Academic journal article Management Accounting Quarterly

Making Money from Available Capacity: A Proposed Model for Fostering Innovation

Academic journal article Management Accounting Quarterly

Making Money from Available Capacity: A Proposed Model for Fostering Innovation

Article excerpt

Recent events in the automobile industry have overturned what had seemed to be a relatively predictable set of circumstances. The original U.S. "Big Three" automakers--General Motors, Ford, and Chrysler--had a combined market share of 90.6% of the U.S. automobile market in 1965. After that, there was an up-and-down decline in their market share to only 70% of the U.S. market by 1997. From 1997 to 2009, the Big Three have had a steady and relatively steep loss in their combined market share to only 43.7% (see Figure). (1)

During this entire time, Chrysler was always in third place among what has now become known as the "Detroit Three," although it had experienced previous triumphs with some unique product offerings such as the Caravan, the Viper, the Prowler, and the Jeep lines. The economic recession in 2008 and 2009 caused a steep drop in auto sales for nearly all automakers, with the result that both GM and Chrysler were forced to declare bankruptcy in 2009. Chrysler appeared to have suffered the most from these circumstances, and on January 5, 2010, The Wall Street Journal e-mail update reported that, "Chrysler posted a 3.7% decline and said its full-year sales were the worst the automaker had seen in 47 years." (2)

[FIGURE 1 OMITTED]

In 2001, DaimlerChrysler (DMC) faced some difficult choices. Its Jeep Grand Cherokee had sold very well in the late 1990s but had started to lose market share to new competitor versions of the rugged all-terrain vehicle. Production had reached a crescendo in 1999 and then started a steady and steep decline through the time period from 2000 to 2010. (3) In late 2001, Dieter Zetsche, the president of DMC, was interviewed by Ward's AutoWorld about his projections for the future of the company. He stated that DMC was searching for synergies for future product development to counteract the $70 billion drop in its worth after the merger between Daimler Benz and Chrysler. (4) It was in this environment in 2001 that one coauthor (Savya Rafai) proposed the following project that could utilize existing unused capacity within DaimlerChrysler to produce a highly profitable new vehicle and to open a new international market for the company. This is the story of an opportunity lost. It is particularly poignant in light of the current world economy, the weakening U.S. dollar, and the difficulties the Detroit Three automakers have faced.

INNOVATION IGNORED

Although this case is specific to the auto industry, its larger context deals with the ways in which innovation is sought, evaluated, or ignored--or even punished--by organizations everywhere. In many businesses, great ideas are developed, sometimes from unexpected sources within the company. Some of these ideas are propelled to the market with stories of profit and great success. Others disappear into the swamp of inattention that kills off innovation, not through malice but through neglect. This represents one such great idea that ended up on the refuse heap. Naturally the question that must be addressed is "Why?" It becomes clear that we need a mechanism or a process that lifts good ideas to the surface rather than allowing them to sink to the bottom, never to be seen again. We will propose a mechanism to make good ideas more accessible and to gain the attention of the decision makers who are able to implement and fund them.

[FIGURE 2 OMITTED]

THE NEED IDENTIFIED

In 2001, Savya Rafai, an engineer and a manager at DaimlerChrysler, noted the burgeoning market in India for family cars. At that time, although Mercedes-Benz had product offerings and a dealer network in India, DaimlerChrysler had almost no presence in that market. Because of his background, his position, and his experience, Rafai saw an opportunity in this. A native of India, he had the advantage of living there up through his undergraduate college years and then working for Chrysler in its extensive road testing of new vehicles throughout India and several other countries prior to working as an engineer for Chrysler in the United States. …

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