the Renault-Nissan Alliance on the K-ZE Project

45

The eGT Team in April 2017

48

Figure 3.1

Figure 3.8

xiii

xiv The Innovation Odyssey

Figure 4.1

Differentiation Options

56

Figure 4.2

Cost Overrun of Global Suppliers’ Offers Compared to Chinese Suppliers’ Offers Chosen by eGT (in %)

59

Figure 4.3

Application of the Fractal Method to Sourcing of the Battery

61

Figure 4.4

Shiyan Plant, an Automotive Plant Surrounded by Mountains

62

Figure 4.5

The New Robotized Body Shop: An Upgrade to International Standards

64

Key Players in the K-ZE Industrialization in Front of the First Vehicle Produced at the Factory (August 23, 2018)

65

Gérard Détourbet at the Shiyan factory during a Mission in February 2018 with Renault’s Production Engineering Leaders, Franck Naro, and Thierry Charvet

66

Figure 4.8

First Shipments to Customers (September 21, 2019)

66

Figure 4.9

Supplier Improvement Toward the Renault-Nissan Alliance Quality Standard

69

Figure 4.6 Figure 4.7

Figure 4.10 Vehicle Cost Gain Analysis. Comparative Cost Prices Excluding Depreciation of the Entry Ticket

71

Figure 4.11 Evolution of the K-ZE Schedule

71

Figure 5.1

Presentation of the K-ZE at the Shanghai Motor Show in April 2019

76

Figure 5.2

Rapid Ramp-Up Ahead of COVID-19

77

Figure 5.3

Wuling Hongguang Mini EV, a Blockbuster Electric Vehicle in China in 2021

81

Figure 6.1

Magic Triangle (Weight, Price, Range) of the Dacia Spring

93

Figure 6.2

Range of Products and Services around Dacia Spring

94

Figure 6.3

Dacia Spring Fleet in the Port of Le Havre in December 2020

95

Figure 6.4

Dacia Spring’s Price/Energy Consumption Positioning Compared to the Competition

98

Dacia Spring, Winner of the AutoBest Award “Best Buy Car of Europe 2022”

99

Figure 6.5 Figure 7.1 Figure 7.2 Figure 7.3

Growth in Sales of Plug-In Electric Vehicles Worldwide (in Thousands of Vehicles)

110

Distribution of Plug-In Electric Vehicle Sales by Semester (in Thousands of Vehicles)

110

Distribution of the Plug-In Electric Vehicle Fleet in 2020 (Source: Authors’ research)

List of Figures and Tables xv

Figure 7.4

Evolution of the CO2 Emission Threshold in Europe from 2015 to 2035 (in g/km)

115

Evolution of the Maximum NOx and PM Thresholds Between Euro 1 and Euro 6 for Diesel Passenger Cars (in %)

115

Figure 7.6

Public Charger Equipment Rate by Country in 2020

118

Figure 7.7

Change in CAFC between 2016 and 2025 (in 1/100km)

120

Figure 7.8

Change in NEV Credit Requirements Between 2019 and 2023 (in Percentage)

121

Evolution of the Number of Plug-In Electric Vehicle Models on the Market

123

Characterization of French, Chinese, and Indian Types in Hofstede’s Typology

141

Figure 9.1

Dacia Product Line Deployment

154

Figure 9.2

Geographic Deployment of a Global Lineage

154

Figure 9.3

Geographic Deployment of the Kwid Lineage

156

Figure 7.5

Figure 7.9 Figure 8.1

Figure 10.1 Principle of the Home-Centric Organization of Renault Engineering in Place until the Mid-2000s

169

Figure 10.2 Polycentric Organization of Development Engineering Illustrated by Kwid

170

List of Tables Table 2.1

Access EV Performance Positioning Compared to the Competition

19

Table 4.1

Target Performance Level Inflation

53

Table 4.2

Number of Variants of Differentiation Parts

57

Table 7.1

Top Four Cities in Terms of NEV Sales in October 2021

124

Foreword Spring is a phoenix: a project originally conceived for China, which in 2020 met with circumstances that hampered its commercial success there, and which is now being reborn in Europe with a very positive response from customers in its frst year. What lessons have I learned from this adventure? Firstly, it confrms the relevance of a product strategy focused on essential mobility needs. At least, that’s the conviction we have at Dacia.* Which is not to say that there are no other prospects to consider, but there is a solid long-term growth trajectory here: in Europe, we have 15 million commuters† who drive around 30km a day. Spring does the job for €13,000 (in France, after integration of purchase incentives), while meeting today’s environmental requirements. It meets the needs of both those who do not have a large budget to devote to their car mobility and those who, by choice, do not wish to allocate more than is reasonable. Secondly, it shows the need for intelligent design to support this strategy. Spring has achieved what it has because its designers were able to bring their technical and industrial expertise to bear on the essential functions. Tey knew not to fall into easy ways of developing the project out of fear of criticism or to please everyone. Its great strength is its lightness, which makes it economical in production. Compared to its heavier competitors, its lightness is above all a

*

†

Te Dacia brand was created in Romania in 1966, with the objective of providing modern, robust and economical cars to all Romanians. Te takeover of Dacia by Renault in 1999 marked a strategic turning point, as Dacia became a Renault Group brand whose objective is to make new cars accessible to the greatest number of people. Te term refers to people who commute to and from work every day (usually between the suburbs and the center of a major city). xvii

xviii The Innovation Odyssey

source of savings in use because its consumption is lower, while its range, with equal battery capacity, is higher. Tirdly, this has been a remarkable management performance for a global group. Te development of the Dacia brand is based on the achievements of a group that, from the Logan in Romania to the Duster worldwide, the Kwid in India and Brazil, and now the Spring, has gradually forged an original trajectory that is recognized for its relevance and reliability. To achieve this, it has been necessary to adapt as closely as possible to local contexts to meet their specifc mobility needs and to integrate the constraints and opportunities of the industrial sectors that have participated in this development. It has needed to be local in order to be relevant, while at the same time retaining capacity for global deployment—without which the economy of a company in this highly capital-intensive sector cannot be balanced. In response to this dilemma, and in contrast to the outdated myth of the global car that is supposed to satisfy all audiences, this book shows how a company has organized itself to operate what the authors call “lineage management”: the ability to capitalize on, reuse, and continuously adapt the company’s technological and industrial assets at the lowest possible cost to serve the opportunities of the markets in their geographical variety and in their evolution over time. We expect to fnd this collective knowhow of permanent learning and entrepreneurship in startups, but it is now also indispensable in large companies. Finally, it is yet another confrmation, if one was needed, that the performance of companies depends, beyond strategies and organizations, on the people who make up the company and on their talents. Prefacing this book is also an opportunity for me to pay tribute to the intelligence and energy of all those who have built the Spring odyssey—frst and foremost, Gérard Détourbet. Denis Le Vot Executive Vice President Renault Group CEO Dacia and Lada

Preface Tis book is the fourth in a series that began in 1993, the frst volume of which, L’auto qui n’existait pas,* analyzed Renault’s Twingo project. It continued with Te Logan Epic: New Trajectories for Innovation† in 2013, and Rethinking Innovation and Design for Emerging Markets: Inside the Renault Kwid Project ‡ in 2017. Tis has all the ingredients of a killer TV series: every episode stands alone with a fascinating story arc, yet each is set within a broader context—in this case, the automotive industry and specifcally the Renault company. Tis taps into the popular interest in this feld that—from Ford’s original assembly line to later Japanese methods and Tesla’s Californian revival—has never failed to inspire managerial thought and action. Finally, the sequence of episodes demonstrates the transformation of this industry over a period of 30 years, enabling us to see how the elements of continuity between events have given way to major disruptions. It all goes to show why the automotive industry is still the subject of management research today. It is this relationship between continuity and necessary disruption that we wish to briefy evoke here. Projects combine two aspects of management. On the strategic side, they are key acts that embody the hopes and aims of frms. Tey refect the way in which companies analyze their position in the market at the time they are formulated and how they project themselves into the future.

*

†

‡

Midler, C. (1993). L’auto qui n’existait pas ; management de projet et transformation de l’entreprise. Interéditions réédition. Paris: Dunod, 2012. Jullien, B., Lung, Y., and Midler, C. (2012). Te Logan Epic. New Trajectories for Innovation. Paris: Dunod. Midler, C., Jullien, B., and Lung, Y. (2017). Rethinking Innovation and Design for Emerging Markets, Inside the Renault Kwid Project. London: Taylor & Francis. xix

xx The Innovation Odyssey

Te evolution of projects is, in this sense, a mark of the dynamics of a company’s strategic commitments; it is more credible than the evolution of the discourse itself because it is more tangible. On the implementation side, projects are embodied in organizations and processes that strive to achieve these goals. Te series enables us to see the learning that has taken place over the period in the feld of innovation management. In strategic terms, the Twingo project refected a situation in which Renault was projecting itself into a car market of the 1990s that was essentially European. Eight years later, the launch of the Logan project in 1998 clearly showed that Renault was aiming for internationalization, with a view to expanding into Eastern European countries after the fall of the Berlin Wall. It was aiming to develop a middle-class market whose mobility needs had previously only been met by an aging and low-quality ofer. Te €5,000 car project was the concrete expression of this strategy. Te growth of the automobile market in these countries and, more broadly, in Brazil, Russia, India, and China (the BRIC countries) was confrmed in spectacular way in the 2000s. Tis supported the development of the Logan lineage and provided motivation for the Kwid project, which was a watershed moment in the conquest of emerging markets, with a specifc product for India retailing at €3,500. Finally, we will see that the project studied here seized the opportunity to conquer the Chinese market by ofering an accessible electrifed product while also meeting Chinese regulations. While these projects all represent diferent stages in Renault’s international growth strategy, they share two important characteristics. First, they attacked these new markets “from the bottom up,” whereas most established European automakers, particularly the German ones, have tended to initially target the high end of the market. In addition, Renault designed an original product adapted to the specifc mobility needs of the target customers, whereas international expansions have traditionally been achieved by adapting models originally designed for European markets. Tis series of projects, therefore, clearly shows Renault’s stable strategic identity: redefning automobile mobility through unique products which represent a break with what already exists while being accessible to the greatest number of customers. Tis identity is maintained in a context where, on the one hand, innovation is generally associated with expensive vehicles and sophisticated technology, while on the other hand, the search for a singular response to meet an original project target is so often compromised by the principle of standardization of processes and solutions. In terms of organizational learning, it is clear that the identity just described owes much to the signifcance placed on the project management function.

Preface xxi

Tis organizational innovation began on the Twingo project, with the introduction of new communication and decision-making processes into automotive organizations previously characterized by the total dominance of functional business logic. Tis positioning of the project function in terms of hierarchical authority and skills was key to the successful completion of both the Logan and the Kwid. Tese breakthrough projects were only able to meet their many inherent challenges through rejection and reinvention of accepted “best practices” and design standards in the company’s various divisions. Tis was not because they wanted to be original at any cost, but rather because the existing standards, developed to meet the requirements of designing cars for mature markets, were unsuited to the real needs of Romanian or Indian automotive mobility in particular. Without the afrmation of the project function, true internal intrapreneurship, there would have been no power to implement these original product strategies. Aside from the afrmation of the project function, the contribution of the Logan project to Renault’s collective learning was huge. Tis concerned the notion of lineage management: the design not of a single project, but of a whole program capable of steering the development of many products over time while preserving the DNA of the initial pilot project. Te Twingo project had no direct descendants. In contrast, the initial Logan project generated fve subsequent vehicle projects in the 10 years following, including two “blockbusters”— namely, the Sandero and the Duster—sold in a multitude of countries around the world. From an organizational point of view, this growing understanding of lineage management within programs has also been decisive. In a sense, the project is a temporary organization, whose team dissolves upon the completion of the project. Te experience, knowhow and vision built up during a project can usually only be capitalized on by being incorporated into the larger business and through reintegrating the actors into the permanent organization of the company’s functions. However, with the creation of a program management entity, it is now possible to capitalize on, extend and deploy (and therefore make proftable) the initial learning. At Renault, this would revive the Dacia brand, support the group’s international growth beyond the European region, and also make a key contribution to the group’s income at the time of the 2009 fnancial crisis. We shall see in this book that a new project, named K-ZE, has been contributing in a similar way to the organizational learning of the company. Tis happened frst through a framework of inter-frm cooperation: a French group, a Japanese group, and a Chinese group joined forces to design a product based on a technical concept designed in India, to be marketed under fve brands in China.

xxii The Innovation Odyssey

Te question is how such multicultural, strategic, and organizational complexity can coexist with the best practices of breakthrough projects, which advocate the mobilization of a compact and united team toward a common objective. Te project is also a hybrid of two diferent lineages. It is part of and continues the lineage of accessible cars, started by Logan and continued by Kwid. Te European launch of the Dacia Spring, designed and built in China, is a new and more radical step than its predecessors in this strategy of reverse innovation. How did this come about, at a time when economic globalization is in retreat? How will it evolve? Meanwhile, it is also part of the series of electric cars from Renault, the company being among the frst to reinvest in the feld at the beginning of the 2010s. How did this inter-program hybridization happen, and what will its future hold? Tis book aims to answer all these questions. Finally, it is important to say that these strategies and organizational observations should not hide the importance of the people who worked on these projects. Over such a long period of time, the cast of these diferent episodes has changed profoundly. Some of the actors we will meet on the K-ZE project were not even born when the Twingo project began. Most of the key players on the frst projects had either retired or otherwise disappeared before the end of the larger story. Tis is exemplifed by Gérard Détourbet,* the tireless champion of the Logan, Kwid, and K-ZE projects, who fell ill and died before the end of the project, and to whom we would like to pay particular tribute in this book. Tis is also the case for Carlos Ghosn, who played a decisive role as sponsor at key moments of the project, until he was caught up in a scandal. Trough this series, we hope to promote wider understanding of this collective trajectory and share it with those who were not there. During an interview with one of the actors on the K-ZE project, he told us that he had chosen a career in the automobile industry—and at Renault in particular—after reading Te Car Tat Did Not Exist (L’auto qui n’existait pas). Tis testimony, beyond the pleasure it gave us at the time, in our opinion justifes interest in the academic approach to management research that is pursued here. Tis approach could not exist without the participation of the professionals who agreed to testify about their practices; the support of the Management Research Center of the École Polytechnique, which has been supporting and deepening these interactive research approaches for 50 years now; and the support *

After a long career in which he held various important positions, in 2018 Gérard Détourbet was the director of Alliance A Segment Development Unit (2ASDU), located in India, and led the development of Kwid between 2013 and 2015. See Midler, C., Jullien, B., and Lung, Y., 2017.

Preface xxiii

of mechanisms such as the Renault ParisTech Institute for Sustainable Mobility, which are committed to maintaining this, sometimes difcult, link between the academic world and the business world. We would like to thank the many people who have contributed to this research in these diferent settings.

About the Authors Tis book brings together authors who are recognized specialists in the automotive feld, with diferent academic and professional backgrounds, and who also have research and teaching experience in management. Tey cover complementary areas of disciplinary expertise: management, innovation processes, multicultural cooperation, corporate strategies, and industrial economics. Christophe Midler, Emeritus Research Director at the Centre de Recherche en Gestion (Management Research Center), National Center for Scientifc Research (CNRS), and Ecole polytechnique, and member of the Académie des technologies, is internationally recognized in the feld of project and innovation management. He is the author and co-author of numerous books on innovation management and project management, including the previous books in this series, as well as Management de l’innovation et globalisation (Dunod); and Managing and Working in Project Society: Institutional Challenges of Temporary Organizations (Cambridge University Press), which he co-authored with R. A. Lundin, N. Arvidsson, T. Brady, A. Lundin, N. Arvidsson, E. Ekstedt. and J. Sydow, and which won an award from the frst professional association in project management, the Project Management Institute; and Handbook of Project and Innovation, co-authored with A. Davies, S. Lenfe, and C. Lorch (Edward Elgar Publishing). Marc Alochet, an engineer by training, has spent his entire career in industry. Most of it was spent at Renault, where he held various functions and positions in product and process engineering. In 2017, he joined the Management Research Center of École Polytechnique (CRG) to do a thesis dedicated to the impacts of electrifcation on the automotive industry, which was defended in 2020 (“Technological Disruptions and Dynamics of an Industry, the Case of Electromobility”). Since then, he has been working at CRG on the future of the automotive industry under the efects of the emergence of electric, self-driving, and connected vehicles, as well as new mobility services. xxv

xxvi The Innovation Odyssey

Christophe de Charentenay, also an engineer by training (Ponts et Chaussées, 1987) and an MBA graduate from the Collège des Ingénieurs, has developed his career along two lines: in education as deputy director, then administrator of the Collège des Ingénieurs, and as a lecturer at Tsinghua University and the University of Paris 1 Panthéon-Sorbonne; and in the nuclear, steel, and automotive industries for 16 years at Renault. He was president of eGT from its inception in 2017 to May 2020. He is currently president of M@Air, an expert in decarbonized mobility.

Introduction When, in 1991, the MIT bestseller Te Machine Tat Changed the World * was published, the car industry was still growing, confdent in its development potential. Te book shows the spectacular dynamics of this industry, whose product has been adopted by customers around the world and has helped shape that world as it is today. Tirty years on, however, the landscape has changed. Despite several major crises, the automotive market has continued to grow globally—but this success has, in a sense, consumed itself: because the car is a central object in our society, it can no longer simply be left to manufacturers and consumers to set its course. Automotive innovation looks less and less like the classic model of innovation, driven by the inventive genius of entrepreneurs and selected by customers. Its fundamental place in society means that political powers are increasingly seeking to control or at least to frame its trajectory more precisely to include it in political strategies, whether these relate to the environment, economic development, or employment. So, beyond the speeches and policies in the name of corporate social responsibility (CSR), how can companies integrate this intrusion by societal issues and the political powers that be? How do public-sector actors intervene in the innovation strategies of private companies? How does the intervention of political and administrative actors impact the management of the resulting projects? And how can this fundamentally globalized industry integrate the increasingly precise strategies of the countries whose markets it wants to conquer? Tese are the questions we address here, through the presentation of an emblematic case: the development of a vehicle *

Roos, D., Womack, J., and Jones, D. (1991). Te Machine Tat Changed the World: Te Story of Lean Production. Toyota’s Secret Weapon in the Global Car Wars Tat Is Now Revolutionizing World Industry. London: Harper Perennial. xxvii

xxviii The Innovation Odyssey

that is both electric and accessible, to be sold in 2021 in Europe under the Dacia brand—the Dacia Spring. Te electrifcation of automotive mobility is a typical example of a feld in which innovation is driven by regulations—whether they are incentives for its development or constraints. In this case there will soon be prohibition of the traditional competitor, the internal combustion engine. Electrifcation is no longer optional. Under the pressure of increasingly restrictive regulations, all the global automakers are beginning to adopt it, with colossal associated investments. However, the precise form of this technological breakthrough is still undecided and subject to variables on four levels: • The nature of the industry itself and the actors involved in these “societal” innovations. Te movement toward the electrifcation of vehicles is inseparable from public policies aimed at reducing carbon emissions. Without substantial subsidies or rigorous bans on internal combustion engine vehicles (ICEVs), the electric vehicle (EV) would not be developed. It is these public policies that create the conditions for an electrifed vehicle market. Electrifcation is thus a three-way game, in which public actors play a central role alongside suppliers and customers. Tis is far from the Schumpeterian model of market-driven innovation. Terefore, an analysis of these policies is essential to understand manufacturers’ strategies in this area. What are the diferences between these policies? Do they introduce regional competitive advantages? How do frms in the globalized automotive sector adapt to or take advantage of these diferences? How can they combine local adaptation of their innovations with global deployment to harness economies of scale? • Product strategy. To what extent should this technological breakthrough at the heart of the car be associated with a more profound break in the defnition of the automobile product? Is the answer an electrifcation of the dominant ICEV design (and if so, how?) or a complete redefnition of the vehicle? Innovation typically emerges at the top of the range and in mature markets and spreads over time to low-cost vehicles and emerging countries. Tis is typically Tesla®’s strategy. As we explained in our two previous books, Renault, with the Logan and Kwid, has shown that it is possible to design proftable new products by entering rapidly developing markets such as India and China from below. But are these design strategies focused on cost reduction possible in the case of major technological breakthroughs such as electrifcation? • International cooperation. Automotive design is largely concentrated in the technical centers of the parent companies: Detroit, Guyancourt, Wolfsburg, Yokohama. How can the design processes and the European and Chinese skills and knowhow be combined in a project designed far from the

Introduction xxix

traditional European or Japanese bases and under time constraints? Can this original form of design inspire new forms of international cooperation, and under what conditions? • Globalized innovation strategies. For multinational groups such as car manufacturers, competitive advantage depends on their ability not only to invent relevant products that fnd customers in local markets, but also to deploy them rapidly at the global level, harnessing economies of scale that a startup, however innovative, cannot achieve. How then to combine local adaptation of innovations with efective global deployment? Te Logan and Kwid books illustrated how to build proftable lineages from initial projects that entered the market in emerging countries from below, but these vehicles adopted traditional technologies. Are these reverse innovation strategies still relevant when new technologies are involved? Tis book aims to answer these questions through detailed analysis of the electric vehicle project developed in cooperation with Renault in China from 2016 to 2019 and sold in Europe in 2021 under the name Spring, within the Dacia brand. Tis project, which we will refer to here by its codename, K-ZE, is experimental in several respects. First, just as the Kwid was a tool designed to conquer the fast-growing Indian market (which Renault had previously failed to conquer despite numerous attempts), the K-ZE project is a tool designed to conquer the Chinese market—a market in which Renault has always failed to gain a foothold, for various reasons. Te K-ZE was developed within a cooperation framework between Renault and Dongfeng, the Chinese automotive giant, which is a diferent international management experience from previous projects managed within the RenaultNissan Alliance. What were the strengths and problems of this cooperation? Second, K-ZE is a hybrid of two lineages in which Renault has been a pioneer: the lineage of “accessible” cars, from which K-ZE would borrow the platform of the Kwid internal combustion engine (hence the “K” in K-ZE), and the lineage of electric vehicles (known as the Renault ZE range within the company, hence K-ZE). Te electric car has been seen as expensive because it incorporates new technologies, which are not very competitive in terms of cost when compared to the proven (dominant) design of internal combustion engines. However, Renault managed to market K-ZE, a real electric car, in China at between €8,000 and €9,000, and in France at €13,000 (after integration of subsidies)—i.e., less than half the price of the ZOE. How did this hybridization work to achieve this economic feat? Finally, while the Kwid project was developed during a period of growth for the Renault Group and Carlos Ghosn’s reign over the alliance with Nissan, the K-ZE project took place during a period of organizational disruption and

xxx The Innovation Odyssey

strategic uncertainty for the company. Te Kwid project had largely benefted from (in fact, it wouldn’t have succeeded without) Ghosn’s ability to impose the often-heterodox choices of the program director, Gérard Détourbet, on Renault and Nissan. Tis was a classic case of structural ambidexterity, in which a breakthrough project develops autonomously under the auspices of a central governance system that favors it. However, Ghosn and Détourbet were no longer there for the realization of the K-ZE; the frst felled by business events, the second by illness. Where did the resilience of this breakthrough project in an unstable and uncertain business context come from? To answer all these questions, this book is organized in two parts. Te frst part analyzes the history of the K-ZE project, from its strategic genesis to its current commercial deployment in the Chinese and European markets, while the second part draws lessons from this project along three diferent axes: • Characterization of the societal dimension of the electrifcation of automotive mobility, based on the comparison of the Chinese context (the frst automotive market and the frst feet of electric vehicles) and the European context in the feld of the reduction of carbon dioxide (CO2) emissions from the automotive sector. It will show the important diferences in policies afecting the two markets and how the competitiveness of organizations is strongly linked to the public policies that shape them. • Analysis of the organization and project management required to implement locally adapted innovation. How can innovation be a means to penetrate the “promised land” of the Chinese automotive market? How can we succeed in cooperating with Chinese automotive industry players—a prerequisite for the policy of entering the Chinese market? And how, more generally, can large organizations make and develop disruptive innovations, when this quality is more often associated with startups? • How can we go beyond the pilot project to achieve global deployment of products designed for a specifc local context? In particular, how can we concretely manage the integration of projects developed in emerging countries into the markets of mature countries in which companies are headquartered? We will highlight—using the example of the global automotive industry—the strategies of lineage and reverse innovation, allowing both deployment of products adapted to specifc local contexts of use and deployment of the assets created at the global perimeter of the frms. We will demonstrate the importance of the entrepreneurial function of the program manager and the central role of the frm’s design capacity and ambidextrous governance in allowing “business as usual” to coexist with more innovative explorations. And now, it’s time for the K-ZE adventure . . .

Part 1 The Odyssey of K-ZE Te frst challenge, when telling the story of a project, is to avoid rewriting history through hindsight or overstating the inevitability of events leading up to the fnal outcome. When faced with this problem, access to period sources combined with interviews with actors and real-time monitoring of the project are essential methodological tools, both in uncovering the history of events as they happened and for understanding the reasoning and power relations that weighed on decisions. Tese are all the more necessary as we seek further understanding in the feld of management, where the key point is precisely to understand how decisions are made in the face of uncertainty and a multitude of options. Te case study detailed here is based on three successive periods of analysis: the frst at the time of the project’s emergence, in 2016 and 2017 *; the second during a mission to China in the spring of 2018, in the middle of the product development phase; and the last in 2021, at the time of the European launch. Finally, it benefts from the testimony of one of the authors, Christophe de Charentenay, who was one of the main players in Renault’s Chinese venture, and the K-ZE project in particular. Te result is a story that is, in many ways, chaotic: depending on the particular perspective in time, the project could appear to be on a very bad track or, on the contrary, brilliantly successful. Meanwhile, unforeseen obstacles that might have

*

Tis work led to a PhD thesis in management science defended at Paris-Saclay University by Bo Chen in 2018—Chen, B. (2018). Strategies and management of breakthrough innovation in emerging countries: Te case of the electric vehicle in China. 1

2 The Innovation Odyssey

proved fatal to the project were overcome as a result of miraculous recoveries or twists in the tale. Tis is a story that is far from being complete at the time of writing, which makes it impossible to classify the K-ZE case study as a categorical success story of the type prized in managerial writing. It is a story that we will follow in six episodes that skip back and forth in time: • Chapter 1 explains the laborious strategic genesis of the project. It will outline the strategies adopted in an attempt to dominate the Chinese market that might have been followed by any global automotive company in the 2000s, while portraying the extraordinary difculty of implementing these strategies—which failed, for Renault as for others, for almost 20 years. We will then see how a crack team, under the lead of Gérard Détourbet and supported by CEO Carlos Ghosn, managed to make a credible breakthrough based on the electrifcation of the Kwid—the car developed in India between 2013 and 2015. • Chapter 2 presents the pre-project phase, which explores the feasibility of the scenario and focuses on the main development variables. Tis chapter shows the implementation of the “design-to-cost” approach, a methodology that had already brought about Renault’s two breakthroughs in the feld of accessible vehicles: the €5,000 Logan launched in Romania in 2004, and the €3,500 Kwid launched in India in 2015. But it will also show how the approach had to deal with the two unprecedented problems of a new technology: electrifcation and a context totally unknown to Renault—China. Finally, we will see another unprecedented circumstance: the need to convince not only Renault or its ally Nissan, as was the case for previous projects, but also the Chinese partner, Dongfeng, a state-owned automotive giant. • Te preliminary project demonstrated the interest in and feasibility of the concept, yet the question of its business model and the organization of its development within the cooperation framework remained unanswered. Chapter 3 therefore analyzes how—in the complex context of a cooperative design among fve companies and mobilizing actors from four countries (France, India, China, Japan)—an original institutional and contractual response was found to constitute a project team that was mobilized to meet its objectives, autonomous with respect to the issues of the diferent stakeholders, and agile in its learning and decision-making processes. • Analysis of the product development phase is the subject of Chapter 4, which runs from 2016 to September 2019 for the start of the series. Tis schedule was 38 weeks shorter than the typical schedule proposed by the company’s engineering departments for a project involving an entirely new electric power train. Tis was therefore an exceptional performance for a project which has given rise to other major uncertainties for Renault, such as

The Odyssey of K-ZE 3

a new market, an unknown plant, and an unknown group of suppliers—all within the context of a design cooperation with the Chinese partner. Tis chapter analyzes how such success was possible by combining the virtues of highly integrated and autonomous project teams with the ability to mobilize central experts on key technologies. It will show both the difculties posed by the context of teamwork involving French, Chinese, and Indian collaborators, and the surprises and hidden resources that the team discovered in working with Chinese suppliers to ensure the resilience of the project despite major challenges. • Following a development process that had met its cost and time targets, a promising commercial launch was expected in the fall of 2019. However, the K-ZE project was then caught in a terrible storm as described in Chapter 5, with the convergence of several crises that would bring its deployment in the Chinese market to a halt, at least in the short term. • However, this failure of the Chinese launch of the K-ZE was not the end of the odyssey. Te project was relaunched in Europe in 2020 under the Dacia brand, with the name Spring. Chapter 6 analyzes this rebound, the engineering work that was necessary to adapt the vehicle to the European market, and the internal political conditions that made all of this possible—which was by no means a given during this period when the leadership of the company was in fux. Te conclusion of this frst part looks back at the features of this odyssey—in particular, the deployment of innovation in large, globalized groups and their ability to organize themselves to take advantage of specifc contexts, to mobilize resources globally to create relevant value for the markets, and to deploy the assets built here in contexts very diferent from those in which they were created.

Chapter 1 The Long March of the Accessible Vehicle Concept for China A project launch is understood to follow an established process in most companies: a strategy statement defning the markets to be conquered, formulation of the development plan for future products, preparatory research aimed at specifying the characteristics of product proposals, leading to the launch of development projects. In reality, however, the process is much more complex and iterative, if only because the proposals for new projects must meet the requirements of proftability. But what happens when they aren’t expected to meet those requirements? Given the stakes involved in developing a new vehicle, it is simply not feasible to commit to a purely theoretical plan. Te genesis of the K-ZE project typifes the difculties in moving from a strategic proposal that seems simple on paper to its concrete realization. Tis chapter looks back at Renault’s slow, chaotic, and uncertain path to China and then at how electromobility emerged as an opportunity for the taking. It also shows how, after multiple options studied by the central product planning and engineering divisions to exploit products in the European electric range had been rejected, the Kwid electrifcation scenario put forward under the leadership of Gérard Détourbet was fnally imposed on the orders of the president of the Renault-Nissan Alliance himself, Carlos Ghosn.

5

6 The Innovation Odyssey

The Explosion of the Chinese Market: A Promised Land for Automakers Since the 1990s, China has fascinated and attracted global automakers. Te size and growth of this market are obvious potential drivers for growth in the strategies of Western manufacturers faced with the mature and increasingly saturated markets of the USA, Europe, and Japan triad (see Figure 1.1). Te growth in the Chinese market was particularly spectacular between 2000 and 2015, with sales increasing approximately eightfold, from 3% of the world market to almost 25%.

Figure 1.1 Evolution of China’s place in the global automotive market (Source: Carsalesbase data, carsalesbase.com)

In fact, all of the world’s automakers made attempts to conquer this market in this period. Volkswagen and General Motors in particular were able to take advantage of the growth of the Chinese market by establishing a foothold at an early stage. Volkswagen began bilateral discussions to establish itself in China as early as 1978, started local production of its VW Santana in 1983, and formed its frst joint venture in China with the Shanghai Automotive Industry Corporation (SAIC) in 1985. In 2021, both companies still had a strong presence in China: despite a 14% drop in sales compared to 2020, Volkswagen was still the market leader in China, with 3.3 million vehicles sold.* General Motors was in second place with 2.9 million vehicles sold,† including 1.4 million for Wuling thanks to the success of the Hongguang Mini EV, the market leader in electric vehicles with just under 400,000 sales.

* †

Volkswagen Annual Report (2021), 38. General Motors (2022). GM delivers 2.9 million vehicles in China in group 2021. media.gm.com, January 10.

The Long March of the Accessible Vehicle Concept for China 7

Twenty Years of Attempts to Penetrate the Chinese Market Renault was behind all its competitors in this market, despite the fact that Renault’s relations with China date back to the last century and have been developing since the early 1990s.* In 1993, Renault and China Sanjiang Space Group set up a joint venture, Sanjiang Renault Automotive Company (SRAC), and in 1995, it began the production of a minibus derived from the Renault Trafc in the city of Xiaogan, Hubei province. After several restructuring attempts with diferent partners, SRAC proved to be a failure, and production was stopped in 2004 after 6,018 vehicles had been produced. From 1999 to 2006, Renault then relied on a network of importers to sell some of its vehicles, such as the Scénic, Mégane Classic, and Laguna. But the volume remained very low—in 2006, Renault had 2.6% of the imported vehicle market in China, which represented 126,000 vehicles, when the total market was 4.2 million units—with poor proftability. Tis led, in February 2010, to the creation of a commercial subsidiary wholly owned by Renault. As a result, an own-distribution network was created with some success, thanks mainly to the Koleos, with sales reaching 34,000 vehicles in 2013. In 2003, Renault’s partner Nissan set up a joint venture with Dongfeng, one of the four historic Chinese state-owned automakers. Tis joint venture became Dongfeng’s most lucrative, contributing up to 59% of net profts in the frst half of 2013, despite diplomatic instabilities between Japan and China in late 2012. Ten the desire to reduce Renault’s dependence on Europe and to form a “golden triangle” between Renault, Nissan, and Dongfeng led the French manufacturer to initiate negotiations with the Chinese giant in 2004 that would last nine years. By 2012, Renault was perceived by the Chinese authorities as a manufacturer capable of making competitive SUVs, thanks to the Koleos. It was also supported by Nissan, whose undeniable success in China and association with Dongfeng made it a worthy guarantor in the eyes of the authorities. Finally, at the end of 2013, the long negotiations with Dongfeng and the body responsible for authorizing the creation of new industrial entities† were concluded with the creation of Dongfeng Renault Automotive Company (DRAC), the joint venture between Renault and Dongfeng (which inherited SRAC’s assets and debts).

*

†

Source: https://www.renaultgroup.com/en/news-on-air/news/renault-nearly-a-century -in-china/ Te National Development and Reform Commission (NDRC) is China’s national planning agency. It plays a dominant role in guiding the development of China’s industry, including approving the creation of industrial entities.

8 The Innovation Odyssey

Former French president Nicolas Sarkozy’s instruction to Ghosn to get Renault into China, the success of Koleos imports from 2009, and Renault’s understanding that local production is essential to sustain a manufacturer’spresence in China, all combined to hasten the conclusion of the deal, leading to the creation of a plant with a production capacity of 150,000 vehicles per year and the expansion of a distribution network targeting 120 distributors in 2016. Te location of the plant was a decision for the Beijing authorities; it was fnally located in Wuhan, Hubei province, and inaugurated in January 2014.

The Electric Vehicle as Essential to the Conquest of the Chinese Market* Te electric vehicle feld provides a typical example of Chinese “leap-frogging” strategies: faced with a backlog of traditional ICEVs, successive Chinese plans have focused on stimulating its industry in the electric vehicle feld. Te aim has been to create national and then global champions in this feld. As of 2013, the Chinese electric vehicle market was showing signs of signifcant growth and went on to become the world’s largest market. But China was no longer satisfed with being “only” the world’s largest car market. Te government’s intention was to make it a world champion in terms of supply. For Renault, which had been a “frst mover” since the beginning of 2010 with its range of four Renault ZE models, the temptation was naturally to make this investment proftable by increasing volumes through a slight adaptation of vehicles designed for Europe. Te challenge of developing an electric line-up was twofold: in the short term, to respond to Chinese regulatory constraints, which, from 2019, would require manufacturers to sell a proportion of electric vehicles in their range in order to be able to sell ICEVs; in the long term, to survive in this developing market, which was already dominated by local manufacturers. From 2012 to 2016, the various divisions involved (product planning, EV program, advanced projects, and the China region) explored possible scenarios for implementing this strategy based on the four existing electric products in the range: Fluence, Twizy, ZOE, and Kangoo. Te strategy was based on the idea that

*

Unless explicitly mentioned, the data used until the end of this chapter are taken from Bo Chen’s dissertation. Chen B. (2018). Strategies and management of disruptive innovation in emerging countries: Te case of the electric vehicle in China. PhD thesis in management defended at the University of Paris-Saclay.

The Long March of the Accessible Vehicle Concept for China 9

the mature Western market was “ahead,” and that it would therefore be sufcient to derive products designed for Western customers to satisfy the Chinese market. Tis hypothesis might hold true for high-end automakers, whose brand is synonymous with quality and luxury in China as elsewhere, and for whom the renewal of in-house products is therefore an advantage. But the same cannot be said for Renault, a brand which is almost unknown in China. By pursuing this misguided strategy of adapting existing products, Renault became mired in damaging internal conficts, and fnally failed in all its attempts. Te scenario involving the adaptation of the Fluence—the frst electric vehicle, which in fact never worked—progressed farthest, but it too failed in the end, with all the products being unsuitable and too expensive for a Chinese market that had become particularly demanding and dynamic.

From Emergence to Affirmation of the “Access EV” Concept for China Given the failure of scenarios based on derivatives of existing electric vehicles, the idea of developing an accessible electric product specifc to the Chinese market was beginning to gain ground at Renault. Clearly, it is necessary for a company arriving late to an already mature market to have an original and diferentiated product in order to break through. And the company had already proved, with the Logan and the Kwid, that this strategic scenario could succeed, against received wisdom within the industry. However, such a strategy would be deeply divisive. Some departments (such as the Laboratoire Coopératif d’Innovation, a unit in charge of exploring breakthrough vehicle concepts) and the EV program were pushing it, but it was not included as a prospect for 2013, 2014, or 2015 in the product strategy plan, because of uncertainty around market data and insufcient proftability. A key issue was the choice of platform—i.e., the structure and powertrain of the vehicle. Existing electrifed platforms were too expensive and therefore not adapted, and the one designed in partnership with Daimler for the European market, which would lead to the electric Smart and Twingo, was structurally too expensive for the Chinese market. Tis left one last scenario, based on the Kwid ICEV platform recently developed in India, which it seemed possible to electrify. But there was still a lot of resistance from the management team in charge of product strategy, due to uncertainties around volumes and proftability of the future product. Moreover, the nascent DRAC, a key decision-maker, would not back it. Te potential for success in the design-to-cost approach with the battery as a central element was not seen as convincing.

10 The Innovation Odyssey

In the face of this lack of consensus, the decision-making procedures that were in place were faltering. It would take an exceptional event, as is often the case at Renault, to emphatically launch the “Access EV” China project. While this exploration of possible scenarios was being conducted in the central divisions, a small “commando unit” formed around Détourbet, who had led the Kwid program in India, was quietly exploring a scenario based on electrifcation of the Kwid. In September 2015, Stéphane Deblaise, former chief engineer of the Duster in Brazil, now head of product planning and programming at DRAC, called Détourbet to discuss introducing the Kwid in China. Very quickly, they concluded that the ICEV version had no place in the Chinese market. But in November 2015, Ghosn, a connoisseur of the Chinese automobile industry, put forward the idea of making a low-cost electric vehicle for China. As Deblaise explained: “I got back in touch with Gérard, who said ‘OK, we’ll look into it.’ I then launched a real ‘Chinese-style’ product study, with customer surveys and interviews with dealers, very empirical and rapid, which returned a lot of data.” Tanks to Bo Chen’s PhD thesis at the École Polytechnique, they discovered a huge market for low-speed EVs, a kind of low-cost electric “voiturette” that coexisted with the market for “real” electric cars (which were extremely expensive). Dongfeng, for example, was selling a vehicle similar to the Smart Fortwo, made of aluminum. Tese expensive Chinese cars were sold thanks to purchase subsidies that paid for all the extra costs associated with electric cars. Deblaise continued: “We think that if we can make a real low-cost car, it will kill the market when the subsidies come down, which is expected in 2020.” At the request of Détourbet, who wanted to go and understand the context for himself, visits to universities and suppliers were organized to identify the best expertise on the subject of electric vehicles. Every three weeks, these missions brought together Détourbet, Deblaise, Antoine Saint-Marcoux—a specialist in electrifcation at DRAC—and one or two Chinese engineers who were essential for understanding the context. Tis discovery expedition was enough to reassure Détourbet that the idea was worth pursuing. Deblaise went on to say: “From these initial explorations, we looked to see if we had a playing feld by doing the following coarse-grained calculation. From the cost of the Kwid in India, we removed the engine and added the country productivity drift (China is lower performing than India in cost competitiveness). As the car is very light (750kg without the battery, a little less than 1,000kg with the battery), less battery is needed for the same performance. ‘200kg’ means either more range or lower cost. Here, we were aiming for lower costs. We then added the estimated cost of the battery, which at the time was 14kWh. In total, we arrived at an amount that was approximately the same as the admissible selling price as it appeared in the market studies. Tis coarse-grained calculation was and would remain the cornerstone of the project.”

