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Someone is already developing an alternative to Detroit's business model

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  • Richard Layman
    In 1996 or 1997, I saw a presentation by C.K. Prahalad, co-author of the book _Core Competencies of the Corporation_.  He said one thing that really shook me
    Message 1 of 2 , Dec 11, 2008
      In 1996 or 1997, I saw a presentation by C.K. Prahalad, co-author of the book _Core Competencies of the Corporation_.  He said one thing that really shook me to the bone, that companies have global customers now, but they also have global competitors. 
      But there are other lessons as well, including those from Alexander Gerschenkron, who wrote a paper "the economic advantages of backwardness" almost 50 years ago.  His point is that economies developing later have the advantage of being able to adopt the latest innovations and technologies, rather than maintaining what they have already invested in.
      I also read an article recently which I failed to save, which made the point that a country's "enterprise system" influences how business is conducted and the mass production-based lack of competitors nature of the automobile industry in the 1950s into the 1960s shaped the U.S. companies in ways that left them unable to compete once those conditions that supported the enterprise system changed: (1) increase in cost of oil; (2) more competitors; (3) competition that had national health and pension benefits systems in their own countries so they didn't pay out the same kinds of benefits paid out by US-based companies.
      Now that the economy is truly global, with global competitors as well as global customers, the nature of a country's "enterprise system" including the relationship of employees to employers is key in terms of how legacy companies are able to compete.
      Unfortunately, most of the US laws and contracts favor a stable state within the enterprise system and what we are dealing with is an exogenous shock to that system and an inability to respond without great pain.
      Even though I am a transit-walking-biking person I chill at the thought of politicians being responsible "for running" the auto companies (e.g., see the example of British Leyland).  I am on the board of a public market in DC and the board holds great fealty to the legislation which sets the conditions for how the market should operate.  But the legislation mandates that the situation in 1997 remain in place, and now in 2008, the market is unable to compete and respond to the latest competitive conditions.  And that is for a "little" economic unit, one that generates and/or supports maybe $30 million in annual revenue. 
      Sadly, the ability of legislation and politicians to manage enterprises successfully doesn't seem to scale well.
      Richard Layman
      Citizens Planning Coalition

      --- On Thu, 12/11/08, Eric Britton <eric.britton@...> wrote:
      From: Eric Britton <eric.britton@...>
      Subject: [NewMobilityCafe] Someone is already developing an alternative to Detroit's business model
      To: WorldTransport@yahoogroups.com, NewMobilityCafe@yahoogroups.com
      Date: Thursday, December 11, 2008, 8:32 AM

      Thanks to several of you for the heads-up on this. The wonderful key of course is pay as you go. Exactly what the doctor ordered. . Eric Britton

      PS. You can also read the Readers' Comments, some of which very good indeed, at http://community. nytimes.com/ article/comments /2008/12/ 10/opinion/ 10friedman. html


      While Detroit Slept


      Published: December 9, 2008  http://www.nytimes. com/2008/ 12/10/opinion/ 10friedman. html?_r=1&_r

      As I think about our bailing out Detroit, I can’t help but reflect on what, in my view, is the most important rule of business in today’s integrated and digitized global market, where knowledge and innovation tools are so widely distributed. It’s this: Whatever can be done, will be done. The only question is will it be done by you or to you. Just don’t think it won’t be done. If you have an idea in Detroit or Tennessee, promise me that you’ll pursue it, because someone in Denmark or Tel Aviv will do so a second later.

      Skip to next paragraph


      Fred R. Conrad/The New York Times

      Thomas L. Friedman

      Readers' Comments

      Readers shared their thoughts on this article.

      ·         Read All Comments (488) »

      Why do I bring this up? Because someone in the mobility business in Denmark and Tel Aviv is already developing a real-world alternative to Detroit’s business model. I don’t know if this alternative to gasoline-powered cars will work, but I do know that it can be done — and Detroit isn’t doing it. And therefore it will be done, and eventually, I bet, it will be done profitably.
      And when it is, our bailout of Detroit will be remembered as the equivalent of pouring billions of dollars of taxpayer money into the mail-order-catalogu e business on the eve of the birth of eBay. It will be remembered as pouring billions of dollars into the CD music business on the eve of the birth of the iPod and iTunes. It will be remembered as pouring billions of dollars into a book-store chain on the eve of the birth of Amazon.com and the Kindle. It will be remembered as pouring billions of dollars into improving typewriters on the eve of the birth of the PC and the Internet.
      What business model am I talking about? It is Shai Agassi’s electric car network company, called Better Place. Just last week, the company, based in Palo Alto, Calif., announced a partnership with the state of Hawaii to road test its business plan there after already inking similar deals with Israel, Australia, the San Francisco Bay area and, yes, Denmark.
      The Better Place electric car charging system involves generating electrons from as much renewable energy — such as wind and solar — as possible and then feeding those clean electrons into a national electric car charging infrastructure. This consists of electricity charging spots with plug-in outlets — the first pilots were opened in Israel this week — plus battery-exchange stations all over the respective country. The whole system is then coordinated by a service control center that integrates and does the billing.
      Under the Better Place model, consumers can either buy or lease an electric car from the French automaker Renault or Japanese companies like Nissan (General Motors snubbed Agassi) and then buy miles on their electric car batteries from Better Place the way you now buy an Apple cellphone and the minutes from AT&T. That way Better Place, or any car company that partners with it, benefits from each mile you drive. G.M. sells cars. Better Place is selling mobility miles.
      The first Renault and Nissan electric cars are scheduled to hit Denmark and Israel in 2011, when the whole system should be up and running. On Tuesday, Japan’s Ministry of Environment invited Better Place to join the first government-led electric car project along with Honda, Mitsubishi and Subaru. Better Place was the only foreign company invited to participate, working with Japan’s leading auto companies, to build a battery swap station for electric cars in Yokohama, the Detroit of Japan.
      What I find exciting about Better Place is that it is building a car company off the new industrial platform of the 21st century, not the one from the 20th — the exact same way that Steve Jobs did to overturn the music business. What did Apple understand first? One, that today’s technology platform would allow anyone with a computer to record music. Two, that the Internet and MP3 players would allow anyone to transfer music in digital form to anyone else. You wouldn’t need CDs or record companies anymore. Apple simply took all those innovations and integrated them into a single music-generating, purchasing and listening system that completely disrupted the music business.
      What Agassi, the founder of Better Place, is saying is that there is a new way to generate mobility, not just music, using the same platform. It just takes the right kind of auto battery — the iPod in this story — and the right kind of national plug-in network — the iTunes store — to make the business model work for electric cars at six cents a mile. The average American is paying today around 12 cents a mile for gasoline transportation, which also adds to global warming and strengthens petro-dictators.
      Do not expect this innovation to come out of Detroit. Remember, in 1908, the Ford Model-T got better mileage — 25 miles per gallon — than many Ford, G.M. and Chrysler models made in 2008. But don’t be surprised when it comes out of somewhere else. It can be done. It will be done. If we miss the chance to win the race for Car 2.0 because we keep mindlessly bailing out Car 1.0, there will be no one to blame more than Detroit’s new shareholders: we the taxpayers.


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