W H AT S A C A S E S T U D Y A N Y W AY ?

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2014 Olaf Groth, Hult International Business School

S T R AT E G Y Q U E S T: W H O W I L L W I N T H E
AUTONOMOUS AUTOMOBILE RACE?
Can BMW make self-driving cars a reality across the globe?

Case Study Details

Written by:
Olaf J. Groth, Ph.D.
Global Professor & Global Discipline Lead
Strategy, Innovation & Economics
Hult International Business School

With:
Eleonora Ferrero
MBA alumna 2014
Hult International Business School

Aleksey Malyshev
MBA alumnus 2014
Hult International Business School
Data compilation contributions: Toby Allen, Hult MBA 2014
Written for the purposes of classroom discussion and instruction
at Hult International Business School.

2014 Olaf Groth, Hult International Business School

Introduction 1
Imagine you are Norbert Riedheim, the head of BMWs Future Car
group, which is situated between BMWs global strategy, marketing and
research and development (R&D) units. You have just been informed that
three automakers have received California permits to test an on-road
autonomous automobile: Google testing on a Toyota car, Volkswagens
Audi, and Mercedes-Benz. BMW did not apply, because the company
was in the process of developing a relationship with Baidu, the Chinese
Google-like internet company, to start testing in Shanghai and Beijing. At
the same time, Apple announced its electric-autonomous iCar concept.
How will you describe BMWs emerging strategy in your upcoming
briefing with an important BMW board member?
You know that in the era of coopetition new technologies and new
alliances can change the chessboard of innovation very quickly. And, you
know that in order for the company to remain relevant for the next 20
years you and your colleagues need to be vigilant and stay on top of the
latest developments in the ecosystem of autonomous driving. You go
back to your desk to review the fact base once more.

The Ecosystem of Autonomous Driving Today

The idea of cars driving themselves has existed since the early days of
Tsukuba Lab in Japan in 1977 and the European EUREKA Prometheus
project 1987. But only recently, with advances in computer technology,
has it become a reality.
The domain of autonomous driving promises stunning prospects as well
as some key uncertainties. It is at the intersection of large opportunity
and the uncertainty of a number of future trends that could affect the
domain to take a turn in one direction or another. According to Navigant
Research, annual sales of autonomous vehicles could reach nearly 95
million by 2035.
At the core of the self-driving car are state-of-the-art microprocessors,
i.e. computer chips called central processing units (CPU) or graphical
processing units (GPU). GPUs are CPUs that have special capabilities
related to processing imagery or graphics. Two major players in the
microprocessor technology market are working on the hardware for
self-driving carsIntel, maker or CPUs and NVIDIA, maker of GPUs.
Recently, through cooperation with these Silicon Valley stars, car manufacturers globally have attained processing technology that powers
critical components to allow them to build self-driving cars. Several
companies and research centers work on an even more powerful type
of processors, quantum computers, that will be able to handle massive
computational tasks in parallela quality essential for artificial intelligence
needed for autonomous driving. With Google recently joining the effort,
the prospect of creating one becomes more realistic.

While BMW and Audi have already presented prototypes of fully automated cars, other car manufacturers are developing and testing partial
autonomy approaches. Toyota/Lexus are working on the concept of
assisted driving. Tesla recently announced that it is already installing navigation hardware on its cars, although its system is not intended to take
full control either, but rather provide assistance for the driver to improve
safety.
Opinions on the end-state of autonomous driving vary: Ford engineer
Torsten Wey opined recently that he does not believe cars will ever be
fully autonomous: I doubt we will ever get there, he said. According to
Wey there are situations when the cars autopilot is not intelligent enough
to make decisions. The human driver does not only consider behavior of
his own car, but also takes into account behaviors of others.
FIGURE 1: Select carmaker competitors positioning for autonomous driving

Autonomous automobile can mean different things, as there are different

levels of self-driving.
Self-parking: A car with this feature can park itself without driver intervention. This is primarily a convenience feature for the large volume of
drivers.
Lane control: Helps the driver to steer though curving highway roads.
This is mainly a security feature that helps drivers to avoid potentially
dangerous accidents like the car driving into oncoming traffic or veering
off the road.
Speed control in heavy traffic: This feature goes a bit further by allowing the driver to let the car navigation system accelerate and slow down
the vehicle when the car moves in a traffic jam.
Fully automated car: The highest level of automation is achieved
when the car can drive itself in any conditions including driving through
crossroads and crosswalks with or through traffic lights, making turns,
changing lanes, keeping distance with other vehicles and responding
to any kind of emergency situations. In this case the driver enters the
destination into the navigation system and allows it to drive.