The Long March of the Accessible Vehicle Concept for China 11

Figure 1.2 “Access EV” Project Starting Equation . . . Or Identifying a Credible Playing Field (Source: Authors’ interview with Stéphane Deblaise)

Figure 1.2 shows that there is room in the market for a proftable “Access EV” without any purchase subsidies; Détourbet believed in these fndings. Obviously, this intuition still needed to be tested against reality, and everything had to be built, but there was a credible starting point, and the president supported it. Te EV program and product management immediately rallied to this scenario. From then on, the qualifcation of the project took place outside of the traditional product planning schedule. A second loop of the 2015 plan—the “short loop”—hosted the “Access EV” China proposal for urgent evaluation in early 2016. Eric Feunteun, Renault EV program director, and Détourbet decided to organize two seminars bringing together Renault staf for the launch of the “Access EV” preliminary project—the frst in France in December 2015, and a second in China in January 2016—where the initial fndings would be shared.

Conclusion: the Emergent Strategy and Its Relationship to Projects What is striking about the Chinese market is the gap between the obvious strategic need for global automakers to conquer it and the difculty, to put it mildly, of translating this into precise, credible, and workable action plans. From this point of view, Renault appears to be a poor student, but it is not the only one. Most of the mainstream automakers have failed to make inroads. Volkswagen and General Motors are the exceptions, and their success has been largely due to

12 The Innovation Odyssey

their ability to embark on a conquest strategy at a very early stage and to sustain the necessary level of efort over a long period. Getting in on the growth of the Chinese automobile market was certainly easier during its more modest beginnings than when it was already at its peak. If a strategy begins through force of will embodied in a simple and clear formula, it is more likely to endure. Te notion of emergent strategy, as formalized by Mintzberg,* captures the process of trial and error that is generally needed to reach the level of consistency and credibility necessary for a strategy to prevail. Tis observation challenges the traditional view of the relationship between strategy and projects—according to which the latter are simply the implementation of the former, clearly defned based on forecasts and a natural direct consequence. In reality, if a clear strategic expression is necessary for the initial concept, it is the projects that will build its content. It is by evaluating completed projects that the relevance or adequacy of a particular strategic axis will be judged. And when Ghosn fnally decided on the approach of attacking the electric vehicle market in China from below, it was because he believed he had a credible project to give meaning to this strategy. Projects drive strategy, as least as much as the other way around. Te other lesson from this emergence phase is the failure of established decision-making processes to correctly evaluate possible options when they deviate signifcantly from the established way of doing things. Te analysis tools of strategic marketers are based on extrapolation of existing markets and products. Tey can propose probable market dynamics on a PowerPoint® chart, and thus situate vehicle concepts in relation to these trends. But they are powerless to express the real issues and constraints of truly innovative projects that propose radically new concepts in unknown markets, except to say that they are riskier. Te best guide for settling arguments that rationality alone cannot resolve is strategic intuition, and the discretionary intervention of general management— in this case Ghosn, just as Louis Schweitzer intervened in the late 1990s for the Logan. A key theme in the study of innovation is the importance, in large and bureaucratic organizations, of a balance between established decision-making processes and more maverick exploratory teams led by visionary and inspiring intrapreneurs who are competent, pragmatic and, above all, trusted and listened to by those at the very top of the company. *

Mintzberg, H., and Waters, J. A. (1985). Of strategies, deliberate and emergent. Strategic Management Journal, 6(3): 257–272.

Chapter 2 Preliminary Project: Exploring the Unknown

Te two seminars mentioned at the end of the previous chapter—one at the Renault Technocentre in December 2015, the other in Wuhan, China, in January 2016—marked the transition between the unofcial exploration of the Kwid electrifcation scenario and the ofcial launch of the K-ZE preliminary project. Teir objective was to share the data collected with the Renault actors in France and then with all the project actors in China in order to align the vision of the diferent teams with that of the initial commando unit. Tis pre-project phase ended in September 2016 with a meeting at Renault’s headquarters in Boulogne-Billancourt (on the southwestern edge of Paris). Tis meeting, an in-person event involving the executive committees of the three groups—Renault, Nissan, and Dongfeng—would seal their agreement on the main options for a joint development of the K-ZE project. However, between these two milestones, the initial concept would need to be further developed by exploring, constructing and then testing the structural variables of the potential project: target markets, level of performance to be achieved, technological choices, design, level of investment, choice of industrial location, key suppliers, etc. Tis in-depth study was led by a core group of no more than fve people who had the authority to mobilize the Renault and DRAC teams to conduct the necessary studies.

13

14 The Innovation Odyssey

An Exploration Driven by Economic Factors Te design-to-cost approach, deeply rooted in the skills of Gérard Détourbet and his teams, was at the heart of the exploration and subsequent management of the project’s development. It began with a “coarse-grained calculation,” as Stéphane Deblaise modestly described it. Tis equation would refect the economic playing feld in which the project was situated: the price zone, derived from the segment in which the new product must be placed, which would in turn defne the manufacturing and investment cost zone, enabling a proftability that would make the project acceptable to the company. Te principle of design-to-cost consists of taking this data as a rough starting point—as a kind of compass for designers. Contrary to a more traditional approach, where the end cost is the result of a costing of product and technical engineering choices (cost-to-design), here the functional and technical defnitions are subordinated to the cost targets. And when you are looking for a product whose selling price is strongly ofset, this leads to a particularly demanding cost objective. Tis approach was frst used in the early 1990s on Renault’s Twingo project, as shown with humor in a drawing by project director Yves Dubreil in Figure 2.1. Implementing this method requires very strong skills in product design as well as in automotive technology and production engineering; it demands the ability to analyze products and processes in detail and to distinguish between essential and

Figure 2.1 Design-to-Cost (Source: Renault seen by Yves Dubreil, Vestalia Publipole Printing, 2009, translation by the artist)

Preliminary Project: Exploring the Unknown 15

non-essential mobility needs. Such skills are far more relevant here than sophisticated accounting instruments. Indeed, it is not a question of making the least expensive product possible, because that would be impossible to sell. Rather, as the drawing shows, it is about defning the essential requirements to bring the product up to the level of the competition (compliance with regulations, safety, minimum functionalities, . . .) expected by the target customers in this segment. Ten, identifying a few properties that will diferentiate the product—the unique selling points (USPs) which, apart from the price ofset, will ensure that the product is chosen over the competition. However, beyond achieving these few USPs, no deviation from the target cost is accepted. Tis approach must be applied across all economic parameters of the project: the entire manufacturing cost, which includes the internal costs of the automotive company and the cost of purchased supplies. In the automotive industry, these generally represent more than 75% of the total value. It is also necessary to consider the price of the “entry ticket” for a new development, including product engineering costs, industrial investment costs, and commercial launch and distribution costs. As is often forgotten, launch and distribution alone represent around 30% of the total cost of a car. At the start of the preliminary project, not all of these aspects are being worked on. Te main point is therefore to specify this target—to defne the minimum acceptable defnition and the choice of USPs, with a little extra breathing room— and then to decide if the target is feasible, in particular the 75% of the cost represented by the purchase of components from suppliers.

Framing the Research Tis was the ambition of the December 2015 seminar at the Renault Technocentre in Guyancourt (southwest of Paris) and the January 2016 seminar in Wuhan. At the frst, Eric Feunteun, director of the Renault EV program, and Détourbet reiterated the strategic ambitions of the project while establishing its legitimacy by recalling that it benefted from the strategic commitment of the alliance’s CEO, Carlos Ghosn. First, having outlined the failure of the “sinicization” of the European Fluence, they explained the need for electric vehicles to meet the requirements of the Chinese authorities, from the beginning of the sale of ICEVs that Renault was preparing to put on the market. Tey added that the concept of an accessible vehicle was chosen in anticipation of the end of purchase subsidies scheduled for the end of 2019. In addition, this would help them to meet the recent demand of the French government to ofer cheaper electric vehicles (the European version of the K-ZE

16 The Innovation Odyssey

was therefore a consideration from the inception of the project) and, fnally, to design a vehicle predisposed to car-sharing. Te second seminar in Wuhan, which was much more comprehensive, lasting three days, restated these strategic objectives. It was also above all an opportunity to gather and share all the data available at that time: market studies, competition, technical data on the standards with which the car would have to comply, and so on. Te meeting brought together some 30 people from the product, program, and engineering functions of the various companies involved, both at Renault and in the Chinese joint ventures of the Renault-Nissan Alliance—Dongfeng Renault Automotive Company (DRAC)—and two cooperative entities between Dongfeng and Nissan—Dongfeng Motor Company Limited (DFL) and Dongfeng Automotive Corporation (DFAC). Te program was ambitious: a visit to DRAC’s Wuhan plant, comparative tests of Chinese electric vehicles (see Figure 2.2), presentation of the market by the EV product department, presentation of technical specifcations of the K-ZE by the Kwid engineering team, a test drive of the Dongfeng Nissan R30 (Nissan’s attempt at a low-cost EV in China), and discussions on the supplier strategy of the K-ZE project and on other Renault EV China projects.

Kandi K11

Microbus (ZuoZhongyou)

Zotye Yun 100

Dongfeng E30L

Figure 2.2 Competitive Analysis at the K-ZE Seminar in Wuhan in January 2016 (Source: Chen B., 2018)

Preliminary Project: Exploring the Unknown 17

In terms of market competition, benchmarking showed that few efcient electric competitors existed in the target segment—the A segment.* Tis was one of the challenges of the project: strategic marketing experts generally rely on the existing market picture to defne the target for future vehicle projects. But no market does not mean there is no demand. In reality, this issue of the unknown Chinese market for afordable electric vehicles would turn out to be much more complex than the predictable European markets for the following reasons: First, because of the importance of Chinese national and regional regulations on electric vehicles. Te purchase subsidies were massive and carried signifcant weight; they refected the widespread desire for the EV support policy in China to heavily discount sales. For example, in 2016, these subsidies could reach a maximum of RMB 90,000 (€11,700),† but since then they have been reduced. On the automakers’ side, the regulations that set maximum fuel consumption targets per vehicle (per weight range) forced them to sell electric cars in order to be able to sell ICEVs. Tis pushed the supply side to market cheap, if unproftable, electric products. Consequently, detailed knowledge of electric vehicle standards is a central requirement for all those who venture into this market in China. Tis knowledge is all the more important as these standards are evolving rapidly. Second, there is the vagueness that the term “electric vehicle” encompasses in China. Outside the “ofcial” Chinese market, where automakers—known for a long time to the global automakers—are fghting, there are “micro EVs.” Tese are cars that are illegal and normally banned from circulation, but which are in fact widely distributed in the provincial cities. Tis is a gray market, whose importance has been revealed in particular by Bo Chen’s thesis, mentioned above. Micro EVs have mediocre performance (in terms of speed and range as well as safety levels), but they have important advantages for certain users, including newcomers to car mobility: no number plate, no need for a driving license, and obviously a low price. So how would Renault’s new vehicle position itself in relation to this gray market? Given the objective of a vehicle with global potential set by the president, it was clear that the vehicle would need to be designed to meet ofcial standards.

*

†

A car segment is a category of cars that positions each model within the automotive market. Tese models are generally classifed according to the size or use of the vehicle, and there are diferent defnitions in diferent parts of the world. Here, the A segment designates a rather small car (length < 4m) dedicated to urban use. Tat is, national support of RMB 60,000 (€7,800)—40–60% of the production cost— and local support limited to 50% of the national support, or RMB 30,000 (€3,900). Lu, J. (2018). Comparing U.S. and Chinese Electric Vehicle Policies. eesi.org, February 28.

18 The Innovation Odyssey

In practice, the market opportunity for the K-ZE lay in the regulatory dynamics driven by the Chinese authorities. Indeed, in its proactive policy of creating a dominant Chinese electric car industry, the government was putting pressure on the very real illegal micro-EV industry by legalizing these vehicles at the cost of a very signifcant improvement in product performance, while challenging the ofcial EV manufacturers by progressively eliminating purchase subsidies.* Te “ofcial” electric A segment was therefore a high-growth area of the market. Te K-ZE project, which was both electric and accessible, was thus particularly well positioned, but it would need to go “fast and well”; if it succeeded, it would quickly be attacked from above by Chinese manufacturers who would “move down” in their range, and from below by micro-EV suppliers in their trajectory of catching up with the standards of the “normal” automobile universe. Te target of the K-ZE project was therefore to produce a product, then called “Access EV,” competitive in the A segment and proftable without subsidies. Tis is how Renault’s K-ZE project clearly outperformed existing electric products from Chinese manufacturers Chery and Zotye, which used outdated lead-acid battery technology. Tese vehicles were certainly cheaper but much heavier for comparable speed and range performance. (See Table 2.1.) In addition to the existing products, there were two other projects competing with K-ZE: a Nissan-Dongfeng joint venture project derived from an existing ICEV—the Venucia R30—and a Dongfeng project. Te K-ZE project had a major advantage from the outset: the use of the platform developed in India for the ICE Kwid, which was unbeatable in terms of cost and weight. In comparison, the frst analyses made during the seminar by Renault engineers on the R30 showed that its cost level was unlikely to be proftable without subsidies. As for the project announced by Dongfeng at the time of the seminar, it remained unknown to Renault. In this context, the seminar focused on the electrifcation of Kwid, where the main challenge was the integration of a heavy battery (200kg) into a 750kg car. Te ICE version of Kwid would be awarded two or three stars according to Chinese car safety evaluation criteria. But the integration of a battery would be a deal-breaker, as the necessary resistance of the whole vehicle to impacts from crashes, especially from the rear or the side, would demand signifcant adaptation of the structure, all within tight cost and weight constraints. Lightness was seen as a key asset in the performance of the product: it would make it more competitive than its heavier counterparts in terms of both performance and range, while lowering its production costs.

*

Chen, B., Midler, C., and Ruet, J. (2018). Te development of the electric vehicle in China: Market realities and regulatory dynamics. Gérer & Comprendre, 131: 69–79.

Preliminary Project: Exploring the Unknown 19

Table 2.1 Access EV Performance Positioning Compared to the Competition

Source: DRAC, information provided to the authors during the China mission in March 2018.

Beyond these fundamentals, the scope of the future vehicle’s features would also need to be completely defned. What would be the standard of interior equipment? Would it need air-conditioning? (Tis factor alone would have a major impact on the battery’s range in hot weather.) What range would future customers need? What engine power? What engine torque? What battery voltage? What maximum speed? Defning the vehicle’s characteristics was a battle between Renault’s corporate product planning division and Détourbet, who, as the uncontested leader of accessible vehicles, had already been through this with the Logan’s launch in 2004.* Engineering and the EV product team therefore favored a possible adaptation to the European market from the outset. Meanwhile Détourbet insisted on focusing on the China and possibly India markets in the project framework. Europe could come later, but only after success in China. Otherwise, he reasoned, the vehicle would still

*

Midler, C., Jullien, B., and Lung, Y. (2012). Te Logan Epic. New Trajectories for Innovation. Paris, Dunod.

20 The Innovation Odyssey

be too expensive for China. “Tis is always the problem with product planning . . . Tere are regulations, and we have to understand them and work within them,” said Détourbet. He then asked for a comparison of Chinese and European regulations. On the industrial side, the program aimed to achieve a production volume of 100,000 units per year, including the needs of the future version for Europe, while locating production in China and duplicating the manufacturing process of the ICE Kwid in Chennai as far as possible. Te location was not expected to pose a problem in terms of suppliers, as China had a large network of automotive suppliers. But if the electric motor of the new project could easily be sourced in China, the Chinese batteries might seem less competitive, which would need to be evaluated in the coming months. As far as the schedule was concerned, for engineering and the EV product, and in accordance with Renault’s classic development planning process, the commercial launch was scheduled for 2021. But for Détourbet, that schedule was twice as long as he wanted. Te car would need to be released in 2019 to take advantage of Chinese purchase subsidies ending in early 2020. A target vehicle proftable without subsidies would reap huge profts if it reached the market before the subsidies came to an end. Tis was a gamble based on the experience of the Indian Kwid, which was industrialized in three years, but which would need to be validated in the Chinese context. In summary, the meeting decided on a target sales price (RMB 50,000–70,000 excluding subsidies, or €6,500–8,100) which would position the K-ZE between the “illegal” micro EVs and the center of the market (see Figure 2.3). Te cost was based on the ICE Kwid, with specifcations based on the regulatory minimum of a “real” Chinese electric car. Te north of the “project compass,” as Deblaise put it, was fxed. However, as we will see later, changes in the rules for awarding purchase subsidies and in the sales requirements for electric vehicles would drastically alter the initial equation. Te conclusion of the seminar allowed six months to test this scenario and identifed fve priority tasks to resolve the major uncertainties remaining: benchmark the suppliers whose performance would be essential in achieving the cost objectives; select the car’s production site; detail the minimum regulatory level, which, as already pointed out, would have a major impact on the selling price; build a K-ZE prototype (a mule*) to test the performance level of the future product; and fnally negotiate with the partners to construct a distribution network to maximize volumes. *

A mule is a production vehicle modifed to accommodate all the components and parts of a new technical solution. Tis makes it possible to carry out initial validations at a lower cost on a representative vehicle. In this case, it was a regular Kwid whose thermal powertrain had been replaced by an electric motor, a battery, and the appropriate control systems.

Preliminary Project: Exploring the Unknown 21

Figure 2.3 Price Positioning of the K-ZE in Relation to the Market (the amounts are the transaction prices assuming 90 KRMB subsidies per car; Source: DRAC, information provided to the authors during the China mission in March 2018)

Researching the Supplier Base—Key to the Feasibility of Design-to-Cost Because suppliers account for three-quarters of the cost price of the vehicle, it is clear that the priority in the initial economic evaluation was to judge the capacity of potential suppliers to meet the component price targets. Following the January 2016 seminar in Wuhan, the project went through a research phase, exploring the Chinese automotive industrial environment. Détourbet organized this logically: priority was given to working with suppliers of components for the electric powertrain, which were critical in terms of deadlines and costs, as well as being

22 The Innovation Odyssey

completely new. In a second phase, the networks of suppliers to the Chinese partners were asked to tender for the car’s more conventional components. Two missions to explore the supplier environment centered on the electric powertrain were therefore organized in March and April of 2016. On the DRAC side, R&D, purchasing, the EV program, and the EV product divisions were on board. On the Renault side, participants included the EV program and electric powertrain engineering divisions. Te meetings took place in Wuhan at the DRAC headquarters and in the surrounding area, but also in Hangzhou, Suzhou, Ningde, and Shenzhen—important centers of the Chinese automotive industry that were potential manufacturing sites for the future car. Te results of these missions were, in Détourbet’s opinion, surprising.* Te Chinese supplier community is heterogeneous: some suppliers are excellent, while others clearly lack a technical and industrial culture. Te design-to-cost approach requires suppliers to have a precise understanding of their ability to meet the objectives to which they are committed, which is often not the case. In addition, the Chinese automotive market is overheated, and suppliers are in a strong position; they are not desperate for orders even when established frms, Chinese or otherwise, come knocking at their door. Added to these problems was the gap between Chinese standards and those of Renault. And all of these difculties were compounded in the feld of batteries: Chinese batteries would not meet Renault’s standards; consequently, at this stage of the study, non-Chinese batteries were seen as candidates for the electrifcation of the Kwid. Not that this upset the major Chinese battery suppliers, whose order books were overfowing. Te research nevertheless gave the team working on the preliminary project confdence in their ability to achieve the target objectives. On the one hand, the study showed that more than 90% of supplies could be sourced in China,† but on the other hand, it revealed that the cost challenge was considerable: based on an exhaustive scope of 50 suppliers on electrical parts and 110 on other components, the estimates returned were 5% higher than the target. Te September 2016 meeting, which concluded the preliminary project research, also demonstrated that the supplier feedback showed increasing potential to meet the cost targets (see Figure 2.4). As Deblaise pointed out, “Tis helped us to convince our partner, Dongfeng, who had some doubts at the time about our ability to keep costs down: 70% of the car’s structure had been analyzed, so it was empirically proven.”

* †

Interview with Gérard Détourbet during the authors’ China mission in March 2018. Assuming battery sourcing in China after cell qualifcation.

Preliminary Project: Exploring the Unknown 23

Figure 2.4 Changes in Supplier Prices Following the Application of the Design-toCost Approach in Spring/Summer 2016 (Source: K-ZE project, information provided to authors during the China mission in March 2018)

Choice of the Manufacturing Plant The question of where the car would be manufactured was obviously key, as it combined economic and political factors: the geography of industrial sites is, in China (as it is in Europe), strongly linked to public planning decisions. The creation of the DRAC factory in Wuhan was the result of China’s desire to make the region a major automotive hub. However, for the new project, building a new plant was out of the question for reasons of profitability. It was therefore necessary to find sites with the necessary capacity, while also having access to the level of expertise needed to achieve the quality and cost targets. Three scenarios were envisaged (see Figure 2.5). These resulted in field trips that the team organized with Dongfeng managers in Wuhan. The first of these was to the new plant of the Renault-Dongfeng joint venture in Wuhan, which was under construction and was intended to manufacture future ICE products. This was a “cathedral-like plant,” as Détourbet put it, but it was quickly eliminated because it would have imposed far too many fixed costs on the project. The second site under consideration was a recent plant belonging to a Dongfeng subsidiary in Liuzhou (DFLZ) in Guangxi province, southern China. This was a well-established automotive industrial center, producing two million cars annually, where Dongfeng had a large and modern facility in partnership with the city (the capital was split 75% for Dongfeng and 25% for the city). Christophe de Charentenay met with the local Dongfeng managers, who were very interested. From the point of view of the project, this site offered a guarantee of professionalism and access to a dense supplier network as well as a location

24 The Innovation Odyssey

Figure 2.5 Locations of Industrial Sites Explored (Source: Information provided to the authors during the China mission in March 2018)

close to Guangzhou and Shenzhen, which was interesting for exporting outside China. However, the region was sufering from industrial overheating, which did not bode well for obtaining the production capacity at competitive rates for the new vehicle. Finally, the Shiyan plant, owned by Dongfeng Sokon (DFSK), a 50/50 joint venture between Sokon and Dongfeng, was also considered. Shiyan is a prefectural city deeply embedded in a very mountainous area in the northwestern part of Hubei province. Te city’s inaccessibility was why Mao Zedong had imposed the location of Shiyan for the production of military equipment in the late 1960s—to protect the facility from potential foreign invasions. The automobile industry later developed there. The factory was old—the visit revealed an industrial site “à la Zola” * according to Détourbet and Deblaise. Nevertheless, it had available capacity, and visits to local suppliers revealed very costcompetitive companies with high standards. Finally, the site was to be upgraded as

*

Émile Zola, French writer of the 19th century—famous for, among other things, a precise description of the very difcult working conditions in a coal mine.

Preliminary Project: Exploring the Unknown 25

part of the Chinese government’s plan to provide signifcant subsidies, which would be good timing to minimize the industrialization costs of the new K-ZE vehicle. At Dongfeng’s headquarters, the preference was for the Shiyan site, for reasons of compliance with political directives. Te project team agreed with this option; this was not its frst choice, but it was seen as “low-cost compatible” and would smooth relations and therefore cooperation with the partner Chinese company. Te decision would be endorsed at the September 2016 summit meeting.

Monitoring the Dynamics of Chinese Electric Vehicle Standards Te other key aspect of the research concerned knowledge of Chinese standards for electric vehicles. A specifc team was set up to focus on this topic in January 2016, to mobilize Renault’s electric vehicle experts and Chinese engineers and consultants. Dongfeng’s support appeared decisive here; its status as a stateowned company meant it was well placed to access the various departments in charge of setting standards and subsidies related to electric vehicles. Te work of this team was therefore crucial but difcult—there were many complex regulations, which would dictate the technical specifcations of the car, and they were also changing very rapidly (see below).

CHINESE REGULATORY CONCEPTS IN A NUTSHELL

• Corporate Average Fuel Consumption (CAFC). A regulation setting a maximum fuel consumption limit for each model of combustion engine vehicle and, on average, for a manufacturer’s sales for the year. • New energy vehicle (NEV) credit. A regulation requiring the achievement of an annual NEV credit amount calculated on the basis of the performance of plug-in electric vehicles sold. • Subsidies. Direct purchase subsidies, calculated on the basis of the intrinsic performance of a plug-in electric vehicle.

Te frst two rules, in the case of non-compliance, oblige a manufacturer to buy missing NEV credits from other manufacturer(s), while the third can simply remove from the market a vehicle whose performance is insufcient. Tese regulations are defned at the national level, but at the regional or even local level they can also be used to decide to allocate direct or indirect subsidies—for example, by launching calls for tender to provide public feets with electric vehicles. Tis is not

26 The Innovation Odyssey

insignifcant when one considers that the regions can be shareholders of powerful automotive groups such as SAIC in Shanghai or BAIC in Beijing. Finally, these rules change quickly and at short notice (three months), depending on the realities of supply performance.* Tis goes to show that the framework proposed by Détourbet—i.e., keeping to the minimum of the regulations—would require the team to be remarkably vigilant, prescient, and reactive, because changing the capacity of a battery or the range performance would obviously be far more difcult than changing the corresponding fgures on an ofcial form.

A Prototype Prepared in France, and a New Modular Battery After meetings where discussions were based on presentations of data from the digital design, the realization of the prototype (mule) giving concrete form to the options being studied was a key step in judging their relative merits and refning them. In April 2016, just three months after the start of the project, a meeting of the main Renault/DRAC/2ASDU players was organized at Renault’s Lardy Technical Test Center in the southern Paris region. Te purpose of the visit was to test the performance of the electric powertrain on a frst K-ZE mule designed by the center’s teams. Diferent options for motor power (20kW or 30kW) and battery capacity (12kWh or 17kWh, which seemed to be a maximum in terms of crash resilience that the adopted platform could withstand) were evaluated. Finally, the option chosen was that the K-ZE would be equipped with a modular battery with 100, 150, or 200km of NEDC† range, enabling it to meet customer expectations as closely as possible.

Multi-Brand Marketing, but Volume Forecasts Remain Uncertain In April 2016, new market forecast studies were released. Renault’s EV product was subject to an optimistic scenario, reaching a volume of 50,000 vehicles per

*

†

Chapter 7 is devoted to the study of Chinese and European regulations governing the transition to decarbonized mobility and their efects on supply and demand. New European Driving Cycle: vehicle homologation test applied in Europe until 2018 and in use in China until June 2021.

Preliminary Project: Exploring the Unknown 27

year for China. Tis scenario was based on distribution under four brands: Fengnuo (a Chinese brand of DRAC), Venucia (the Chinese brand of Dongfeng-Nissan), Dongfeng, and Dongfeng-DFSK. On this deployment strategy, Feunteun stated: “We will not be in every city in China by defnition, but by the structure of the networks of the four brands, some more focused on rank 3/4/5/6 cities, others more on rank 1 and 2 cities. Overall, we will have good coverage in tiers 1 and 2, and partial but deep coverage in tiers 3 and 4, because the partners we work with do not necessarily all have national coverage in the lower-tier cities.”* Beyond the Chinese market, Renault’s decision-makers, buoyed by their previous experience with the Dacia line, could see signifcant potential in the K-ZE to conquer a global market. Indeed, electric vehicles are not proftable for automakers and are expensive for customers; thus, for the director of Renault’s EV program, the idea of designing an entry-level vehicle and moving upmarket—the opposite of Tesla’s strategy—was obvious. In contrast to Renault’s optimistic forecasts, however, Nissan’s were pessimistic, based on the assumption of a gradual attrition of the A segment and the low probability of enticing micro-EV customers (who often don’t have a driving license . . .) to buy a K-ZE, even if attractively priced. Nissan was selling one million cars a year in China but had sufered major setbacks in the electric car business. Its opinion was perhaps not to be ignored.

September 28, 2016, Meeting A meeting between the Renault-Nissan Alliance and Dongfeng was scheduled for September 28, 2016, to close the pre-project phase. Prior to this, a meeting at the Renault-Nissan Alliance level took place on September 23; a dress rehearsal for the following week’s summit. Its aim, clearly stated, was for the alliance to “speak with one voice” at the summit with Dongfeng. Indeed, Nissan did not involve itself in the exploration of the Kwid’s electrifcation scenario and pursued its own project, ER30, based on the electrifcation of a combustion engine car already sold by DFAC under the Venucia brand. Te K-ZE team did not consider this project to be in competition with theirs, as it was aimed “higher,” targeting cabs and feets.

*

Quote from Bo Chen’s thesis. Chen B. (2018.) Strategies and management of disruptive innovation in emerging countries: Te case of the electric vehicle in China. PhD thesis in management defended at Paris-Saclay University.

28 The Innovation Odyssey

Te “China Summit” on September 28 brought together the CEOs of the three companies (Ghosn for the Alliance and Renault, Hiroto Saikawa for Nissan, and Zhu Yanfeng for Dongfeng) as well as the teams that worked on the project. It took place at Renault’s headquarters in Boulogne-Billancourt. A model of the Kwid ICEV was placed in the reception hall to visualize the option proposed by the alliance. A consensus would now need to be reached on the product to be developed. On the Renault side, the team led by Détourbet had been working since January 2016 on exploring the K-ZE scenario. Te conclusions of engineering work and supplier visits had persuaded him of the technical feasibility of the project and that it could meet its cost objectives: “I am increasingly convinced that this project will meet its costs,” he said. “But will we succeed in building a common team? And is this really desirable?”* At that point, the work had barely been shared with Dongfeng, as evidenced by the note Détourbet wrote to Ghosn on September 23, 2016†: “Very difcult to work with Dongfeng: • impossible at this stage of the project to work together. Tey do not participate in our work and they do not produce anything except positions taken among themselves that we have to dismantle later! Tis is what I call playing tennis against a vicious bouncing wall! • they are non-transparent: e.g. 1. what they told you about their project, e.g. 2. what they told us about possible sites, e.g. 3. their remarks/judgments about the Kwid that they do not express clearly . . .” In fact, Dongfeng brought to the meeting an alternative proposal to the Kwid electrifcation scenario, based on the adaptation of one of its existing vehicles (codenamed R30 EV). Its approach was to take an existing vehicle and adapt it by integrating an electric powertrain and battery. On paper, this scenario seemed simpler, reducing the need for industrialization investment, and had an obvious advantage in terms of schedule. But Dongfeng was not expecting the Renault team to work so quickly, and its progress was behind the K-ZE proposal. Consequently, Dongfeng requested a two-month delay to develop its proposal further and then compare the two scenarios.

* †

Quote by Gérard Détourbet from Bo Chen’s thesis (op. cit., 2018). Note from Gérard Détourbet to Carlos Ghosn on September 23, 2016, provided to the authors by Gérard Détourbet.

Preliminary Project: Exploring the Unknown 29

Te proposal was not considered credible by the Renault team: “Tere is no study that shows the feasibility of the EV R30 scenario.”* In a letter to Ghosn, Détourbet clarifed his feelings about the Dongfeng proposal: “Teir project. I think that they didn’t have a project a few weeks ago and that they even considered that this project would be stopped because they could not keep up with the costs. Since then they have seen the results and must be thinking: why not us? Hence the secrecy and the request for a two-month postponement of the decision to give them time to check the architectural mesh on one of their vehicles.” For its part, Dongfeng questioned the capacity of the Kwid platform to accommodate the necessary battery. Chen Daoran, former CEO of Dongfeng Liuzhou, was assigned by Dongfeng to prepare the meeting among the presidents. After 30 years in a small car company in Liuzhou, he had become the head of the company after Nissan withdrew from the capital; he then sharply increased the annual production volumes up to 250,000 vehicles by launching several vehicle models in the B and C segments. His success at Dongfeng Liuzhou propelled him to the numberthree position at Dongfeng. Faced with Renault’s engineers, who knew nothing about the Chinese market, but who explained to him that the Kwid non-localized platform was much better than the adaptation of his existing vehicle, he agreed to spend a day at the Renault Technocentre to observe the Kwid from every angle. At the end of this working day, he remained unconvinced of the ability of the electrifed version of the Kwid to withstand the crash tests† with the mass of the battery, and he considered that the visibility of the mechanical parts from underneath the chassis would be a problem for customers. Tis episode, which annoyed Renault’s engineers (“you don’t style a chassis”), was actually a response to a common practice among Chinese customers of looking under a car before buying it. Te meeting among the presidents in the presence of the three executive committees was tense: to postpone the decision by two months would call into question the whole schedule—which, as we have seen, needed to be particularly rapid to take advantage of the purchase subsidies. Faced with this blockage, Ghosn intervened: since the criticism of the Kwid’s electrifcation scenario was essentially based on the robustness of the chassis, he asked Détourbet what the impact would be of designing a more resistant chassis to respond to Dongfeng’s criticism. Te team replied that with 3kg and €3 more, it would be feasible.

*

Slides from China seminar on low-cost EV, September 23, 2016—provided to the authors by Détourbet. † Future developments will show that he was right. See Chapter 5.

30 The Innovation Odyssey

Ghosn then asked Dongfeng’s CEO for his decision on which platform to retain. Zhu Yanfeng reserved his answer and asked for a 45-minute break in the meeting to confer with his team and confrm Dongfeng’s collective position. Dongfeng fnally accepted the proposal to take forward the Kwid platform, and the scenario was endorsed by both partners. Te meeting also clarifed other important commercial and industrial points: • Consensus was achieved through planned distribution under different brands: Renault through the DRAC network; Dongfeng through the DFSK and DFLZ networks, optionally through the Venucia network (a joint venture between Dongfeng and Nissan) and exported by Renault. But this multi-brand marketing raised the question of model diferentiation, a point stressed by Zhu Yanfeng in the minutes of the meeting. Tis was a delicate issue because, in order to minimize costs and shorten deadlines, the option chosen by the project team was to use as many as possible of the Kwid’s bodywork tools with a long development time, which would determine the car’s exterior style. • Te choice of Shiyan as the production site for the car was also decided at this meeting. • Te schedule of the project was also decided (see Figure 2.6) Finally, it reafrmed the strategic foundations of the project as seen by both partners. For Ghosn: “For the alliance, the afordable electric car is a strategic product for China and outside of China to meet emissions regulations. It will be a global product and China will be the main market, so timing is crucial.”

Pre-Project

Development

Decision

Contract

(Summit K-ZE 28/09)

W17

Industrialization Tooling Go-Ahead W27

Manufacturing Start of Agreement Sales W11 W14 W24 Start of production

Figure 2.6 Proposed Schedule at the “China Summit” on September 28, 2016 (Source: K-ZE project, realized by the authors based on interviews conducted during the China mission in March 2018)

Preliminary Project: Exploring the Unknown 31

Zhu Yanfeng, for his part, emphasized Dongfeng’s priorities: “Te RenaultNissan team has to keep in mind that this product is designed for China, not for India or Brazil. It needs a modern look inside and a new business model. Tis car will have to be available under diferent brands, [which] will have to be slightly different from each other. So, we should innovate on the business models instead of looking for proft. We can use simplifed tooling and each party can reduce costs by sharing them. We also need to make our cooperation more efcient in order to produce a very efcient low-cost electric vehicle.”*

Conclusion: The Preliminary Project Is an Integral Part of the Whole Te partners had extremely divergent views on the choice of a platform, and this pre-project phase revealed challenges in terms of cooperation. Te project would have to fnd a way to tightly integrate the teams, otherwise it would be guaranteed to fail. Although the consensus on a scenario was certainly clearer at the end of September 2016, there remained the question of the economic model of the project in the context of the partnership. As noted by the president of Dongfeng, this issue was not specifcally addressed at the meeting on September 28, 2016, which was mainly focused on the feasibility and overall proftability of the project. Tis was clearly the next step to be taken, along with the constitution of the structure that would steer the collaborative development. Te phase that was coming to an end is traditionally known as the preliminary project. Te established term refects this essential stage of a project, where the compass that will guide its entire subsequent trajectory is set. If the project mode is characterized, above all, as a management function driven by a target objective, the very defnition of this target is obviously integral to the process. Te preliminary project is defnitely an intrinsic part of the project. Separating the business teams or upstream strategists from the implementation teams, as so often happens, is to risk a breakdown in understanding and acceptance of the strategic identity of the project. Te involvement of the project manager from the very beginning, when the target is set, is a minimum guarantee that the person who will embody the project’s identity fully understands and shares its meaning. Tis separation of teams has long been upheld by the literature in this feld of research, which focuses on tools and processes. Te latter are certainly useful for

*

Minutes of the September 26, 2016, meeting provided to the authors during the March 2018 mission.

32 The Innovation Odyssey

managing the empowerment of the development phases and planning and controlling the complexity of the increasingly numerous team members required for implementation, but it also assumes that the initial defnition and meaning of the collective venture has been settled. If project management is identifed with the mastery of these tools, then it may neglect the emergence phases, when “we are not yet in the project.” It was as late as the second half of the 1990s that the importance of the upstream phases of strategic development was recognized as a key area of competence for project management, including by authors who had previously been the guardians of defning the scope and content of a project.*

*

Morris P. W. (2013). Reconstructing Project Management. London: Wiley & Sons.

Chapter 3 An Innovative Framework for a Cooperative Design While the project appeared to be well underway following the September 2016 summit, the question of “how” remained largely unresolved, exacerbated by the fact that it was taking place in the complex context of cooperation between the Renault-Nissan Alliance and the Dongfeng Group, itself a conglomerate of diferent companies. Te decision to launch the project in September 2016 was taken on a knife edge, and the tensions between Renault and Dongfeng (see Gérard Détourbet’s September 2016 report to Carlos Ghosn, cited in Chapter 2, page 28) represented a major risk to its future. Te original business model requested by the chairman of Dongfeng was developed in tandem by a team constituting Chen Li for Dongfeng and Christophe de Charentenay for Renault. In November 2016 in Wuhan, during the project review that followed the September 28, 2016, summit, Tierry Bolloré (Renault’s CEO) and Li Shaozi (Dongfeng’s number two) approved the business model proposal. However, it would take another meeting on April 20, 2017, involving the three presidents of Renault, Nissan, and Dongfeng, for Nissan’s participation in this cooperation and the composition of the development entity’s capital to be approved. Tis would provide a clear framework for design cooperation, while also setting out the respective fnancial commitments and rewards. It was obviously necessary to convince each party that the cooperation would be benefcial for all and that it would therefore be worthwhile for them to get involved. Te response was threefold. At the institutional level, there was the creation of an autonomous project development entity, eGT (for “electric Golden Triangle”), 33

34 The Innovation Odyssey

reporting directly to the CEOs of the project partners: Renault, Nissan, and Dongfeng. In terms of the business model, in a break with traditional automotive projects, the rights and duties of the various stakeholders involved in the project were specifed. Finally, at the organizational level, the constitution of the development team gave concrete expression to the complementary nature of the resources mobilized by the cooperation. It would bring together the Indian team’s experience in designing the ICEV version of the Kwid, Renault’s expertise in electrifcation technology, and, of course, Dongfeng’s engineers’ knowledge of China’s automotive industry and the complexity of government regulations. As François Provost,* who supported the project from the start as head of the Asia Pacifc region for Renault, said: “We have set up a very innovative collaboration scheme with China that really satisfes all the players. So much so, in fact, that we are in the process of renewing it for future vehicles, and this type of scheme is developing rapidly in China, particularly with startups on electric vehicles.” Te principle of the scheme was defned by Zhu Yanfeng, the chairman of Dongfeng: it would be a joint design, owned by the three founding groups via eGT. Dongfeng would thus be on an equal footing with Renault and Nissan. Provost summed it up as follows: “Te idea was to do something diferent from traditional joint venture schemes. Traditionally, joint ventures start by investing massively in buildings, factories, etc. Each party seeks to make the maximum proft from the cooperation from the outset, even before the project is activated. And here, the idea was to make a development company instead, and to mobilize the resources of the partners to develop a common good in a ‘lean’ way, which can then be used by all . . . Tis vision of the cooperation model was deeply original.” With that in mind, let us return to the diferent components of this structure.

eGT, the Operator of the Project Automotive projects are generally carried out within a manufacturer’s organization. Te responsibility for development is then entrusted to a project team, directly dependent on the general management if it is “heavyweight” project management,† or dependent on functional hierarchies (engineering, product planning, etc.). When the project is carried out in cooperation between two

*

†

Te quotes from François Provost are from an interview conducted by the authors on March 17, 2021. Clark, K. B., and Wheelwright, S. C. (1992). Organizing and Leading “Heavyweight” Development Teams. California Management Review, 34(9).

