Integrating product mix and technology adoption decisions: a portfolio approach for evaluating advanced technologies in the automobile industry

Interactions with managers in the automobile industry indicate that efforts to bring potentially profitable new technologies into production are often frustrated by the traditional unit cost-based approach that is used for ev aluating new technologies. Opportunities for timely introduction of valuabl e or even preemptive technologies can be missed because unit cost compariso ns, typically applied to a limited set of vehicle configurations with volum es based on current demand figures, invariably favor incumbent over new tec hnologies. In this research, we develop a more complete technology adoption decision model that integrates product mix and technology adoption decisio ns. Specifically, we recognize that product mix and volume are important va riables in determining the cost effectiveness of new technologies, and incl ude in the model customer demand projections that reflect market trends (e. g. growing demand for increasingly sophisticated features and functions in vehicles). Anticipated experience benefits are then applied to the appropri ate production volumes to more accurately predict the profit impact of adop ting new technologies. The introduction of automotive multiplexing. a techn ology that is characteristic of current technological advances in the indus try, provides a context for considering insights that can be derived from t he decision model. Our interaction with a global Tier I automotive systems supplier allowed us to obtain representative cost data and other informatio n relevant to the technology adoption decision. (C) 2001 Elsevier Science B .V. All rights reserved.