2014 Olaf Groth, Hult International Business School

The chart above represents projected year of availability of Autonomous

Automobiles for some car manufacturers. The size of the bubbles corresponds
to the total car production by the company for the year 2013. The X axis shows
the year in which car makers are expected to go to market with their versions
of autonomous cars. The Y axis shows the degree of autonomy, as described
above.

But this diversity of views and approaches between car makers is only
the beginning of a complex picture: being a seasoned, technology-savvy
strategist, you know that competition may not only come from established players, but also from new entrants into a given marketthis is
something BMW needs to anticipate.
Some names of certain persons and programs are being used for narrative purposes. They are either fictitious or have
been altered. Narrative statements on the part of these persons do not necessarily represent the official views or opinions
of the companies mentioned in this case.
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One of these new entrants is internet giant Google, which demonstrated

its self-driving car in the summer of 2014. The technological program at
the heart of the Google car is called Google Chauffeur. It is an example
of a truly driverless car that can move itself in a targeted, pre-programmed fashion from point A to point B using advanced sensors that
collect and interpret data from the environment.
This is enabled by multiple Google technologies, including its Maps
navigation technology. Google uses a Toyota-brand vehicle for testing
its autonomous driving system, but it is not in a formal joint venture with
the firm and could still choose any other automaker as a partner. Being
cash-rich, the company could also develop its own car, as has been
successfully demonstrated by Tesla.
Alternatively, much like Tesla, Google could cooperate with an established carmaker (in Teslas case it was a design collaboration with Lotus
in the UK). But given its deep pockets, Google could conceivably buy an
ailing car maker, such as Saab or Skoda.
To further complicate things, it is not just in the visible corners of the
technology world that prominent companies like Google are working
on autonomous automobiles and from which sudden advances could
emerge. In start-ups, universities, and R&D centers around the world
leading technologists are working on pre-commercial solutions. One of
them is Professor Paul Newman from Oxford University who works on
self-driving technology that utilizes cheap sensors. Also, Intel awarded
the top prize in its Gordon E. Moor competition to a Romanian teenager
for using artificial intelligence to create a viable model for a low-cost,
self-driving car. One company took it a step further and designed a
commercial self-driving accessory that can be installed on selected
models of compatible cars with sensors mounted on the rooftop. It is a
startup called Cruise that since mid-2014 has been accepting pre-orders for its assisted driving system that will be available for installation in
early 2015. Cruise promises to retrofit an existing car, rather than having
consumers buy a whole new automobile.

FIGURE 2: Investments and resources as represented by patent growth in key

technology spaces related to autonomous automobiles (graphic developed
through Quid.com) 2

We see a vast expanse of the technology ecosystem that contributes intellectual property and capabilities to the domain of autonomous automobiles. The
volume of innovation is substantial and hints at the commercial promise that
innovators see in this area. In the last five years the following types of patents

2014 Olaf Groth, Hult International Business School

have been registered: 208 for Component Automatization, 168 for Lighting
Technology, 119 for Server Technology, 118 for Driving Mechanism Technology, 101 for Energy and Battery Technology, 94 for Heavy Machinery Technology, 87 for Internet Protocols & Communication, and 81 for Autonomous Driving
& Driver Assistance.