An Innovative Framework for a Cooperative Design 35

diferent automotive companies, the most common model adopted is to delegate responsibility for development to one of the two companies. Tis is similar to the previous structure, except that committees are set up involving both partners, and rules are established that defne the contributions of each partner as well as the fnancial conditions of development and industrialization. Under this conventional model, the development, production, and marketing of the K-ZE would have been entrusted to the Dongfeng-Renault joint venture (JV). However, this model would have many disadvantages: the Dongfeng-Renault JV would have to bear all the costs of investment in the new vehicle. Meanwhile the industrial and commercial capacities of this very recent joint venture were both limited and not very well suited, in terms of cost, to the needs of an afordable vehicle. Another scheme was therefore drawn up, based on the experience gained from the Kwid ICEV platform project in India, shared by Renault and Nissan. During the development of this project, one of Détourbet’s requirements for accepting the position of project director was the creation of an autonomous development structure called 2ASDU (Alliance A Segment Development Unit), which reported directly to the Renault-Nissan Alliance, and more precisely to its CEO, Ghosn. Analysis of the project has shown how essential this structure was in ensuring the autonomy of the project in relation to the specifc strategies and processes of the two partner companies, which often proved to be poorly aligned with the singular target of the Indian project.* Building on the success of this precedent, the K-ZE project proposed a similar structure, with one major diference: the partners, the Renault-Nissan Alliance on the one hand and Dongfeng on the other, did not have common governance. Tis project structure was then built on the following principles: • Te development project would be placed within a legal and economic autonomous structure, eGT (electric Golden Triangle). Tis structure would be entirely responsible for development decisions and for negotiating these decisions with partner companies. It would be a 50/50 subsidiary of Dongfeng and the Renault-Nissan Alliance (25% Renault and 25% Nissan). It would be governed by a board of directors comprising the CEO of eGT, the regional directors (i.e., China region) of Renault and Nissan, and the director of strategy of Dongfeng (see Figure 3.1). • Te sales and marketing entities would be the partner companies in the investment. Each company would share the investment costs, in proportion to the

*

See Midler, C., Jullien, B., and Lung, Y. (2017). Innovating Backwards. Rethinking Strategy and Design in a Frugal World. Paris, Dunod.

36 The Innovation Odyssey

Figure 3.1 Christophe de Charentenay (eGT CEO), Jun Seki (Nissan), and Zhenghao Gao (Dongfeng), Visiting a Supplier in Shiyan (Source: KZ-E project, provided by Christophe de Charentenay)

volumes it expected from the project. As we will see, there would ultimately be fve “client” companies in the project: the Dongfeng-Renault JV (DRAC), the Dongfeng Nissan-Venucia JV (DFL), Dongfeng (DFPV), and two of its subsidiaries, Dongfeng Sokon (DFSK) and Dongfeng Liuzhou (DFLZ). Tese vehicles would be sold under diferent brands (Renault, Dongfeng, Venucia, etc.) in these diferent networks. • eGT, relying on a single production unit, would serve these fve brands according to transfer prices based on the costs defned by eGT in the development of the project. As decided at the September 2016 meeting, this would be the Shiyan plant, owned by a 50/50 joint venture subsidiary of Dongfeng and Sokon.

An Original Business Model Te creation of a legally autonomous entity to take charge of the joint development of new products simplifed coordination among the various partners. It was also obviously necessary to clarify the economic relations between this new development operator and the various stakeholders to enable them to fnd common ground and thus commit to the joint project. Te construction of a balanced and incentivizing business model was made complex by diferences in the contributions of each of the partners, and also by the variety of costs and values that the project development would accrue, which might not beneft each partner in the same way.

An Innovative Framework for a Cooperative Design 37

Te three eGT partners (Renault, Dongfeng, and Nissan) brought complementary resources and assets to the cooperation: Te Renault-Nissan Alliance provided eGT with a license to use the Indian Kwid platform. Renault provided a license to use the upper body of the Kwid, as well as recognized expertise in accessible product design methods, vehicle electrifcation, and general development engineering. Finally, it would also mobilize the distribution networks of the Dongfeng-Renault JV (DRAC). Nissan, for its part, mobilized some engineers from its joint venture with Dongfeng as well as its Chinese-branded distribution network in China, Venucia. Finally, Dongfeng brought knowledge of and access to Chinese regulatory bodies in the EV feld, which was a prerequisite for obtaining the subsidies and authorizations required for the project. It also brought Chinese resources in product and production engineering as well as for the purchasing function, an essential condition for the realization of a project more than 90% located in China. It provided “at cost” access to the existing low-cost plant of its Shiyan subsidiary, Dongfeng Sokon. Finally, it was committed to mobilizing two of its specifc sales networks (ultimately, three networks would be involved). In terms of costs, the investment in eGT was provided equally by the two partners: the Renault-Nissan Alliance (with equal shares from Renault and Nissan) and Dongfeng. Te investment in tooling and production capacity specifc to the K-ZE was fnanced at the time of their commitment according to the industrial milestones of the project by the fve client companies of the project (DFSK, DFL, DFPV, DFLZ, and DRAC) in proportion to their volume reservation. Tis represented a major diference from the traditional practice of fnancing cooperative automotive projects, where the entities in charge of selling the vehicle, being integrated within the partner manufacturers, do not fnance the development. In terms of value creation, product sales generated margins for the distribution companies because eGT, which had defned the production cost of the vehicles during development, did not make a proft on the cars produced. In addition to this margin, the Chinese authorities provided signifcant subsidies for electric vehicles. But beyond this, the project brought an additional beneft to the partners: the production of the K-ZE made it possible to obtain the credits needed to produce ICEVs, in compliance with the particularly complex Chinese regulations.* *

As briefy described in Chapter 2, Chinese regulations require each manufacturer to meet annual CAFC and NEV credit targets, or else they must purchase credits from other manufacturers. Tese credits also allow them to continue to produce ICEVs. Te business model, based on a 2016 Bill (Dual Credit Policy), allowed Dongfeng to collect CAFC and NEV credits and allocate them to each of K-ZE’s fve client companies (in which it had a stake of more than 25%) in proportion to their volumes. Chapter 7 discusses the details of Chinese regulations.

38 The Innovation Odyssey

Industrial partners, eGT shareholders Industry contributions Renault & Nissan: CMF-A platform license Renault: Kwid vehicle license Renault, Nissan, Dongfeng: engineering and purchasing resources

Cash contributions Renault (25%), Nissan (25%), Dongfeng (50%)

Project Operator : Electric Golden Triangle (eGT) Manufacturing operator : DFSK plant (Shiyan)

Production capacity

Develops the vehicle Sets the transfer price of the vehicle Puts the orders for the production of the vehicles Allocates vehicles to business partners in proportion to the volumes requested

Grants to development

Local public authorities

CAFC NEV credits

National public authorities

Distribution to partners via Dongfeng

Sales demand Sales partners (DRAC, DFL, DFPV, DFSK, DFLZ, export needs)

Figure 3.2 K-ZE Project Business Model (Source: K-ZE project, edited by the authors based on interviews conducted during the China mission in March 2018)

Tese sales volumes of EVs were a prime objective for the joint venture partners, who had no other option but to buy the credits they would otherwise lack from other manufacturers. Figure 3.2 summarizes the fows within the business model that was constructed. Te creation of a single operator for the development and allocation of vehicles to eGT partners considerably simplifed the decision-making process attached to the multiple choices involved in automotive development. However, when we drill down into the details of the value and cost (and vehicle) fows, we fnd a certain complexity: indeed, it is easy to imagine the hard explanation and negotiation required to communicate this efectively to all of the stakeholders. De Charentenay, who became eGT’s CEO; Hua Xie, his deputy; and Jie Sun Lescop (in charge of drafting the contracts), who would join him at the end of 2016, were in charge of fnalizing the plan and negotiating contracts with all the parties involved in the cooperation—not only the parent companies, Dongfeng, Nissan, and Renault, but also the subsidiaries that operated as independent companies in this model: DRAC, DFSK, DFLZ, DFPV, and DFL. However, at the strategic level, the business model had signifcant advantages for eGT’s main partners, Dongfeng and Renault. Te shareholders of eGT fnanced the development costs through industrial contributions, capital contributions, and shareholder loans, and the local government of Wuhan fnanced an important share of the development costs of K-ZE.

An Innovative Framework for a Cooperative Design 39

In fact, in practice, the scheme was very advantageous for Renault because its representatives within eGT retained control of the development through their expertise, and Renault only fnanced about 30% of the development entry ticket. Investment in tooling and capacity resources specifc to the K-ZE were fnanced by the fve client companies. DRAC set aside 30% for the Renault brand in China. Te combination of the design-to-cost efect and the business model thus reduced Renault’s contribution to the entry ticket per vehicle by about 1 to 8, compared with a standard entry ticket for a second industrialization of a vehicle where the design is simpler (see Figure 3.3).

Design to Cost effect

Entry ticket for a second industrialization of a vehicle

Cost-sharing effect (3 shareholders), 5 networks)

Entry ticket K-ZE China for one partner

Figure 3.3 Business Model Leverage (Source: K-ZE project, information provided to authors during the China mission in March 2018)

For Dongfeng, this arrangement provided the Chinese group with the assets of a high-performance platform and access to proven expertise in the feld of vehicle electrifcation. In addition, because of the 50/50 shareholding in eGT, it was in line with the Chinese government’s objectives to master electric vehicle technology. Finally, it gave the group—which was characterized by a constellation of joint ventures between companies, many of which were foreign—a legal mechanism to recover and distribute the credits obtained from sales of the K-ZE, allowing it to sell ICEVs. Moreover, Chen Li, co-leader of the K-ZE project in 2016 and 2017 and director of the EV department at Dongfeng’s strategy department, instructed his teams: “Tis business model is a real asset, and we must keep it confdential because other Chinese groups have not found this solution.” But looking at it in more detail, there were still four points that were problematic.

40 The Innovation Odyssey

Te frst was Nissan’s involvement in the model. Clearly, the company did not wish to be overly involved and planned to limit itself to assigning some engineers from the Dongfeng-Nissan JV to eGT. An initial scenario involving only Dongfeng and Renault in eGT on a 50/50 basis was quickly accepted by the two companies’ leaders in November 2016. However, in view of the importance of the Chinese market for Nissan and the use of an alliance platform, the company wanted to take its full place in the eGT shareholding. Hiroto Saikawa, Nissan’s CEO, discussed this issue with Ghosn and obtained his agreement for Nissan to have an equal shareholding with Renault. Finally, a new scenario (50% Dongfeng, 25% Renault, and 25% Nissan) was renegotiated by de Charentenay with Dongfeng and validated at the April 2017 meeting. Te second was the involvement of the marketing entities. Why would they agree to pay in advance for the development of a product that they would only see at the end? Why should they pay in proportion to the volumes reserved? Tis was a clear break with the tradition of manufacturers’ relations with the sales networks. Usually, it is the manufacturer who takes on the full entry ticket and the risk based on the expected success of the project. Once the product is released, the networks are challenged on sales volume objectives. In this case, the networks were asked from the outset to make reservations against future capacities and would also need to fnance the industrialization in proportion to these reservations. As the distribution joint ventures told the eGT negotiators:* “For retailers, this arrangement is a double penalty: we are asked to take the risk of the product’s commercial success through our reservations, and we are also fnancing the industrial investment with the fnancial costs that go with it. We are not a bank . . .” Faced with these criticisms, the eGT negotiators recalled the fundamentals of the project: the need to have a vehicle capable both of generating profts through its performance, on which everyone agreed, and resulting in the award of regulatory certifcates essential for joint ventures to sell ICEVs without penalties. In this sense, the project would be a proftable operation at the global level for all the joint ventures involved, ultimately analogous to one connecting manufacturers to component suppliers who would recoup their investment in the project from their margins. Te project would therefore require buy-in by all of the stakeholders, which is why they did not want to externalize its fnancing. Te third concerned the question of vehicle transfer prices and sales prices. It should be remembered that eGT would not make a proft in assembly—the production cost was the result of the design performance, which the preliminary project had

*

Quote from an interview conducted by the authors with Jie Sun Lescop on March 26, 2021.

An Innovative Framework for a Cooperative Design 41

shown to be particularly promising—and that the selling price would be the responsibility of the marketing subsidiaries themselves, as the law prohibited any coordination at this level (known as a cartel ofense). Tis point would become critical when the battery supplier reneged on the purchase contract signed, leading to a signifcant increase in the cost of the car.* Te authority of the management of the parent companies of the marketing subsidiaries was necessary to stop the merchants’ rebellion in response to an apparent challenge to the commitments made. Finally, there was the diferentiation between the products sold under the diferent brands. Each network obviously wanted maximum diferentiation, while the development operator wanted this restricted to avoid associated investment costs. Te scenario proposed by eGT was to agree on minimal diferentiation (typically logos and exterior and interior elements that were not costly to diferentiate) fnanced by eGT, and to make the joint ventures requesting any additional diferentiation pay for it. Faced with this scenario, some subsidiaries proposed to develop their own product diferentiation by studying it with their own network of suppliers, but they quickly realized that they could not be competitive in terms of costs and deadlines compared to eGT. Terefore, as de Charentenay and Lescop pointed out, “We had to listen to them and flter them to focus on the essentials.” In the end, all parties involved accepted the compromise proposed by eGT. Te overall strategic interest of the parent companies took precedence over the specifc advantages that the various joint ventures could gain from the project. However, the execution of the project fnancing by the joint ventures, imposed by the groups’ general management, remained a point of contention throughout the project, requiring regular monitoring by eGT and interventions at the highest level of governance.

The Constitution of the Project Team Alongside this defnition of the institutional framework of the project, the rapid constitution of a high-performance project team began in October 2016. Once the fundamentals had been agreed, the operational management of the RenaultNissan Alliance was taken over by de Charentenay, who succeeded Stéphane Deblaise. He began building the team with his Dongfeng counterpart, Chen Li, and Détourbet. Te project was a deployment of the Kwid platform and therefore needed to capitalize on the assets of the lineage initiated in India and continued in Brazil. For the frst time, it incorporated electrifcation technology,

*

See Chapter 4.

42 The Innovation Odyssey

absent from the previous stages of the Kwid lineage but benefting from rich experience at Renault. It was also the frst time that a vehicle had been designed in China in the context of a cooperation with Dongfeng involving industrialization in a factory of one of its subsidiaries, DFSK. Te logic was therefore to implement, through the composition of the team, this hybridization of skills— while the team freed itself as much as possible from the constraints of parity of joint ventures. Te constraints of parity were therefore limited to the heads of the major departments (a leader from the Renault-Nissan Alliance and a co-leader from Dongfeng; see Figure 3.4) and to quality monitoring. Te lower levels would not be encumbered by co-leadership.

President : Christophe de Charentenay (Renault) Vice president : Gao Zhenghao (Dongfeng)

Product Engineering

Production Engineering

Costs and Finance

Purchasing

End users management

Leader : Renault Co-leader : Dongfeng

Leader : DFSK Co-leader : Nissan

Leader : Dongfeng Co-leader : Renault

Leader : Renault

Leader : Renault

Quality insurance Leader : Renault Co-leader : Dongfeng

Figure 3.4 eGT Organizational Chart (Source: K-ZE project, information provided to authors during the China mission in March 2018)

Détourbet, a major player in the realization of the preliminary project, was involved in the project as director of 2ASDU in charge of the products developed on the Kwid platform. He had always worked across organizations in roles that ensured his autonomy under the direct authority of the strategic decision-maker at the origin of the project, and he was adept at fnding appropriate expertise, regardless of the hierarchical level or organization in which it was located. He carefully selected Jérémie Coifer as eGT’s director of engineering, with the very profle he was seeking for this project. Indeed, Coifer came with a signifcant engineering background across a range of contexts: after the development of the Megane 3, he worked within the RenaultNissan Alliance, where he acquired knowledge of diferent engineering processes and working in a multicultural context, so essential for a project such as K-ZE. He

An Innovative Framework for a Cooperative Design 43

then worked on the development of ZOE, Renault’s frst electric vehicle, and on the extension of the Alpine range in a business unit organization focused on designto-value. As he said himself, he was ready for K-ZE*: “And once this experience was done, what I missed was the counterpart, the design-to-cost at the heart of Gérard Détourbet’s approach. And what could be better than going to do design-to-cost in an ultra-competitive segment in an even more competitive country? It was this combination of experiences that led me to take part in this adventure and prepared me to take responsibility for business engineering and vehicle projects for fve joint ventures, in a special situation where Renault and Nissan were each 25% minority shareholders and where we had to work as efectively as possible with our main partner (50%), Dongfeng.” On the Indian side, Détourbet mobilized engineers who had held responsible positions on the Kwid ICE project—for example, Prabu Natarajan, who had started working with Renault on the development of the Indian version of the Logan. “I joined the Kwid project, where I was in the electrical system team under the responsibility of a Renault engineer. At the end of the Kwid project for India and Brazil, Détourbet put together the team for the project in China. Until then, the people in charge of the main projects always came from Renault or Nissan. For the frst time, Détourbet recruited Indians to lead teams: for me, the car’s electrical equipment team and seventeen people in charge of developing the electrical architecture, the wiring harness, multimedia components and connectivity.”† Finally, on the purchasing side, de Charentenay convinced a Korean, Donghyeon Kim, a former Renault purchasing manager with a good knowledge of China, to leave a Chinese company to take on the key position of eGT’s purchasing manager. For Dongfeng, Chen Li mobilized Dongfeng Sokon’s teams, and production engineering was to be led by a manager from DFSK. Fan Ruiqiang would be in charge of production engineering at eGT (see Figure 3.5 on next page). Once the team had been set up, Détourbet could focus on design with Coifer (eGT’s engineering director) and his team, and on cost reduction with suppliers with Kim (eGT’s purchasing director) and his team. From a quantitative perspective, the scale of the eGT team’s activities was approximately 200 people in 2018—the year of development—largely devoted to product and process development functions and the localization of suppliers. It should be noted that 25% of the activities were outsourced to India (see Figure 3.6).

*

†

Te quotes from Jérémie Coifer are taken from an interview conducted by the authors on March 11, 2021. Interview with Prabu Natarajan conducted by the authors on February 12, 2021.

44 The Innovation Odyssey

Figure 3.5 eGT’s Three Department Heads—Jérémie Coiffier (Engineering, France), Fan Ruiqiang (Production Engineering, China), and Donghyeon Kim (Purchasing, Korea) (Source: K-ZE project, provided by Christophe de Charentenay)

The 10 people from the Renault-Nissan Alliance working on the project in China contributed to the innovation of the powertrain and the localization/adaptation of the car’s parts and components (see Figure 3.7). As of February 2017, Kwid EV became the priority of the electric vehicle team at Renault/DRAC. As its initial project, Fluence ZE, had not met market needs, all forces were focused on K-ZE. But the constitution of the project team, especially

Product development Renault (Europe) Product development Nissan (Japan) Parts localization 2ASDU (India)

Figure 3.6 Distribution of Resources on the Project in 2018 (Source: K-ZE project, information provided to authors during the China mission in March 2018)

An Innovative Framework for a Cooperative Design 45

Figure 3.7 Distribution of Personnel of the Renault-Nissan Alliance on the K-ZE Project (Source: K-ZE project, information provided to authors during China mission in March 2018)

in relation to industrialization, remained problematic and was mentioned at each follow-up meeting to the partners’ general managers in 2017 and 2018 as a potential source of delay. On the Japanese side, Nissan was still not involved in the development. Tis project, perhaps because of the difcult experience of Nissan with the Kwid in India, did not interest the company from an engineering point of view. Moreover, the vehicle was to be sold in China under the brand Venucia rather than Nissan. Te Japanese partner of the Renault-Nissan Alliance insisted on being a shareholder in eGT, but as a controlling player and not as a contributor to the creation of a common property that it did not consider aligned with its brand DNA. Te integration of a team that brought together Chinese, French, Indian, and Korean members was happening quickly. With regard to this, Coifer said: “I arrived in China in January 2017. I still have in mind a very strong image: there were ten of us, we had a room, we taped the plugs and extension cords to the walls. It wasn’t Zola, but it showed how far we’ve come: in the end, we created a company, eGT NEV, and everything that contributed to its development, including a factory that ‘makes’ the product and a service for commercial deployment. In terms of feeling, you will have understood that it is a strong experience. For me, China remains as a testament to the strength of numbers and reactivity and therefore a very good complement to our European business culture.”

46 The Innovation Odyssey

If the leadership of Renault expatriates seemed natural, the integration of Indian engineers as leaders of Chinese teams proved more problematic. However, for Pandi Subramanian and Natarajan, two Indian engineers who had been through the Kwid experience and who would assume leadership positions with signifcant responsibilities in the Chinese project, this did not pose any problems. Natarajan recalled: “You know, there is a lot of political tension between China and India. And my friends in India initially told me, ‘Don’t go to China, it’s not safe . . .’ But in reality, it went very well. I was welcomed and my team members, all Chinese, never challenged my leadership. In India, I always had to explain why I was asking for things to get them done. In China, they would immediately agree without discussion.”* In practice, as Subramanian pointed out, the main problem was language: “In discussions with suppliers and even within my team, the Chinese didn’t speak English well, and we lost a lot of information in the translations. Tat’s why we used blackboard drawings as much as possible to make ourselves clearly understood. And when the requirements were clearly expressed, it was easy to get the result from the Chinese team members. Te key problem is to make it clear what you really want. After that, execution in China is easy. Tat’s really one of the strengths of working with Chinese people.”†

Team Management: Multicultural Integration and Cohesion Tis plural composition of the team was certainly a strength. But how could we ensure team cohesion and that the team embodied a common project and not two diferent projects, that of the French and that of the Chinese? Te strategy adopted by eGT to deal with the loss of efciency due to language and cultural diferences was frst to mobilize high-level people with experience of both Chinese and Western culture in the key functions of the organization. For example, the driver of the business model design was Chinese-English bilingual, a graduate of Tsinghua who had also worked in the United States; the director of the sales department was French of Chinese origin and French-Chinese bilingual; the director of purchasing was Korean-Chinese bilingual and had more than 15 years of experience in purchasing for the Renault-Nissan Alliance; the number two in purchasing was Chinese, a graduate of the École des Mines in France; the

* †

Interview with Prabu Natarajan conducted by the authors on February 12, 2021. Interview with Pandi Subramanian conducted by the authors on February 5, 2021.

An Innovative Framework for a Cooperative Design 47

deputy fnancial director was Chinese and studied engineering in Germany at RWTH Aachen . . . Tis critical mass of high-level Chinese/Western dual-culture personnel enabled them to deal with problems directly rather than through translation; to detect misunderstandings early on and correct them with authority. Tis was in contrast to the more traditional approach, where interpreters are the only interface between the responsible actors. It was a strategy that challenged both the Chinese and French parties accustomed to systems run along national lines. Te management of the project thus aimed to create and maintain a common identity that would bring together the members of the group beyond their original nationalities. In addition, the co-location of the team in Wuhan and on the Shiyan industrial site would obviously play an important role in the integration of its members. However, this turned out not to be enough: the normal functioning of the structures of the shareholders, Renault and Dongfeng, unintentionally threatened this common identity. Communication took place in either French or Chinese, exclusively with team members of the same nationality, regardless of their role in the organization; Dongfeng required use of its new information system even though no engineer on the team knew how to use it. Several actions were quickly taken by eGT’s management to reduce these divergent infuences within the team (see Figure 3.8). First, a weekly meeting was set up: the eGT management committee, a place for commitments and promises. Tis

Figure 3.8 The eGT Team in April 2017 (Source: K-ZE project, provided to the authors during the China mission in March 2018)

48 The Innovation Odyssey

gathered together all the key Chinese and French actors and was held in English with translation into Chinese so that everyone could understand. Tere was also a shared evaluation of the performance of the management team, regardless of origins. Tere was also, after long debates and a high degree of tension among Dongfeng representatives, an acceptance to let eGT use Renault’s information system to manage the vehicle design. Finally, members who did not agree with this vision were excluded. Te frst two Chinese deputy chief engineers who were unable to play the collective game were excluded from the project, while Renault’s corporate functions staf were kept away from the operational management. For all its strengths, this system could not put an end to the “normal” tensions between functions in a project: purchasing versus engineering, engineering versus quality, product versus costs . . . But it did prevent the emergence of two completely separate projects: the Chinese and the French.

Conclusion: Power and the Limits of Formal Project Framing eGT and the associated contractual framework constituted a formalism perfectly adapted to a project context in conjunction with the organizational model of “heavyweight” project functions within companies*: unicity of development responsibility toward a global objective, a target shared by the partners and a scope integrating all the variables of the project (autonomy of the project to adapt engineering processes to the singularities of the context, direct reporting to the general management gathered in a common committee, etc.). It is clear that these formalized processes were a central factor in reducing the complexity of managing the development of the K-ZE and ensuring its success. Nevertheless, as always, the importance of formalization should not obscure the key role played by the people who brought the project to life. Gérard Détourbet, the undisputed director of the project, the embodiment of the heavyweight project model, would be the one to assert this autonomy in practice, never hesitating to confront anyone who sought to challenge it. Christophe de Charentenay, CEO of eGT, used his experience in China, combined with his knowledge of Renault, to enable him to broker and maintain compromises

*

See, for the analysis of these contexts: Clark, K. B., and Fujimoto, T. (1991). Product Development Performance: Strategy, Organization and Management in the World Auto Industry. Harvard Business School Press; and Midler, C. (1993). L’auto qui n’existait pas. Management des projets et transformation de l’entreprise. Paris, Inter Éditions.

An Innovative Framework for a Cooperative Design 49

acceptable to the two partners in the Renault-Nissan and Dongfeng alliance. Key development managers within eGT included Jérémie Coifer in engineering, Fan Ruiqiang in production engineering, Donghyeon Kim in purchasing, and Stéphane Deblaise in the preliminary project phase. In terms of governance, Carlos Ghosn was a key player in building cohesion between the stakeholders of Renault, Nissan, and Dongfeng whenever consensus was lacking at operational levels. For Dongfeng, we should remember in particular, for his willingness to create a new mode of cooperation, President Zhu Yanfeng and Chen Li, de Charentenay’s counterpart, a pragmatist and diplomat who made the “how” possible. And fnally, the handful of Renault decision-makers who believed in the project and pushed it against the prevailing winds: François Provost, head of the Asia Pacifc region, and Eric Feunten, head of Renault’s EV program.

Chapter 4 An Agile Development in an Unprecedented Context Te development phase is the implementation of what has been outlined during the preliminary design. Tis is a phase of scaling up and defning in detail the thousands of parts of the car and the operations of its production process. Moving on from the strategic vision and projections—and the realization of a prototype for which a small team was sufcient—it is now a question of mobilizing all the members of the development team and of activating hundreds of suppliers as well as hundreds of factory workers. Tis is also a phase during which vigilance at every level of the project is essential; a simple blockage could jeopardize everything. Tis explains why the implementation of systematic design processes, common to all automotive companies, is crucial at this stage to ensure that nothing is forgotten and that everything is functioning in service to the project.

The Challenges of Working Outside the Norms Te development of K-ZE was no exception to any of this, apart from three important details:

51

52 The Innovation Odyssey

• First, it was breaking new ground, which is normally not the case because the unknowns are supposed to have been removed before a project is committed to. Usually, suppliers would be chosen from a list defned by the purchasing department, which ensures that they are reliable; usually the technology used has been approved by the engineering departments, which avoids surprises; usually industrialization takes place on a known site, with manufacturing personnel whose skills have been assessed to enable appropriate training plans to be drawn up. • Second, it was developed using the design-to-cost approach, constraining the technical solutions implemented according to cost objectives. • Finally, it took place in a context that was both highly unstable and evolving—that of the electric vehicle market in China, where, because of public regulations as well as the dynamism and sheer number of entrepreneurial initiatives, what was considered satisfactory one day could be seen as outdated or even prohibited three months later. Te result was that the established standard development process, developed to deal with “business as usual” projects, was not adapted to this situation. Tis would force the team to build a specifc process adapted to the context and objective of the project while managing tensions with the guardians of the standard processes applied by the company, in particular the corporate quality department.

Product Definition Te meeting at which the decision was made to pursue the development in September 2016 had recorded a consensus on the overall vision of the project: an accessible electric platform (A segment) intended primarily for the Chinese market and based on the minimum regulatory requirements; a design that would not introduce incompatibility with a potential subsequent international extension; and a range of fve versions sufciently diferentiated to satisfy the various Chinese commercial networks. All that remained to be done was to fne-tune the (few!) implicit compromises contained in such a defnition.

The Inexorable Inflation of Performance From September 2016, various studies on the project were provided, the results of which needed to be integrated into its defnition. First there was the response to the Chinese regulations, whose standards had to be respected and their

An Agile Development in an Unprecedented Context 53

probable and rapid evolution anticipated. Tere were also customer surveys being refned and the results of prototype testing to assess the car’s handling and performance. From September 2016 to March 22, 2018—the date when the car’s defnition was fxed—there was a continuous infation of the performance and benefts of the intended target (see Table 4.1): • Tere was a signifcant increase in performance in terms of range, engine power, and speed compared to the initial target. Te initial option of three levels of range, associated with a modular battery like those found on some micro EVs, was initially retained to adjust the price and costs as closely as possible to the customer’s budget, but this was gradually abandoned and only the maximum level was retained. • Tere was also the addition of DC charging, initially unplanned but important for customer acceptance, and an increase in AC charging power. Table 4.1 Target Performance Level Inflation

Technical definition

Summit September Three Presidents 28, 2016

Meeting of April 4, 2017

Summit December 20, 2017

Freezing of Technical Definition March 22, 2018

Battery pack

12kWh/100km

Canceled

Canceled

Canceled

18kWh/150km

18kWh/170km

18kWh/170km

Canceled

24kWh/200km

24kWh/200km

24kWh/200km

24kWh/250km

Maximum speed

110km/h

120km/h

120km/h

120km/h

Electric motor

Max. power: 26kW

Max. power: 33kW

Max. power: 33kW

Water cooling

Air cooling

Water cooling

Water cooling

Battery charging

Max. power: 33kW

DC: n/a

DC: 17kW

DC: 17kW

DC 17kW

AC: 3.3kW

AC: 6.6kW

AC: 6.6kW

AC: 6.6kW

Source: Constructed by the authors from data collected during the China mission, March 2018.

Beyond this infation of performance, there was also alignment with competitors’ new models released during the period; there was the question of remaining competitive in relation to an ofer that is particularly dynamic in the Chinese market. As Jérémie Coifer explained: “In such a fuctuating market, we had no choice but to be agile. Every six months, we had to adapt to changes in regulations and

54 The Innovation Odyssey

competitors.”* Tis meant that new functions were added and two levels of trim were ofered, leading to the introduction of a spare wheel, electric windows at the front and rear, air-conditioning, and, on the top-of-the-range version, the addition of permanent daytime running lights. Te project was torn between the design-to-cost approach—seeking to meet a low-cost target—and the required increase in performance, which would make the product more expensive. As a result, the prospect of ofering a vehicle that would be competitive in terms of performance and price without the contribution of purchase subsidies seemed increasingly uncertain; the manufacturing cost of the low-end version had risen by almost 30%.

Adapting the Platform Te main engineering challenge was the incorporation of a 200kg battery on a platform that originally weighed 750kg. Te critical point here was the resistance to side and rear impacts. A frst solution was found, based on the Brazilian version of the ICE Kwid, which was then strengthened at the request of Dongfeng at the September 2016 meeting. Te major advantage of the design was its lightness, which gave the vehicle better performance than the competition in terms of handling and range, with batteries of the same power. Moreover, making it light made it less expensive, according to François Provost†: Weight optimization is a real engineering task that makes the product competitive.” In terms of impact resistance, a computer simulation of the platform showed that it could pass the standardized tests. Alas, in November 2017, the results of the physical prototype impact tests, contrary to the computer simulations, were not good enough. A reinforcement of the structure would be necessary. Tis was a disaster in terms of the schedule; such a modifcation normally takes six months, but this was to be carried out in less than three. According to Coifer, such an agile response was possible thanks to the combination of several capabilities brought together in the project: the calculation skills of Kwid’s Indian teams in Chennai, the bodywork expertise of a Renault expert remobilized for the occasion, and the rapid production of the prototypes in China by Dongfeng’s network of suppliers, allowing rapid implementation of the physical testing under the leadership of eGT. Finally, the reinforcement of the structure was achieved without modifying it in depth, so that it did not impact the project schedule and only afected the overall margin to an extent that the project manager had planned for, according

* †

Interview of François Provost conducted by the authors on March 17, 2021. All quotes from Jérémie Coifer are from an interview conducted by the authors on March 11, 2021.

An Agile Development in an Unprecedented Context 55

to the critical chain principle.* Moreover, the adaptation of the platform did not induce a signifcant cost drift. Finally, it prefgured the adaptation of the product to European standards and provided a strong “safety” argument for marketing it in the face of stif Chinese competition. Gérard Détourbet’s theory of “bottom-up” design had once again borne fruit: design as accurately as possible with no margin locally, preserve a global margin at the level of project management to be added where necessary (and only there), and execute changes in an agile manner without major impacts on deadlines and costs. Tis theory went against the dominant practice in the automotive industry: “platform” design, where one specifes, at the beginning of the project, all the constraints to which the program is likely to be exposed, and where one calibrates “from above” the design within these constraints.

Ambitious Volumes that Increased as the Project Progressed Te analysis of potential markets continued during the product development. It was clearly decisive in determining the plant’s production capacity. Initially, in September 2016, the distribution scenario in China was based on four channels for the distribution of the vehicle: the Dongfeng-Renault joint venture (DRAC), the Dongfeng-Nissan joint venture (DFL, with the Venucia brand), DFSK (the subsidiary that owned the Shiyan production plant) and DFLZ (Dongfeng-Liuzhou), corresponding to a planned annual production volume of 46,500 units. Alternative scenarios of further distribution through Dongfeng’s own network (DFPV) and an export volume to Europe were also studied. Tis frst forecast estimated the overall annual market to be 74,000 vehicles. As the project progressed, and prototypes were shown to and tested by decision-makers from the various partners, the consensus was that the car’s market

*

Tis concept was developed by Goldrath and Cox in the 1990s, in contrast to traditional planning approaches. In traditional planning, each activity is allocated a completion time plus a “contingency margin.” Tey proposed, on the contrary, to plan without any local margin and to preserve a mutualized margin at the global level of the project. Tis margin is then distributed to those who need it only if they need it. However, the efciency of the margins initially allocated locally is zero because, according to the famous Parkinson’s law, each contributor consumes locally the margin allocated to them, even if they do not need it. Tere is then nothing left to allocate to those who, due to unforeseen events, really need it. See Goldratt, E. M., and Cox, J. (2016). Te Goal: A Process of Ongoing Improvement. London: Routledge.

56 The Innovation Odyssey

potential was growing. At the China summit that brought together the presidents in December 2017, where production capacity was frozen, the volume estimate was revised signifcantly upwards, with a total production peak of 120,000 cars annually expected in 2023, of which 70% were for the Chinese market and 30% for export. Te investment in equipment for the Shiyan plant was based on this production volume capacity.

Differentiation Management Diferentiating models to be sold under the brands of the fve distribution networks was a sensitive issue for the various eGT client joint ventures. Tis would give rise to a series of negotiations during 2017 to reach a solution accepted by all at the time of the styling freeze—December 2017 for exterior styling and January 2018 for interior styling. Te principles proposed by eGT had been accepted: sheet metal parts with long lead times would be common to all models, while diferentiation options that did not impact the overall design would be accepted for the front, rear and sides of the vehicle. Inside, parts would be common, but colors and upholstery could be adapted. Each brand would be able to choose its own confguration from a range of combinations, and no joint venture would be required to develop specifc parts on its own. (See Figure 4.1.)

Figure 4.1 Differentiation Options (Source: Provided to the authors during the China mission in March 2018)

As a result, many parts would end up as common, while diversity would be restricted globally to elements of style (see Table 4.2).

Co-Design with Suppliers Te second key aspect of the development to reach the cost target was, as mentioned for the preliminary project, the design of the components purchased externally. Supplier management was one of Détourbet’s specialties. It was in

An Agile Development in an Unprecedented Context 57

Table 4.2 Number of Variants of Differentiation Parts Vehicle zone Front panel

Back side Side faces Interior

Part

Number of variants

Cover

2

Front shields

3

Front lights

4

Fog lights

4

Rear shields

3

Rear lights

4

Fender covers

1

Wheel covers

4

Central steering wheel cover

4

Colors and materials

4

Center console, door panels, dashboard and center screen

1

Source: Information provided to the authors during the China mission in March 2018.

large part thanks to the approaches he implemented in this feld that he succeeded in holding the cost of the Logan at €5,000 and the Kwid at €3,500. He therefore mobilized this network and expertise for the new project. Without knowing the specifcities of the Chinese supplier network, he relied on a veteran of the purchasing department—recruited by Christophe de Charentenay, and capable of negotiating and managing in Chinese: Donghyeon Kim, one of the pillars of the project’s success.

The Design-to-Cost War Machine Te preliminary project enabled Renault to engage in design-to-cost with suppliers as early as spring 2016. Tis work continued and was deployed over the full scope of the project, through development, until the selection of suppliers and their commitment to a part price, and then on to the monitoring of their production industrialization to ensure that the supplies met the required quality. Tis approach is based on the following principles: • Maximum anticipation of the relationship with the suppliers well before the planned purchasing milestones to make the calls for tender, in order to evaluate their capacity and their motivation to be involved in the project.

58 The Innovation Odyssey

• Prioritizing local supplier selection to achieve a cost reduction breakthrough, leveraging the frugal performance of local industry. • Strong involvement of several selected suppliers in the development of subassemblies and components, allowing them to co-design solutions to take advantage of specifc supplier capabilities. Tus, the approach combined cooperation with each supplier and competition between them. • Detailed work with each supplier on all the components and the cost of the parts. Te fractal innovation approach* was applied, looking for possible gains on all variables (materials, process, logistics, quality rejects, etc.) on all cost items, from overheads to the most basic operation. • Maintaining competitive bidding until the target cost was reached, generally beyond the standard supplier selection milestones, with the target cost taking precedence over the administrative schedule in deciding supplier selection. • Close monitoring of the production process to ensure that the quality required by Renault design standards was achieved. Tis was the corollary to selecting local suppliers not familiar with the company’s automotive development standards and processes. After the groundwork was laid in the preliminary project, the design-to-cost war machine was deployed across the entire project. Tis was a painstaking task, especially since, as was noted during the frst supplier missions in the pre-project phase, the knowledge of the automotive industry of the people involved was not guaranteed. As Détourbet recounted: “Sometimes we come across people who obviously had no idea about automotive production. For example, in a design-to-cost meeting, the supplier announced that it would take two minutes to remove an injected part from the machine, check it, and put it in the container. I say no way, and then the supplier starts to argue his point of view. I get up and, looking at my watch, walk slowly around the room. After two minutes I stop and turn back to the supplier and ask him if he thinks it really takes that long to take a part from a machine and put it in a container that is one meter away . . . In the process initially planned, there were three operators: the frst one takes the part out of the machine, the second one checks it, the third one puts it in the container. Tis fragmentation of tasks is typical here.”† During the project review presented to the three presidents on April 20, 2017, Détourbet thus emphasized the difculty of implementing design-to-cost in the

*

Midler, C., Jullien, B., and Lung, Y. (2017). Innovating Backwards. Rethinking Strategy and Design in a Frugal World. Paris: Dunod. † Interview with Gérard Détourbet conducted by the authors in March 2018.

An Agile Development in an Unprecedented Context 59

Chinese context. “On the one hand, negotiations with Lishen [the supplier] on the battery are progressing well (we are at –5% of the target); on the engine and accessories, visibility on costs is good. On the chassis and body, on the other hand, the project is behind schedule. Working with suppliers is very difficult, and we have lost two months: it takes at least two or three answers from each supplier before we get a reasonable one. Our purchasing team is not good enough; it’s making progress, but we’re starting from a long way off—and there’s the language problem.”* Despite these difficulties, the deployment of the approach was progressing and would yield spectacular results, with very significant gains on certain parts, as illustrated in Figure 4.2, which shows the additional costs of global suppliers established in China compared to the proposals of local suppliers selected by eGT.

Figure 4.2 Cost Overrun of Global Suppliers’ Offers Compared to Chinese Suppliers’ Offers Chosen by eGT (in %) (Source: Constructed by the authors from data provided during the China mission in March 2018)

Battery Crisis Applying design-to-cost, even when done exceptionally well, can’t always protect against unpleasant surprises when it is deployed in a context that is both

*

Gérard Détourbet, “Project Status as of December 17, 2017,” presentation to the three presidents.

