Elon Musk released his master plan last week, which outlines his plans for solar roofs, trucks, buses, autonomy and business models for the ride-hailing economy. As a former business planner in a leading manufacturing firm, this gives me goosebumps. All companies can learn from the master plan. In fact, I would like to turn the clock back and have these kinds of discussions in our product planning meetings. But, apart from the effect it will have on Tesla’s competitors, I think the most important implications are for engineering service providers that aspire to disrupt and plan to have a long-term future in the industry.
These are the lessons from the master plan:
- Start planning about engineering disruption in your customers’ industries: Do you want to wait for customers to come to you and ask for support in engineering projects or do you want to anticipate what support customers will require in future and plan it now? Do you follow end customer trends which will impact your customers (OEMs, Tier-1s, ISVs) in future and start building your capabilities in advance? It’s not about where the puck is now but where will it be next. (BTW, have you started thinking about Augmented Reality Engineering CoE post Pokemon Go?)
- Fund your future ideas from the profit of current ideas: Money shouldn’t be the excuse not to build capabilities especially when some of the service providers are sitting on piles of cash. Tesla is able to disrupt the whole automotive industry with relatively small amount of money and used money generated to reinvest in further capabilities. Don’t expect customers to fund your innovation capabilities. Engineering services buy-side customers often complain that engineering service providers want to bill all PoCs, training, tools, etc., back to them. Service providers should at least show interest in funding innovation projects for their own good.
- Challenge product and industry boundaries: Engineers are trained to think within boundaries. All engineering equations and theories have boundary conditions that need to be adhered to in order validate theories and formulas. The flip side is that engineers often don’t challenge existing boundaries—whether product or industry. Innovation happens when we question boundaries and long-held assumptions—as Tesla’s plan shows about challenging assumptions of different bus designs, point-to-point passenger drop of buses, etc. Also, industry or vertical boundaries are blurring and innovation is happening at the intersection of different industries. Is Tesla’s battery capability an automotive or energy capability? Similarly, in which industry is solar power combined with an electric car? Engineering service providers have experience in multiple industries and should be in a good position to help their customers in redefining industry boundaries.
- Anticipate and support new business models: We all are tired of using Uber as a new disruptive business model example. But now Tesla is showing its vision of new business models, including a future in which an automated car can earn money for you when you are not using it. Another new business model will be easily generating, using, storing and selling excess solar power. Cars and solar power systems can transform from costly depreciating assets to revenue-generating productive assets for the average Joe. These models will require a good amount of engineering support at the backend to work well. Are you ready to support them?
- Develop real value engineering capabilities: Though this is not listed in Tesla’s master plan, the real success of Tesla has been developing a game changing and cost effective car battery. How did Tesla do it? Tesla challenged existing constraints as discussed in earlier point but also value engineered it from first principles. Elon Musk, in this interview, said, “Somebody could say, battery packs are really expensive and that’s just the way they will always be. Historically, it has cost $600 per kilowatt hour. It’s not going to be much better than that in the future. With first principles, we say, what are the material constituents of the batteries? What is the stock market value of the material constituents? It’s got cobalt, nickel, aluminum, carbon, some polymers for separation and a seal can. Break that down on a material basis if we bought that on the London Metal Exchange what would each of those things cost? It’s like $80 per kilowatt hour. So clearly you just need to think of clever ways to take those materials and combine them into the shape of a battery cell and you can have batteries that are much, much cheaper than anyone realizes.” This is the essence of value engineering capabilities; your customer might expect from you in future.
- Keep an eye on future leaders in your target industry: Engineering service providers that want to stay relevant for the long term should keep an eye on the future leaders/unicorns that are disrupting the industries. Don’t make the mistakes of the telecom industry, where yesterday’s leaders (Motorola, Nokia, Blackberry, Lucent, Nortel, etc.) were displaced by likes of Apple, Samsung, Huawei, etc. The bad news for engineering services providers is that new disruptors are not heavy outsourcers of engineering services. They needed to engage early. The same disruption in leadership might repeat in automotive, aerospace, medical devices, industrial equipment, energy, and ISV industries.
The Bottom-line: engineering services providers that aspire to be disruptive and innovative should avoid the following –
- Digitization as digital
- Developing a mobile app as a new disruptive business model
- Building a version 1.1 product similar to other products as disruptive product development
- Using same design library as rethinking existing industry boundaries
- Substituting a cheap material or cost effective supplier as value engineering
All of those points are not bad strategies, but they push you into a downstream or mature phase, which is where you build scale and fund upstream activities.
But disruptors are the ones that get into upstream phase and shape the industry. This is similar to what Phil Fersht has said about two kinds of service providers group emerging in the IT services industry – OneOffice Enablers and BackOffice Outsourcers. The same will happen in engineering services. The difference in engineering is that the Teslas of the world are setting the bar a little higher!