But it would be equally wrong for you to limit your ecosystem view to
traditional geographies, like Silicon Valley in the U.S., or other innovation
hubs in Europe and Japan that have been strong in automotive or IT
innovation for decades. A look into the future of the automobile has to
take into account, at the very least, developments in Asia.
As previously mentioned, BMW selected Baidu as its partner in the Chinese market when in the Fall of 2014 it needed a high-resolution GPS
system to start testing in Shanghai and Beijing, some of the most demanding, densely populated and vast automotive markets in the world.
And now Baidu claims it is developing its own automated car, but unlike
Google it works on driver assistance, it is not a fully self-driving car.
Next to micro-processors and sensors, GPS-like guidance systems are
another key pillar of autonomous driving. In addition, the Chinese market
is already the largest and the fastest growing in the world, with 18 million
cars sold in 2013, a compound annual growth rate (CAGR) between
2005 and 2012 of 18.1%, and an expected 6.3% average year-over-year
growth through 2020this is a tremendously important factor for BMW.
As you lean back in your sleek BMW carbon fiber chair, a gift from SGL
Automotive Carbon Fibers in Americas Washington state (with which
BMW has a successful joint venture), you how this ecosystem might
evolve and how BMW should position in it. For that, you need to look at
plausible, alternative futures first.

The Future
There are many future scenarios your can think of, but outlining all of
them would mean capturing complexity with more complexity. So, you
decide to chart two extreme book end scenarios. Both of them are
possible and plausible, but they are very different from each other. You
deliberately make them extreme and thought provokingthey have
radically different implications for the ecosystem, for BMW, and for your
charter. As a first step, you assess the key uncertainties based on which
of the scenarios can go one direction or another:

The authors wish to thank the helpful people of Quid.com for making their technology available for this case and for
their tireless counsel on its use and value.
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Key Uncertainties
Many uncertainties related to self-driving automobiles will prompt both
business executives and policy makers to take action of one kind or
another. Knowing that business is never driven just by economics, you
can think of six areas:
Social: Who will use self-driving cars? Autonomous vehicles can be
used to transport people who cannot drive, either because they are
elderly, too young, physically or visually impaired. A car that today is
driven by a family member can become an independent transportation vehicle for all family members, even those under 18 and without a
drivers permit. However it is not clear if, or how, this technology might
be adopted by the consumer majority. What will be their aspirations,
concerns, anxieties, and potential mistakes?

Ethical: Two main aspects represent key uncertainties in this area.

First, issue concerns with privacy, what information will be collected by
autonomous automobiles, and who has access to it? The second point
regards safety. How can we stop autonomous cars from being hacked,
getting virus-infected, and being used for remote criminal activities such
as terrorist attack or drugs delivery?
FIGURE 3: Map of hot topics related to autonomous driving that gained
public attention on the internet (graphic developed through Quid.com)

Technological: Today self-driving cars are possible because of the

existing hardware and software technology. However, as described,
there are both cars with fully self-driving features pre-installed (such as
Googles car), and systems like Cruise, which can allow other cars to
become self-driving. The development cost of these technologies differ
widely and will influence pricing to consumers and hence the adoption
response by consumers: for instance, a survey by JD Power and Associates found that only 20% of Americans currently would definitely or
probably buy a self-driving car if the price was only $30.000.
This graphic shows some of the key uncertainties from a public perspective,
as articulated through news and other coverage on the Internet. It demonstrates that many of the issue areas are interconnected, supporting the point
that the autonomous car is a complex system of systems with 2nd and 3rd
order effects that could be undesirable and are on the minds of consumers
and legislators, i.e. potential buyers, for that reason.

Economic: What trajectory will technology development take? Firstly,

there are of course various crises in Asia, the U.S. and Europe that have
depressed consumer spending over the past two decades. Will the
key economies recover sufficiently to enable consumers to replace their
vehicles with new, unproven autonomous ones, or would they resort to
buying pre-owned cars that are cheaper and use established technologies? Secondly, self-driving vehicles will impact different market players.
Insurance companies might change their business models based on
lower rates of accidents. Some companies might save money on drivers
(such as taxi or bus companies). At the national level, research from the
University of Texas estimated that if just 10% of vehicles were self-driving, a country such as the U.S. could save about 37 billion a year in
healthcare and environmental costs.
Environmental: Will pollution regulations help the adoption of autonomous cars, considering their emissions potentially being lower than
those of regular cars? This assumption is based on two main factors:
first autonomous vehicles will optimize their consumption by themselves
based on road conditions as well as acceleration and breaking behavior,
and second electric cars and smart charging infrastructure may at some
point converge on autonomous automobiles, such that gasoline could
become obsolete.
Legal: Self-driving cars have to be explicitly legal and encouraged by
regulators, not just be tolerated as a dubious gray area. Bad or lagging
legislation could slow down the investment required and therefore the
development of the technology. Furthermore, authorities have to develop new liability frameworks to answer the following questions: who has
what kind of influence over autonomous cars misbehaving and who
will therefore bear the legal and financial responsibility?