60 The Innovation Odyssey

unknown and unstable. And that’s just what happened on the project in November 2018, with the battery supplier. Te battery was obviously central to the car’s economic equilibrium as well as its performance. It accounted for 40% of the cost, and would have a decisive impact on the car’s key functionality and range, as well as its safety. At frst, sourcing the battery appeared to be difcult: Chinese suppliers did not meet Renault standards. Only Korean suppliers could comply, but China had placed a barrier on the entry of foreign batteries.* A difcult exploration of the proposals of various battery suppliers had therefore begun during the preliminary project, leading to the choice of the company Lishen, one of the challengers to the two market leaders, CATL and BYD. In November 2018, the economic equations of the K-ZE project were fxed, approved by the three shareholders and recorded in eGT’s economic project monitoring. But, without any apparent reason, Lishen refused to continue the cooperation, challenged the agreements made and demanded a price increase of 45% and a cash payment for the eGT capacity reservation. Te company also announced a sharp reduction in the available capacity for K-ZE. Everything that had been assumed to be contracted was suddenly called into question. Te battery development with the supplier was on the critical path. It would be impossible to change suppliers without delaying the start of production by more than six months. Behind this turnaround, which was a major crisis for the project, several factors linked to the Chinese electric vehicle context became clear. First, there was the boom in the Chinese electric vehicle market, resulting from the authorities’ determination to succeed in this area. Battery production capacity was becoming a bottleneck in the sector: those controlling it were king. Second, the strong fuctuations in volumes were linked to short-term changes in regulations on subsidies. It was therefore almost impossible to stabilize progressive equipment trajectories. In this atmosphere of uncertainty, automakers were adopting attitudes that opened the way to unorthodox negotiations. For example, Honda was reserving capacity at Lishen as a precautionary measure by paying cash. Finally, there was the context of Chinese industrial relations, where a pragmatic response to a current situation tends to take precedence over respect for contractual commitments. Terefore, eGT set up a crisis task force by mobilizing the

*

In 2016, the Ministry of Industry and Information Technology (MIIT) had introduced the Regulations on the Standards of Automotive Power Battery Industry catalog, which contained only domestic battery manufacturers, the only ones qualifed to receive purchase subsidies. Tis measure was phased out in May 2018.

An Agile Development in an Unprecedented Context 61

design-to-cost skills acquired in the initial phase of the project with Détourbet. Te cost of the battery and its components was scrutinized, and the fractal innovation approach was applied (see Figure 4.3), seeking possible gains on all variables and all types of cost, from overheads to material savings on the smallest part. Te logic of the balance of power in an essentially political negotiation then gave way to joint work between designers, seeking to fnd a fair compromise that was technically and economically realistic. Te eGT teams went as far as negotiating directly with Lishen’s suppliers, thus breaking the usual business codes.

%

%

Aluminum

%

Figure 4.3 Application of the Fractal Method to Sourcing of the Battery (Source: Constructed by the authors based on interviews carried out within the framework of this book)

Finally, this work resulted in Lishen’s acceptance of a 25% increase (instead of the 45% requested) at the start of K-ZE production, with a commitment to bring the cost back to the initial target one year later, considering the experience curve, and no cash payment. At the same time, eGT was consulting with other battery suppliers for the export batch, as Lishen was initially chosen only as the supplier for the China batch. Te overall lead time was preserved, and the additional costs were reduced, but the project was still in a tight spot. It was an example of the level of responsiveness that could only be achieved in the context of a compact and mobilized project team and agile decision-making processes.

62 The Innovation Odyssey

From Investment Decisions to the Start of Mass Production: K-ZE, a Vehicle Without a Plant? Te September 2016 meeting had culminated in the choice of the DongfengSokon (DFSK) joint venture plant located in Shiyan (see Figure 4.4). Tis choice of a manufacturing site “ à la Zola” (as those who visited it in 2016 described it) necessitated a major overhaul, both technically and in terms of manufacturing methods, to transform it into a high-performance plant with the modern quality standards expected by customers. Tis work would involve EGT’s engineering teams as well as numerous missions by Renault’s industrial experts.

Figure 4.4 Shiyan Plant, an Automotive Plant Surrounded by Mountains (Source: Dacia)

Tis upgrade would also take advantage of three favorable factors: • First, the speed and freedom of decision-making resulting from the autonomy of eGT’s engineers, who were freed from the standard norms and processes not adapted to the context of the project, combined with the possibility of mobilizing Renault’s production engineering back ofce when necessary. Tis point was essential for the implementation of what is known as “ambidexterity”* in large organizations: depriving corporate functions of a closely controlling role over innovation units, while being able to ask them to provide expertise if needed.

*

We will defne this concept in the second part of this book.

An Agile Development in an Unprecedented Context 63

• Second, we should mention the impressive responsiveness of the Chinese teams, who were capable of mobilizing large numbers of staf at short notice to carry out in a few days what would take weeks elsewhere. • Finally, the support of the public authorities, who, when the issue was the modernization of a Chinese factory, were able to rapidly fnance it and expedite supply of the necessary equipment.

Construction of the New Body Shop, from Blockages to Spectacular Recoveries At the December 2017 summit, the situation at the Shiyan plant appeared to be a sticking point. It was decided to create a modern vehicle body assembly shop—a key element in the production process to achieve a satisfactory level of quality of the K-ZE bodywork. Te construction of the new body shop required the factory—in accordance with what it had committed to do and what had been agreed by DFSK—to stop production to allow the work to be carried out. However, this was something that it obviously had no intention of doing, and it continued to manufacture ICEV models marketed under its brand to meet demand. Te problem was raised in December 2017 by Détourbet and de Charentenay in the review with the presidents of the groups held in Tokyo. At this meeting, anticipating the aim of a global expansion of the project beyond China, Carlos Ghosn openly mentioned the option of migrating to another plant that would be under Dongfeng’s control and consistent with the identity of the alliance. Te threat was clear and was linked to an important argument for Dongfeng: the prospect of becoming, beyond the Chinese market, a manufacturer capable of exporting “made in China” models to the West. Tis was an ideal position in the context of China’s national policy of promoting international champions. In response, Zhu Yanfeng reminded him that the contract signed with DFSK must be respected and that discussions with the joint venture must be improved. Te debate was closed, and the factory complied following the warning. But the episode showed that—although it was a shareholder of the joint venture, DFSK, to which the factory belonged—Dongfeng did not really control its subsidiary. Unfortunately, this was a sign of things to come. Te major work on the new body shop (see Figure 4.5) was an opportunity for Renault expatriates to understand the fundamental diferences between working in China and the way Western engineering works. Te body shop was built in three months, whereas it would normally take six. Although the work started slowly, everything fnally moved at an impressive speed. Te installation of the K-ZE’s body shop began in early April 2018 at the Shiyan plant.

64 The Innovation Odyssey

Figure 4.5 The New Robotized Body Shop: An Upgrade to International Standards (Source: Dacia)

When the main supplier of the equipment started to lay it out on the newly poured concrete, however, he detected some anomalies. Te Chinese team soon discovered that the quality of the cement supplied by the Shiyan cement plant was incorrect. Te bearing slab was unusable; the body shop would have sunk into the ground. Tey immediately decided, however, to use an imminent four-day holiday (“Tomb-Sweeping Day”) to remove the bearing slab that had just been laid, pour a new one with quick-setting concrete, and resume the installation of the equipment. Tis was a titanic task carried out in just a few days, mobilizing for the occasion a workforce of about 50 workers, immediately requisitioned. And this anecdote was not an isolated case. As Coifer pointed out: “For me, China is all about reactivity and massive resource mobilization.”

Plant Startup: Heavy Weather in Shiyan (Fall 2019) Te preparation of the factory was accomplished at a rapid pace, punctuated by the production of successive waves of prototypes, as described by Coifer: “We assembled the prototypes directly on the lines, as the schedule did not allow us to manufacture them in a specifc prototype workshop.”* (See Figure 4.6.) eGT’s engineering teams, supported by Renault’s process experts called in as backup and coordinated by Stéphane Durand—a production veteran with experience in the company’s overseas theaters of operation in Russia, Iran, and *

Interview by the authors with Jérémie Coifer conducted on March 11, 2021.

An Agile Development in an Unprecedented Context 65

Figure 4.6 Key Players in the K-ZE Industrialization in Front of the First Vehicle Produced at the Factory (August 23, 2018) (Source: K-ZE project, provided by Christophe de Charentenay)

India—were working hard during 2018 with the plant’s manufacturing teams to bring it up to the required quality level. Te teams on site also received support from Renault’s production engineering leaders (see Figure 4.7).

Figure 4.7 Gérard Détourbet at the Shiyan factory during a Mission in February 2018 with Renault’s Production Engineering Leaders, Franck Naro and Thierry Charvet (Source: K-ZE project, provided by Christophe de Charentenay)

66 The Innovation Odyssey

In the summer of 2019, the Shiyan plant sharply reduced the production of its ICEVs, in line with the plan to gradually convert the plant to electric car production. However, and contrary to the commitments made, nearly 500 workers who had just been trained in Renault production quality standards to ensure the ramping up of K-ZE production were laid of. What was worse, in October 2019, still aiming to meet commercial demand, production of DFSK’s own ICEV models was increased, saturating the factory and leaving the K-ZE project with mere crumbs in terms of production capacity. Te laid-of workers refused to return to DFSK, meaning that inexperienced replacements took charge of producing the frst series of the K-ZE at a time when Renault’s entire control system had been mobilized to check quality. Faced with this major crisis, which was jeopardizing the startup of the plant, eGT reacted strongly to Dongfeng as shareholder of the DFSK joint venture that owned the plant. Tis new crisis confrmed that Dongfeng had little control over its subsidiary and further convinced the Renault staf working at eGT that another production site was needed, probably in Europe, for the European version of the K-ZE to have a chance of success. In fact, the factory, caught between the continuing strong demand for ICEVs sold by DFSK and the growing demand for the K-ZE for export, would fnd it difcult to deliver K-ZE at the required volume. Start of production was delayed by several weeks but fnally took place at the end of September 2019, once again thanks to Chinese responsiveness. Te rampup happened thanks to reduced production targets, given the accumulated backlog (see Figure 4.8).

Figure 4.8 First Shipments to Customers (September 21, 2019) (Source: Christophe de Charentenay)

An Agile Development in an Unprecedented Context 67

The Battle for Quality An automotive project has a multitude of intermediate milestones which correspond to the stages necessary for development: specifcation freeze, deciding on the industrial process to launch investments, fnalizing the choice of suppliers, agreement to manufacture prototype vehicles and pre-production vehicles, and so on. Each milestone is associated with deliverables resulting from activities that are clearly defned, both in terms of content and who does what. Each of the milestones must be passed to ensure that all of the planned deliverables are provided to the expected standard of completeness. However, as mentioned at the beginning of the chapter, the K-ZE project was unique because of its unstable context and because it was applying the design-tocost principle to an innovative scope with new Chinese suppliers. Tese singularities led to adaptations—not of the design fundamentals, which were all applied, but of the overall schedule and the supplier quality acceptance process.

Passing the Quality Milestones on K-ZE According to the logic of the design-to-cost process, a supplier is selected if it can achieve the performance and cost target assigned to it. In many cases, due to the particularly ambitious cost targets that had been set, the actual appointment took place after the “supplier award completion” milestone for the part in question.* For example, the Chinese supplier’s proposals for the battery management system did not comply with all of Renault’s design rules. Te eGT teams and Renault experts therefore began to work on a technical solution for K-ZE, which resulted in a new technical defnition associated with an approval schedule that could not have been executed according to the standard timeline. Tese two examples show how these expected milestones led to confict between the project and quality requirements: the quality department wanted the project to be stopped if the intermediate milestones were not achieved, while the project team wanted to keep moving forward, postponing the need for approvals and adding them to a growing list of “pending issues” in the development. Tis situation soon generated signifcant tension between the project team and the central quality department. At the local level, the project quality manager set up approval processes adapted to the situation, but the corporate quality division remained attached to the standard process, from which it did not want to deviate. “I was in a difcult situation,” the project quality manager explained. “At headquarters, my management told me ‘don’t sign anything.’” *

Not all parts have the same development time, so project planning took this into account by incorporating multiple supplier assignment milestones, in phases.

68 The Innovation Odyssey

Te subject was raised at each review with the general management as a blockage in the progress of the development—a situation Détourbet had already experienced in India with the Kwid. Tus, in the October 2017 review, the item “Evolution of the Working Way Between Engineering and Quality Departments” was clearly the main obstacle to the project’s progress. It called for “respect between corporate division[s] and the project, open and clear communication during the milestone preparation phases between central quality and engineering on the one hand, and local quality and engineering on the other.” Wanting to retain autonomy of the project, Détourbet quickly stopped participating in the project reporting established within the Renault Group, setting up a specifc continuous follow-up between de Charentenay, Coifer, and the engineering director in charge of project management, Christian Steyer, with the latter responsible for mediation with central services.

Improving the Quality of Suppliers Cost competitiveness must go hand in hand with satisfactory quality of supplies. In traditional developments, the in-depth work on quality management of suppliers is done upstream of the projects: suppliers are assessed and ranked based on past experience and audits. If they obtain a sufcient score, they are integrated into the company’s panel of suppliers. Te project managers then send requests for quotations to the suppliers from the panel. For the K-ZE, none of the Chinese suppliers consulted were on the Renault supplier panel. Tis meant that a strict process had to be put in place during development to validate the quality of suppliers on a case-by-case basis. As Kim explained: “We visited suppliers every week, including Tier 2 and Tier 3 suppliers, whom we visited with Tier 1 suppliers. Tis way, they could see that we were on their side to help them converge on the objective targets.”* Figure 4.9 shows the improvement from an initial “D” rating, which is unacceptable, to the “C” objective target, the minimum level required for start of production in accordance with Renault-Nissan Alliance quality standards. All K-ZE suppliers achieved this minimum level before the start of pre-production. In the end, the project adhered to Renault’s quality rules, but the path to get there was very diferent from the standardized paths defned by the corporate quality division. de Charentenay quoted Renault’s director of product planning and programs: “Tis is the frst project I have seen where we signed the contract just as we were starting to produce cars in the plant . . .” Tis logic corresponds well to

*

Interview with Donghyeon Kim (eGT purchasing manager) by the authors on March 18, 2021.

An Agile Development in an Unprecedented Context 69

Figure 4.9 Supplier Improvement Toward the Renault-Nissan Alliance Quality Standard (Source: K-ZE project, information provided to Christophe de Charentenay)

strategies based on speed of execution, which consist of advancing as much as possible in parallel on diferent activities, even if it means delaying certain decisions, as long as this does not jeopardize the overall progress of the project.* Tis methodology is necessarily based on the autonomy of the project and the confdence of the decision-makers in its ability to converge on targets. Steyer, whose active sponsorship made this convergence possible, explained: “In a project like this, the conficts are written in advance, hence the importance of sponsorship. I was one of the sponsors, and my job was to know when we could aford to go outside the box because, with the usual rules, it was not possible to converge. We had regular meetings at my level to make sure that convergence was possible.” Here we fnd the importance of ambidextrous governance, which, as Steyer so efectively expressed, is not the norm. “Te most important thing is to make people understand the rules of the game. We need to be very educational, to get out of the black and white. It’s difcult to get of the beaten path of standards, and this causes a lot of reluctance.” Steyer went on to explain that these tensions re-emerged when the sale of K-ZE in Europe was considered: “Technically, the product respected all the company’s quality standards and has not given rise to any problems since it was launched. But at headquarters, there was both a desire to market the product and lively debate

*

Midler, C. (1993). L’auto qui n’existait pas. Management des projets et transformation de l’entreprise. Paris: Inter Éditions.

70 The Innovation Odyssey

about its consistency with the DNA of the Renault brand. It has fnally found its place in the Dacia range, which was in line with the brand’s identity.”*

K-ZE Development: Mission Accomplished Admittedly, there were some changes along the way, as the product performance targets were enhanced compared to those set at the September 2016 meeting, but ultimately the development mission was accomplished. Moreover, the press coverage of the car in the fall of 2019 confrmed its competitiveness: “In terms of price-customer value balance, the product was excellent compared to competitors in the segment.”† In terms of quality, it was in line with Renault’s standards, and, by the end of 2021, there had been no recalls for quality defects. On the cost side, the project fell short of the original target, both because of the performance increase needed to comply with China’s infation of electric vehicle standards, and because of the additional battery cost resulting from the supplier’s renegotiation of the original contract. When the customer value added over the course of the project (the increase in range) was included in the cost comparison, the drift—compared to the contract signed in March 2018—was 5% in September 2019 and zero a year later, in October 2020. Finally, if we compare the K-ZE project to a similar project done in accordance with European standards, we can see a saving of more than 50%, mainly obtained on manufacturing costs and the localization of supplies—including, of course, the battery (see Figure 4.10). Te gains were also impressive in terms of the investment required to develop the car: equivalent to one-eighth of the cost of launching an adaptation of a European vehicle in China at the same time, if we add together the design-to-cost efect and the efect of sharing the investment between the partners, as we saw in Chapter 3. Finally, in terms of scheduling—the third side in the “golden triangle” of project evaluation (with the frst two being quality and cost)—K-ZE was developed in 36 months, from the agreement to start development in September 2016 to the date of starting production in September 2019 and the frst sales in October 2019. Tis was a longer schedule than the initial draft, which was very ambitious, aiming for a frst commercial launch in June 2019. Tis was soon adjusted to be more realistic when the product concept was fxed, with production starting in July 2019 and marketing in September of the same year. * †

All three quotes are from the authors’ interview with Christian Steyer on June 22, 2021. Interview by the authors of François Provost on March 17, 2021.

An Agile Development in an Unprecedented Context 71

G&A Battery cost Assembly costs and plant depreciation

Cost of supplies except battery

Cost price of K-ZE produced in China

Cost price of K-ZE produced in Europe

Figure 4.10 Vehicle Cost Gain Analysis. Comparative Cost Prices Excluding Depreciation of the Entry Ticket (Source: Constructed by the authors based on interviews carried out within the framework of this book)

In relation to this schedule, and as a result of the industrial challenges described, the fnal production startup date was fnally shifted to September and commercialization to October. Nevertheless, even with this delay, the project remained a year shorter than the company’s standard for developing a vehicle with a new powertrain, which was particularly remarkable given the context of uncertainty and complexity linked to China and to the cooperation between the diferent stakeholders (see Figure 4.11).

Schedule proposed at the summit meeting (28/09/2016)

Actual schedule

W27 W37

W24 W27 W37

Figure 4.11 Evolution of the K-ZE Schedule (Source: K-ZE project, information provided to the authors during the China mission in March 2018)

72 The Innovation Odyssey

Conclusion: Toward a Model of Development Compatible with Innovation One of the key lessons learned by the automotive industry in the 1990s was to “industrialize” the design of new products in order to shorten development times as much as possible while increasing the capacity of engineering departments to design more models. Te projects ft into standard schedules that organize the various design activities, from the defnition of the objective, to the study of its feasibility, the decisions to engage the realization phases, and the marketing. However, one of the dilemmas associated with this streamlining of design processes is the question of the singularity and innovation of projects. Is this speed acquired at the cost of homogenizing new products? Can we still innovate on these new products? Tis question was at the heart of a number of research projects in the 2000s, because the objective of speed and multiplication of projects was accompanied by the need to develop new products that could be diferentiated on the markets. Te approach generally adopted in response to this dilemma has been to decouple the innovation process from the product development process. Upstream, there is an advanced research phase and a maturation phase for innovative components, based on the idea of “innovation validated on the shelf.” Te development team then selects from these tested components to fnd what it needs and integrates them into the vehicle system. Tis model, instituted by the engineering departments and quality functions of the companies that vigilantly manage its application, has virtues for guaranteeing product quality but introduces signifcant inertia in the marketing of innovations. It is therefore ill-suited not only to particularly dynamic markets such as China, but also to the integration of high-value-added components in the automotive industry, based on rapidly evolving technical felds such as electronics and digital products, where innovation cycles are much shorter than automotive development time, condemning new onboard equipment to be outdated by the time it is released. Te development of the K-ZE project, even more than its predecessors, Logan and Kwid, showed the possibility of another model, that of innovative development,* combining innovation and rapid product development. Indeed, all of the technical solutions implemented in the electrifcation of the car were tested and approved in the context of development, and none of the suppliers belonged to the company’s certifed panel, because all the Chinese suppliers were unknown to Renault. Analysis of this project development thus allows us to outline the main features of this organizational model of innovative development.

*

Midler, C. (2019). Crossing the valley of death: Managing the when, what, and how of innovative development projects. Project Management Journal, 50(4): 1–13.

An Agile Development in an Unprecedented Context 73

• A pre-project phase anticipating as much as possible the learning of the key variables of the project and formulating a clear strategic target. • A legitimate project leadership and a compact project team, expert and committed to the strategic target, capable of defning and implementing design approaches adapted to the singularity of the target and the situation (as opposed to applying standard rules). • A project governance that shares this strategic target and ensures its stability during execution by supporting the project team’s unique approach to achieving it and mobilizing stakeholders to buy into it too. • A team management that, on the one hand, integrates the various components internally to make the right compromises between variables and ensure their stability through the solidarity of the members and, on the other hand, is open to the project’s key external players (partners, suppliers in particular) in order to take advantage of opportunities, anticipate potential problems and contribute, with these players, to solving them. • A collective learning management that assumes the uncertainty inherent in any innovation and that is at the same time fractal (deploying at all scales, from macro to micro), agile (eliminating as much as possible inertia in the detection of problems, the exploration of answers and their application), and prudent (preserving global margins to allocate them as needed and preparing backups if the central voluntarist scenario fails). Tis innovative development model is particularly well suited to projects with a high disruptive content, while the traditional approach has obvious virtues for incremental product renewals in stabilized segments. It is therefore the combination of the two models within large groups—referred to in academic jargon as “organizational ambidexterity”—that constitutes the ideal formula for ensuring both competitiveness in established markets and the potential for renewal to stay in the race in the long term. Te development of the K-ZE has thus illustrated the possibility and the indispensable conditions for carrying out such a project, which is very diferent from what might appear an unassailable “single best way” of managing automotive projects. It has also revealed the difculties to be faced and overcome when one wishes to combine the two models (traditional and innovative) within large groups—a combination that has become unavoidable today.

Chapter 5 A Project in a Perfect Storm After the industrial startup, commercialization of the new product is the fnal part of any project. However, this stage is critical, especially in the case of an innovative project where market uncertainties are greater. Indeed, this aspect is essential: it must concretize, in the form of return on investment, the efort and resources invested over a period of several years.

A Promising Commercial Launch While the Shiyan plant was feverishly ramping up production, the fnal stage in the development of the K-ZE project was taking place: the commercial launch. Tis typically consists of three parts: the launch event itself, the presentation and press tests, and actual sales. Te launch was therefore happening in two stages: frst, Carlos Ghosn announced the product launch in Paris in October 2018, and then the vehicle was unveiled to the public at the Shanghai Motor Show in April 2019 on the Renault and Venucia booths (see Figure 5.1 on next page). Finally, sales began under the Renault brand on September 5, 2019, at the Chengdu Motor Show. Te vehicle was sold under the name Renault eNuo at the ofcial subsidized price of RMB 61,800–71,800 (€8,034–9,334).

75

76 The Innovation Odyssey

Figure 5.1 Presentation of the K-ZE at the Shanghai Motor Show in April 2019 (Source: K-ZE project, Christophe de Charentenay)

Te journalist tests took place in April 2019 in Wuhan. Tis was a key moment, as it was there that the public had frst sight of the vehicle. Te reception by the Chinese press was excellent. “Te performance and quality are beyond imagination” (Tensent Auto, October 30, 2019); “Test drive with excellent driving quality” (d1ec, October 30, 2019); “What’s amazing about the K-ZE is that it costs only RMB 70,000 and meets the requirements of an international brand, a global platform, an SUV model and a smart connected vehicle” (Sohu, December 25, 2019). Sales got of to a relatively good start. Te frst distribution subsidiary to buy the K-ZE was the Renault-Dongfeng joint venture, DRAC, which reserved capacity for 180,000 cars over fve years. DRAC had planned to order 5,000 K-ZEs by 2019, but production delays during the frst industrial wave reduced this target to 3,000. DRAC was carefully preparing for commercial deployment and was beginning to distribute the eNuo in its network. Sales were on target, with 2,756 vehicles sold, and the car quickly reached its target of 5% of its segment by the end of 2019. Behind DRAC came an order for 2,000 K-ZEs from DFSK in November, with a 50% advance payment to eGT’s account. However, DFSK did not organize a commercial launch. Te other two joint ventures did not place any orders. Figure 5.2 summarizes the rapid ramp-up of K-ZE.

A Project in a Perfect Storm 77

Figure 5.2 Rapid Ramp-Up Ahead of COVID-19 (Source: eGT production plan communicated by Christophe de Charentenay)

However, despite this excellent start, things soon began to go wrong. Between the end of 2019 and March 2020, the project was hit by a series of four shockwaves which, because of their severity and conjunction, stopped all sales of the K-ZE in China in 2020.

Four Shockwaves in the Chinese Market The Financial Crisis at DRAC, the Project’s First Client At the end of 2019, DRAC was short of cash and challenged the payment terms of the contract. This cashflow problem resulted from the failure of DRAC’s marketing of ICEVs (Koleos, Kadjar, Captur). eGT then refused to expose itself to a credit by delivering cars to DRAC without being paid—and rightly so, because the restructuring of DRAC’s debt would have a heavy impact on its suppliers. The dispute continued until that December, and, despite having customers, DRAC stopped ordering K-ZEs due to a lack of financial resources. The problem was structural: three months later, in March 2020, Renault left DRAC for good, leaving Dongfeng with an empty Wuhan plant and eGT with unpaid invoices.

78 The Innovation Odyssey

Tis crisis had several causes. First, there were the efects of China’s industrial policy. Following a proactive phase of support for the creation of a local automotive industry, including incentives for joint ventures, there was a course reversal, with the aim of eliminating the small and weak in favor of emerging champions. In the words of François Provost: “China is the vanguard of the ongoing restructuring of the global automotive industry with electrifcation and mobility . . . Chinese industrial policy aims at a ‘natural’ selection, leading to the disappearance of the smallest/weakest, including small joint ventures.”* Second, there was the inability to make relevant product decisions from France on the Chinese market. Between late 2016 and 2019, when competitors were launching a vehicle every six months, DRAC was not launching any new models. Renault’s regional managers were reduced to accepting models that did not meet customer expectations, such as Captur, a vehicle that was too small for the Chinese market and was a terrible failure. Tird, there was the general reduced autonomy granted to DRAC by Renault. For example, the choice of suppliers for each project had to be approved by the engineering and purchasing departments based in Paris, resulting in inappropriate decisions due to a lack of knowledge of the Chinese terrain and/or delays in decision-making that were detrimental to the smooth running of the company. Finally, there was the inefciency of Dongfeng’s sales networks. Renault had originally come to China by importing Koleos from Korea and distributing it through its own sales forces. At the time, this was a success: the Koleos benefted from the Renault name, resulting in signifcant sales volumes until 2013. In the agreement with Dongfeng, Renault agreed to place its network under the control of DRAC, and therefore efectively under the control of its Chinese partner. As Christophe de Charentenay said: “Te result was disastrous. All the good salesmen left, frightened by the presence of a state-owned company, and we lost the commercial punch. Once frozen in the DRAC system, where any change of collaborator became a question of power relations between shareholders, the commercial structure lost its efectiveness.”† Moreover, Dongfeng, aware of this problem but needing to sell K-ZE to achieve its CAFC objective, asked eGT in the summer of 2020 to ensure the commercial deployment of the K-ZE under a Dongfeng brand, which was not in the scope of action initially planned. Provost, who had taken over the presidency of eGT, convinced Renault and Nissan to respond positively to this request: “Tis strengthened the cooperation with this partner, which was important to

* †

Interview by the authors with François Provost conducted on March 17, 2021. Interview by the authors of Christophe de Charentenay on December 10, 2020.

A Project in a Perfect Storm 79

secure the production of K-ZEs for Europe in Shiyan. Furthermore, Dongfeng was perfectly ‘fair’ in assuming the risks and costs of this eGT engagement.” Caught between headquarters and the commercially inefcient but powerful partner, DRAC could hardly resist. Tis reinforces the importance of eGT’s structure, which allowed the project to remain autonomous, avoiding the perils that proved fatal to DRAC. In this context, total DRAC sales, 10,261 units in 2020, were down 73.95% from the previous year. Vehicle production was also down more than 70% from the previous year, and the installed capacity of 150,000 vehicles per year was signifcantly underutilized. Tis forced Renault and Dongfeng to close the DRAC joint venture and Renault to look for other Chinese partners to promote its products more efectively in China.* In any case, the K-ZE lost its most efective sales network with the closure of DRAC. When the new 300km-range version was launched under the Dongfeng brand in China in late 2020, sales would be limited to fewer than 400 units in 2020 and 3,000 in the frst half of 2021, or less than 1% of the segment’s market.

The Networks of Other Chinese Subsidiaries Break Their Commitments Te distribution strategy also relied on four other marketing subsidiaries to achieve the planned volumes in China. But here, the landscape was not much better. After the orders from DRAC and DFSK, Dongfeng-Venucia (the joint venture with Nissan) and Dongfeng-DFG were supposed to take orders. In the end, Dongfeng-Venucia ordered only 450 K-ZEs and Dongfeng 46 K-ZEs. Te ffth partner, Dongfeng-Liuzhou, did not place an order, as it did not need CAFC credits (see Chapter 2). Tis was very far from the forecasts and expected commitments. How could the passivity of the sales networks be explained? One means of understanding this point concerns the ability of distribution subsidiaries to set a remunerative margin level. First DRAC, which was looking for volumes to achieve its CAFC quota and rapidly improve its fnancial situation, but had been hurt by the commercial failure of its new ICEV (the Captur derivative), positioned its prices low. Tis price was RMB 5,000 (€650) lower than that expected by the other four joint-venture clients of eGT. Tey had to align themselves, as the

*

For more information, see: Renault Group (2021). Geely Holding Group and Renault Group to Sign MOU on Joint Cooperation in China and South Korean Markets. en.media.renaultgroup.com, August 9; Renault Group (2020). Group Renault Sets Its New Strategy for China. en.media.renaultgroup.com, April 14.

80 The Innovation Odyssey

value of the foreign brand set a maximum threshold that could not be exceeded by the local brands. Between the increased production costs, caused mainly by the increase in the cost of the battery, and the sales price, which was efectively controlled by DRAC, the room for maneuver by the other joint ventures was reduced, and this did not encourage commercial eforts. On the other hand, Venucia was also marketing another car in a higher segment that it had produced in its brand-new factory. It therefore focused its eforts on this other vehicle—especially as, like the other joint ventures, it was sufering fnancially. Provost, even if he recognized that the price positioning based on obtaining subsidies for the vehicle’s market competitiveness was perhaps a misjudgment,* emphasized above all the Chinese industrial policy decisions that had resulted in a sharp and brutal decline in the market for small electric cars: “In April 2019, the Chinese government is suddenly cutting support for electric vehicles. Tis is an act of industrial policy. Tey realized that with the huge subsidies, there were plenty of manufacturers making mediocre cars, with no interest for customers. Tey also identifed that it was better to have more targeted aid aimed at Chinese ‘champions.’” Te frst consequence was a sharp decline in the market for small cars, which reduced by 80%. When the price of these cars rose as a result of the removal of subsidies, customers lost interest even more. Te second consequence was that the large joint ventures involving global manufacturers, in order to meet their CAFC targets, were forced to sell electric vehicles with reduced margins—even at a loss. As for the Chinese champions, as Provost explained: “Tey have found other solutions through R&D support and/or ‘secured’ volumes in their home regions. For example, BAIC made 80% of its electric car sales around Beijing. Wuling, 80% of the sales of its frst electric vehicle around the city of Liuzhou.” In the second part of the book, we will see that, in addition to the regulations handed down by central government, the local authorities had numerous means of developing the sales of their local champions—for example, the obligation for public feets, taxi companies, or ride-hailing companies to drive electric vehicles, or targeted local approvals to prevent competitors from gaining a foothold in the market. Provost concluded: “Te electric vehicle market was initially driven by compliance with CAFCs, feets, and support from local authorities, before exploding thanks to an improved product ofering and lower battery costs.”

*

“Te project was perfectly executed according to the vision on the development plan, but we made a mistake: we knew that the purchase subsidies were going to decrease, but we also thought that, as a result, the prices would increase sharply and quickly, which did not happen.” Interview by the authors of François Provost on March 17, 2021.

A Project in a Perfect Storm 81

Figure 5.3 Wuling Hongguang Mini EV, a Blockbuster Electric Vehicle in China in 2021 (Source: Jengtingchen (personal work), commons.wikimedia.org, CC BY-SA 4.0)

Seki-san, former Nissan executive in China and eGT board member, observed the following phenomenon: “Te most successful electric car in China in 2021 is the Wuling Hongguang Mini EV (see Figure 5.3),* a small car that does not beneft from subsidies: its battery is 2.5 times smaller than that of the K-ZE, and its cost is ultra-competitive at around RMB 30,000 (€3,900). Its clientele is found in the small towns of deepest China, with an over-representation of women.” Te success of Wuling’s vehicle highlighted a key point about the strategy of companies with regard to direct purchase subsidies: either they must seek to obtain them and enter into a permanent process of adjusting the vehicle’s performance, as in the case of the K-ZE, or they could free themselves completely from them by developing a minimalist vehicle, similar to the low-speed EV,† which was relatively less efcient but so afordable that it would fnd its market by meeting the needs of local mobility for frst-time buyers.

*

†

Developed and produced by the JV between SAIC, GM, and Liuzhou Wuling Motors, this vehicle saw its sales reach 50,000 units in October 2021 (Source: Kane M. [2021]. China: Wuling Hong Guang MINI EV sales soar to 47,834 in October. insideevs.com, November 4.) In 2016, Bo Chen’s thesis revealed the importance of this market for electric small cars, which can be used without a license, and which have been distributed to millions of people in outlying Chinese cities. Te growth of the small electric car market could then be fueled by two sources: from above, by the design of electric vehicles extrapolated from ICEVS, and from below, by a return to minimum standards of LSEV-type vehicles.

82 The Innovation Odyssey

Te initial strategy advocated by Gérard Détourbet was to make a “real” vehicle that would be proftable without the subsidies, which were a bonus that could not last. Te K-ZE project, designed on the platform of the Kwid, was therefore of the frst type. Te assumption, made from the outset, of a product aimed at the Chinese market but “not containing characteristics that would prevent subsequent worldwide marketing” ruled out proftability at a selling price of RMB 30,000 (€3,900) and also made a low-speed EV scenario perilous. Meanwhile, the car developed by Wuling was of the second type, even though it was a vehicle developed and tested by an automaker established in the traditional market segments. In terms of product and performance, it was closer to the low-speed EVs of the informal market in the outlying cities than to “real” electric vehicles. Here we fnd the classic mechanism for attacking a market from below, as described by Clayton Christensen: disrupting a market by signifcantly downgrading performance in order to attract new customers, in this case those who had remained outside the “normal” Chinese car market until then. Te success of the product confrmed the possibility of an upward expansion of the Chinese low-speed EV market. In conclusion, it was understood that, given the turn the commercial deployment had taken, Shiyan’s production lines, stopped on December 20, 2019 according to custom, would not resume in January 2020.

COVID-19 Hits In addition to the structural problems described, there was another major event: the COVID-19 pandemic. On January 23, 2020, one month after the production of the last K-ZE in Shiyan, the city of Wuhan was placed under lockdown. Te lockdown quickly spread to the whole of Hubei province and therefore to the Shiyan plant. Te French and Indian employees of eGT left Wuhan just before the lockdown, and only one Korean employee was left behind with his family, before being repatriated to Korea six weeks later. Very quickly, from mid-February, work resumed at a distance. An exceptional authorization was obtained to pick up the computers at eGT’s premises. Despite this massive disruption, work then resumed at eGT and its suppliers, particularly in the development of the export version. However, there was no longer any question of restarting production in March, as was envisaged at the end of 2019. In March 2020, eGT’s frst customer (DRAC) went bankrupt, and the eGT development center and the K-ZE production site were at the epicenter of the worst pandemic in a century. It’s hard to imagine worse, yet there was one more shock to come.

A Project in a Perfect Storm 83

Change in the Criteria for Granting Subsidies We have already mentioned the weight of Chinese regulatory policy on the electric vehicle market. But what exactly happened at the beginning of 2020? In April, the government announced a new change in the rules for granting subsidies for the purchase of electric vehicles. While the subsidies, which were supposed to stop at the end of 2019, would now be maintained until the end of 2022 to support a struggling automotive market (all fuels included), the minimum range required to receive subsidies for the purchase of an electric vehicle, previously set at 250km in the NEDC standard cycle, suddenly increased to 300km. Te application schedule was “Chinese style”: 50% reduction in subsidies immediately and 100% within three months—that was, by July 1, 2020. Tis was a very hard blow for the project. Tis time, neither the project nor Dongfeng, although it moved in the right political circles, had anticipated it. Te car had been designed and tested successfully at 273km. With this change of standard and the associated loss of purchase subsidies, the car became uncompetitive in terms of price. However, in less than a week the vehicle’s chief engineer, Jérémie Coifer, and his deputy, Wang Wan Lai, came up with a plan that would allow the K-ZE to be re-certifed to 300km of range in less than six months. Tis put eGT in a position to boost sales in the last quarter of 2020, which would improve the situation.* Indeed, usually up to 40% of EV volumes are concentrated in the last quarter, as manufacturers prefer to produce just enough for their CAFC or NEV credit needs.

Storm Clouds Gather at Renault and Nissan Headquarters Crises in the commercial network of the key partner, closure of the joint venture, pandemic lockdowns, a sudden change in the subsidy rules: the bad news was piling up. In the face of such a storm, the cohesion of the cooperation disintegrated. Te health of Détourbet—who, from the outset, had set the project’s compass—had deteriorated over the preceding nine months. He made his last trip to China in May 2018 and continued to follow the project for some time after that from France. And Ghosn, who had played such a decisive role in aligning the aims of the various partners at key moments, was absent: he was arrested on landing at Tokyo airport on November 19, 2018, and then imprisoned. A *

Tis plan would be realized, but in October 2020, no agreement was reached between Renault and Dongfeng to relaunch the K-ZE under the Renault brand in China, and energies were focused on the export model.

84 The Innovation Odyssey

year and a half later, the atmosphere at the headquarters of Nissan and Renault remained poisonous, paralyzing attempts to deal with the Chinese situation in a strong and coordinated manner. Both companies were hemorrhaging high-level managers who had been in charge for years and were responsible for the project’s strategy. Meanwhile, incoming new managers did not see the project as a priority. So, what was the impact on the K-ZE project of this chaos at the RenaultNissan Alliance headquarters? In terms of engineering, the project remained on track, both for development in China and for the future commercialization in Europe. Te commitments were fulflled, and monitoring continued through reviews involving Christian Steyer, Vehicle Engineering Project Director, and de Charentenay for eGT. However, the same could not be said for Renault’s strategy for conquest in China, which had been led by Ghosn. Faced with the commercial rout of DRAC, a signifcant intervention from Renault headquarters would certainly have been necessary to remobilize all the stakeholders. Renault’s new strategy in China, which was based on eGT among other things, came far too late, whereas the context required immediate action. Moreover, the credibility of Renault’s commitment to the conquest strategy initiated by the K-ZE also depended on its commitment to deploying new vehicles on the platform. As we have seen, the Chinese market, like the Indian market, is extremely demanding in terms of product renewal. DRAC probably failed because of the lack of a steady stream of relevant new products in the Chinese market. And, given the development timeframe, decisions in this area must be made quickly: a decision in 2020 was necessary for commercial deployment in 2023. Nevertheless, at the end of 2019, Nissan and Dongfeng did not confrm their interest in a second vehicle. Te K-ZE, at least initially, would be without descendants on the Chinese market.

In the Face of Headwinds, the Project Pivots to Europe Against this backdrop of multiple crises, the eGT board meeting in March 2020 went strangely well. It was a simple video call among cell phones, and everyone realized that a complex video conferencing system was unnecessary. Te CEO of eGT, de Charentenay, reported to the shareholders from his home in Shanghai, where he was under strict quarantine. Te directors were spread out at their homes in Wuhan, Tokyo, and Singapore. Circumstances called for radical and rapid decisions: the re-engineering of the K-ZE to make a vehicle with a 300km range in the fall of 2020 and industrializing the European version as a priority

A Project in a Perfect Storm 85

were unanimously adopted. Te contract between eGT and Renault specifying the production volume (150,000 vehicles) for Europe was signed in March 2020. In the end a joint venture made up of three shareholders, supposedly impossible, managed to weather the storm. If this pivoting of the project toward Europe from 2019 could be decided so quickly, it is because it was anticipated: while China was the primary market for K-ZE, the possibility of a later outlet on the European market was foreseen as early as the initial project outline, in March 2017. In September 2018, under the mandate of Ghosn, Renault had committed to a global volume of 150,000 vehicles in Europe, for which it made the advance payment of the corresponding capacity reservation. Te fnal contract concluded in 2020 therefore did not imply any change to the original signed contract, simply noting that the reservation of vehicles for Europe would now take place from 2020.

