Elio Engineering is a company founded by Paul Elio and Hari Sankara for development and creation of late 1990s-era car seats. Paul? s seat was part of a special class of automotive seats in the industry called all-belts-to-seat (ABTS), and it was named NC seat (NC for No Compromise). Paul design seat called NC – “No Compromise” since this seat would revolutionize the automotive industry making performance, weight and costs better than the competition.
Presently due to its high cost, ABTS was used mostly in luxury and high end vehicles but with the design and idea of Paul, this technology becomes cheaper and can be implemented across all vehicle types for increased safety and comfort.
A typical conventional front seat is priced around $500, lower cost compared with the ABTS seat that is like $750. One complete system costs an average of $2500. The seat mechanism, consisting of recliner and tracks, constitutes the technological core of the seat system.
• An ABTS integrates the seat belt directly into the seat that is potentially safer because it “hugs” the occupant in the event of rear collision.
• Ease of use, higher comfort level, more attractive appearance and maneuverability of removable seats. In order to launch their product, and knowing that Bostrom was looking for and ABTS, Elio achieved an agreement with the firm, so they could use their site and their facilities (the computers and electronic equipment to warrant the quality of the seat, meet FMVSS and NHTSA standards) to develop the product, otherwise Elio wouldn?
t have enough resources to produce and set up the seat.
Bostrom planned to unveil the NC Seat at an annual trade show in March of 1999 in Louisville, Kentucky. The size of the US truck Market in that year was expected to be around the 500. 000 units, with the company commanding a market share of 50%, the European Market was about the same size, but Bostrom had no presence there. Elio expected to be able to get 2 to 5 % royalties on sales in the truck industry. However, Paul had concerns if Bostrom is the right partner in this venture where the ABTS seat has the potential to save millions of lives.
Potential Market Size for Elio ABTS Seat Technology Elio’s ABTS seat system with its new technology, lighter weight, lesser components, higher safety and reduced costs has the potential to revolutionize the automotive industry and become the technology of choice for OEMs. The market potential in Northern America is 17 million units and up to 53 million units worldwide. As mentioned in the blue ocean strategy of six paths analysis, Elio can also look at alternate industries like heavy trucks, aircraft and passenger trains for its ABTS seat systems (Kim & Mauborgne, 2006).
Partnership with OEMs While the ultimate users of automotive technology are the customers who buy the cars, it is the OEM’s who make the decision on the seat system that needs to be selected for their vehicles. The OEM’s expect the seat system not only to fit the body of a particular car model but for it to become a part of the total interior design. The three biggest OEM players in the US market are GM, Ford and Diamler Chrysler with 29%, 25% and 16% of the market share.
These OEMs use complex and sophisticated market segmentation technics based on demographics and lifestyles to design car interiors and seat systems. These OEMs wield enough power to dictate to the suppliers their requirements at very small operating margins of 2 to 5% (Burgelman, Christensen, & Wheelwright, 2008). Also, it is particularly pertinent in engineering driven companies that assume developing new innovative products would generate fabulous success, which is not the case. The product might be successful, however the innovator might not.
Considering the aforementioned points, it is important for Elio not to disclose their exact costs to OEMs and also do not rely totally on the innovation of their new ABTS seat system for continued success without a complimentary car interiors option (Kim & Mauborgne, 2006). As a result, it is not recommended for Elio to directly approach the OEMs with their ABTS business proposition. Partnership with Competitors Elio Engineering began their initial collaboration with Bostrom Seating, a wholly owned subsidiary of Johnstown America Industries, Inc.
(JAII) for prototyping and testing their design of ABTS for FMVSS and NHTSA standards adherence. While their results were successful and the partnership appeared lucrative, JAII’s capabilities in terms of OEM relationships, global presence, acquisition capability, existing alliances, JIT inventory, comfort engineering, CAD/CAM/CAE, benchmarking, research & development, product development process, interior systems capabilities, total program management, vertical integration, purchasing, in-house design, system level testing and financial growth were either weak or non-existent (Burgelman, Christensen, & Wheelwright, 2008).
In this regards, for Elio Engineering, JAII can be seen as early adopters (Moore, 2002), but for Elio to move towards dramatic growth, they will need an early majority (Moore, 2002). In Northern America, Johnson Controls (JCI), Lear Corp. And Magna are the big tier-one players. They have about 60% of the market share. JCI is a global diversified technology and industrial leader in automotive seating, overhead systems and interior electronics (JohnsonControls, 2010).
JCI has a strong to adequate positions in OEM relationships, global presence, acquisition capability, existing alliances, JIT inventory, comfort engineering, CAD/CAM/CAE, benchmarking, research & development, product development process, interior systems capabilities, total program management, vertical integration, purchasing, in-house design, system level testing and financial growth. Lear Corp. is weaker than JCI in engineering and manufacturing abilities but compensated on systems integration and tier-two relationships. Magna did not excel in any particular area but it had adequate capabilities in most areas.
Additionally, JCI and Lear Corp. have a strong global presence too with 27% and 25% respectively in Europe. All the three tier-one companies have the research & development and manufacturing capabilities to transfer know-how to develop commercially viable products (Burgelman, Christensen, & Wheelwright, 2008; White & Bruton, 2007). For Elio Engineering, partnering with a tier-one operator is the practical option due to the following reasons : • Easy access to extensive manufacturing capabilities. • Access to global markets. • Access to sophisticated research and development facilities.
• Strong relationships with OEMs. • JIT Inventory and efficient supply chain management. • Good tier-two relationships. For Elio Engineering, partnering with Lear Corp. would be the better than JCI for the following reasons : • JCI has strong R&D set-up and they would have their in-house development for ABTS technology. Hence, Elio will have less bargaining power with JCI and possible conflict from JCI’s in-house team. However, Lear Corp’s R &D is weak and they would opt for the ABTS technology from Elio to be able to better compete with JCI.
This will enable Elio to have the better hand in negotiations. • Lear Corp has the second largest market share in both Northern America and Europe after JCI. Lear Corp will be able to take advantage of Elio’s ABTS solution to increase their market share. • Earlier attempts to associate with JCI were not successful for Paul. The above points indicate that with Lear Corp, Elio will be able to engage in equal terms and be in a “win-win” situation more than with JCI.
References Burgelman, R. , Christensen, C. & Wheelwright, S. (2008).Strategic management of technology and innovation (5th ed. ). New York: McGraw-Hill Irwin. Johnstown Controls. (2010). Company and Businesses. Retrieved from http://www. johnsoncontrols. com/ Kim, W. C. & Mauborgne, R. (2005). Blue ocean strategy: How to create uncontested market space and make the competition irrelevant. Boston: Harvard Business School Press. Moore, G. (2002). Crossing the chasm (Rev. ed. ). New York: HarperCollins Publishers. White, M. , & Bruton, G. (2007). The management of technology and innovation: A strategic approach. Mason, OH: Thompson South-Western.