2014 Olaf Groth, Hult International Business School

To get more information about these and many other uncertainties and
assumptions, both governments and private companies have started to
experiment. In the U.S., California, Nevada, and Florida allow companies
to use self-driving cars on the road for testing purposes . Meanwhile,
BMW has tested its self-driving car in Europe, and recently also got
permission from the Chinese governments to test its cars in Shanghai
and Beijing.
But the board member will tell you that BMW cant wait for all of these
trials to finish. It has to make strategic investment, partnering and
positioning decisions now, even absent perfect information. How then,
you wonder, could these uncertainties intersect and combine to shape
the future of the industry and what might that kind of strategic futures
visioning tell us about a viable position for BMW?

Scenario Sketch 1: Autonomy Nirvana RoboCars at the

core of smart cities in a growing, integrated global economy
Imagine a glimpse into 2035: The global economy is back on track and
growing at a varied pace across regions.
At the same time, many of the biggest cities worldwide are less polluted
and without any traffic congestion. Cars are completely driverless when
they move around cities. They know in real time which streets to take
to avoid traffic, minimize energy-use, or accommodate the schedule
pressures of their driver-passengers. As cars do this they consume less
fuel and are safer, because all vehicles talk to each other and the infrastructure around them, thanks to advances in smart sensor technology,
cloud computing, big data analytics, etc.
The lines between privately owned cars and public taxis have become
blurred, as autonomous cars offer a choice of individual versus shared
rides. And the line between cars and computers has blurred as well,
as autonomous cars became mobile supercomputers and servers,
processing internal performance data, driver-passenger health and
mood data, but also contextual data around a car, and routing that to
other cars.
Consumers have responded enthusiastically to the new technology,
thanks to the positive feedback by early adopters in cities leading the
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charge, such as San Francisco, Shanghai, Dubai, and London. Almost

every family in the U.S. owns a self-driving car, which in many instances
is the only car for families living in cities with high parking costs and little
space. This, in conjunction with a growing economy and consumer buying power, also meant that new business opportunities, which centered
on the autonomous vehicle, could flourish: apps that allow the car to be
shared by third parties when it is not used by its owner, digital marketing
campaigns dedicated to driver-passengers, optimized car wifi systems,
new types of maintenance shops, digital in-car ambience customization
services, etc. In other words: Total connectivity rules!
In this big decentralized ecosystem western companies, which were
more versed in the adhocracy of disruptive innovation, flourished with
Asian firms not far behind.
Within this new ecosystem, carmakers enjoy cost savings in the production process as their products require less material and fewer crash
tests. In fact, an autonomous vehicle driving itself in a smart city never
has an accident, therefore many of the materials used today to make
a care safe were not going to be needed. Car producers are more like
designers of the overall experience of the mobile journey, rather than
focusing only on enabling the efficacy and control on the part of the
driver. Consumers lives are changed forever: people leave their homes
in San Francisco, Shanghai, or London knowing that the commute
time would be a productive period of their day, getting a head-start on
it, rather than a stressful beginning navigating stop-and-go rush hour.
The car is a living room, library or office, depending on the desires of the
passenger-driver.
As you finish running the first scenario in your mind, you recall the list of
uncertainties for Autonomous Automobiles, you wonder how realistic it
is that technology development, international legislation, and consumer behaviors will align fast enough to keep motivating all the different
players (software developer and car makers) to invest in this technology? Will national and international lobbies start fighting each other at the
detriment of fully autonomous automobiles? In other words, could the
future play out very differently?