Conclusion: A Truly Resilient Project 2020 was supposed to bring a happy ending for the K-ZE project, but four successive shockwaves decided otherwise, and the year instead turned out to be an annus horribilis. Nevertheless, the product existed, it had been rather well received both by the press and by the few customers to whom it could be distributed in China by the end of 2019, and the plan to improve its range had been successfully carried out within the given timeframe. Faced with the massive problem of Chinese distribution, the K-ZE project was therefore in need of other commercial networks capable of capitalizing on the asset. Would the commercialization of the K-ZE in Europe help the project meet initial expectations?* In this time of the pandemic, the term “resilience,” or the ability to resist hardship, is in vogue. When applied to projects, it refers to a general approach that is old but still relevant: that of risk management. Considering the possibility of unforeseen events is essential when embarking on innovative projects, especially when the uncertainties are signifcant and varied, as was the case with K-ZE: there was an unknown market and manufacturing plant, unprecedented cooperation with a Chinese company for the design of a vehicle incorporating new technologies, and so on. In fact, the story told in this book shows that the development of the K-ZE project was far from a cruise down a tranquil river. It was more like whitewater

*

See Chapter 6.

86 The Innovation Odyssey

rafting, navigating against uncontrollable forces, which it was only possible to react to, rather than try to control. Tis is a far cry from the rationalization of the usual corporate activities, where the logic of control can be deployed according to rules established in advance. So, what does this body of work on managing uncertainty in projects teach us? We learn that most of the developments in this feld assimilate uncertainties and risks: survival is essentially a question of protecting oneself against the hazards that can derail a project. However, there has been little written on how to make the most of the good surprises that occur during development. We have already seen in the K-ZE project that one of the reasons for its success was that it was able to explore these unknowns and efectively mobilize the opportunities that arose during development as part of the process. In other words, serendipity does not come about by chance, but rather it happens because “agile” systems have been put in place to seek it out and exploit it.* Te notion of risk can, according to terminology proposed by Christoph Loch and his colleagues,† be broken down into proven risks and “unknownunknowns.” Te former are the risks that can be named. Tey are the focus of classic formalized risk management approaches, based on identifcation, evaluation of the probability of occurrence and the severity of the consequences, and the implementation of action plans to eliminate them or greatly mitigate their efects on a project. For the K-ZE, the evolution of regulatory requirements was typically of this order and generated the creation of a specifc monitoring structure and a continuous adjustment device during development. Te second type of problem occurs without warning: COVID-19 bringing Wuhan to a standstill, the battery supplier breaking the contract it had signed a year earlier, or the lack of distribution by Chinese sales networks that had paid the investment corresponding to their volume reservation. Te response always entails, contrary to popular opinion, both anticipatory planning and improvisation. Anticipation and planning of responses obviously form the basis of proven risk management. But, in the case of “unknownunknowns,” knowing how to improvise, as professionals in disaster management such as fres or earthquakes understand well, is a major asset. Improvisation is not

*

†

See: Midler¸ C. (2019). Crossing the valley of death: Managing the when, what, and how of innovative development projects. Project Management Journal, 50(4): 1–13; Davies, A., MacAulay, S. C., and Brady, T. (2019). Delivery model innovation: Insights from infrastructure projects. Project Management Journal, 50(2): 119–127. Loch, C. H., De Meyer, A., and Pich, M. T. (2011). Managing the Unknown: A New Approach to Managing High Uncertainty and Risk in Projects. London: Wiley & Sons.

A Project in a Perfect Storm 87

opposed to planning ahead but actually relies on it because it mobilizes patterns of action that are assimilated in advance and can be arranged to respond, in real time, to the specifc situation faced.* For example, the response to the surprise increase in the price of the battery demanded fractal management skills in the supplier relationship, and this made it possible to reduce the cost increase from 45% to 25%—by seeking out all possible sources of savings from the top-ranking supplier, as well as from those in ranks two and three. Similarly, the rapid switch to the European market would not have been possible without the prior existence of the international deployment scenario; although this had not been conceived as a backup in the event of a crisis in Chinese distribution, it was mobilized to that efect in response to events. Finally, contrary to the elusive principle of convergence on the initial target, the extent of the “unknowns” may lead to changes in the initially planned scenario when this appears preferable in the new situation. Te earlier-than-expected pivot to Europe is a typical example.

*

Midler, C. (2021). How to manage emergency and radical uncertainty in hyper-projects? Tirer les leçons du management de la crise du Covid-19. Revue française de gestion, 47(295): 105–116.

Chapter 6 The Phoenix Te year 2020, the annus horribilis of K-ZE’s marketing in China, was also the year of the accelerated pivot to Europe. Tis strategic decision was taken with remarkable speed, as the crisis situation demanded, but its implementation would not be easy. Launching the K-ZE in Europe meant putting on the market, without any warning, a vehicle that had been developed for three years in China, for China. Te adaptations to ensure the product’s acceptability in its new context would therefore need to be made very quickly. Tis was also during a period of power transfer within the company—with the departure of CEO Tierry Bolloré in October 2019 and the appointment of the new CEO of Renault, Luca de Meo, in January 2020—which would lead to a new strategic plan for the company, the “Renaulution,” in January 2021. How would the K-ZE electric car project, coming from elsewhere, ft into this redefned context—in an organization where many executives had changed following the various shocks the company had experienced since the fall of 2018? And how would it ft into a strategy that was now quite diferent from that of the group that had decided, in late 2015, to launch the project?

A Difficult Trip to Europe Until that point, the project had been able to develop with relative autonomy, independent of the group’s various corporate divisions. Tis was obviously no longer the case when the European marketing of the K-ZE was being negotiated. Tis 89

90 The Innovation Odyssey

possible launch in Europe raised suspicions about both the quality of a product that had not followed the procedures established by the parent company, and the risk of cannibalization of products designed in Europe for the European market. Tis had happened previously with products in the Dacia range, when the fear was that the Sandero would harm Renault’s blockbuster, the Clio. In this case the precise threat was to the electric Twingo, designed on a platform developed in partnership with Daimler (for the Smart). Tis issue was all the more critical, as the director of product planning was the former director of the B segment program, which included the Twingo project and its potential electric version. Te internal negotiations on the European marketing of the K-ZE were also taking place at a particularly troubled time in the company’s history. After the crisis linked to the arrest of Carlos Ghosn at the end of 2018, Jean-Dominique Senard was appointed chairman of the board of directors in January 2019, and Bolloré was removed from his position as CEO in October 2019. Te year 2019 ended under provisional leadership provided by Clotilde Delbos, the group’s chief fnancial ofcer. In January 2020, the appointment of de Meo, former head of Seat, as CEO of the Renault Group was announced. However, he would not actually take up his duties until July, due to a non-competition clause in his contract with his former employer, Volkswagen. Finally, as is usual when there is a change of CEO, the year was set to be a phase of strategic exploration with a high turnover of executives. It was not the easiest context in which to evaluate the interest of a marginal project compared to the economic stakes for an entire company which, in 2020, would lose €8 billion and would see its turnover drop by 21%—and whose very identity was at that moment deeply divisive. Tis transition period came to an end in January 2021 with the publication of Renault’s new strategic plan, “Renaulution,” in which the European deployment of K-ZE was included. Te possibility of marketing the car in Europe under the Renault brand was very quickly ruled out. Te product’s relatively basic specifcations and the competitive advantage of a price that would represent a major breakthrough for an electric vehicle were much more in line with Dacia’s brand identity in Europe. And the product quickly found three important and motivated allies within the Renault organization. Te frst were the retailers in the European zone. For them, the most important issue was to rapidly increase sales volumes of battery electric vehicles to comply with European regulatory requirements (CAFE)* and thus avoid penalties that could otherwise run into millions of euros. K-ZE also had natural allies *

Corporate Average Fuel Economy (CAFE), see Chapter 7.

The Phoenix 91

in the management of Dacia. Indeed, one of the main thrusts of the Renaulution was to give more weight to the brand’s business units. From this point of view, the K-ZE, which had by now become the Dacia Spring, ofered a major advantage for the Dacia brand: it combined the brand identity of a vehicle that was less expensive than others, while being practical and reliable, with the innovation of electric motorization, which had until then been absent from the brand’s line-up. Finally, one of the major innovations of the new strategic plan was the creation of an autonomous business unit, Mobilize, responsible for developing and marketing the company’s new mobility services, which has been assigned an ambitious objective: to generate 20% of the group’s revenues by 2030. In the context of these new mobility services, the Spring would be a nonpolluting vehicle that was easier to make proftable than more expensive and sophisticated vehicles such as the ZOE or the electric Twingo.

Engineering for European Launch While the project was fnding its place within the company’s new strategy, it was also necessary to adapt its design to the new market. Indeed, it would need to be adapted to European automotive standards, diferent from Chinese safety standards, while also integrating components that would enable the operation of automotive mobility services. In parallel with the work being carried out to increase the range and pass the 300km threshold necessary to receive a purchase subsidy on the Chinese market, eGT’s engineering team was working on the necessary adaptations for the European market. Te electric motor remained unchanged, and the battery was the same capacity. Following the crisis with the frst supplier, Lishen, it was now being provided by a new supplier, Sunwoda.* Te battery management system (BMS) had been modifed to meet Renault’s requirements for the European market. Te power of the onboard DC charger had also been increased. Te 30kW combo DC charger was ofered as an option, but the charging process would need to be reviewed. In fact, Chinese charging stations, in accordance with the regulations in force, included protection functions for the vehicle being charged against

*

Following the difculties encountered with Lishen, the eGT teams started the search for a new supplier for the export versions of the K-ZE.

92 The Innovation Odyssey

variations in the electrical network, which European stations did not include. Following the logic of developing the vehicle as closely as possible in line with the needs of the local market, the engineering team relied on these provisions to simplify development and reduce costs. Te second major engineering project for eGT concerned adaptation to adhere to safety standards in force in Europe to enable the vehicle’s approval on the market as well as the integration of all the passive safety functions in accordance with the Euro NCAP* requirements. Te third and fnal project was to equip the car to support a car-sharing service, in line with the strategy of the new Mobilize business unit. Te Dacia Spring has become a car of the Zity car-sharing brand, whose advertising slogan—“Zity, it’s easy!”—evokes a totally fuid operation where only a smartphone is needed to reserve a vehicle, locate it, access it, leave it, and allow it to be put into service or stopped. Tis operation is made possible thanks to the exchange of information between the Zity application downloaded on the smartphone and the vehicle. Finally, a key, known as a captive key, is permanently present in the vehicle and allows it to be put into or out of service. Equivalent work on the Mobilize Share service was being carried out to make it operational.

A Product That Arrived at the Right Time With these adaptations, the new vehicle would ft perfectly into the strategies of both Dacia and the Mobilize business unit—in line with Akrich, Callon, and Latour’s formula,† according to which innovation must be adapted to be adopted. For Dacia, K-ZE, renamed Spring, ft perfectly with the brand’s identity, which was centered on a line-up of simple, practical, and robust vehicles at an unbeatable price. Spring would also close a gap in the line-up by ofering a carbon-free vehicle, which did not yet exist. Like the other successful vehicles in the Dacia range, Spring was radically diferent from the competition: its low weight meant that it used only a 27.4kWh battery to ofer 230km of WLTP range (up to 305km in urban use) for a very low price of €17,900 in France,

*

†

Te European New Car Assessment Program is an independent international organization that conducts tests in the feld of passive and active vehicle safety and awards a rating of one to fve stars based on the results obtained (euroncap.com). Akrich, M., Callon, M., and Latour, B. (1988). À quoi tient le succès des innovations ? Gérer & Comprendre, 97(11, 12): 14–29.

The Phoenix 93

Price: 17900€ - in France – before application of subsidies

Weight: 970 kgs

Range: 305 kms according to WLTP urban cycle

Figure 6.1 Magic Triangle (Weight, Price, Range) of the Dacia Spring (Source: Made by the authors from Dacia Spring data)

before the application of purchase incentives. As summarized in Figure 6.1, this made it an ideal vehicle for the 15 million European commuters, two-thirds of whom would be willing to buy an electric vehicle if they could aford it. Te Dacia Spring was also suitable for professional use, particularly in the city for short-distance deliveries, or the famous “last mile.”* In 2022, a cargo version is to be derived from the private customer version to fulfll this need, with a cargo volume of 1,100 liters and a maximum payload of 300kg. Tis version, like the business version used for rental and car-sharing, will require changes to some of the upholstery and materials to make the vehicle more robust in use and easier to clean. Spring was therefore perfectly in line with Dacia’s strategy, as the brand’s director points out in the foreword to this book. It was also in line with the mission of the Mobilize business unit, which was responsible for developing car mobility services. Te Spring would thus become the vehicle for the European development of Zity and Mobilize Share, two of Renault’s urban mobility service brands. Figure 6.2 shows the whole range of products and services ofered to European customers.

*

Te “last mile” is an expression that refers to the last step in the delivery process of goods. With the increase in online shopping, this type of delivery is increasing, which implies that its decarbonization is a key issue in the fght against global warming.

94 The Innovation Odyssey

Sales to private customer

Sales to professionals

Car rental

Carsharing

Figure 6.2 Range of Products and Services around Dacia Spring (Source: Dacia and Zity websites)

Dual European Deployment The commercial launch of a new vehicle is always a landmark in a manufacturer’s calendar, characterized by spectacular events, a strong media presence, and everyone working together to convince people of the qualities of the latest car. However, the commercial rollout of the K-ZE in Europe did not fit this pattern. The European launch had been precipitated by unforeseen circumstances and was therefore not anticipated by employees or potential customers. Most people at Renault (let alone potential customers) were not looking for a product made in China for the Chinese market; it simply wasn’t an attractive proposition in France at the time. However, a simple economic argument forced the decision of a rapid European deployment: the risk of penalties resulting from the application of the new European regulation on emissions. From 2021 onwards, manufacturers who failed to meet the CAFE average emission constraints based on the previous year’s sales (i.e., 2020) would face heavy penalties. This meant that every electric car sold would create value for the group. Although Renault led the way in sales of electric vehicles in Europe in 2020 with ZOE, these sales remained modest compared to sales of ICEVs. Increasing

The Phoenix 95

sales volumes of electric vehicles was therefore a signifcant short-term objective, and the marketing of the Dacia Spring was a timely move. Despite the difculties associated with COVID-19, a feet of cars (certifed according to European approval rules) were unloaded at the port of Le Havre in December 2020, and immediately sold. In this context of urgency and lack of preparation, a classic commercial launch would have been very risky. Te uncontrolled efects of heavy media coverage of a failed launch could have been detrimental to the new product, completely misrepresenting it. Terefore, it was decided that the launch would take place in two stages.

Figure 6.3 Dacia Spring Fleet in the Port of Le Havre in December 2020 (Source: Dacia)

Initially, the feet would be sold to a short-term car rental operator, in this case retailer E. Leclerc’s rental network, from April 2021. Eventually, some 3,000 vehicles joined the network’s 510 rental agencies. Tis strategy had three advantages: • It allowed a massive and fast sale of the feet shipped from China. • Te vehicle’s use in a mobility service allowed the product to become known and tested by customers in real conditions. • It gave the company time to make certain adjustments to improve the presentation of the product to the public ahead of the commercial launch for private customers.

96 The Innovation Odyssey

Ten, in a second phase, the Dacia Spring was deployed in various mobility services. Mobilize, in order to meet the ambition of generating 20% of the Renault Group’s revenues by 2030, needed to develop mobility services that were both varied and better adapted to current needs. Tis was why, in addition to car rental—a low-margin, highly volatile market—Mobilize also ofered car-sharing services that used electric vehicles. Cities were demanding clean mobility services, and the pricing of car-sharing— based on actual use and not on duration, as in the case of car rental—was better suited to the new expectations of consumers. Two complementary services were ofered: Mobilize Share allowed the use of vehicles for short (closed-loop) trips from a given parking location, while Zity was more of an alternative to public transport, allowing people to move from point A to point B within a predefned area.* Te Spring had two advantages over the ZOE or the electric version of the Twingo. For the customer, the range was quite satisfactory for a few trips of 30–40km per day, and its level of equipment would be perfectly adequate for these short uses, during which the customer would be focused on the essentials: practicality, comfort . . . and price. For both the operator and the customer, all other things being equal (maintenance, cleaning, and recharging of the vehicle), the Spring brought a very signifcant reduction in operating costs and, consequently, in price. Te vehicle would therefore be made available for at least three diferent mobility services. Spring has now been available for rental in the E. Leclerc network (in France) since April 2021, and, in time, some 3,000 vehicles will be added to the network’s 510 rental branches. Spring also has the honor of having launched the frst car-sharing service in France under the Mobilize Share brand (the new commercial name for Renault Mobility). Since October 1, 2021, in the town of Arcachon in the department of Gironde, four vehicles have been on ofer (two can be added according to demand during the tourist season), each with a dedicated charging point and parking space badged with the name of the service. A rapid rollout in other cities inside and outside France is planned: it is necessary to move quickly to take advantage of Spring’s capacity to reach the break-even point and then proftability of the service faster than competitors. In addition, the Spring replaced a large proportion of the ZOEs in service in the Zity feets in Madrid (250 vehicles by the end of November 2021) and Paris (250 by the end of October 2021). *

It is possible to leave the predefned zone provided that the vehicle is parked in the predefned zone on the way back.

The Phoenix 97

The Marketing of the Dacia Spring Te Dacia Spring was marketed in several European countries through a pre-order phase. On March 20, 2021, pre-orders opened in France, Italy, Spain, Germany, and Romania, reaching almost 10,000 reservations within three weeks. With the opening of pre-orders in Austria, the Netherlands, Portugal, Belgium, Luxembourg, Denmark, and Switzerland on April 20, 2021, it reached a total of around 16,000 reservations by the end of June, and waiting lists were opened in several countries. Bear in mind that these results were achieved while Europe was still gripped by the COVID-19 crisis, and deliveries would not take place until October 2021! Tese encouraging results were due both to the price—taking into account the various purchase subsidies, it was ofered in France at €12,400, in Germany at €11,000, and in Spain at €9,500—and to Dacia’s excellent momentum at the start of 2021, as Xavier Martinet, Dacia’s marketing, sales and operations director, pointed out: “After the success of the new Sandero in recent months, the strong customer interest in Dacia Spring confrms a strong start to the year for the brand.”* As a result, despite a European car market that was in decline due to a shortage of semiconductors, sales of electric vehicles were continuing to grow in Europe thanks to continued purchase subsidies in most countries. What role would Dacia Spring play in this? From July 2021, momentum continued at a monthly rate of around 5,000 orders and a cumulative total of just over 40,000 orders in eight months (to the end of October 2021). Above all, the Dacia Spring was positioning itself as a conquest vehicle for the brand: in France, eight out of ten customers who ordered a Spring had never bought a Dacia before. “With nearly 40,000 orders in eight months, the Spring has got of to an excellent start. By making electric mobility accessible to everyone, the Spring is winning over customers who are already familiar with the Dacia brand, as well as a majority of new customers,” said Xavier Martinet.† By the end of January 2021, more than 50,000 orders had been taken, and the monthly rate of 5,000 orders was confrmed. In terms of sales, the Dacia Spring was, just after its launch, the third best-selling electric vehicle in France in the last quarter of 2021, and in the top fve for the year as a whole. Moreover, in the absence of Tesla, whose sales came at the end of the quarter depending on deliveries, it was the bestselling vehicle in France, with almost 1,500 units sold by January 2022.‡ * †

‡

Dacia News (2021). Dacia News—April 2021. en.media.dacia.com, April 8. Dacia (2021). Already 40,000 orders: Dacia Spring democratizes electric. en.media. dacia.com, November 19. Information provided to the authors by Dacia.

98 The Innovation Odyssey

Conclusion: Dacia Spring, the Accessible Electric Vehicle That Is Changing the Market

Electric consumption KWH/100 km (Including charging)

Dacia Spring’s use in electric car-sharing services is still very new, and it is certainly too early to draw any conclusions in terms of user satisfaction. While these services have not been profitable, mainly because of the costs of maintaining and cleaning the vehicles, we can ask ourselves whether the Spring, which has significantly lower acquisition and use costs than other vehicles (electric or otherwise), will finally enable operators to achieve profitability. If the policy of strong support for electric vehicle sales in the largest European markets and its very low price make the Spring attractive and contribute to its success, it is also because it represents a new vision of electric mobility. Thanks to its low weight—less than 1,000kg for a car with a range of around 300km WLTP in the city—it is more efficient and more affordable than both its direct competitors—such as the Volkswagen e-Up or the Twingo E-Tech—and the majority of electric vehicles sold on the European market (see Figure 6.4). Of course, as all the press has noted, this is not a car for long journeys—and Dacia doesn’t claim otherwise. However, the Spring may well prove to be the

Sales price in France in 2021 (without subsidy) Figure 6.4 Dacia Spring’s Price/Energy Consumption Positioning Compared to the Competition (Source: Based on information from Dacia given to the authors following the interview with Denis Le Vot in November 2021)

The Phoenix 99

best choice for customers looking for an afordable car to make regular daily trips, opening up the market to about 15 million commuters in Europe who drive an average of 34km a day. Journalists from the trade press agreed, awarding it the AutoBest “Best Buy Car of Europe 2022” prize in December 2021 (see Figure 6.5).

Figure 6.5 Dacia Spring, Winner of the AutoBest Award “Best Buy Car of Europe 2022” (Source: Dacia)

Conclusion of Part 1 Evaluating Innovation Projects Let’s pause and evaluate this project, which still has some way to go. At the time of writing, the K-ZE project’s performance appeared paradoxical. On the one hand, it had been a spectacular fasco, in which three years of energy and resources were poured into the development of a vehicle for China that was not ultimately marketed in the volumes hoped for. On the other hand, the project appeared to represent a brilliant move by Renault: it developed, for a derisory investment, a new, original, and efcient product that could be deployed in many countries. Within the company, as elsewhere, people are free to choose their own interpretation of events. Te purpose of this conclusion is to consider this paradox. Te K-ZE project is not unique: the literature on project management is full of discussions on iconic but troubled projects. A well-known example is Sydney Opera House, known both for its wild deviations from the initial brief, but also for having become, over time, the symbol of a city and a nation. To grasp the paradox, it is therefore necessary to consider two realities. Te frst, well understood, is that when a project is long enough and its context is unstable, the environment at the point of arrival is not the same as that which governed setting the initial objective. Te failure of the frst Chinese commercialization and the immediate commercialization in Europe were not then the failure of the project, but rather the consequence of accumulated surprises, or “unknown-unknowns,”* which changed the situation and necessitated adaptation to the new context. Te evaluation that makes sense in this case is not so *

Loch, C. H., De Meyer, A., and Pich, M. T. (2011). Managing the Unknown: A New Approach to Managing High Uncertainty and Risk in Projects. London: Wiley & Sons. 101

102 The Innovation Odyssey

much in relation to the project’s conformity to its original brief but rather its capacity for resilience and responsiveness in the face of surprises. Launched in several markets in a 12-month period, the project is making a diference where a sales force presents the product to customers. Te second concerns the innovation dimension of such projects. When a project is innovative, as the “C-K (Concept Knowledge)”* theory explains particularly well, it generates two types of production in diferent spaces: tangible production in the product space (in this case, the sales of products developed on the target market), and also, in the space of the company’s knowledge, new knowledge created in and by the exploration. It is therefore possible to develop, by the end of the project, new assets based on the knowledge accumulated along the way. To make a fnal evaluation of a project by measuring it against the vision at the start is to neglect these potentially valuable new knowledge acquisitions. Tis tendency in the evaluation method is not a problem when the project is not very innovative, but it is more so when it has been particularly creative, because the project has expanded the world in which the evaluation must now be situated. Tis is what Clayton Christensen, in the theoretical tradition of strategic management, calls “empowering”† investments: those that create new resources and possibilities, as opposed to investments that merely exploit existing resources by optimizing them.‡ To borrow from the classic defnition of project management, it is not only “getting things done,” but also, when it includes innovative components, “making new things possible.” It is therefore essential to make the fnal evaluation within the frame of reference of the new world created by the project—that is, to evaluate a project not only by what it has actually achieved, but also by what it has made possible. From this point of view, Renault’s situation at the end of the Chinese development of the K-ZE was certainly better for having already tackled the difcult question of meeting a European need for car mobility that was both low-carbon and afordable. Tis evaluation perspective is important for two reasons. Te frst is to give the actors in these adventures fair credit for the work they accomplished. We

*

†

‡

Le Masson, P., Weil, B., and Hatchuel, A. (2010). Strategic Management of Innovation and Design. Cambridge University Press. Christensen, C., and Raynor, M. (2013). Te innovator’s solution: Creating and sustaining successful growth. Brighton, MA: Harvard Business Review Press. According to the “squirrel strategy” in the typology of strategies outlined in Maniak, R., and Mottis, N. (2021). Te Innovation Jungle: What Strategies to Survive and Trive? Dunod, 2021.

Conclusion of Part 1 103

often see those who led such projects efectively put on trial by others who, without having been involved themselves, judge them after the event based on limited facts. Te production of cartoons is often the response of project managers to such trials. Rising above such derision, the challenge of a more objective evaluation is nothing less than to keep alive the desire for discovery that drives any entrepreneurial activity within a company. Te second is to focus on the conditions that might convert these potentialities created by the project into real value for the company. Potential that is not put to good use is nothing. We will return to this idea in Chapter 9 when analyzing lineage management in the context of innovation projects. Does this theory of project evaluation contradict what we have seen throughout this frst part: a collective process driven by the principle of reaching a target objective defned at the outset? How can this position remain credible during the course of a project if, afterwards, its relevance is contested? A frst, well-worn response is to classify projects. On the one hand, there are exploration or research projects,* whose main contribution is the production of new knowledge, and from which little immediate direct return is expected. On the other hand, there are development projects that are judged on the basis of their direct returns. Tis strict classifcation has been implemented for decades in large companies, which segment their project portfolio along these lines, choosing exploratory projects and new product developments as separate things. However, this division of work according to project type has its limitations: the transition from the exploratory class to the development class often appears difcult, with the need to pass through what professionals in the feld call “the valley of death.” Tere are many attractive “proofs of concept,” but most remain at the prototype stage and are not scaled up to industrial production because development standards do not support their inherent level of uncertainty and risk. Even when projects pass the prescribed milestones early on, the sequence they must follow to progress further tends to introduce the inertia that stifes innovation. Tis is a signifcant barrier when an industry is faced with an urgent transition, such as the one the automotive sector faces today. Te second response is to bet on innovative development projects—hybrid projects that combine a signifcant level of uncertainty and discovery with a view to direct operational deployment. Tese projects are inherently riskier than both upstream projects, from which little is expected, and traditional development projects, which are expected to achieve the exact target. Tey are projects that

*

Lenfe, S. (2008). Exploration and project management. International Journal of Project Management, 26(5): 469–478; Lenfe, S. (2016). Floating in space: On the strangeness of exploratory projects. Project Management Journal, 47(2): 47–61.

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require commitment from those who take part in them, based on a calculated gamble, and that require managerial forms that emphasize the agility of learning and decision-making.* Tis could be seen as a kind of return to the roots of innovation management, where inventors and entrepreneurs were one and the same.† And the cases of unicorn startups as well as, of course, multinational companies such as Apple® or Tesla®, show that this confguration is still relevant today. Te challenge of this book is perhaps to prove that this type of hybrid project is not reserved for exceptional companies or exceptional people. It is to propose ways of thinking—of organizing, managing, and evaluating—adapted to specifcities, and which can form the basis of skills that can be widely shared by all those who wish to embark on such adventures.

*

†

Midler, C. (2019). Crossing the valley of death: Managing the when, what, and how of innovative development projects. Project Management Journal, 50(4): 1–13. Lenfe, S., and Loch, C. (2010). Lost roots: How project management came to emphasize control over fexibility and novelty. California Management Review, 53(1): 32–55.

Part 2 Learning from Projects Te K-ZE adventure is obviously singular, but it also ofers a privileged insight into management phenomena that can be found in many contemporary situations. Te second part of this book is devoted to the study of these more general phenomena. Tus, in Chapter 7, we discuss the notion of societal innovation: those innovations called for not by the demands of customers, but by societal imperatives. Te contemporary world is characterized by major and rapid transitions in which the economy is embroiled, whether it likes it or not. As a result, innovation, which Schumpeter* told us took place essentially in the feld of business and markets, is increasingly administered—in other words, driven by public authorities interfering with business decisions. Tis chapter analyzes this shift through the example of regulations to decarbonize automobile mobility. Te comparison of the European and Chinese cases, two key markets in the automotive industry, illustrates the diference between public actors and private companies driving the transition. It also allows us to analyze the consequences for achieving environmental objectives and the competitiveness of the automotive industries. Chapter 8 looks at the ability to succeed in making disruptive innovations via global deployment and the need to conduct innovation projects through cooperation between companies from diferent cultures. Here, the alliance between European and Chinese knowhow was essential, because the balance of power

*

Schumpeter, J. A. (1934). Te Teory of Economic Development: An Inquiry into Profts, Capital, Credit, Interest, and the Business Cycle. Harvard Economic Studies. 105

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was reversed—China was ahead in the development of the electric vehicle—and the speed of changes in regulations meant that we would need access to the public authorities in the diferent geographical areas. Tis chapter describes how these skills were harnessed. Chapter 9 focuses on global frms facing this new context of administered innovation, which requires them to adjust design locally to standards, regulations, and customer needs while seeking to deploy innovations globally to take advantage of their multinational dimension. What innovation strategies can they develop in today’s world, which is both globalized and has specifc regional policies? Te automobile industry is emblematic from this point of view. We will then see that the major automakers deal with this question of the relationship between local and global in various ways. In particular, we will look at innovation strategies based on disruptive projects developed to take advantage of local opportunities, combined with the deployment of various products on diferent markets, thanks to the capitalization of assets created by these learning processes. Tis chapter also analyzes the modalities as well as the implementation conditions of these lineage strategies. Finally, Chapter 10 examines the conditions that make atypical projects possible within large companies. We will highlight the role of entrepreneurial capability based on project and program hierarchies where authority and skills are recognized within the company. We will also show the importance of an “ambidextrous” governance at the top of the company to regulate the necessarily conficting relations between the project teams and the company’s business structures. Tis is an important subject at a time when startups often appear, especially to young people, as the only context in which a breakthrough can emerge.

Chapter 7 Societal Innovation and Administered Darwinism Innovation is not what it used to be! In the traditional view, that of Schumpeter, it is driven by the market, depending on intelligent and audacious entrepreneurs and customers who select the new ofers according to their needs and tastes. Product or service innovation remains a key marker of competition between companies, but this competitive game is now set within a framework prescribed in an increasingly intrusive manner by public authorities—the arbiters of collective and societal values. Admittedly, this is not a new phenomenon, and economists* have long emphasized the importance of public institutional structuring of markets; to use Lindblom’s illuminating metaphor, “If the market system is a dance, the state provides the dance foor and the orchestra.”† Te relatively recent awareness of the importance and urgency of combating global warming and improving air quality has given a powerful boost to this innovation regime, which we will call societal innovation. It is characterized by a much heavier and more targeted intrusion by public authorities into the *

†

Nelson, R. R. (1994). Te co-evolution of technology, industrial structure, and supporting institutions. Industrial and Corporate Change, 3(1): 47–63; Fligstein, N. (1996). Te economic sociology of the transitions from socialism. American Journal of Sociology, 101(4): 1074–1081. Lindblom, C. (2001). Te Market System: What It Is, How It Works, and What to Make of It, 58. New York: Yale University Press. 107

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dynamics of technologies, products or services, as well as by the sidelining, to a certain extent, of the role of the fnal customers in the selection process. Tis context raises many new questions for all economic actors. On the side of frms, how can the importance of public regulations be integrated into strategic thinking and the operational evaluation of projects? Should incentives be seen as “market imperfections” and considered outside the framework of corporate social responsibility accounts? Or should they be considered as a “normal” source of revenue from a new strategic client, which is society? Should all or part of the commercial eforts of individual clients be redeployed to serve these prescribers of the rules of the game, whether at the level of the state or local authorities in the context of mobility policies? Te competitiveness and sustainability of companies, particularly in the automotive industry, are at stake on a global playing feld. If the dynamics of companies are increasingly dependent on specifc local public frameworks, how can we make judicious and proftable strategic decisions from a global perspective? On the part of the public authorities, there is the question of how to gain citizens’ support for their objectives. What operational measures, such as subsidies, tax benefts, etc., should be implemented to ensure success? And how to involve the manufacturers, whose complementary ofers are all necessary to achieve the objectives? How, in the context of a major transition, will it be possible to maintain and even develop the competitiveness of the industries concerned? In other words, are the public authorities (still) able to defne and conduct an industrial policy that will enable the achievement of societal objectives? K-ZE, an electric vehicle developed in China under the impetus of a French frm, intended for the Chinese and European markets, fts perfectly into this context, and ofers a privileged vantage point from which to explore these general questions for three reasons. First, because the development of the electric vehicle is an emblematic example of administered innovation. It was certainly neither the automakers nor the customers who were behind the current electric vehicle explosion. Te beginning of the 20th Century marked the inception of the dominant ICEV mobility market, which has been renewing itself ever since, while retaining the fundamentals of the original design. If the sector is now managing to break out of this deep groove, it is because of the regulatory pressures making the transition to total vehicle electrifcation inevitable in the pursuit of decarbonization, with its associated societal benefts. Experts and consultants specializing in the automotive industry now estimate that sales of plug-in electric vehicles (battery-powered or plug-in hybrids) should surpass sales of ICEVs around 2035.* Te orchestra’s score has changed, and the dance is now to a diferent tune . . . *

For example: Henze, V. (2020). Electric vehicle sales to fall 18% in 2020 but long-term prospects remain undimmed. about.bnef.com, May 19.

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Second, because the K-ZE project shows how design innovations must now confront the decisive intrusion of public regulations. Te rapid development of the electric vehicle, driven by the interventionism of Chinese policies, appeared to be both an opportunity for Renault® to regain a foothold in a market where the company had little chance with traditional vehicles, and a source of major risks to be considered in terms of company strategy and product design. Finally, because the commercialization of K-ZE in Europe illustrates, if this were still necessary, that the global circulation of products is a reality in the automotive sector. What was an opportunity for this project can probably also be an opportunity for Chinese manufacturers.* Te question of the relationship between the weight of national or regional public regulations and the global competitiveness of innovations is more topical than ever.

The Dynamics of the Electric Vehicle Market in China and Europe Over the past decade or so, China has become the largest producer of cars (2009), the largest automotive market by volume (2013), and the main market for many global automotive players. At the same time, China has been the largest producer of pollutants and CO2 emissions from transport since 2012. In a highly competitive global market, the European and Chinese automotive industries stand out: in 2018, the combined sales of the former account for 30% of the global market of 97 million vehicles (including their sales in China), while Chinese brands account for 44% of the Chinese market of 28 million vehicles (about 13% of the global market). Te question is, will the electrifcation of vehicles change this situation? And if so, how? Since 2010, when the sales of electric vehicles can frst be measured, the global market for electric vehicles had long stagnated, and it only really took of in 2017, when sales exceeded 1% of the global market.† In 2021, a year in which the global automotive market had not yet returned to its pre-COVID-19 level, sales exceeded 6.75 million vehicles and accounted for about 8.3% of sales (see Figure 7.1).

*

†

Te Wuling Hongguang Mini EV, China’s bestselling low-cost electric car, is already assembled in Lithuania and sold for less than €10,000 (excluding subsidies) in its basic version in some European countries. Unless explicitly mentioned, the fgures quoted in this chapter are obtained from the EV-Volumes website (ev-volumes.com) or from the Global EV Data Explorer and Global EV Outlook 2021 reports produced by the International Energy Agency (iea.org).

110 The Innovation Odyssey

Figure 7.1 Growth in Sales of Plug-In Electric Vehicles Worldwide (in Thousands of Vehicles) (Source: International Energy Agency)

Figure 7.2 shows how the European and Chinese markets have been driving the plug-in vehicle market. While the Chinese market has long been above the rest of the world, it was neck and neck with the European market in 2020 and the frst half of 2021. In the last half of 2021, sales were more than one million units higher in China than in Europe. Behind these fgures, however, analysis shows the more nuanced reality of the Chinese and European markets.

Figure 7.2 Distribution of Plug-In Electric Vehicle Sales by Semester (in Thousands of Vehicles) (Source: made by the authors from EV-Volumes data)

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First, by the nature of the vehicles sold: in the frst half of 2021, sales of battery electric vehicles accounted for 80% of the market outside Europe and were on a par with sales of plug-in hybrids in Europe. Second, by the size of the feet of private electric vehicles in service: of an estimated total of around 10.5 million plug-in electric vehicles in circulation in 2020, around 40% were in China and 32% in Europe (including the UK and Norway) (see Figure 7.3).

Figure 7.3 Distribution of the Plug-In Electric Vehicle Fleet in 2020 (Source: Authors’ research)

Tis is because the level of sales started to be signifcant in China quite early compared to Europe. Indeed, the European market did not really take of until 2020, boosted by very attractive subsidies in France, Germany, and Italy, for example, which were designed to promote the transition to zero-carbon mobility as much as to revive a market that was particularly sluggish due to the economic crisis caused by COVID-19. Similarly, out of a global supply of just over 370 models of plug-in electric vehicles in 2020, the breakdown between Europe and China shows signifcant diferences, because China’s supply of battery electric vehicles (around 250 models) is around 60%, compared with 17% for Europe. On the other hand, Europe has 50% of the supply of plug-in hybrids, which explains the high penetration rate of plug-in hybrids in Europe. Overall, China’s supply of plug-in electric vehicle models is about twice that of Europe, but the dynamic in recent years and projected into the near future (2020–2025) is favorable to European automakers because, under the infuence of regulatory requirements, their ofer is increasing faster and more signifcantly, both in Europe and in China, than that of their Chinese competitors.

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Finally, the structure of the automotive sector is very diferent in the two regions. European automakers are private and very old, created for the most part between 1890 and 1925, and grouped together in a powerful association, the European Automobile Manufacturers’ Association (ACEA),* which they mobilize to negotiate the content of regulations, laws, and standards. On the threshold of the transition to electric mobility in the early 2010s, the European automotive industry had almost total control over the design of the ICEV. It was also able to propose an incremental evolution, at its own pace, toward electrifcation: smart hybridization, hybrids and plug-in hybrids, and battery-powered vehicles. On the Chinese side, the passenger car industry is much more recent, with the frst state-owned enterprises established in the decade from the late 1950s to the late 1960s. Te industry is also more heterogeneous than in Europe, consisting of state-owned enterprises (owned by the central government or regional and/ or local authorities), private enterprises, and joint ventures with global players. For Chinese automakers struggling to compete with their European competitors in the ICEV market, vehicle electrifcation was an opportunity to catch up with their global competitors. Tis has been widely encouraged by the Chinese government over the past 30 years, which, among other things, has supported the creation of a new industry—new energy vehicles (NEVs). To give an idea of the scale of the creation of this industry, by mid-2017, 15 NEV production permits had been granted by the National Development and Reform Commission (NDRC) for an annual production capacity of 865,000 vehicles and an initial investment equivalent to €3.2 billion.† Te result is a number of suppliers unmatched in Europe: 500 NEV manufacturers were registered in China in 2019, of which 60 had presented at least one vehicle concept.‡ Among the most recent companies dedicated to NEVs are Build Your Dreams® (BYD’s) dedicated electric vehicle subsidiary founded in 2003, Hozon®, Xpeng®, and NIO®, founded in 2014. In Europe, only the incumbent automakers produce electric vehicles, as well as Tesla®, since the very recent commissioning of its factory in Germany.

*

†

‡

Association created in 1991 (acea.be). Since 1993 (directive 93/59/ EEC), ACEA has represented the interests of 15 European car manufacturers (including the European organizations of Ford, Honda, Hyundai, and Toyota), as well as truck and bus manufacturers at the European level. Search realized by the authors based on production approvals issued by NDRC between March 2016 and May 2017. Song, N., Suzuki, H., and Aou, M. (2019). Will Chinese EV start-ups reshape the automotive industry. adlittle.com, December.

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Similarly, the development of the Chinese battery industry has proceeded apace. While Chinese battery production accounted for 10% of sales in 2012, it will account for around 50% of sales in 2019, and most of the major components of a cell are also manufactured by Chinese companies.* In addition to the massive investment in national technical and industrial development plans, this ramp-up has also been encouraged since 2016 by regulatory provisions favoring domestic battery manufacturers, who are the only ones qualifed to receive purchase subsidies.† Tis has led to a situation in which, while the strong growth in sales of electric vehicles over the next few years is expected to lead to a 14-fold increase in demand for batteries by 2030, China has announced a production capacity of 373GWh in 2022, compared with only 41GWh in Europe‡—which are partly produced by Asian companies following their establishment in Europe. Tis comparison of the supply of electric vehicles between Europe and China shows that the European industry is now in the position of a challenger to the Chinese industry, unlike the traditional situation for ICEV. Tis is a situation that has been little perceived in Europe until now, and it explains the recent and rapid mobilization of public authorities and industry alike.

