The story
In 1998, Michelin launched the PAX System, which would allow drivers with a punctured tyre to continue for 125 miles at up to 55mph before having to change it. The run-flat tyre would eliminate the danger of blowouts, the frustration of roadside tyre changes and the inconvenience of waiting for tow trucks – without sacrificing performance or comfort (the bane of earlier run-flat approaches).
Industry analyst JD Power & Associates forecast that more than 80 per cent of cars would be fitted with run-flat tyres by 2010.
The challenge
As well as the tyre itself, the PAX System depended on a host of other innovations to deliver its value, including a revolutionary wheel hub that would clamp the tyre rather than rely on air pressure to keep it in place; an inner support ring that would sit between the tyre and the wheel; and a pressure monitoring system.
Also, because the PAX System was integrated into the car, it needed to be incorporated into vehicles at the design stage.
Finally, the repair process would require garages to install dedicated new equipment to unclamp and reclamp the tyre and wheel.
The strategy
Michelin was aware of these challenges from the outset, and devoted extensive attention and resources to bringing partners on board. Automakers saw an opportunity to differentiate on safety and design, including by finding new uses for the space formerly taken by the spare tyre. Garages would enjoy higher margins on repairs. And in an unprecedented move for this ultra-competitive industry, Michelin offered licences for the PAX System technology. Some rivals, acknowledging the PAX System’s superiority, dropped their own run-flat efforts and adopted Michelin’s as an industry standard.
What happened
Acura, Audi, Nissan, Renault and other carmakers experimented with the PAX System as optional equipment on new models. Success seemed assured when Honda announced that from 2005 the PAX System would be standard equipment on the Odyssey, the best-selling minivan in the US.
However, despite enthusiasm among the carmakers, garages were slow to install repair equipment. For drivers, this meant their PAX tyres could not be repaired – only replaced, which was a far more costly proposition. In the US, several class action lawsuits were filed accusing Michelin and others of failure to disclose the paucity of repair facilities to car buyers. In 2007 Michelin ended further development of PAX.
Michelin says its sold “more than 200,000” PAX System assemblies. If JD Powers’ forecast had been borne out, 80 per cent of 2010 car production would have meant sales of 46m in that year alone.
The lesson
The failure of PAX was caused by misunderstanding how it would affect Michelin’s “ecosystem” of automotive relationships – rather than any misunderstanding of customer needs, inadequate technology or losing out to competitors.
Unlike earlier tyre innovations, the success of PAX hinged on garage buy-in. But garage incentives to install the special repair equipment depended on the number of cars with PAX installed, which introduced a new interaction in the ecosystem. Even if PAX became a standard on new cars, it would be many years before they would account for a meaningful percentage of repairs – and therefore years before buying the equipment would be attractive for garages.
Any company making the transition from standalone products to an integrated solution is signing on for a reconfiguration of this sort: new links, new actors and new roles. Success requires an assessment of interdependence among all partners, and clear strategies to manage them.
It is no longer enough to manage your innovation: now you must manage your innovation ecosystem.
-Financial Times, 02 Apr 2012
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