Electric Vehicle Regulations in Europe and China Te study of the main regulations implemented as part of the transition to lowcarbon mobility can help us understand the spectacular turnaround in the relative competitiveness of European and Chinese industries.

European Regulations Here we will elaborate on four points: emissions regulations, support for the battery industry, deployment of charging networks, and demand-side provisions.§

*

†

‡

§

Jin, L., et al. (2021). Driving a green future: A retrospective review of China’s electric vehicle development and outlook for the future. theicct.org, January 14. The Ministry of Industry and Information Technology (MIIT) introduced the Regulations on the Standards of Automotive Power Battery Industry. IEA (2020). Commissioned EV and energy storage lithium-ion battery cell production capacity by region, and associated annual investment, 2010–2022. iea.org, April 10. We do not deal here with public purchases of electric vehicles, a classic variable in support policies, because they have played only a marginal role in Europe.

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Emission Regulations European car manufacturers must meet two regulatory targets for emissions each year: one known as CAFE,* which aims to reduce CO2 emissions, and another, currently Euro6d, which aims to reduce pollutant emissions. Te European Commission’s aim has been to constantly and steadily reduce the thresholds for pollutant and CO2 emissions since the early 1990s. For the latter, Figure 7.4 shows the evolution of the maximum CO2 emission threshold, expressed in g/km, which is calculated annually as the average of the emissions of the vehicles sold by an automaker.† In 2010 the value was 139.4g/km, while the currently applicable regulation imposes a threshold of 95g/km, and the latest provisions, proposed by the Commission in July 2021, would lead to the sale in 2035 only of vehicles with zero CO2 emissions. Similarly, for the Euro standards (from Euro1 on July 1, 1992, to Euro6d on January 1, 2020). Figure 7.5 illustrates the drastic reduction applied to the maximum thresholds of two of the main pollutants for diesel passenger cars. However, large discrepancies have been found between the theoretical NOx emissions‡ from diesel vehicles, derived from regulatory compliance results, and ¶ actual in-use emissions.§ In the context of the “Dieselgate” scandal, NGOs and the public strongly called on the Commission to act and react, leading to the addition of two complementary measures to the existing schemes. Te Worldwide Harmonized Light Vehicles Test Procedure** has applied since September 2017 for new models. Te aim of this system is to ensure that the test cycle carried out in the laboratory is as representative as possible of the real conditions in which vehicles are used.

*

†

‡

§

¶

**

Corporate Average Fuel Economy, a European policy aimed at reducing CO2 emissions from new vehicles (inspired by the American policy of reducing the average fuel consumption of vehicles, which appeared in 1975). Te reference for a vehicle is the value measured at the time of the community approval of this new type of vehicle. Generic term for nitrogen oxides, which can be responsible, depending on the level to which one is exposed, for respiratory problems of varying severity. Report issued by the Joint Research Centre (2011). Analyzing on-road emission of lightduty vehicles with portable emission measurement systems (PEMS). publications.jrc. ec.europa.eu. Volkswagen applied the emission reduction devices only in the regulatory driving situation, leading to non-compliance in the real driving situation. 2017/1151/EC—WLTP, which replaces the NEDC (New European Driving Cycle— Directive 70/220/EEC), which was last defned in 1997.

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Figure 7.4 Evolution of the CO2 Emission Threshold in Europe from 2015 to 2035 (in g/km) (Source: Authors’ research)

Te Real Driving Emissions test procedure,* applicable to all vehicles as of September 1, 2019, supplements laboratory measurements with measurements in real road conditions to check that the level of NOx or particulate matter emissions remains within acceptable limits.

Figure 7.5 Evolution of the Maximum NOx and PM Thresholds Between Euro 1 and Euro 6 for Diesel Passenger Cars (in %) (Source: Authors’ research)

*

2018/1832/EC—RDE.

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Until 2015, in the purest tradition of market theory, the Commission set medium- and long-term targets—the principle of visibility, here applied to CO2 and pollutant emission levels—and, following the strict application of a principle of technological neutrality, let industry decide on the choice of appropriate technologies and the pace of their introduction to meet the objectives. As a result, the European industry—with the notable exception of Renault, which initially focused solely on battery electric vehicles—has long focused its strategy on the progressive electrifcation of vehicles (smart hybridization, hybrids, or plug-in hybrids), as evidenced by the near equality of sales between plug-in hybrids and battery electric vehicles in the frst half of 2021. Te automakers’ strategy was entirely consistent both with the necessity to capitalize on the large amount of investment in the development of internal combustion engines over many years and with the Commission’s approach to regulation. However, faced with the need to act quickly in the wake of the Dieselgate scandal and to prepare the transition to zero-carbon mobility, the Commission has embarked on a forced evolution toward the battery electric vehicle. In fact, since 2015, it has pivoted in its mode of action, accelerating the enactment of regulations and tightening, often without consultation with the industry, the targets to be achieved. Te presentation of the European Green Deal package in July 2021, which proposes that, by 2035, all vehicles sold should no longer emit CO2, provoked very strong reactions from the European automotive industry via ACEA* and from the German industry via the VDA,† which denounced the Commission’s abandonment of technological neutrality and the co-governance that had prevailed for so long. In fact, under the threat of heavy penalties for not meeting CO2 targets,‡ manufacturers have had to change their strategy: they now all ofer battery electric vehicles, even though their full ranges will probably not be on the market until 2023.

*

†

‡

ACEA (2021). Fit for 55: EU auto industry’s initial reaction to Europe’s climate plans. acea.auto, July 14. VDA (2021). Hildegard Müller, President of the German Association of the Automotive Industry (VDA), gives an initial reaction to the European Commission’s ideas regarding the distribution of CO2 reduction targets across Europe. vda.de, June 17. Te penalty applied, calculated by multiplying the number of grams of CO2 in excess (on average on the vehicles sold) by the number of vehicles sold and by the amount of the penalty applied to an excess of one gram—i.e., €95 can quickly reach several hundred million euros!

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Support for the Battery Industry Te European Commission, fnally becoming aware of the economic and sovereignty consequences of the almost non-existent European mass production of batteries,* decided to launch the European Battery Alliance (EBA) project at the end of 2017. Tis program aims to develop an innovative, competitive, and sustainable European battery value chain. With a budget of €100 billion, it brings together national and local public authorities, scientists, research institutes, and industrial partners from many EU countries. Supplemented in 2018 by a plan defning six strategic priorities for this industry, it constitutes the overarching program comprising many projects, including the creation of the Automotive Cells Company in early 2020, which Mercedes-Benz® joined in 2021.† In addition, the Swedish company Northvolt® has just started production of its frst gigafactory,‡ and numerous projects to create battery factories are underway, such as those led by Verkor in France. German automakers were the frst to announce that they would be locating factories as close as possible to their vehicle assembly sites, where they would assemble batteries from cells that were currently still mainly supplied by Asian suppliers. Tey have since been joined by Stellantis and Renault Group, and the combined production of these gigafactories should exceed 600GWh by 2030, for a European demand estimated by the IEA at between 400GWh and 700GWh, depending on market growth scenarios. Tis is an undeniable success in terms of production localization, but one that is largely driven by automakers to meet their operational objectives. Tis rise in power of a European battery industry is obviously taking place at a rapid pace in an attempt to catch up with Asian manufacturers, who are also in the process of locating their factories in Europe (CATL in Germany, LGES in Poland, SK Innovation, and Samsung SDI in Hungary) in order to satisfy the demand of European manufacturers. Finally, at the end of 2020, the Commission presented a new draft legislative framework to replace the frst battery directive.§ While the proposed text includes the objective of ensuring that all batteries—including those for electric vehicles—placed on the market are durable and safe throughout their life cycle * †

‡

§

European Commission, European Battery Alliance. ec-europa.eu. ACC, originally created as a 50/50 joint venture between Saft® (a subsidiary of Total Energies) and the PSA Group (now Stellantis®), was recently joined by Mercedes-Benz (as of September 24, 2021), with the three partners sharing the capital equally. Northvolt (2021). Northvolt assembles frst lithium-ion battery cell at Swedish gigafactory. northvolt.com, December 29. Directive 2006/66/EC, adopted in 2006 and amended till 2013.

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and strengthening recycling obligations, it is another provision that warrants attention: the obligation to establish, from July 1, 2024, a carbon footprint declaration to authorize the placing on the market of a battery. Tis measure will oblige battery suppliers to control and reduce their carbon footprint.

The Deployment of Charging Networks Te European Commission enacted a directive in 2014 that defnes, for several alternative fuels, including electricity, the minimum technical specifcations for distribution points and the level of deployment of these points in all European Union countries.* Te target, which is specifc to each country, depending on the size of the plug-in vehicle feet, is one charging point per 10 vehicles. Tis provision calls for “permanent” support for the growth of the feet through the deployment of a charging network adapted to demand. Te target was far from being reached in 2020, both for Europe as a whole and for the majority of countries. As we see in Figure 7.6, only the Netherlands and Italy exceeded it, while France was very close. It is worth noting that China’s rate of charging stations was almost twice as high as the average for European countries.

Number of chargers in relation to the electric vehicle fleet.

Figure 7.6 Public Charger Equipment Rate by Country in 2020 (Source: IEA)

*

Directive 2014/94/EU.

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The Provisions Supporting the Application While the European Commission provides signifcant funding to support industrial developments, such as the European battery industry, the implementation of incentives for the purchase or lease of electric vehicles is the responsibility of each member state. In fact, as noted by ACEA,* there are major disparities among member states; only 17 of them ofer accompanying fnancial measures, and the amount of purchase aid also varies greatly depending on the country and the purchase price of the vehicle—from €2,000 to more than €9,000 for a battery electric vehicle. Car manufacturers do not want to be penalized in the near future for not meeting their CO2 or pollutant emission reduction targets, even though they ofer vehicles that comply with regulatory requirements. Consequently, they are multiplying initiatives to encourage the spread of these vehicles, whether in terms of fnancing ofers or involvement in the deployment of charging networks. However, they are also calling on the Commission, via ACEA, to take vigorous action on both subsidy policies and the deployment of charging networks in all member countries. Tis is one of the real limits to the implementation of this transition: the sovereignty of each member country combined with its capacity and/or priorities to deploy the necessary accompanying measures.

Chinese Regulations In China, since the early 1990s, the political authorities have launched a largescale exploration of the electro-mobility industry,† framed by fve-year plans and broken down into numerous research plans and full-scale experiments such as the Ten Cities with Tousand Vehicles. Tis exploration was supported by massive initial funding, particularly to industry—we have mentioned the battery and NEV credit industries—but also by subsidies granted by regions or cities for the purchase of private vehicles, the deployment of cab feets, or electric public transport. When the emergence of the electric car was confrmed between 2010 and 2015, China had already become a volume giant in the global automotive industry *

†

ACEA (2021). Overview—Electric vehicles: Tax benefts & purchase incentives in the European Union (2021). acea.auto, November 24. See Yuan, X., and Zuo, J. (2011). Transition to low carbon energy policies in China: From the fve-year plan perspective. Energy Policy, 39(6): 3855–3859; Chen, B., and Midler, C. (2016). Te electric vehicle landscape in China: Between institutional and market forces. International Journal of Automotive Technology and Management, 16(3): 248–273; Cheng, M., and Tong, M. (2017). Development status and trend of electric vehicles in China. Chinese Journal of Electrical Engineering, 3(2): 1–13.

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but sufered from its dependence on foreign manufacturers and suppliers. In 2015, Xi Jinping called for the automotive sector to follow a direction described as “from big to strong.” Te sudden proliferation of electric technologies and autonomous driving was seen as an opportunity for China to take control of automotive technological leadership and free itself from foreign technological tutelage. All subsequent public policies were part of this project of independence and leadership desired by the Chinese leader. Among these, we will look at regulations concerning CO2 and pollutant emissions, the deployment of charging networks, and support for demand.

Emission Regulations Te regulation known as the “dual-credit policy” stipulates that Chinese automakers above a threshold of 30,000 vehicles manufactured or imported must comply with two targets: the Corporate Average Fuel Consumption (CAFC) and the NEV credit. Introduced in 2016, this regulation has seen several revisions, most recently in 2020, and the latest has been in force since January 1, 2021.* Te CAFC, which combines a consumption limit per vehicle (based on its mass) and an annual global objective for a manufacturer, aims to reduce the level of fuel consumption of ICEVs. Tis has a major efect on reducing the level of CO2 emissions—it is comparable to the European CAFE and Euro6d regulations, while being less stringent than the latter on reducing pollutants. Figure 7.7 illustrates the continued tightening of the CAFC requirements.

Figure 7.7 research)

*

Change in CAFC between 2016 and 2025 (in 1/100km) (Source: Authors’

Applicable regulation: Parallel Management Regulation for Corporate Average Fuel Consumption and New Energy Vehicle Credits for Passenger Cars (MIIT, 2020). A manufacturer producing only electric vehicles is only concerned with the NEV credit.

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Te other mechanism implemented to support this trend toward zero-carbon vehicles is the NEV credit, which does not exist in Europe. Its objective is to encourage manufacturers to develop increasingly efcient EVs, and thus to stimulate the competitiveness of the electric vehicle industry. Indeed, the indicator is not related to the number of NEVs sold but is a measure of the performance achieved by them according to the following criteria: range, battery energy density (a key parameter of battery performance), and vehicle energy efciency (a parameter that infuences battery operating performance and vehicle design). Te tightening of this standard has also happened very rapidly, as illustrated in Figure 7.8.

Figure 7.8 Change in NEV Credit Requirements Between 2019 and 2023 (in Percentage) (Source: Authors’ research)

Complex compensation mechanisms* allow an automaker to attain the CAFC and NEV credits when the technical characteristics of its production and/or sales would not otherwise allow it. Tis system leads to the existence of a NEV credit market among automakers and relieves the public authorities of the role of fnancial and regulatory manager of each manufacturer’s balance sheet.

The Deployment of Charging Networks Te public authorities, aware of the need for a properly sized charging network to achieve their ambitions, have enacted numerous regulations to accelerate its development, as well as technical standards guaranteeing a uniform quality of service. However, the development of highly urbanized residential areas on the *

For more information, see Chen, Z., and He, H. (2021). Te second phase of China’s new energy vehicle mandate policy for passenger cars. theicct.org, May 4.

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outskirts of large Chinese cities poses a specifc problem: it is simply impossible to install conventional charging stations, with a high equipment rate (one station for every 10 electric vehicles, for example), in areas of very dense vertical housing comprising several tens of thousands of inhabitants within a restricted perimeter. For this reason, Chinese regulations encourage the development of “battery swap” technology, which enables the recovery of 100% of the range by installing a charged battery in place of the discharged one, all in a time comparable to that needed to fll a fuel tank. NIO is notably the champion of this solution, with more than 5.3 million operations performed by the end of December 2021 and plans to develop its technology in Norway by the end of 2022.*

Support for Demand Te traditional role of subsidies is to encourage demand by making the product (the electric vehicle) more afordable to buy and/or use. On this point, while the strategy adopted by the Chinese government was initially aligned with this conventional approach, it quickly evolved in two diferent ways. First, the amount of money allocated to subsidies has continuously and rapidly decreased. If we take the example of the range of the vehicle, so important for the customer, in 2013 it was enough to reach at least 80km for the vehicle to be entitled to a subsidy of RMB 35,000 (€4,550); in 2020, a minimum range of 300km was required to obtain a subsidy of RMB 16,200 (€2,106) and 400km for RMB 22,500 (€2,925)! It was this sudden increase that caused the K-ZE to be temporarily withdrawn from the market, because it only had a range of 273km when it was put on the market, which meant that it was no longer entitled to the subsidy necessary for its price competitiveness. Tis is now also a way to improve the performance of a vehicle, as is done on the supply side. Tis approach is remarkable in the consistency of the criteria used to calculate the NEV credits and the amount of money allocated to subsidies. Indeed, without going into detail, we fnd for the latter the criterion of range, and criteria related to the energy density of the battery and the energy efciency of the vehicle, to which is added a criterion related to the size of the battery. Second, the systematic tightening of the criteria for obtaining a NEV credit or subsidy has increased and, in addition to pushing for improvements in intrinsic performance, has resulted in the selection of the best NEV manufacturers, with 500 registered in 2019. Figure 7.9, which shows the reduction in the number of

*

NIO (2021). NIO achieves annual target of 700 battery swap stations ahead of schedule. nio.com, December 10; NIO (2021). NIO ES8 launches in Norway. nio.com, September 30.

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Figure 7.9 Evolution of the Number of Plug-In Electric Vehicle Models on the Market (Source: MaxInsight Data & Consulting Corporation, provided by Christophe de Charentenay)

models on the market with each signifcant change in subsidy criteria, illustrates the efect of this policy. Faced with this continuous tightening of the conditions for obtaining purchase subsidies and NEV credits, manufacturers have several possible strategies. We have already described the strategy followed for K-ZE, which consisted of trying to obtain signifcant money in relation to the selling price, or that of Wuling Hongguang Mini EV, which extended the strategy implemented by the low-speed EV* suppliers. Tis vehicle, a Chinese bestseller in low-cost ofcial electric cars, is so cheap (RMB  30,000–40,000 or €3,900–5,200, depending on the version) that, despite a maximum speed of only 100km/h and a range (NEDC) between 120 and 170km, it is very much in demand without the need to obtain subsidies. At the other end of the price scale, however, is the strategy of the manufacturer NIO, which has an average selling price of RMB 428,000 (€55,640)† and continues to receive subsidies normally reserved for vehicles with a maximum selling price below RMB 300,000 (€39,000). To do this, NIO is taking advantage of a provision that removes this ceiling for vehicles that ofer the battery swap function, for which NIO has been said to be the world market leader. Finally, in addition to the CAFC, the NEV credit and subsidies whose allocation rules are defned at the national level, regional, or even local level can * †

See Chapter 5. NIO (2021). 100,000th NIO vehicle rolls of the production line. nio.com, April 7.

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also decide to allocate direct subsidies to end customers and manufacturers (as we have seen, the Wuhan authorities subsidized the development of the K-ZE), but also indirectly—for example, by issuing invitations to tender for the supply of electric vehicles to public feets. Tis helps to support local champions and is refected in sales fgures, as shown in Table 7.1. Table 7.1 Top Four Cities in Terms of NEV Sales in October 2021 Rank

City

“Local” Champion

1

Shanghai

SAIC (Shanghai Automotive Industry Corporation), a state-owned company

2

Shenzhen

BYD, a private company

3

Guangzhou

GAC (Guangzhou Automobile Group Company), a state-owned enterprise

4

Beijing

BAIC (Beijing Automotive Industry Company), a state-owned company

Source: New energy vehicle sales rankings in various cities as of October 2021. c.m.163.com, November 20, 2021.

Europe–China: Contrasting Modes of Public Intervention Europe: Support for a Gradual Transition That Becomes More Radical after 2015 Our analysis of the European Commission’s actions reveals a regime that was initially structured to support the gradual evolution of the status quo. Indeed, the rationale for the development of regulations, laws, and standards, focused on CAFE and the reduction of air pollutants, was conceived with a certain sense of inevitability: the political institution let the historical operators decide the feasibility of the proposed evolution based on the technologies they were likely to develop as a continuation of those they had already mastered. Te problem has therefore been to accompany the progressive transition trajectories of manufacturers by providing a stable framework of objectives, guaranteeing fair competition while maintaining technological neutrality on the means of achieving them: this is typical of what Weible and Sabatier describe as a “classical incremental model.”* Tis situation led to, among other things, the fact *

Weible, C. M., and Sabatier, P. A. (2018). Teories of the Policy Process. London: Routledge.

Societal Innovation and Administered Darwinism 125

that in the frst half of 2021, sales of battery electric vehicles and plug-in electric vehicles were equal in Europe, while battery electric vehicles accounted for 80% of sales in other markets. After 2015, in the wake of Dieselgate, the regulations moved toward tightening the standards and addressing the question of how—which had never been done before. Tis strong shift in favor of battery-powered vehicles is perceived by both ACEA and the VDA as an abandonment of technological neutrality and a break with the past. However, it should be noted that in the feld of the battery industry, the Commission has returned to a more traditional role of guiding and setting up fnancing structures while leaving it to the industry to decide on technological choices and the pace of their implementation, which is necessarily rapid in the context of the transition to zero carbon. Finally, in the area of demand-side incentives, whether it is the deployment of charging networks, which is governed by a directive, or the implementation of measures to support the purchase and/or use of electric vehicles, it is the very principle of the European Commission’s operation that sets the pace of the transition. In the absence of a supra-national subsidy/incentive program comparable to the Chinese national program, it is the technical, industrial, and economic capacities and/or the political agenda of each member state that, as much as the political will of the European Commission, infuence the dynamics of the transition.

China: The Implementation of an Administered Darwinism Since the failure to reach the goal of 500,000 electric vehicles sold in 2011, public authorities have made four major infections to allow for a very rapid scaling up of electric vehicles. Te frst was in 2012, when it was decided that battery electric vehicles would be the strategic priority; here again, there is no room for technological neutrality! Te second infection came from the continuous tightening, since 2014, of the criteria for obtaining subsidies and then the creation of the NEV credit (2016), both of which were pushing for the mass development of electric vehicles increasingly efcient in all aspects of design. All of these provisions were part of the 2015 “made in China” pivot to transform Chinese automakers into “innovation leaders that shape the industry.”* It is no longer a matter of the Chinese auto industry taking advantage of the transition to low-carbon mobility to drive out low-speed EV manufacturers and

*

Kendall, M. (2018). Fuel cell development for new energy vehicles (NEVs) and clean air in China. Progress in Natural Science: Materials International, 28(2): 113–120.

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catch up with global competitors, but rather to outperform them. Indeed, the Development Plan for the Industry of New Energy Vehicle 2021–2035 clearly states: “Since the publication and implementation of the Development Plan for Energy Economics and New Energy Vehicle Industry (2012 to 2020) by the State Council in 2012, China has been emphasizing the strategic direction of battery electric propulsion. China’s new energy vehicle industry has made progress that the world is focusing on and has become an important asset in guiding the transformation of the automotive industry worldwide.”* Two other recent infections also show this pragmatic adaptation of regulations to market realities. While the purchase subsidies were to disappear at the end of 2019 to avoid artifcially keeping manufacturers unable to meet the growing demands of the market, the third infection led to their extension until the end of 2022. Tis was to consider the downturn in the overall Chinese car market, the impact of COVID-19, and the need to support NEV sales. Finally, in 2019, there was a surplus of NEV credits of 3.31 million stemming from the “too rapid” increase in the range of battery electric vehicles as a result of technological advances. In fact, this surplus did not push automakers to improve conventional ICEVs or to accelerate the improvement of electric vehicles. Te fourth infection took place with the evolution of the dual-credit policy, introduced at the very beginning of 2021. In order to force a more rapid improvement in ICEVs and NEVs, this policy has introduced a new tightening of the consumption thresholds to be reached by mass bracket, a major reduction of the CAFC to 4L/100km by 2025,† and new, even more stringent criteria for defning the NEV credit. Tis analysis leads us to describe the Chinese approach as “administered Darwinism,”‡ the main characteristics of which are as follows. Te Chinese government exercises its dirigiste role in the economic world with a very strong capacity to intervene over a large area and whatever the cost. Because it has given itself the means to be competent over the entire industrial area it controls, it can intervene from the fnal car to the key components in an

*

†

‡

Chinese Government (2020). General Ofce of the State Council for Printing and Distribution of New Energy Vehicle Industry—Notice of Development Plan (2021– 2035). gov.cn, November 2. Tis corresponds roughly to an emission level of 95g of CO2/100km, the maximum threshold in force in Europe since 2020. See Alochet, M. (2020). Technological breakthroughs and dynamics of an industry: Te transition toward electromobility case. PhD thesis in management defended at the Institut Polytechnique de Paris; Alochet, M., and Midler, C. (2021). Une comparaison des politiques publiques chinoises et européennes sur le véhicule électrique. Le journal de l’École de Paris, 152: 16.

Societal Innovation and Administered Darwinism 127

appropriate and intrusive manner. Consequently, it does not only set objectives but also imposes the way to reach them—for example, lowering the weight of cars or improving the density of batteries to increase energy performance. Finally, it integrates, in an original way, a logic of industrial management which considers the specifcities of the innovative transition. It permanently adjusts the regulations, even if it means making pragmatic short-term deviations, depending on whether or not the (future) industrial champions achieve the objectives set. Te best example of this is the tightening of the CAFC and NEV credit criteria, which was carried out because the results observed did not correspond to the desired trajectory. Te result is an impressive capacity for sectoral learning, if we consider the level reached in a few years by Chinese batteries or car brands. For example, NIO, SAIC-MG, and Xpeng ofer electric vehicles that are perfectly capable of attracting European customers and are among the world’s leading companies in terms of market value. On the other hand, these performances have signifcant sunk costs linked to the players who have disappeared in this race.

Conclusion: Technological Neutrality and Administered Darwinism Europe has long remained anchored in a governance based on the regulation of fair economic competition, technological neutrality, the organization of mediumand long-term visibility on objectives, and the sovereignty of each member state. Despite the pivot of 2015 and a stronger intrusion into the how, this governance of regulations has struggled, until now, to fnd a dynamic adapted to the massive and rapid deployment of an electric mobility system. Meanwhile, China, according to the national strategic will to build Chinese world champions of the electric vehicle, has deployed what we have called an administered Darwinism—a governance characterized by traits whose combination was unprecedented until now: • Te traditional dirigisme of socialist systems • An ability to activate precise and powerful action variables to pull the industrial trajectories of companies toward improving supply-side performance • A capacity for rapid adaptation to adjust regulations according to the learning observed in the industrial feld and direct it toward the target Tis is a far cry from the neutrality of the how, which has long been the dogma of European regulation, but much closer, paradoxically, to the fnancing logic of Californian capitalist ventures:

128 The Innovation Odyssey

• Do not hesitate to commit to promises from the outset and accept failure, as long as it is quick. • Pilot trajectories by frequently monitoring the achievement of intermediate milestones representative of learning progress. • Pragmatically update support for the champions that the company has helped to create.

Chapter 8 The Project as a Means of Strategic and Cultural Integration Te development of K-ZE exemplifes innovation cooperation among diferent frms in a multicultural context. Tis arrangement is common to globalized groups, such as those in the automobile industry, but also in other industries, such as aeronautics and chemicals. However, there are two main problems with this setup. First, there is the difculty of cooperation, within the framework of an innovation project, among diferent companies whose strategies and interests are not necessarily aligned. While cooperation comes in a range of forms depending on the sector, we are interested here in horizontal cooperation involving companies that are competitors or partial competitors in the same market. Second, there is the constitution of teams that bring together people from diferent cultures, where diferences in behaviors, reasoning, and judgments— which are often implicit—can lead to misunderstandings and tensions. One of the difculties in fully understanding these two problems lies in the all-encompassing yet polysemous term culture, which abounds in the literature on organization and management. References to national—or regional— cultures sit alongside references to professional and corporate cultures, with the latter clearly referring to the strategic and organizational identity of frms. In this chapter, we shall focus on the defnition of the word culture as it relates to the national dimension.

129

130 The Innovation Odyssey

Project Management and Strategic Alliances Alliances, like projects, have long been the subject of management research. However, these developments have generally taken place in disjointed theoretical felds: in the feld of strategy, the analysis of alliances focuses on the general governance of organizations, while the feld of project management adopts a fner granularity, with analysis of processes and the internal organization of projects. Bringing these two felds together is of particular interest, because projects for the development of new products or services, new technologies, or new production units constitute the space where inter-frm cooperation is most often at stake.

Cooperative Innovation Projects: Opportunities and Constraints Cooperation can take various forms, from so-called “strategic alliances” to more ad hoc cooperation on projects or certain operations. Te term is therefore vague, and the academic world, Garrette in particular, has sought to defne it more precisely: “agreements concluded and jointly managed by competing or potentially competing frms, none of which give up their decision-making autonomy, which choose to carry out a specifc project or activity by coordinating the necessary skills, means and resources instead of competing with each other in the market as part of a traditional competitive strategy for the activity in question, or by merging or transferring the activity in question entirely from one frm to another.”* Analysis of the contemporary industrial world, and particularly of the automotive sector, reveals a variety of cooperative processes of innovative development, which can be summarized in three typical models, each with a diferent relationship to the original identity of the actors: • Integration by merging the functional divisions of cooperating companies. Tis can be almost complete, as was the case with Peugeot and Citroën from the 1970s to the 1990s, when they completely merged their engineering, purchasing, and manufacturing functions, while the brands retained their autonomy in product strategy, design, and marketing. Tis model of integration, which seems to be underway on a new scale at Stellantis, and which is *

Garrette, B. (1991). Les alliances entre frmes concurrentes : confgurations et déterminants du management stratégique. (Alliances between rival frms: confgurations and strategic management. Tesis defended at HEC Paris. Published in French, passage translated by the authors.

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complete at Volkswagen, is a particularly difcult process, with signifcant time and energy costs as well as organizational tensions.* • Delegation of design to one partner. Te idea here is to leverage R&D assets by sharing components and platforms. Te design is then delegated to one of the companies, and the other reuses these assets in the development of its own products. Tis is the classic model for engines that Renault and Nissan adopted in the 2000s, with Renault focusing on diesel engines and Nissan on gasoline engines. Te design of a new-generation platform is delegated to the company that will use it frst in the renewal of the corresponding model in its line-up. Te savings in development time and design costs are obviously major on paper. In reality, it is more problematic when the brand identities have signifcantly diferent genetic makeup: the common defnition of platform specifcations gives rise to difcult and lengthy negotiations, with the adaptation of the derivatives specifc to the other brand often calling into question the initial specifcations. • Integration through cooperative projects, as exemplifed by the K-ZE project and explored below.

Inter-firm Cooperation: A Contemporary Necessity for the Growth of Multinationals . . . What are the promised benefts driving the craze for alliances? Doz and Hamel analyze this development in relation to the evolution of competition: the globalization of competition between companies leads, on the one hand, to a race to fnd economies of scale, and on the other to access to diferentiating technologies.† For the frst aspect, it is a question of accessing new markets for the company while sharing costs, making the most of surplus investments,‡ and increasing the advantages linked to volume (typically in relation to suppliers).

*

†

‡

Tis model is often mistakenly equated with the construction of General Motors’ multidivisional organization: this is to forget that at the time, Alfred Sloane, GM CEO, did not have to integrate corporate identities already formed by decades of history, but rather went the other way, diversifying an industry dominated by the monolithic Ford model. Doz, Y. L., and Hamel, G. (1998). Alliance Advantage: Te Art of Creating Value Trough Partnering. Harvard Business Press. Globally, the auto industry has had excess capacity for decades, causing automakers to share it to produce components or vehicles with competitors.

132 The Innovation Odyssey

For the latter, it is a question of being able to access new skills more quickly and more economically than by building them internally and being able to mobilize the partner company’s network. Te electrifcation of vehicles and the development of autonomous driving functions, both of which require considerable resources and investment, are two recent examples of cooperation aimed at gaining access to diferentiating technologies. Examples include the cooperation between General Motors and Honda within Cruise (autonomous mobility) and the cooperation between Volkswagen and Ford for electrifcation in Europe.

. . . With Inconclusive Results Do the results of these cooperative processes live up to their promises, however? Te results of research on alliances are inconclusive, with two studies showing a failure rate of between 40 and 50%.* Te strategy literature has thus devoted a great deal of space to evaluating the success or failure of alliances† and to the question of their value in relation to other strategic development processes (internal growth, purchase, or merger). However, none of them explicitly mention project management as a central variable in the analysis of the causes of success or failure.

Project Management: A Forgotten Variable in the Success or Failure of Alliances In the case of alliances, it is generally through joint projects that the reality and efectiveness (or otherwise) of cooperation between frms is measured. However, as Gerwin and Ferris note, while the strategic literature has plenty to say on the overall structuring of new product development in strategic alliances, there is much less about cooperative project organization.‡ Te two authors link the project literature *

†

‡

Harrigan found as far back as 1988 that of a large group he studied, 40% did not survive beyond the fourth year (1988). In 2010, Kaplan and his co-authors reported a 50% failure rate (2010). Blanchot, F., and Guillouzo, R. (2011). La rupture des alliances stratégiques : une grille d’analyse. Management International, 15(2) : 95–107 ; Meschi, P.-X. (2003). Pourquoi et comment sortir d’une alliance ? Revue française de gestion, 29(143) : 159–180. Gerwin, D., and Ferris, J. S. (2004). Organizing new product development projects in strategic alliances. Organization Science, 15(1): 22–37.

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and alliance management to propose a typology of global project organization confgurations: the project totally delegated to one of the partners, or joint participation in separate or integrated work, and according to a shared leadership or not. Tis makes it possible to form hypotheses on the relevance of these confgurations in relation to the nature of the project (complementarity of the partners’ contributions to the project, time pressures, etc.) and to characterize the alliances in which these projects are embedded (in particular by the age of the alliance). Te more detailed case study illustrates the relationship between the global governance processes of the alliances and the internal decision-making processes of the projects.* Solli-Sæther and his co-authors show that strategic divergences and diferences in corporate culture (the term culture being used here in the sense of the frm’s identity) constitute obstacles to the sharing of knowledge necessary for the successful completion of projects.† Tis is an important fnding when the cooperation involves frms with strong identities and strategies, which is often the case in the automotive sector. Te literature thus shows that the context of cooperation certainly complicates project management. Conversely, in their article analyzing the case of a project to develop a new commercial vehicle between Renault and General Motors, Midler, Nefa, and Monnet‡ show how project management can be a lever for ensuring the success of a cooperation between companies in a competitive situation. Te case of the K-ZE will allow us to explore this important question in the current context of globalized group strategies.

The Societal Contingency of Management “Te project is not an island!” What Engwall expresses with this formula§ is the importance of the history behind a project and the context in which it takes place. For the K-ZE project, the question of cooperation and coordination among people with diferent national histories is therefore a major one. Te term often used to describe the societal contingency of management is “culture” or *

†

‡

§

Kock, R. A., and Creemers, P. A. (2008). Alliance governance and product innovation project decision making. European Journal of Innovation Management. Solli-Sæther, H., Karlsen, J. T., and Van Oorschot, K. (2015). Strategic and cultural misalignment: Knowledge sharing barriers in project networks. Project Management Journal, 46(3): 49–60. Midler, C., Nefa, P., Monnet, J. C. (2002). Globalizing the frm through projects: Te case of Renault, International Journal of Automotive Technology & Management, (2)1: 24–45. Engwall, M. (2003). No project is an island: Linking projects to history and context. Research Policy, 32(5): 789–808.

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“multicultural management,” broad and vague terms referring to modes of interaction (including, of course, language), behaviors, values, and skills acquired and anchored in traditions and educational and socialization institutions. Two strands of research allow us to shed light on this notion in our context: the felds of economics and sociology highlight the institutional determinisms that frame professional identities and their relationships. Te culturalist current emphasizes the power of traditions and history over the reproduction of values and individual behaviors. Te frst strand, particularly illustrated in the feld of French labor economics by the pioneering work of Maurice, Sellier, and Sylvestre, insists on “the contingent nature of skills, forms of organization and professional relations in companies” in relation to education systems or, more generally, in relation to the framework of national or regional social institutions in which professional careers take place.* By comparing the forms of organization and industrial relations in France and Germany, the authors show the importance of interdependencies among training systems, characteristics of productive organizations, and industrial social relations. What we shall retain here is that a “French-style” engineer does not have the same skills as a “Chinese-style” engineer: this is the consequence of the education they have received and the curricula that have shaped their professional experience. Te second strand focuses on the characterization and, more specifcally, the diferences between national psyches and their efects on interactions in the context of multicultural management situations. It was developed in France by Philippe d’Iribarne in his book La Logique de l’honneur.† Inspired by anthropology, this characterization seeks to identify common behavioral traits and interpersonal relationships rooted in cultural tradition. One of the bestsellers of this culturalist movement is Geert Hoftstede’s Culture’s Consequences: International Diferences in Work-Related Values,‡ which proposes a typology of national cultural stereotypes to be considered in management. An

*

†

‡

Maurice, M., Sellier, F., and Silvestre, J.-J. (1979). La production de la hiérarchie dans l’entreprise. Recherche d’un efet sociétal : comparaison France-Allemagne. Revue française de sociologie, 20 : 331–365. d’Irbarne, P. (1989). La Logique de l’ honneur. Gestion des entreprises et traditions nationales. Paris, Le Seuil. EAN 9782020107099; ISBN 978-2020207843. Hoftstede, G. (1980). Culture’s Consequences: International Diferences in Work-Related Values. Tousand Oaks, CA: Sage Publications.

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abundant literature has developed around this work, discussing, contesting, or extending this culturalist mapping program.* In terms of corporate management, this latter strand focuses on the individual and inter-individual level within teams and in relation to leadership and negotiation. One of the key messages is that the judgments and behaviors that take place within multicultural work groups are the result of systems of thought and values that are both widely difering and largely implicit. It is this double qualifcation of diference and implication that tends to cause misunderstandings and tensions in the common work. Tis leads in two directions: on the one hand, to short-term training programs for managers that aim to make these implicit systems explicit, with the purpose of helping them adapt their management style to avoid confict with the norms of the culture they are operating in. On the other hand, there is more speculative research on the evolution of organizations’ mixing diferent cultures, questioning the enrichment and limitations brought by such hybridization within multinationals. In 2009, Loth published a synthesis of publications on the efectiveness of multicultural teams in the journal Management et avenir, whose conclusions are as follows: Tis literature review found that cultural heterogeneity had a signifcant infuence on processes and could lead to the emergence of conficts with a negative impact on team results . . . Trust is commonly considered to be an essential factor in the efectiveness of multicultural teams . . . Te “value in diversity” hypothesis, i.e., the possibility of using cultural diversity as a resource to achieve synergies, is therefore not verifed.”† In summary, while the multicultural character of projects appears to be a strength as a result of the local legitimacy and resource complementarities it brings, it also appears, at least initially, to be a problem. Te K-ZE project is a typical cooperation between strategically and culturally diferent companies. Its analysis allows us to better understand the feld of project management, while also contributing to understanding in the felds of cooperation strategies and multicultural cooperation, by answering the following two questions:

*

†

Duda, D. M., and Prabhakar, G. P. (2009). Multicultural project teams and their management. Research Quarterly, 9(2): 121–123; Chevrier, S. (2003). Cross-cultural management in multinational project groups. Journal of World Business, 38(2): 141–149. Loth, D. (2009). Te functioning of intercultural teams. Management et avenir, 8: 326–344.

136 The Innovation Odyssey

• How can a project be organized and managed to withstand the problems associated with the diverging identities and strategies of the cooperating frms as well as the cultural diferences among the project actors? • What role can projects play as levers in the wider management of strategic alliances?

Management of Strategic Complementarities in the K-ZE Project Strategic Cooperation between the RenaultNissan Alliance and Dongfeng Te K-ZE project represents a cooperation between two automotive groups to pursue converging strategic objectives while sharing investment costs and risks. For Renault, cooperation with Dongfeng was an essential condition for development in China. For its part, Dongfeng provided engineering staf with a command of the Chinese language, access to local suppliers, and contact with the public authorities. For Dongfeng, the cooperation was an opportunity to stay in the electric vehicle race in a booming Chinese market where the company was lagging behind leaders such as NIO and BYD. Te cooperation with Renault, a “frst mover” and a European leader in the electric vehicle industry, was therefore an important asset in this strategy. In addition, the project included a potential export market, in line with the recommendations of the national “Made in China 2025” plan. Te two partners jointly benefted from other opportunities, such as the reduction of signifcant project risks and the pooling of resources necessary for success. On an operational level, Dongfeng and DRAC, like other Chinese automakers, were faced with the need toincrease their production and sales of electric vehicles to meet CAFC and NEV credit targets. Te additional volume of electric vehicles provided by the cooperation through the institutional arrangement with eGT (see Chapter 3) was valuable in this respect. Finally, although this advantage did not materialize in the end, the cooperation would provide access to the various sales networks of Dongfeng’s Chinese joint ventures, which would in turn give access to a large market in various regions in China. Nevertheless, analysis of the project’s progress also shows how the cooperative situation created tensions throughout the development process. At the key meeting in September 2016, the choice of the electrifcation of Kwid represented, for Dongfeng, a renunciation of its scenario based on the electrifcation of one of the company’s platforms. Similarly, the choice of the Shiyan site to produce the car corresponded to the political issues of the state-owned

The Project as a Means of Strategic and Cultural Integration 137

company Dongfeng, Renault’s being at the time more in favor of the Liuzhou site in the province of Guangxi in southern China. Te sharing of development costs would also, as predicted, become a recurring subject in difcult negotiations between the partners, from the contract drafting phase to the execution of expenditure, for which the eGT managers would have to return several times to the highest levels of the companies. Finally, the difculties resulting from the cooperation would be most evident during the start of the production and sales phases, when the project left the scope of engineering managed within eGT to become highly intrusive on the operational functioning of the joint ventures. We have seen the impact of this playing out in confict between the Shiyan plant and the project—with the former giving priority to making its lines proftable by producing its own range of commercial vehicles, while the project was reserving the facilities for the launch of the new product (see Chapter 4)—and in terms of marketing networks, through the project’s inability to mobilize the sales networks of Dongfeng subsidiaries (see Chapter 5).

The Project as a Factor in the Integration of Strategic Complementarities Inter-frm cooperation in innovation projects appears to be essential for globalized strategies while also being a source of new complexity. Te question is not whether to reject this complexity, but rather how to manage it. Te K-ZE case sheds light on this issue by showing the importance of four variables whose coordinated activation can help overcome the tensions inherent in this type of cooperation: the institutional framework that is put in place, the internal management of the project, the mode of intervention of the corporate divisions of the partner companies, and the governance of the cooperation.

Institutional Framework: eGT, Project Operator Te traditional form of cooperation between Chinese and foreign companies involved the design of a new model in Europe or Japan by the foreign partner and its industrialization in China, with the intellectual property remaining with the foreign designer. In the 2010s, a new form of cooperation emerged as a result of the Nissan-Dongfeng cooperation: the design by Chinese teams of the Dongfeng-Venucia (DFL) joint venture for a purely Chinese model. In this second form, Nissan became an indirect fnancier of the business via DFL but was not operationally involved.

138 The Innovation Odyssey

With K-ZE, Chinese and non-Chinese partners were therefore embarking on a joint design project in China for the frst time, with the sharing of jointly created intellectual property: the institutional framework of eGT, an independent legal entity, was tailor-made to ensure the realization of the project in this context. Te virtue of the project operator was thus to closely integrate the design and industrialization responsibilities for the new vehicle by linking them to the specifc objectives of the project, as contracted at the outset, rather than depending on the processes instituted by each of the founder members. Te counterpart of the autonomy granted by the shareholders was the commitment to results made by the CEO of eGT. However, the limitation was that the production and marketing of vehicles would be outside the authority of eGT, and instead would be the responsibility of the actors involved in its governance. Tis constraint would be manageable if the leaders of the various stakeholder groups were continuously involved in the strategy they defned at the outset. We have seen, on the production side, how the intervention by Dongfeng’s governance made it possible to resolve the crisis around the Shiyan plant at the time of launching the vehicle. Meanwhile, on the commercial side, the successive departures of Carlos Ghosn and Tierry Bolloré made it impossible to maintain distribution commitments.

The Integrative Management of the Team Tis formal autonomy would have been worthless without the integrative management of the project team, which we will summarize here. First, the leadership of the program director, Gérard Détourbet, perfectly embodied the organizational model of the “heavy project manager,”* whose legitimacy was recognized both at the top of Renault and by those involved in the company’s projects and functions, thanks to his previous successes on the Logan lineage and Kwid projects. Second, the constitution of the team, based on a core group that was both highly competent and mobilized, gave the project team operational autonomy beyond the formal autonomy of the eGT structure. Finally, there was the adaptability of the management. Te application of the “Détourbet style” to the context of the project, including the co-location of teams in China, and the uncompromising application of design-to-cost in all its dimensions—the agile decision-making method based on accelerated learning from problems in the feld—contributed greatly to the successful integration of players of diferent nationalities and cultures into a cohesive team.

*

Clark, K. B., and Wheelwright, S. C. (1992). Organizing and leading ‘heavyweight’ development teams. California Management Review, 34(9).

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The Key Role of Intervention by Central Entities Te ability of the project to integrate, in a relevant way, the complementarities of the functions of the eGT shareholders also depended on the way these functions intervened in the project. Each company had its own frames of reference (whether business standards, quality validation processes, or even information systems), which are generally not aligned. Te need to comply with these standards was a major source of divergence, requiring negotiation that distracted team members from pursuing the project’s objectives in their own context. Conversely, the support of central services, when required by the project, was a key asset, which ultimately diferentiated a project of this type from one by an isolated startup. In the case of eGT, the intrusion of the diferent parties involved in aspects of the project varied. Naturally, the major strategic or fnancial choices benefted from the strong involvement of the general management and strategy functions of the cooperating frms. But when it came to the more operational aspects of design, such as engineering, purchasing, and quality, only Renault’s central departments were heavily involved. By contrast, Nissan and Dongfeng largely delegated these areas of action to eGT, with Dongfeng’s interventions being ad hoc and in response to the Chinese context of the project and Nissan’s tending to deal with the overall consistency of the product. Te difculties were therefore centered on relations between eGT and the experts at Renault headquarters, who wanted to check that the product, sold in China under the Renault brand, ftted in with the company’s standard processes, even though the legal framework gave eGT the right to limit the role of Renault’s experts to advisory only. In the end, it was necessary for an engineering director to mediate to smooth out these tensions and get corporate divisions to accept this perhaps thankless but necessary role of support without the capacity to control.

Demonstrating the Importance of Governance at the Top Te last variable is the governance of the cooperation*: this is where strategic decisions are made and where conficts can be settled when the defned framework is no longer sufcient to resolve them. Te governance of the K-ZE project was composed of two levels: • Level 1, bringing together the presidents of the three shareholding companies. • Level 2, the eGT board of directors, made up of regional representatives from Renault and Nissan, the director of strategy of Dongfeng, and Christophe de Charentenay, president of eGT. *

Müller, R. (2017). Project Governance. Routledge.

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Troughout the history of the project, we have seen the importance of the frst level in the key decisions of the project—for example, when a trade-of between divergent strategies was necessary. Te three presidents met three times to review the project before the alliance’s governance crisis: at the very beginning in September 2016, in April 2017 to arbitrate on the composition of the capital, and at the time of eGT’s creation in December 2017. Tese meetings enabled, initially, the decision to launch the project, the choice of the plant site, and the defnition of the strategic framework for the cooperation. Subsequently, they helped to remove blockages around the shareholding and the availability of the plant. Te nature of this level became apparent when the crisis in the governance of the Renault-Nissan Alliance came to light. Te arrest of Ghosn—whose role in regulating tensions between Renault, Nissan, and Dongfeng had been decisive— triggered a period of uncertainty in which the new management of Renault and the senior management of Nissan were destabilized. Tese governance crises occurred at a time when the context of the project (the failure of the car on the Chinese market, the COVID-19 crisis) demanded strong responses at the highest level. But the presidents met only once in February 2019 to discuss eGT topics, and the commercial launch in China was done in a piecemeal fashion without concern for the viability of the overall project. Te long-term vision of the presidents was missing. Similarly, the proposal to develop a second model according to the same scheme, a logical decision given the dynamics of the Chinese market, was not accepted by two of the partner presidents. Te second level of governance contributed to formalizing eGT’s autonomy by making it a condition of quality/cost/time performance and to locking in the project’s fnancing. After the crisis in the alliance, governance at the eGT level was sufciently strong for the project to continue along its trajectory: the switch to the European market, as well as the engineering work necessary to meet the regulatory requirements for range in China, were decided quickly, as demanded by the circumstances.

The Project as a Factor of Cultural Integration: From Initial Stereotypes to Shared Identity Te K-ZE project took place in a completely new multicultural organizational context among France, China, India, and Japan. Indeed, it was a Chinese project carried out by a French company, which is diferent from the adaptation of a European model to the Chinese market or from Japanese “transplant” strategies.* *

Tese strategies implemented by Japanese car manufacturers from the 1980s onwards were aimed at duplicating the facilities and management methods of Japanese factories in the new industrial sites they were developing elsewhere, in the United States and in Europe in particular. See Mair, A., Florida, R., and Kenney, M. (1988). Te new geography of

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Following Dongfeng’s decision to accept Renault’s proposal to reuse the Kwid platform, the project was based in three national, cultural hubs: China, where the electric powertrain and battery would be developed and integrated into the car; India, for expertise on the ICEV version of the Kwid; and France, for overall management of the project from the business and technical points of view. Japan’s Nissan would only be involved as a shareholder and distributor through its joint venture, DFL.* Strong “Characters” on All Sides

uncertainty avoidance

Each cultural group within the joint team had a working identity; a method of collective action that we will call its “character.”† Hofstede’s typology distinguishes French and Chinese characteristics on two of the six axes of his measure: individualism and rejection of uncertainty. More individualistic than the Chinese and rejecting uncertainty, the French had devised a method of automobile development that aimed to reduce risk by capitalizing on past mistakes. But a third group was involved, with Indian collaborators—bringing knowledge of the original ICEV version of Kwid—and they occupied an intermediate position on the scale of cultural differences between the Chinese and the French (Figure 8.1).

India a

Individualism Figure 8.1 Characterization of French, Chinese, and Indian Types in Hofstede’s Typology (Source: Hoftstede Insights) *

†

automobile production: Japanese transplants in North America. Economic Geography, 64(4): 352–373. In Soi-même comme un autre (1990, 143), Paul Ricoeur distinguishes two models of identity: “We have in fact two models of permanence in time which I summarize by two terms that are both descriptive and emblematic: character and promise.”

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Beyond the individual characters, the crossover between them reinforces and simplifes their respective stereotypes, as Philippe d’Iribarne points out: “An essential aspect of intercultural relations resides in the way in which, in the absence of a common context of interpretation, those who have received diferent cultural reference points interpret each other’s actions and gestures. Experience shows that not only are these interpretations often inspired by inadequate views of the foreigner, but they remain when cooperation lasts.”* Tus, Dongfeng’s chairman, Zhu Yanfeng, echoed the common Chinese view by expressly asking in September 2016 not to develop an “Indian” car for the Chinese market: what could be more irritating for the Chinese than to be put on an equal footing with Indians by Europeans? In Wuhan, the automotive city, the French were seen by the Chinese as “romantics,” which is of course incompatible with the actual rigors of industry. And conversely, the French sent to Wuhan expected to have to teach everything to the novice Chinese. Finally, given the political tensions between China and India, the Indians sent to Wuhan had reason to fear a rejection of their authority. Experience would show that this was not the case. Two factors played a key role in managing the integration of these diferent cultures: team building and actually working together on the project. The Constitution and Adjustment of the Team Te composition of the team was guided by three principles. Te frst was to meet the requirements in terms of relevance and skills. Tus, the managers in charge of the batches extrapolated from the Kwid’s ICEV platform were Indian, and the French expatriates were in positions of specialized technical expertise (electrifcation) and in charge of project management, ready to implement the methods that had made the Dacia range a success. Te teams also had to be built up to the necessary level using local resources. Tis is shown by the fact that most of the engineers and technicians were Chinese—135 out of 150. Te second principle, the presence of high-level Chinese–Western bicultural staf, was amply illustrated in Chapter 3 by the care taken in selecting the incumbents of certain key positions in eGT. Finally, the third principle was to quickly send back to the parent companies the people who, in practice, did not show themselves able to commit to the project as a priority. Tis was the case for the frst two Chinese deputy chief engineers, who were unable to manage this multicultural situation. Similarly, Renault’s corporate *

d’Iribarne, P., Chevrier, S., Henry, A., Segal, J. P., and Tréguer-Felten, G. (2020). CrossCultural Management Revisited: A Qualitative Approach. Oxford University Press.

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engineers were kept away from operational management to give the necessary degree of freedom to the team members Renault sent to the project. Tis third principle was a clear message to all participants: integration into the team and total commitment to the project were essential requirements for participation.

The Dynamics of Joint Action in Agile Problem Solving Beyond the constitution of the team, it was essentially in the dynamic process of working together on the project that trust and mutual recognition were gradually built. Many of the statements made during the interviews attest to this progressive creation of mutual understanding and trust. Te Indian engineers emphasized how they had been warned, before their departure, about the risks of taking on management responsibilities for Chinese personnel in the project—a fear that was shared by the French project managers. But their testimonies show that, in fact, their leadership was not challenged.* On the Chinese side, Wang Wan Lai, the deputy chief engineer sent by Dongfeng on the project, even told his French colleagues: “I did not know Renault’s development methods; I discovered them and saw the advantage.” At the same time, the French side were surprised by the speed of execution of the industrialization carried out by the Chinese and by the responsiveness of the Chinese suppliers. For example, the Chinese demonstrated a surprising ability to solve a problem during the modernization of the body shop,† an example that will remain engraved in the memory of eGT’s president, Christophe de Charentenay. Te following is a perfect illustration of the complementary cultural characters. Chinese ardor goes by the name 努力 (nuli), which literally means “to work hard.” But its graphic construction also says “working hard all together”: 女 (nu represents the feminine), 又 (you means “with” or “together”), 力 (li represents the male strength), i.e., 努力: “the male strength and the woman, representing the whole collective, working hard together.” Te ability of the Chinese to work in groups compensated for the French individualism pointed out by Hofstede in particular, while the French method provided the framework to guide the Chinese ardor. Similarly, the Chinese were more open to risk (except for political risk!) than the French. For example, it was the French who refused to modify the schedule to satisfy a sudden request from a

* †

See Chapter 3. See Chapter 4.

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Dongfeng leader to prepare an autonomous version of the K-ZE for the Wuhan Military Olympics in October 2019 within a few weeks . . . In the end, the schedule that was considered unfeasible held thanks to this combination of French method and Chinese zeal; risk was managed in a balanced way. Nevertheless, the key point we would like to emphasize here is that this theoretical complementarity on paper was realized by positive action in the feld; it could so easily have resulted in incessant conficts, costly negotiations and compromises that might have made peace between the parties but would have been inefective in achieving the project objective. Tis is precisely where the specifcity of the project management approach lies: it eschews abstract theoretical debates in favor of joint action on the ground. Tus, it forces constant, ongoing exploration of possibilities to achieve the objective, focuses energy, and stimulates collective learning to fnd answers to the problems encountered along the way. And it is the acceleration of decision-making processes that reveals the true results of this joint action.

Conclusion: The Project as Generator of a New Identity Te tensions among diferent strategies and cultures within innovative design cooperation must be analyzed essentially as a dynamic process, with the common experience of the project’s progress resulting in learning in action.* Tis is far from the static vision of a confrontation between fxed strategies or immutable cultural stereotypes. Projects as vectors for integration and cooperation among frms thus present three important advantages, compared to known approaches such as “integration by merging design functions” or “delegation of design to one partner.” • Cooperation limited to a new product design project. Project-based cooperation is characterized by the fact that the product is often the main motivation for inter-frm collaboration. Indeed, companies may seek to develop an entire product to compensate for their weakness in certain markets, to cope with fnancial constraints, to share risks, or to overcome barriers to entry. Te benefts are obvious, and the risks and therefore the defensive attitudes are reduced because the cooperative commitment is limited in time and space.

*

Nonaka, I., Takeuchi, H., and Umemoto, K. (1996). A theory of organizational knowledge creation. International Journal of Technology Management, 11(7–8): 833–845.

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• Within a new product design project, the compromises among the diferent business standards of the companies are arbitrated by the external criteria of the target customers. It is not a question of brutally questioning the validity of the automotive identities of the cooperators, but of fnding the right compromise adapted to the particular situation: in this way, deviations from standards are more likely to be accepted. Negotiation, when it takes place within the small group of the project team, is more focused, quicker, and less costly than when it “goes up” to the central services, which will tend to fall back on their general reference systems. • Te identity of the project, in the sense of the promise, to use the terms of Paul Ricoeur,* replaces the initial identity-character of the cooperating companies. Te actors of the project fnd there a reason to free themselves from their initial guardianship and to make possible a focus on the specifc objectives of the project. We can see that these advantages are linked to the project management model that has been put in place: strong project management supported by clear governance, the whole being capable of ensuring the autonomy of the project, enabling the team to face external forces and shocks, legitimate leadership to share the common objective, an agile learning mode that accelerates problem solving, and the concrete application of responses. Tese characteristics are far from being automatically present in all projects. Te project organization will therefore only be capable of a response to the strategic and cultural tensions inherent in innovation through international cooperation if it has reached sufcient maturity to bring the above characteristics together. In terms of the strategic theory of resources, we can see that the maturity of project management is an important factor in the ability of companies to engage in international cooperation, which is set to be an enduring contemporary trend.

*

Ricoeur, P., op. cit., 1990.

Chapter 9 Global Innovation Strategies and Lineage Management Te internationalization of innovation processes is the result of two concomitant trends: the development of growth strategies, based on innovation, and the internationalization strategies of frms which aim to achieve growth in markets other than their own. Tese two trends are not new, but they have combined in new forms over the past two decades for the following three reasons: First, because of the trend toward the development of markets in high-growth countries such as China, Russia, Brazil, and India, rather than in the relatively saturated mature markets. While the volatility of these new markets remains signifcant and problematic in the short term, the development of the middle classes likely to buy expensive goods such as cars is a strong trend based on demographic and economic realities. Second, the globalization of competition in these new markets means that it is necessary to ofer products that are adapted to local specifcities while being competitive and innovative. In markets such as India or China, strategies to “recycle” old products are doomed to failure in a context of increasingly ferce international and local competition. Te 1980s saw the death of the idea of the “global car” designed in Detroit to meet the needs of the whole world. Similarly, Western automakers are often surprised by the aggressiveness of the competition in new markets, particularly in terms of product renewal. When they consider China and India as markets 147

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to be conquered, they often forget that these countries are increasingly formidable competitors in their own territory, and soon they will be at the global level too. Finally, these international markets can open up opportunities for disruptive innovations that might be more difcult to bring about in the home country of multinational groups. A classic example is money transfer system by telephone, which Orange* was able to develop in Africa a decade before attempting to deploy it in France. Tis was made possible by the existence of a signifcant customer need, unmet by the local banking system, and by an absence of strict regulations, which simplifed the implementation of radically new ofers. Te reverse innovation movement† has popularized these processes, which are opposed to the traditional approach of projecting innovations that originate in the headquarters of large groups into the international market. Te “transplants” of Japanese automobile companies, which are clones of domestic solutions deemed suitable for foreign countries, are a typical example.

From Local Innovation to Global Deployment Te question that arises for multinational groups such as automakers is the following: how to reconcile the development of innovation capacities adapted to local contexts and the construction of efective global deployment capacities for these locally developed innovations? Tis is a dilemma that Meyer, Mudambi, and Narula call the “double embeddedness”‡ of innovation processes in the local ecosystem and at the level of the global frm. Indeed, it is the large-scale deployment capacities that give large groups their specifc competitive advantage, whereas local innovation capacity can be challenged by smaller frms. Te confguration of the link between innovation strategy and innovation can vary, depending on the frm’s history of international development—takeovers of frms with R&D forces and local markets, initial industrial and commercial establishments leading to the development of local innovation capacities, etc. *

†

‡

Orange is a French company, network operator, and digital service provider with more than 250 million customers in 26 countries (https://www.orange.com/en). Govindarajan, V., and Ramamurti, R. (2011). Reverse innovation, emerging markets, and global strategy. Global Strategy Journal, 1(34): 191–205. Meyer, K. E., Mudambi, R., and Narula, R. (2011). Multinational enterprises and local contexts: Te opportunities and challenges of multiple embeddedness. Journal of Management Studies, 48(2): 235–252.

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Te literature on the management of multinational frms* characterizes diferent trajectories of internationalization of innovation processes and their organizational variables. Crossing the international development domain with the project management domain is useful in this perspective.† Among the diferent possible strategies for linking innovation strategy and globalization, we will focus in this chapter on the deployment of successive projects according to a logic of project lineage.‡

Innovation Deployment and Lineage Management Lineage strategy has been defned as the optimization of the learning dividends generated by the performance of the company’s design function.§ It is the performance of this function which, by combining the systematic capitalization on knowledge gained from developments and the opportunistic exploration of possible adaptations, ensures that the company can multiply product versions in various contexts with a minimal level of cost and risk. Te organizational variation of this theoretical lineage logic obviously depends on the nature of the sector: the projects that make up these lineages do not have equivalent characteristics of size and risk in, for example, the felds of household appliances, automobiles, or semiconductors. Te case of the automotive industry is particularly interesting because the investments associated with each project are signifcant, and the local contexts are specifc and restrictive. Te duality—capitalization of learning and opportunistic adaptation to local

*

†

‡

§

Notably Doz, Y., Santos, J., and Williamson, P. (2001). From Global to Metanational: How Companies Win in the Global Economy. Harvard Business School Press; Ben Mahmoud-Jouini, S., Charue-Duboc, F., and Midler, C. (2015). Innovation management and globalization. Enjeux et pratiques contemporains. Paris: Dunod. Ika, L. A., Söderlund, J., Munro, L. T., and Landoni, P. (2020). Cross-learning between project management and international development: Analysis and research agenda. International Journal of Project Management, 38(8): 548–558. Midler, C. (2013). Implementing low-end disruption strategy through multi-project lineage management: Te Logan case. Project Management Journal, 44(5): 24–35. Chapel, V. (1997). La croissance par l’innovation intensive : de la dynamique d’apprentissage à la révélation d’un modèle industriel. Le cas Téfal. Doctoral thesis in management defended at the École Nationale Supérieure des Mines de Paris; Le Masson, P., Weil, B., and Hatchuel, A. (2010). Strategic Management of Innovation and Design. Cambridge University Press.

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contexts—constitutes a capability that is difcult to copy and is, therefore, a real strategic resource. Project management as described above is clearly one of the prerequisites for the implementation of lineage strategies. But while it is a necessary condition, it is not sufcient on its own. Many innovative projects struggle to produce ofspring, even when they are successful. Tis is because, by its nature, the organization that carries the project ends with it. It is therefore necessary that structures and people exist within the larger organization of the frm capable of preserving and developing this asset without being hostage to the specifc conditions of the initial project. Tis is the only way to ensure the transformations necessary for expansion in the space of markets as well as in the space of supply variations. A long-term analysis of Renault’s product strategy in the accessible car segment makes it possible to characterize these growth processes by project lineages.

The Accessible Vehicle at Renault, 1945–2021: Four Seasons Te book devoted to the development of Kwid in India was entitled Rethinking Innovation and Design for Emerging Markets: Inside the Renault Kwid Project. Tis title underlined the double originality of Renault’s innovation strategy at work in this project. It was a strategy that innovated low-end products instead of frst introducing innovations through high-end products, as is generally the case in the automotive industry. It was also a strategy to develop new products and original platforms in emerging markets, whereas the dominant strategy is to introduce new vehicles in mature markets and then adapt them to serve emerging markets. Six years after the launch of Kwid in India, K-ZE represented a major new step in this strategy, combining the technological innovation of electrifcation with the strategy of designing an accessible vehicle in collaboration with local manufacturing partners. K-ZE also accelerated the reverse deployment of innovation, this time from China to Europe.

Season 1: The Small Popular Car, Renault’s DNA Tis is all about Renault’s long history. Innovation in small, inexpensive cars has been key to the brand’s identity since the end of the Second World War. Its frst vehicle, developed secretly during the war and marketed in 1947, was the frst French car accessible to the greatest number of people, as indicated by

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the advertising slogan published at the time: “4CV (four horsepower), 4 doors, 444,000 francs!”* Te Dauphine followed in 1957—a move upmarket from the 4CV—then the Renault 4. Te latter revived the idea of the popular, afordable, and practical small car, an answer sought in 1959 by the CEO of the time, Pierre Dreyfus, to the Citroën 2CV. It was presented to the public in 1961 and became a success thanks to its volume of sales in France and abroad, as well as its lifespan: more than eight million of them were produced in 28 countries until 1992. Te 1970s and 1980s saw, under the presidencies of Bernard Vernier-Paillez and above all Bernard Hanon, the deployment of a complete range of vehicles at Renault, from the R4 to the R25. Te R5 was a major success for the brand; introduced in 1972, it was the company’s “cash cow” until 1984. Troughout this period, Renault sought to renew the R4, now technically and functionally obsolete and commercially attacked by more modern competing entry-level products—including, in particular, the frst Fiat Panda released in 1980, which rewrote the rules for an entry-level car. But it was not until 1993, with the launch of the frst Twingo, that the company resumed its innovative approach to accessible vehicles.† Beyond the economic crises that dogged the company through the 1980s, this difculty in renewing entry-level vehicles underlines the complexity of combining innovation and low-cost cars in an industry where proftability of developments was becoming an unavoidable requirement.

Season 2: Twingo, and an Organizational Revolution in Project Management Te Twingo, developed under the leadership of Yves Dubreil, marked Renault’s renewed ability to combine innovative products and low-cost development to achieve satisfactory proftability. And this ability was inseparable from a major organizational reform that the CEO, Raymond H. Levy, introduced at the time: the heavyweight project management organization. Te reform gave this new function the autonomy to carry out the managerial innovations necessary for the success of a project: afrmation of the decisionmaking capability of the project authority over the functional hierarchies of the business lines in order to respond as closely as possible to the singular project needs—integrated project team, fat hierarchy to achieve judicious compromises *

†

444,000 francs at that time, or about €25,600 in December 2021 (according to the INSEE franc-euro converter). Midler, C. (1993). L’auto qui n’existait pas. Management des projets et transformation de l’entreprise. Paris, InterÉditions.

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between the diferent design variables, opening up the project to suppliers responsible for three-quarters of the car’s added value, and introduction of innovations in the development phase. Te formulation of design-to-cost is, as we have seen, one of the aspects of these managerial innovations.* While the Twingo project was a key step in the innovation strategy described in this chapter, it nevertheless had two limitations: Te frst was that it was launched at a time when Renault was mainly focused on the European market. Te car was successfully marketed in France, Italy, and Spain, but despite several international industrializations,† sales there remained low. Te second is that it had no direct descendants. Te frst Twingo would live a particularly long life, as it was not replaced until 2007. (Tis 14-year life cycle is reminiscent of the longevity of the 4L; 30 years! But the industry’s innovation clock ticked much faster in the 1990s.) Te Twingo platform was not used by Renault’s engineering departments for subsequent projects, including the Twingo 2, which was designed on the Clio 2 platform. Tese limitations in the geographical and product expansion refect the limits of the managerial reform of 1989: the project management stops with the end of the project, and the question of the business development strategy is not in its remit. Te capitalization and deployment of the assets created by the breakthrough of the pilot project was no longer carried by a strong player in the company. Te cards were reshufed and put back in the hands of the business units. It was then up to them to make the most of it . . . or not. Tis situation changed in the mid-1990s with the creation of the position of program director, whose scope extended beyond the project to include derivatives from the same vehicle platform; in the early 2000s, it was also extended to the responsibility of the worldwide marketing of the vehicles concerned. Tese reforms would allow the deployment of lineages beyond the pilot project. And it was this deployment of lineages that would characterize the next two seasons in Renault’s saga of accessible cars: the Logan and the Kwid.

Season 3: Logan, and the Building of the Access Lineage Te 1990s marked a double break with the precedent of the Twingo project. One of the major strategic actions of Louis Schweitzer, who chaired the company after Levy, was to give the group an international dimension beyond Western Europe. First, there was the attempt at an alliance with Volvo, opening *

†

Midler, C. (2013). Implementing low-end disruption strategy through multi-project lineage management: Te Logan case. Project Management Journal, 44(5): 24–35. Te Twingo was manufactured in Uruguay, Taiwan, and mainly in Colombia until 2012 (approximately 100,000 vehicles).

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up the American market, which failed in 1994. Ten there was the acquisition of Dacia and obviously the major alliance with Nissan, both of which took place in 1999. However, while the alliance with Nissan was approached in a global manner, the acquisition of Dacia was a means of concretizing, on an industrial level, a project for a specifc new product for the countries of Central and Eastern Europe (CEEC)—the Logan. In the context of the acquisition of Dacia, it was the new product project that was driving things, as opposed to the “top down” alliance that would, over a longer period, form the basis of concrete collaborations. Te Logan adventure thus began with the long-term plan proposed in 1995 by Schweitzer, targeting strong international development outside Europe by 2010: Brazil and the CEEC were the priority targets at the time.* Te idea was then to base this development on a second brand, not above but below Renault. Te failure of the alliance with Volvo was still recent, and the example of Volkswagen with the Skoda and Seat brands was convincing. Ten there was the mission in Autumn 1997, during an ofcial trip with Jacques Chirac and Lionel Jospin,† to establish Renault in Russia. From this trip, Schweitzer returned with the conviction that there was room on the Russian market for a “modern, robust, and accessible” car. From 1997 to 1999, difcult attempts were made to implement this scenario internally, while at the same time a long negotiation process for the takeover of the Romanian company Dacia and its Pitesti plant was underway. Finally, in 1999, the process was accelerated with the creation of a development project under the direction of Jean-Marie Hurtiger, which led to the conversion of the Dacia site—a Soviet kombinat—into a modern factory with high standards of quality and cost, then to the launch of the Logan in Romania in 2004. Te Logan project was therefore an achievement that confrmed the ability of the project organization set up 10 years earlier to develop “impossible” projects, namely the production of a “real”car that would be proftable at €5,000. Te other change, which we have already mentioned, was the expansion of the project management function to include program management. Tis change assumed its full signifcance when, at the beginning of 2000, the function took on responsibility for marketing all the vehicles in a range. Tis created a truly global entrepreneurial responsibility, combining the technical design of the range with its worldwide business development. With these two major changes, and under the ambidextrous governance of Schweitzer, the Logan lineage‡ was developed under the authority of Gérard *

† ‡

Jullien, B., Lung, Y., and Midler, C. (2012). L’épopée Logan. New trajectories for innovation. Paris, Dunod. Respectively, President and Prime Minister of France. Jullien, B., Lung, Y., and Midler, C. (2012). op. cit.

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Détourbet—who, having successfully completed the industrialization of the Logan in the Romanian plant, took over the reins of the program from Hurtiger. Te deployment took place across the product range—from Logan to Duster and Sandero (see Figure 9.1)—as well as in the geographical space—from Romania to Asia via Morocco, Brazil, Colombia, and Russia (see Figure 9.2).

Figure 9.1 Dacia Product Line Deployment (Source: Authors’ research)

Figure 9.2

Geographic Deployment of a Global Lineage (Source: Authors’ research)

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It profoundly changed the scope of Renault, which was moving from a company focused on Western Europe to become a global company. It also saw the (re)birth of a brand—Dacia—which ultimately made a major contribution to rescuing the group in the dark days of 2009 through the margins it generated.* Tis was a paradox, going against the received wisdom, deeply rooted in the automotive world, that only high-end vehicles can be proftable.

Season 4: Kwid, or the Maturity of the Breakthrough Concept Te Kwid project was a new stage in Renault’s growth strategy, which was based on attacking the automobile market accessible to the new middle classes in rapidly developing countries. Carlos Ghosn, who at that time was convinced by the results of the Logan line, became a natural sponsor and continued Schweitzer’s strategy by “radicalizing” it: Logan aimed at Eastern Europe and the €5,000 car market; the Kwid project aimed at India and the €3,500 car market. Te Logan project was initially launched with a rather low volume for the automotive industry of 60,000 vehicles per year, and it was based on the reuse of existing components. Meanwhile, the Kwid project aimed from the outset for a production of more than 100,000 vehicles per year and proposed two bodies sold under the Renault and Datsun (Nissan subsidiary) brands, as well as an entirely new powertrain system (a new three-cylinder engine and a robotized gearbox). Te reuse of existing mechanical components, which were too costly, did not allow the company to achieve this price objective in a proftable manner. Te operation was entrusted to Détourbet, who had just brilliantly succeeded in developing the Logan lineage. Te Kwid project was not a technical continuation of the Logan, but it was profoundly strategic: it was the success of the Logan lineage that legitimized this second breakthrough. It is worth noting that in 1999, when Ghosn met Hurtiger, the director of the Logan project, before leaving to take over the helm of Nissan, he did not believe that the project could succeed. But 12 years later, in view of its undeniable success and the players involved, he doubled down on the bet with the Kwid. Te lineage, built under the aegis of Détourbet according to a dynamic of market entrepreneurship and successive re-engineering (see Figure 9.3), would later lead to K-ZE, a new and disruptive leap involving international cooperation, exploration of the Chinese context, and the integration of electrifcation innovation.

*

See, for example: Martin, J. (2021). Dacia, le bijou de rentabilité du groupe Renault opère sa mue. nlto.fr. 14 January.

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Figure 9.3

Geographic Deployment of the Kwid Lineage (Source: Authors’ research)

Taking on the New World Where are we today? When K-ZE was launched in Europe in 2021, the context in which it had been created no longer existed. During the period of its international journey, the European context changed profoundly. At the political level, there was intense pressure from national and local public policies to decarbonize the economy and transport in order to combat air pollution and the predicted global warming crisis. Tis was accompanied by the rise of new mobility practices, in which car ownership is no longer the only possible solution. Finally, there was a new emphasis on European sovereignty and the relocation of production to the home territories. Tere was the need to respond to the problem of employment as well as to shortages of key products, such as masks, as observed during the COVID-19 crisis, and electronic components, which would slow the recovery of the automobile industry in 2021. Te parent company, Renault, had also changed profoundly following the various crises described and the signifcant turnover of senior executives that followed. Te name of the company’s new strategic plan, Renaulution, launched under the leadership of Luca de Meo and Jean-Dominique Senard, was a clear indication of this desire to break with the previous strategic matrix. In this context, is the K-ZE odyssey a last glimmer from the “world before”? Will the lineage be able, once again, to adapt to its new context and contribute, through the assets it has built, to the new strategic direction?

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Spring: Accessible Electric Mobility Spring’s very promising start in Europe shows that the product has succeeded in * opening up a new “blue ocean” in the market: that of accessible electric vehicles. For the European population living on the outskirts of cities or in rural areas, but also for the middle classes in fast-developing countries, Spring ofers an unprecedented combination of electromobility, low purchase price, and low cost of ownership. In this way, a large population, currently excluded by purchasing power constraints, could be converted to low-carbon mobility. At the same time, it would give the Dacia brand, which has long been the group’s worst performer in terms of CO2 emissions, a signifcant performance boost against a criterion that is now central to automakers’ strategies. Tere is still the question of Chinese production, which does not tick the right boxes, whether in terms of emissions from logistical transport or consistency with a European reindustrialization policy. But as the Logan line has done in the past with its multiple industrial locations, there is nothing to prevent the development of a European production site if sales volumes are high and public aid is sufcient to make the area attractive. Tis is a scenario that was already envisaged during the development of the project, when problems with the Chinese factory were mounting.

Continuation of a Strategy Driven by International Growth? Until now, the economic reasoning which has underpinned Renault’s long-term strategy, from Schweitzer to Ghosn, has been the belief that international growth, through the volume efect and the possibility of mitigating the variations of local markets, is the key criterion for the durability of automobile groups. In order to succeed in this international growth, Renault has relied on the hypothesis of the growth of the middle classes in rapidly developing countries: the former Eastern European countries, China, India, Russia, and Brazil. Tis is known as the middle of the pyramid (MOP), in reference to the pioneering work of Prahalad.† Te last 20 years have demonstrated the robustness of this model, despite the cyclical instability of the economies of the emerging countries. Tis hypothetical model also has the advantage of broadening the customer base while preserving *

†

Kim, W. C., and Mauborgne, R. (2005). Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant. Harvard Business School Press. Prahalad, C. K. (2012). Bottom of the pyramid as a source of break-through innovations. Journal of Product Innovation Management, 29(1): 6–12.

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the basis of the automobile industry’s economic model: the sale of a product to individual consumers. Tis is a blue ocean where, apart from used vehicles, there are fewer competitors and where huge territories remain to be conquered beyond the “red ocean” of the traditional automotive market in mature economies with their saturated markets. Te Logan’s epic and the Kwid’s odyssey are part of this global growth model based on the ability to design and deploy relevant products worldwide. Tis strategy has increased the Renault Group’s market share outside Europe from 15% in 2000 to around 50% at the end of the 2010s, and the Logan and Kwid lines have made a major contribution to this growth.* One decisive point is that the ability to implement this strategy has remained inimitable for 20 years now. Faced with competitors racing to the top of the range and creaming of the richest customers in emerging countries, Renault has been able to build up a distinctive skill set to serve the MOP of these countries with cars that are reliable, modern, and attractive because they are adapted, in terms of both features and price, to local markets. Continuing to develop this asset, which now also includes the qualities of low-carbon mobility, would be consistent with the strategy implemented to date. Of course, experience also shows that international conquest is not immune to hazards and uncertainties: the failure of the frst marketing of the K-ZE in China, as well as those setbacks that afected the Logan in the CEECs, Iran, and India at the beginning of its history, are reminders of this, if any were needed. But, as this book has shown, the success of lineage management is not inextricably linked to the success or failure of the pilot project. It results from the efectiveness of the learning process that builds on it by capitalizing, rebounding, redeploying, adapting, and enhancing the assets created by successive and agile iterations. In a world dominated by competition through innovation, it is indeed competitive reactivity that ensures sustainability, because good moves are quickly copied, and bad moves must be used to learn quickly and bounce back from failures. Faced with this pursuit of a global strategy, the retreat to the red ocean that is the European market presents clear risks, even if the electrifcation of automobile mobility creates an opportunity for feet renewal that Renault, a frst mover in the feld—and more generally France, with its decarbonized electricity—is well placed to seize. And beyond the electrifcation phase, demographic and economic data are, once again, clear: growth in metropolises where the use of the single-occupancy car is tending to be discouraged in favor of mobility services with a variety of formulas. However, we can see how quickly all the global competitors are investing in this growth area, especially since the competition has been essentially between established European, Japanese, Korean, and *

Authors’ analysis based on ofcial Renault data.

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American automakers. However, Chinese automakers, who have until now been absorbed in serving their huge domestic market, are already making their entry into Europe, both at the top of the range with NIO and at the bottom with the launch in Lithuania of Wuling’s small car at less than €10,000. An asset like the Spring is therefore certainly welcome. In this contemporary context, can we therefore envisage prospects for new lines of business that would take advantage, following the logic described, of the previous ones? In addition to the sale of vehicles to private customers already mentioned, we will explore two perspectives here: that of electromobility services and that of conquering the unknown territory constituted, for the industry and Renault in particular, by the bottom of the pyramid, the non-market where all those lacking fnancial resources reside—those who cannot access direct sales to consumers, which is the current basis of the sector.

From Product Strategy to Mobility Services: Toward a New Lineage? Dacia Spring was launched within the framework of the classic automotive business model: sales to end customers. However, at the same time, the marketing of the vehicle also took place in the form of sales of mobility services. Te frst step was with the retailer E. Leclerc for traditional rental (April 2021), then under the Mobility Share and Zity brands, the group’s car-sharing services, from summer 2021. Tis marketing, combining private customers and service operators, was highly original in itself: it did not follow the tradition of selling new models frst to customers eager to innovate—with sales to feets, which are less proftable, taking place only after the initial wave of private customers. Tere were cyclical reasons for this original commercial launch decision. But it also refected a more structural shift in mobility behaviors from a single-occupancy car purchase and use logic to mobility uses that share diferent vectors, whether automotive or multimodal. Te rise of chaufeur-driven car services based on the Uber® platform and the development of digital services facilitating intermodality and shared-vehicle use seem (very slowly) to be refecting original mobility uses, where the car is no longer, in the metropolises at least, the alpha and omega of the means of transport. For a long time, automakers’ investment in mobility services was marginal if not non-existent. It was essentially a matter of taking the pulse of this new trend, of learning these new businesses of self-mobility services. Some companies, such as Daimler with Car2Go, which were the frst to invest in the feld, have already scaled back their involvement. Tis is because the economic model of services is

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always less remunerative than that of sales to the end customer. So why should companies leave their core business and invest in a less proftable activity than the one that has sustained this industry for a century? We have here a problem perfectly described by Clayton Christensen*: while established frms are abandoning less proftable market niches, new entrants are developing new markets that do not interest the dominant frms in place and are thus satisfying non-customers of the usual ofer. Ten companies, often startups, propose more afordable ofers or ofers oriented toward new values, gradually becoming more and more efcient, which, in the long run, allows them to compete head-on with traditional product ofers. Te literature abounds on the analysis of such disruptions, from the iconic Kodak®, which invented digital photography but did not take it seriously, to the computer hard drives studied by Christensen. Tere is a simple lesson for established companies: disrupt yourself before you are disrupted by new entrants. Tis is a lesson that has been understood in the automotive industry. Global automakers have clearly taken this likely development of automotive mobility services seriously, at least in their strategic speeches. One example is Akio Toyoda, president of Toyota, who announced at CES 2018, “My goal is to move Toyota from being an automotive company to a mobility company.”† Many have thus invested in the rental business in recent years: Daimler with Car2Go, Renault with Zity . . . In its new strategic plan, Renault even dedicated an autonomous business unit to the service business, Mobilize, and displayed signifcant ambitions: 20% of the group’s revenues by 2030. Tis is a strategic move, but one that poses a major challenge for automakers: Uber, Didi, Getaround, and other companies already occupy this feld of mobility. Automakers will therefore have to face the dual challenge of established competition and a type of business that is diferent from their historical expertise. But, on the other hand, abandoning this feld means abandoning the direct relationship with the end customer that is one of the strengths of this industry—unless the proprietary car model becomes obsolete in the future. Moreover, the low proftability of these services is not inevitable. In the long run, the prospect of the autonomous vehicle promises signifcant proftability for autonomous mobility operators.‡ Hence the colossal investments that have *

† ‡

Christensen, C. (1997). Te Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Harvard Business Review Press. Toyota (2018). President Akio Toyoda’s Speech at CES 2018. global.toyota, January 9. Numerous reports agree on this prediction, including, in particular, the report submitted in 2019 to the President of the Republic: Pelata, P., Mosquet, X., Bourgon, P., Hunault, M., and Trompe, C. (2019). Strengthening France’s attractiveness and competitiveness in the automobile and mobility of tomorrow. vie-publique.fr.

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been pouring in for several years—we are talking about 10 years for the development and widespread deployment of these technologies. In the meantime, it is necessary to learn about the uses of shared mobility in parallel with the technical learning process. And for that it will be necessary to participate in the deployment of current mobility services. Te beginnings of the Spring in the mobility service sector in Spain and France ft in well with this strategy, providing customers and operators with a more afordable solution than the competing carbon-free cars ofer.

From the Middle of the Pyramid to the Bottom of the Pyramid? In his 2004 bestseller,* Prahalad encouraged the business community in developed countries to go one step further by targeting the poorer populations at the bottom of the pyramid. Tese are populations, particularly in Africa, that will be growing quickly, and this is a message that has not yet been heard in the automotive world. After the Logan at €5,000 in Romania and the Kwid at €3,500 in India, can we fnd a new breakthrough to serve these non-customers of the automotive world? It has to be said that the classic model of individual car ownership is not tenable for these poor populations, even if the unmet mobility needs are pressing, especially in rural areas of Africa or India. For the automotive industry, addressing this BOP market will require taking a considerable step. Not only do we have to design a transport vehicle adapted to the needs of this new population, but we also have to completely rethink the business model in which it is used: only a mobility service that allows the cost of a car to be shared among multiple users can be envisaged. What is needed is a modernized version of the informal cabs or djakartas, the motorcycle cab services that crisscross the African roads, to serve rural populations on their way to local markets. Te new Adventure Lab (or ADLV) project currently under evaluation at Renault is focused on exploring the feasibility of such a breakthrough, while associating with it another characteristic marked by the contemporary context: supporting a mobility service by an electric vehicle.†

*

†

Prahalad, C. K. (2012). Bottom of the pyramid as a source of breakthrough innovations. Journal of Product Innovation Management, 29(1): 6–12. De Chatelperron, P., Levent, D., Rouvier, F., and Midler, C. (2021). Adventure Lab, frugal automotive innovation in sub-Saharan Africa. La Jaune et la Rouge, 765.

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Te nature of this project is of course diferent from the projects described so far. It is an exploratory project, a small-scale experiment intended to test the technical and economic feasibility of such a strategy for designing an economical electromobility ofer. And, given the many uncertainties involved in such a project, there is no guarantee today that it will lead to the development of the size of those we have studied. Te ADVL project is nonetheless the ultimate continuation, in a sense, of the “reverse innovation” approach undertaken by Renault for over 50 years. Te future will tell whether this exploration will result in a new “impossible project” analogous to the scaled developments studied in this book. In the meantime, it is important to note that this capability to venture of the beaten track—in every sense of the word—is not exclusive to startups but can also be found in large, established companies such as Renault.

Conclusion: Reconciling Local Innovation and Global Deployment In this chapter, we have shown to what extent lineage management constitutes an efective method for deploying innovation strategies over time. Te demonstration seemed convincing, in our opinion, but we will conclude this chapter with an observation that continues to surprise us since we have been studying this specifc market of economy cars: the fact that competitors have not, until now, been able to copy this strategy. After the obvious success of the Logan lineage, which was a real proftability blockbuster for the group and which disproved the idea that only the top of the range could be proftable, and then the success of Kwid, one might have expected other mainstream automakers to follow Renault’s lead in this strategy of reverse innovation and to attack this blue ocean of cars that are both accessible to customers and proftable for the company. Yet, despite the strength of the mimetic processes at work in this sector, this has not been the case. Twenty years after the launch of the Logan, the strategic dogma of this industry remains that of innovation from the top, trickling down from the headquarters to the peripheral markets. Projects have certainly been attempted by the main competitors, but they have not succeeded—a sign, perhaps, of the difculty of copying the recipe. It seems more difcult to do simple than to do complicated. So, what are the ingredients and tricks that lead to success? What are the organizational and managerial conditions that give a company the capacity to carry out this strategy over the long term? Tis will be the subject of the next and fnal chapter of this book.

Chapter 10 Innovation and Entrepreneurial Capability in Large Companies Introduction What are the specifc collective skills that support the implementation of lineage strategies? Economist David Teece has developed a notion to describe this phenomenon, which has had spectacular success: dynamic capabilities.* But while this notion allows us to name this rather paradoxical combination of strategic voluntarism and fuidity in adaptation, it does not shed much light on the precise management processes at work.† We will therefore emphasize four key aspects that underpin lineage strategies, which the case of Renault illustrates in particular: an “efectual” growth approach, entrepreneurial capability of program managers, agile design capabilities, and ambidextrous governance.

*

†

Teece, D. J. (2007). Explicating dynamic capabilities: Te nature and micro foundations of (sustainable) enterprise performance. Strategic Management Journal, 28(13): 1319–1350. See Davis, A. In: S. Lenfe, C. Midler, and C. Loch (Eds.), Te Elgar Handbook of Innovation and Project Management. Edvard Elgar. (Forthcoming 2023.) 163

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An Effectual Growth Strategy Te automotive industry excels in mass deployment (large volumes, large investments) in well-known contexts. Conquering unknown markets with innovative products is a very diferent exercise, made up of trials, surprises, and rebounds. Te K-ZE adventure in China is a striking example. But the history of the Logan lineage is also punctuated by obstacles and reversals of initial plans.* It is therefore important to combine the risky nature of the targeted breakthrough with caution in the commitment of costs as well as a capacity to adapt or pivot, as shown by the example of the launch of K-ZE on the European market. Tis is an entrepreneurial reactivity that we would expect more from a startup than from a large multinational company. Te literature on entrepreneurship† has developed the concept of efectuation to describe this strategic approach. It combines, in an original way, the opening up of possibilities, successive short-term steps to carry out learnings that are by their nature uncertain, as well as prudence in the following of these trajectories based on the economical use of available resources. Finally, a capacity for deviation makes it possible to avoid an insurmountable obstacle when it arises. And although the concept has essentially been applied to startups, the management of the Logan and Kwid lineages shows that it also makes sense in large groups when it comes to exploring territories that are anything but “business as usual.” Te frst ingredient of the recipe is to start the breakthrough with a move that seems obviously interesting in the short term: a proftable vehicle to serve the Romanian market in the case of the Logan project, penetration of the Indian market for the Kwid project, and penetration of the Chinese market for the K-ZE project. Tis frst step is already big enough—because it is not in line with usual practices—to avoid increasing the difculty by piling up constraints and challenges in the next stages. Te ingredient that accompanies this is to adopt a thrifty approach for this frst step: focus on admissible costs and not on maximization of value. Design-to-cost is the operational maxim of this second principle. At the end of this frst step, the cards are reshufed for what follows by taking advantage of the lessons learned. We continue with the initial trajectory, or we pivot for the next step, always thinking in the short term in an opportunistic way. When looked at with hindsight, the trajectory from step to step can lead to an end target that might not have been credible at the beginning because it was *

†

Jullien, B., Lung, Y., and Midler, C. (2012) L’ épopée Logan. New trajectories for innovation. Paris: Dunod. Sarasvathy, S. D. (2009). Efectuation: Elements of Entrepreneurial Expertise. London: Edward Elgar Publishing; Silberzahn, P. (2014). Efectuation. Principles of Entrepreneurship for All. Paris: Pearson Education France.

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too uncertain, but which was reached without taking too many risks, thanks to this approach. It should be noted that this approach is in direct opposition to contemporary automotive investment practice in traditional markets. In these situations, the game is to adopt a platform strategy based on forecasts, where the initial investment must be deemed able to cover a wide variety of potential subsequent products to maximize its value. Finally, this approach leads back to the notion of “real options.”* Traditional investment strategies are based on forward-looking scenarios with highly uncertain time horizons and that require risky initial choices, given the credibility of these scenarios. Te lineage strategy allows for investment in an initial project of limited ambition and risk and defers the decision to develop the investment until later: the results of the frst project can then inform the opportunity and the development trajectory to be chosen, according to a less risky opportunistic gain approach. Nevertheless, such a strategy remains abstract if it does not rely on two key competencies of the organization: an internal entrepreneurial capability that will carry it over time and a design capacity that will ensure the achievement of successive moves at a limited cost. It is the existence of a permanent and sustainable commitment to the exploration of new business opportunities that allows for the renewal of the lineage beyond the ups and downs of the journey. It is because the cost of successive redesigns are high and the development timeframes are short that it is worthwhile splitting the investment to take advantage of the knowledge gained along the way.

Intrapreneurial Capability—The Driving Force behind Program Management Te program management function is the basic engine driving any lineage management. It broadens the scope of the project function through a mechanism of linking successive projects as well as business development skills combined with in-depth expertise in product and process engineering. It is thanks to its permanent exploration of new business and incremental investments of *

Antikarov, V., and Copeland, T. (2001). Real Options: A Practitioner’s Guide. New York, Texere; Kock, A., and Gemünden, H. G. (2019). Project lineage management and project portfolio success. Project Management Journal, 50(5): 587–601; Huf, A. S. (2016). Project innovation: Evidence‐informed, open, efectual, and subjective. Project Management Journal, 47(2): 8–25.

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adaptation that the capitalization and valorization of the assets built in the lineage are achieved. It is also important to note the specifcity of the function compared to other roles present in large groups. Like the project function, it cuts across various other business functions (engineering, purchasing, production). Moreover, it introduces diferent tensions. First, the opportunistic “efectual” plasticity of the lineage means that it does not fall within the scope of a business unit identifed by a brand: Duster is sold under the Dacia brand in Europe and Renault in the rest of the world, K-ZE is Renault in China and Dacia in Europe . . . Ten, it does not ft into a logic of geographical responsibilities either, as its action goes beyond the boundaries of business by region. Indeed, these are generally defned as short-term functions aiming to enhance the value of existing assets by extending their commercial reach. Here the geographical regions are both short-term goals and learning spaces aimed at more distant potentialities. Kwid targets India, but does not shy away from Brazil. K-ZE was aimed at China, but was also launched in Europe. We can therefore understand the structural tension between the company’s “permanent” functions (business lines, regions) and the project and program management functions. Historically, in the automotive industry, as in many other industries, primacy was given to business line hierarchies over project functions, with the latter being hierarchically dependent on business line departments (engineering in particular). Te introduction of project management broke this subordination, with project and program management reporting directly to general management. But this formal change alone is insufcient if it is not associated with processes for valuing the players, which encourage them to take the side of the project against the interests of the business lines when a confict of interest arises. However, the career space within the company essentially unfolds within the business lines: “projects pass, business lines remain . . .” as is often said in large organizations. Te return to permanent structures at the ends of projects can then jeopardize those who have been particularly successful working on the projects. Te management of this tension has been handled in ways specifc to the diferent industries. In the construction industry, where projects form the fundamental matrix of a company, a project track is instituted in which employees can progress from sub-project managers to increasingly responsible positions. In other sectors, such as the automotive or aviation industries, another career management model was developed in the 1990s, based on alternating project and business assignments. To progress in the company’s hierarchy, it is necessary to have exercised responsibilities on both sides. Te underlying logic is that the radical subordination of one function by another would be detrimental in the long term to maintaining the company’s capabilities.

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In addition, this alternation introduces a principle of solidarity and mutual understanding beyond the operational difculties that may arise and encourages experienced managers to go back to the permanent structures that constitute the business lines. Finally, beyond the principles stated, the management of the balance between these two professional poles remains difcult and unstable in practice. So, what is the limit of the innovation capacity of the project and program functions as described here? In the 1990s, a debate developed about the capacity of project management to integrate innovations: the exclusive focus on achieving the objective assigned to the project would put these powerful new actors in a position to refuse all innovations that might jeopardize the achievement of their objective, as defned by the golden triangle of respect for quality, cost, and development deadlines. As development becomes too constrained to accommodate innovation activity, which is by nature risky and reputed to be costly, it would then be pushed back upstream, into the research and “early stage” phases to ensure the selection and maturation of new functionalities and technologies. Te metaphor of “innovation validated on the shelf ” describes this new division of design work, which was reinforced in the 1990s and 2000s, between an upstream innovation precursor and a development function limited to an integration activity in the overall product-process system, an activity which was already quite complex.* Tis restructuring, associated with the “platformization” of products, has signifcantly increased development performance in terms of speed, cost, and quality of products at the launch stage; however, it has also made the path from the innovative idea—“proofs of concept,” according to the term commonly used in upstream laboratories to the market—longer and more difcult. Tis disadvantage becomes important when innovative breakthroughs are called for by a context of radical transition such as the one we are currently seeing. Te project management model described here thus shows that, obviously within certain limits, innovation and development performance can be not only compatible but also necessarily combined.† It is not the function itself that is at issue, nor the status it has in the company, but the specifc objectives assigned to the project. It is precisely by virtue of the autonomy of the project actors that they will decide whether innovation, and the risks that it entails, is more a condition for success than a risk to be avoided. *

†

Maniak, R., Midler, C., Beaume, R., and Von Pechmann, F. (2014). Featuring capability: How carmakers organize to deploy innovative features across products. Journal of Product Innovation Management, 31(1): 114–127. Midler, C. (2019). Crossing the valley of death: Managing the when, what, and how of innovative development projects. Project Management Journal, 50(4): 1–13.

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Design Performance to Support Entrepreneurial Capability Te performance of the company’s design function is at the heart of lineage strategies.* It is this performance that ensures the possibility of multiplying versions by adapting them to diferent contexts at minimal cost and risk. Without it, no efectual trajectory is possible—at least in the automobile sector, where any development is a heavy investment—and there is no sustainable opportunistic business entrepreneurship. As always in the feld of innovation, the relevance of a strategy depends on the conditions of its implementation in terms of process and organization. Te K-ZE project is typical of agile and economical engineering, capable of responding to a market opportunity—in this case, to penetrate the Chinese electric vehicle market—by adapting an existing vehicle—the Brazilian version of the Kwid, which itself evolved from the original Indian version. Tis ability can be seen at every stage of the strategy’s implementation in the deployment of both the Logan and Kwid lineages. Each new model and market combination introduces new constraints and opportunities that force project managers to review the choices made at previous stages. Tis is particularly true for technological choices—such as the example of the electrifcation of K-ZE—but can also be true for other design variables such as the supply chain, because a product sold in one country must have a minimum local manufacturing rate, for example, or because a particular manufacturing technology is not available in another country. Te architecture of the car can also be afected: the design of the frst Logan adopted a strategy of dividing it into “large” components to save money. Tis was consistent with an industrial strategy focused on a single site. Tis had to be completely revised when the vehicles were produced on several continents: it was necessary to reduce the size of the parts to be assembled in order to reduce logistics costs. So how can this logic of optimizing the design of the lineage be organized on a global scale? We have seen how local integration of projects plays a decisive role in their performance, thanks to a better understanding of local uses, competitors, and the network of suppliers, who are essential partners. One of the consequences of the creation of the Logan and Kwid lineages was to transform the globalized organization of the group’s design from a home-centric model to a polycentric model. *

See Chapter 9.

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Figure 10.1 Principle of the Home-Centric Organization of Renault Engineering in Place until the Mid-2000s (Source: Authors’ research)

In the home-centric organization (see Figure 10.1), Renault’s Technocentre in France is responsible for the development of the entire vehicle range, delegating adaptation activities to associated design ofces located in countries where Renault is present (Spain, Brazil, Romania). In the polycentric organization (see Figure 10.2), localized technocenters are responsible for developing original products and processes, which has been done under the authority of the Logan and Kwid project teams. Te Technocentre in France remains, of course, the lead engineering center for cross-functional technologies and for the core products of the range intended for mature markets. Beyond the pilot project, how to organize the trajectory of what follows? One option would be to give the corporate engineering center the role of global deployment. However, this would mean a realignment of functional and technical standards to best practices adapted to the European market, hence the rapid loss of all the competitive advantage of local learning. Te other option, taken by Renault’s general management and program management, is to deploy the line by entrusting the technical center that developed the pilot project with the development of derivatives and versions for other countries. Tis division of roles makes it possible to preserve the DNA of the initial projects in the subsequent development of the lineages.

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Figure 10.2 Polycentric Organization of Development Engineering Illustrated by Kwid (Source: Authors’ research)

Governance Ambidexterity Te preceding paragraphs have shown the specifcity of the approach, organization, and processes of line management compared to the traditional approach of automotive companies. Te answer is obviously not to apply this logic to the whole company, but rather to encourage its cohabitation with the processes and organization of traditional projects. Tis cohabitation is the theoretical goal of the ambidextrous* management approach. Te frst lesson here is the importance of the role of the general management in maintaining the cohabitation and the balance between the systems in place—ensuring business as usual alongside the actors or structures dedicated to the exploration of innovative projects. Tis importance was demonstrated at all key moments of the K-ZE project, where the project team, no matter the charisma of its leader or its collective expertise, could not have imposed its will without the clear and powerful support of the CEOs of the Renault-Nissan Alliance and Dongfeng. *

O’Reilly, C. A., III, and Tushman, M. L. (2013). Organizational ambidexterity: Past, present, and future. Academy of Management Perspectives, 27(4): 324–338.

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Te work on ambidexterity also proposes a typology of organizational forms that can be used to defne the concept. Structural ambidexterity dedicates a specifc and separate unit to exploration. Contextual ambidexterity* individualizes the dual missions of exploration and exploitation by allocating, to each collaborator concerned, a part of their work time to a free exploration activity in addition to their “normal” prescribed role. Network ambidexterity thus mobilizes the network of external partners to multiply the possibilities of disruptive innovation, whereas multiplex ambidexterity combines these diferent formulas.† Program managers ft perfectly into the latter model, with separate autonomous structures, while at the same time being able to mobilize engineers in the business back ofces and to activate external partners in support of their strategies. Finally, in terms of the overall management process for the company’s projects, lineage management also implies revising the classic project portfolio management processes, based on the segmentation of projects by horizon: exploration, maturation, development. Indeed, these processes aim to optimize the company’s scarce resources between projects, and to do so, they put projects in the same segment in competition with each other. Tis is done to the detriment of a logic of collaboration and inter-project learning, which is fundamental in line management. Midler, Maniak, and De Campigneulle then proposed an alternative model: the ambidextrous program,‡ where these inter-project learnings are privileged. Meanwhile, Kock and Gemunden propose a Triple A model of portfolio management that defnes portfolio practices that combine the capabilities of ambidexterity, adaptability, and agility.§ In the previous chapter, we asked why the reverse innovation strategy had not been copied by Renault’s global competitors. Tis chapter has answered by illustrating the conditions necessary to implement this type of strategy and, above all, to sustain it over time. Tese conditions articulate in an original way the variables of governance, structure, and management of the organization’s human resources. Lineage management is a distinctive ability; it is difcult to imitate it to support a long-term strategy. Let us hope that the historic reboot that the Renault Group is currently experiencing with its Renaulution will allow this heritage to bear fruit. *

†

‡

§

Birkinshaw, J., and Gibson, C. (2004). Building ambidexterity into an organization. MIT Sloan Management Review, 45(4). Ben Mahmoud-Jouini, S., Charue-Duboc, F., and Fourcade, F. (2007). Multilevel integration of exploration units: Beyond the ambidextrous organization. Academy of Management, Technology and Innovation Management, hal-00263341 (online). Midler, C., Maniak, R., and De Campigneulles, T. (2019). Ambidextrous program management: Te case of autonomous mobility. Project Management Journal, 50(5): 571–586. Kock, A., and Gemünden, H. G. (2021). How entrepreneurial orientation can leverage innovation project portfolio management. R&D Management, 51(1): 40–56.

Conclusion of Part 2 Reenergizing a Large Firm One of the observations that can be made when teaching in engineering or business schools is that the “big company” has largely lost its attractiveness compared to the situation in the 1980s or 1990s. In the students’ imaginations, large organizations are often synonymous with sclerotic bureaucracy, while startups are associated with all the virtues of innovation and entrepreneurship. Tis viewpoint is certainly biased. Outside of the automotive context, an archetype of the “old world,” companies such as Apple® and Google® have not been startups for decades. And it is precisely their size and the excellence of their operational processes, combined with their ability to innovate, that give them their power and proftability. Te case of Dacia Spring, studied in this book, shows that such a combination, seemingly paradoxical, is actually possible and even necessary today in companies that were, long ago, the embodiment of Fordism. One of the lessons the automotive industry has taught us is how it has redefned itself over a period of time in order to continue its growth trajectory. It is true that the redefnition of large industrial companies is neither complete nor widespread. But this transition may extend beyond startups to the space where entrepreneurs think they can deploy and develop their talents.*

*

See Michel Berry: lejardindesentreprenants.org; and the work of the Phenix Chair: chairephenix.org 173

Conclusion Te automotive sector is experiencing a specifc moment in which several types of destabilization are combining. First, there are the public policies associated with the fght against global warming, and there is also the evolution of mobility behaviors where car ownership is no longer the alpha and omega. Second, there has been a surge in digital innovations leading to the emergence of new value-destroying players in the previously well-protected and automaker-dominated competitive universe. Finally, we should mention the appetite and recently acquired maturity of these formidable new competitors—the Chinese and Indian automakers. To meet the challenges posed by this context, innovation is no longer an option reserved for the ambitious but a condition of sustainability for the automotive frms that were at the top of the game in the 20th century. Te analysis of the K-ZE (or Dacia Spring) project can be a useful resource in this respect. For while this story is certainly a singular adventure, it also epitomizes today’s industrial world. Trough its concrete and precise incarnation, it helps us understand, better than abstract examples or general speeches might, key issues of strategy and management of contemporary innovation. It presents a strategy implemented to drive a growth trajectory in a globalized world. It identifes project management practices to succeed in the presumed impossible challenge of designing within alliances with competitors. It explains what reverse innovation is by demonstrating, contrary to established beliefs, that the electrifcation of mobility can be combined with afordable prices. It demonstrates the central issue of industrial policy by comparing European and Chinese regulations and highlighting the major role public authorities play in technological trajectories. Finally, it demystifes the concept of entrepreneurialism by showing that the startup is not the only context in which it is possible to attempt and experience breakthroughs.* *

chairphenix.org 175

176 The Innovation Odyssey

Management books generally adopt a textbook format that is supposed to provide the reader with the operational tools they need to implement the proposed new management precepts. However, this format has two drawbacks. On the one hand, management manuals often deal in a fragmentary way with the issue of contextualizing tools and processes in the particular environment of an organization or, more generally, a context of collective action. But a method that is relevant here will be inapplicable there. It is commonplace to see management sciences as an applied science. Tis is true, but in the sense that the question of application constitutes a fundamental theoretical question.* Te bias of this book is therefore to emphasize this relationship between management tools and the context of application: what motivated the mobilization of a given concept or method? And what was the efect of their implementation? In doing so, we obviously do not mean that all contexts are comparable to the one chosen for analysis. But we assume that the reader will be better prepared to adapt the case study to their own situation than if this question had been evaded by an abstract discourse or by vignettes of “success stories” summarized in a few paragraphs. On the other hand, management textbooks segment the problems faced by companies according to the discipline in which they fall: strategy, marketing, production, or project management. However, as professionals are well aware, the problems encountered in companies cut across these categories, which are academic constructs used to develop associated training courses. Te competence needed to deal with the problems encountered is a collective competence of the global organization rather than discrete expertise built on bodies of knowledge developed “of the ground.” Tis book therefore analyzes the diversity of actors and disciplines involved in the notion, both vast and vague, of innovation management. It shows that the emergence and deployment of a new management issue, such as innovation, does not simply mean the creation of specifc roles such as project manager or program director. Beyond that, these roles must develop relationships with established expertise within the organization while evaluating and refning their own. Tis book is not a textbook that will easily ft on the shelves of academic management libraries. It is the product of a tradition of management research that proceeds from the analysis of an empirical management problem arising in the feld rather than from an academic question. Tis is a tradition that believes that management is also, or even mainly, built in the feld. Tis does not take away from the importance of analysis and theoretical formulation, which is essential to formalize research, to evaluate efects objectively, and to enable the *

Hatchuel, A. (2021). Ce que gérer veut dire. Voyages à travers les dérives et les réinventions de l’entreprise contemporaine. Mines Paris Tech, hal-03405542 (online).

Conclusion 177

dissemination of what would otherwise remain local knowhow that is not easily transferable. Tis is the perspective that was taken in this research, which has brought together professional researchers and refecting practitioners.*

*

Schön, D. A. (2017). Te Refective Practitioner: How Professionals Tink in Action. Routledge.

Afterword At the time of submitting this manuscript to the publisher, Russia had invaded Ukraine, triggering the most serious crisis in Europe since the end of the Second World War. Beyond the tragic consequences for the populations under attack and the political decisions it triggers throughout the world, this war inaugurates a new era that will, for a long time to come, signal the end of the economic globalization regime that has prevailed for several decades. Te notions of autonomy and sovereignty on the scale of territories such as Europe, which had emerged with the COVID-19 crisis and the management of the climate transition, are now taking on a new dimension and collide head-on with the optimization dogmas of the previous period, based on the hypothesis of a market without borders or obstacles. Teir echo was already visible in the automotive sector, which was faced with a shortage of supplies of microprocessors, now essential components in cars. It sounds the death knell of an economic world essentially driven by the market—a game reserved only for suppliers and their customers. European and Chinese environmental regulations had already set an example of a more massive and intrusive intervention of national and regional public authorities in business. We have shown that knowing how to manage an administered societal innovation must become a standard of good business management. What is happening here represents a new level of intrusion, dramatic and hopefully temporary, by political change into the economy. It is no longer just a question of instability or signifcant economic downturns in the middle-of-the-pyramid markets of emerging countries but of sudden and major changes in direction. For the Renault group, the current crisis—after leading it to leave the Russian market, where in

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2021 it generated 6.2% of its revenues*—has resulted in the sale of its subsidiary and of its stake in AvtoVAZ.† However, for both large groups and automotive companies, the ability to combine adaptation to local identities—which are increasingly specifc—and efective global deployments is a condition for maintaining a competitiveness that relies on the realization of signifcant scale efects. Te analysis of the K-ZE project provides keys to understanding the problems posed by this dual local/ global embedding and to fnding answers within a project or in the deployment of multi-project lines. Te current period is therefore ushering in an era of uncertainty in which agile innovation capabilities in the face of an unpredictable and unstable context will be a condition for survival. Large companies, whose processes are primarily designed to optimize permanent and known regimes, need ambidexterity and entrepreneurial capability more than ever to ensure their resilience. Te chaotic, but ultimately successful, journey of the K-ZE project shows how this agility can be achieved within large groups and what organizational ingredients are needed to stimulate it. On the scale of global strategy, lineage management shows how it is possible to combine innovative, ambitious, but risky adventures and rebounds from events that upset initial plans by valuing and redeploying the assets created in these explorations. If the urgency is, of course, to fnd a way out of this appalling war, let us hope that these lessons are not lost.

*

†

Renault Group (2022). Renault Group exceeds its 2021 objectives and accelerates its Renaulution strategy. en.media.renaultgroup.com, February 23. https://media.renaultgroup.com/renault-group-signe-des-accords-de-cession-de-sa-fliale -renault-russie-et-de-sa-participation-dans-avtovaz/

List of Interviewees

Name

Function during the Course of the Project K-ZE Project Team

Gérard Détourbet

Director Alliance A Segment Development Unit (2ASDU)

Chen Li

Director of the electric vehicle department at Dongfeng’s strategy department, director of eGT

Christophe de Charentenay

President of eGT

Wu Wei

Vice President of eGT

Hua Xie

Director of Business Development for Renault in China, negotiator of the Renault-Nissan-Dongfeng tripartite agreements

Jérémie Coiffier

eGT Engineering Director in charge of the development of the K-ZE in China and Europe

Jie Sun Lescop

eGT Sales Director in charge of commercial agreements, information systems, and after sales

Prabu Natarajan

Engineering leader in cabling and electrical distribution systems

Pandi Subramanian

Engineering leader in interior and exterior bodywork equipment

Antoine Saint-Marcoux

Electrical system project engineer

Hervé Duval

Electrical system expert

Irina Marincas

Battery expert

Bernard Hélary

K-ZE Quality Assurance Engineer

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182 The Innovation Odyssey

Name

Function during the Course of the Project Other Interviewees

Rosa Aguirre

Business Development Manager Mobilize (Zity)

Philippe Buros

Director of the European Region at Renault

Stéphane Deblaise

Director of programs at DRAC, in charge of the preliminary project

Stéphane Durand

Head of Renault’s production engineering support mission in Shiyan until 2019

Eric Feunteun

Program Director for Electric Vehicles at Renault

Lionel Jaillet

Director of Product Planning, Sales, and Marketing Europe Region at Renault

Denis Le Vot

Executive Vice President Renault Group, CEO Dacia, and Lada brands

Guillaume Naegelen

Head of Mobilize Share

François Provost

Director of the China Region at Renault, Director of eGT

Jun Seki

Director of the China region at Nissan, director of eGT

Marc Soulas

Chief engineer of electric vehicles at Renault

Christian Steyer

Director of Vehicle Project Engineering at Renault

Glossary of Acronyms

2ASDU

Alliance A Segment Development Unit

ACEA

European Automobile Manufacturers’ Association

BAIC

Beijing Automotive Industry Corporation (Chinese car manufacturer)

BMS

Battery management system

BOP

Bottom of the pyramid

BRIC

Brazil, Russia, India, China

BU

Business unit

BYD

Build Your Dreams (Chinese car manufacturer)

CAFC

Corporate Average Fuel Consumption (China’s policy for reducing the fuel consumption of ICEVs)

CAFE

Corporate Average Fuel Economy (European policy for the reduction of CO2)

CEEC

Central and Eastern European Countries

CSR

Corporate social responsibility

DFAC

Dongfeng Automotive Corporation

DFL

Dongfeng Motor Company Limited (joint venture between Dongfeng and Nissan)

DFLZ

Dongfeng Liuzhou (Chinese car manufacturer)

DFPV

Dongfeng Passenger Vehicle

DFSK

Dongfeng Sokon (Chinese car manufacturer)

DRAC

Dongfeng Renault Automotive Corporation (joint venture between Renault and Dongfeng)

EBA

European Battery Alliance

EV

Electric vehicle

GAC

Guangzhou Automobile Group Company (Chinese car manufacturer)

183

184 The Innovation Odyssey

*

GMP

Powertrain

ICEV

Internal combustion engine vehicle

MOP

Middle of the pyramid

NEDC

New European Driving Cycle (former EU vehicle type approval procedure, now replaced by WLTP)

NEV

New energy vehicle

NOX

Generic term for nitrogen oxides

POC

Proof of concept

R&D

Research and development

RMB

Renminbi*

SAIC

Shanghai Automotive Industry Corporation (Chinese car manufacturer)

SRAC

Sanjiang Renault Automotive Corporation (former joint venture between Renault and Sanjiang Space Group)

USP

unique selling point (key selling point)

VDA

Verband der Automobilindustrie (association of the German automotive industry and its partners in the mobility ecosystem)

WLTP

Worldwide Harmonized Light Vehicles Test Procedure

Ofcial name of the currency of the People’s Republic of China, yuan being the usual name of the Chinese currency.

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Index

A Access EV, 9–11, 18, 19 accessible vehicle, 5, 15, 150 administered Darwinism, 107, 125–127 agile, 2, 51–55, 61, 73, 86, 138, 143, 145, 158, 163, 168, 180 agile development, 51 agile problem solving, 143 alliance, xxix, 5, 16, 27–30, 33–37, 40– 46, 49, 63, 68, 69, 84, 105, 117, 131–133, 136, 140, 152, 153, 170, 175, 181, 183, 185–188 ambidexterity, xxx, 62, 73, 170, 171, 180, 185, 190 B battery(ies), 9, 10, 18–22, 26–29, 41, 53, 54, 59–61, 67, 70, 80, 81, 86, 87, 90–92, 111, 113, 116–127, 141, 181, 183, 187, 190 battery crisis, 59 battery, modular, 26, 53 Beijing Automotive Industry Company (BAIC), 26, 80, 124, 183 Bolloré, Tierry, 33, 89, 90, 138 bottom of the pyramid, 157–161, 183, 190

C Charvet, Tierry, 65 Chen, Bo, 1, 8, 16, 18, 27, 29, 33, 39–43, 49, 119, 121, 181, 186 China Summit, 28, 30, 56 Chinese market, xxix, xxx, 2, 3, 6–11, 17, 27, 29, 40, 52, 53, 56, 63, 77, 78, 82, 84, 91, 94, 109, 110, 136, 140, 142, 164 Chinese regulations, 37, 52, 119, 122, 175 Coifer, Jérémie, 42–45, 49, 53, 54, 64, 68, 83, 181 commercialization, 71, 75, 84, 85, 101, 109 concept knowledge, 102 cooperative design, 2, 33 Corporate Average Fuel Consumption (CAFC), 20, 25, 37, 78–80, 83, 120–123, 126, 127, 136, 183 Corporate Average Fuel Economy (CAFE), 90, 94, 114, 120, 124, 183 COVID-19, 77, 82, 86, 87, 95, 97, 111, 126, 140, 156, 179, 189 cultural integration, 129, 140 193

194 The Innovation Odyssey

D Dacia, xxviii, xxix, 3, 27, 62, 64, 70, 90–99, 142, 153–159, 166, 173, 175, 182, 186, 189 Dacia Spring, xxviii, 1, 3, 23, 57, 70, 91–99, 157–161, 173, 175 Deblaise, Stéphane, 10, 11, 14, 20–24, 41, 49, 182 De Charentenay, Christophe, 1, 23, 33, 36–44, 48, 57, 63–69, 76–78, 84, 123, 139, 143, 181 De Meo, Luca, 89, 90, 156 deployment of charging networks, 113, 118–121, 125 design-to-cost, 2, 9, 14, 21–23, 39, 43, 52, 54, 57–61, 67, 70, 138, 152, 164 Détourbet, Gérard, xxx, 2, 5, 10, 11, 14, 15, 19–29, 41–43, 48, 58–63, 66, 68, 82, 83, 138, 154, 155 development engineering, 37, 170 distribution of plug-in electric vehicle sales, 110 Dongfeng, xxix, 2, 7, 10, 13, 16, 18, 22–24, 27–43, 47–49, 54, 63, 66, 77–79, 83, 84, 136–140, 143, 144, 170, 183 Dongfeng Renault Automotive Company (DRAC), 7–10, 13, 16, 19–23, 26, 27, 30, 36–39, 44, 55, 76–84, 136, 182, 183 dual European deployment, 94 Dubreil, Yves, 14, 151 E efectuation, 164, 190 eGT, 33–49, 54, 56, 59–61, 66–68, 77–85, 91, 92, 136–142, 181, 182 electric vehicle(s) (EV), xxviii–xxx, 1, 6–12, 15–18, 20, 25, 27, 31, 34, 39, 43, 44, 52, 60, 70, 80–83, 90,

electric vehicle(s) (EV), continued 94–98, 106–113, 116–127, 136, 157, 161, 168, 181–183, 186–188 electric vehicle regulations, 113 emergent strategy, 11, 12 emission regulations, 114, 120 entrepreneurial capability, 106, 163, 165, 168, 180 entrepreneurial development, 168 entrepreneurship, 58, 103, 106, 153, 155, 163–165, 168, 171, 173, 175, 190 European Commission, 117–119, 125 European regulations, 20, 26, 113 F fractal innovation, 58, 61 fractal method, 61 G Gao, Zhenghao, 36 Ghosn, Carlos, xxx, 2, 5, 8–12, 15, 28–30, 33, 35, 40, 49, 63, 75, 83–85, 90, 138, 140, 155, 157 global innovation strategies, 147 global lineage, 154 governance ambidexterity, 170 growth in sales of plug-in electric vehicles worldwide, 110 H heavyweight project management, 34, 48, 138, 151, 186 Hofstede’s Typology, 141 I innovative development, 72, 73, 86, 103, 104, 130, 149, 167, 189 integration, xxix, xxx, 18, 45–47, 72, 92, 129–131, 137–144, 155, 167, 168, 171, 185

Index 195

inter-frm cooperation, 130, 131, 137 International Energy Agency (IEA), 109, 113, 117, 118, 187 intrapreneurial capability, 165 K Kim, Donghyeon, 43, 44, 49, 57, 68 Kwid, xxviii–xxx, 2, 5, 9, 10, 13, 16–22, 28–30, 34–37, 41–46, 54, 57, 68, 72, 82, 136, 138, 141, 150, 152, 155–158, 161–170, 189 K-ZE, xxix, xxx, 1–5, 13–30, 35–39, 42–48, 51, 60–86, 89–94, 101, 102, 105, 108, 109, 122–124, 129–140, 144, 150, 155–158, 164–170, 175, 180, 181 K-ZE project business model, 38 K-ZE Seminar in Wuhan, 16

multicultural, 42, 46, 129, 134–135, 140, 142, 187 multicultural integration, 46 N Naro, Franck, 65 new body shop, 63, 64 new energy vehicle (NEV), 25, 37, 45, 83, 112, 119–127, 136, 184, 186 Nissan, xxix, xxx, 2, 7, 13, 16, 27–30, 33–40, 43, 45, 49, 78–84, 131, 137–141, 153, 155, 182, 183

L learning, 2, 73, 104–106, 127, 128, 138, 144, 145, 149, 158–161, 166, 169, 171 Le Vot, Denis, xvii–xviii, 98, 182 lineage, xxix, xxx, 41, 42, 103, 106, 138, 147–159, 162–168, 171, 180, 188, 189 lineage management, 103, 147, 149, 152, 158, 162, 165, 171, 180, 188, 189 local innovation, 148, 162 Logan, xxviii, xxix, 2, 9, 12, 19, 43, 57, 72, 138, 149, 152–158, 161–164, 168, 169, 188, 189 low-speed EV, 10, 81, 82, 123, 125

P Phoenix, 89 pivot, 84, 87, 89, 125, 127, 164 plant, 3, 8, 16, 23, 24, 36, 37, 55, 56, 62–65, 68, 75, 77, 82, 85, 137– 140, 153, 154 plug-in electric vehicle models on the market, 123 preliminary project, 2, 11–15, 22, 31, 40, 42, 49, 56–60, 182 program management, 153, 165, 166, 169, 171, 189 project governance, 73, 139, 190 project management, xxx, 32, 34, 55, 68, 72, 86, 101–104, 130–135, 142–145, 149–153, 163–167, 171, 175, 176, 186–191 project team, 2, 3, 25, 30, 34, 41, 44, 61, 67, 73, 135, 138, 145, 151, 169, 170, 181, 187 Provost, François, 34, 49, 54, 70, 78, 80, 182

M micro-EV, 18, 27 middle of the pyramid, 157, 161, 184 mobility service(s), 91, 93, 95, 96, 158–161

R range of products and services around Dacia Spring, 94 Renault, xxviii–xxx, 2, 7–18, 22, 26–30, 33–49, 54, 57–60, 63,

196 The Innovation Odyssey

Renault, continued 66–72, 75–79, 83–85, 89, 90, 94, 96, 101, 109, 116, 117, 131, 133, 136–140, 143, 150–163, 166, 169, 171, 179–184, 189, 190 Ruiqiang, Fan, 43, 44, 49 S Saikawa, Hiroto, 28, 40 Seki, Jun, 36, 182 Shanghai Automotive Industry Corporation (SAIC), 6, 26, 81, 124, 184 Shanghai Motor Show, 75, 76 Shiyan plant/factory, 24, 25, 30, 36, 37, 47, 55, 56, 62–66, 75, 79, 82, 136–138, 182 societal innovation, 105, 107, 179 Steyer, Christian, 68–70, 84, 182

strategic alliances, 130, 132, 136, 187 subsidies, xxviii, xxix, 10, 11, 15–21, 25, 29, 37, 54, 60, 80–83, 97, 108–113, 119, 122–126 T technological neutrality, 116, 124–127 Twingo, 9, 14, 90, 91, 96, 98, 151, 152 W Wuhan, 8, 13–16, 21–23, 33, 38, 47, 76, 77, 82–86, 124, 142, 144 Wuling, 6, 80–82, 109, 123 Wuling Hongguang Mini EV, 81, 109, 123 Y–Z Yanfeng, Zhu, 28–31, 34, 49, 63, 142 Zity, 92–96, 159, 160, 182