Scenario Sketch 2: Grand Baidu Bargain - A little autonomy

for lots of data in a sluggish, fragmented global economy
It is the year 2035 and the global economy has never fully recovered
since the last chain of crises between 2007 and 2014. Growth remains
depressed and economies toggle back and forth between a little growth
and a little recession with different regions growing at different paces
and different times. Based on successful intervention by the state and
the emergence of the Chinese Renminbi as a global reference currency,
Asian economies have been able to control their systems better and are
in somewhat superior shape to U.S. dollar and Euro zones. Asia continues to build its local innovation potential and its still fragile but improving
internal consumption base. Innovation relies on frugal techniques and
improvisation, or the harnessing of rare purchasing power in niches of
the economy.
Partially automated cars are used almost everywhere as most countries acknowledge that self-driving cars increase safety on the road by
proactively avoiding operator error, other cars, infrastructure or people.
However, depressed mass consumer budgets mean that fully self-driving automobiles are reserved for an elite of few techies from Silicon
Valley, Berlin and Bangalore, oil tycoons in Texas, the Middle East and
Nigeria, oligarchs in Moscow, financiers in London and entrepreneurs
and rich functionaries in Beijing and Singapore. All other cars will merely
be equipped with driver facilitation features, such as speed and lane
controls.
Consumers worldwide are also not fully confident in the technology
behind the autonomous automobile. Many see it as a good technology only within big cities, because rural infrastructure has eroded in
the financial crises of the decades before. It is therefore not advanced
enough to support a smooth use of autonomous vehicles. Cities around
the world also do not have the resources to support high connectivity

2014 Olaf Groth, Hult International Business School

systems and infrastructures that allow fully autonomous vehicles to

perform at their best. Furthermore, in a world still highly dependent on
oil and scared by terrorist attacks, self-driving cars are seen as hackable
and hence a threat for both corporations and governments.
Another important factor that has stopped consumers from buying
self-driving systems is that they would have to pay both installation
and annual subscription fees to software and hardware companies
involved in the conversion of cars into autonomous automobiles. At the
same time, companies like Baidu in China, want to be paid to increase
the precision of their maps. So, consumers that dont want to pay the
additional annual fee were receiving continuous assertively guided
advertising: sometimes the car was changing the route by itself to
demonstrate a new store or brand advertising or a discount deal to be
had, thereby de facto paying the software company with passengers
attention instead of financial currency.
Baidu leads the way, as Google, never having successfully entered
China, struggled with U.S. and EU recessions, as well as continued
hacker attacks. Increasingly, the Chinese internet giant triumphed over
its American rival, becoming the central economic clearinghouse for
attention against car mileage. By 2025, the Chinese company started
offering their own car autopilot systems that could be installed on a
certified car at a much cheaper price compared to the original carmaker
option, because these giants were generating revenue on data analytics
and resale.
In the middle of this uncertain and fragmented fray, carmakers retrenched to the shrinking luxury or premium niches for these autonomous products. Hence, the scaling of these technologies was slow and
tedious. Because economies of scale in production process were not
achieved, the cost of fully self-driving cars remained too high for the consuming majority all the way into the mid-2030s.
Having reviewed both extreme scenarios, you realize that the real future
could span the range of possibilities between them. So, best to develop
a strategy that is reasonably robust against both extreme cases as
possible. What should that be?

Strategic questions:
For your meeting with the board member, prepare a 1-3 page memo
answering the following:
1. Strategic Challenge / Aspiration
1.1 What type of business should BMW aim to be over the next 10 to
15 years?
2. Objectives
2.1 What are the key metrics that would indicated to you that BMW has
accomplished this aspiration?
3. Opportunity
3.1 How would you frame the opportunity for BMW?
3.2 What is its size?
4. Advantages
4.1 What competitive advantages does BMW currently have that are
hard to replicate? These could be internal capabilities or market positions vis--vis the customer and other actors in the emerging automobile industry ecosystem?
4.2 Which ones does it still need to build and develop, and why?
5. Moves
5.1 What concrete immediate actions should BMW take now to build
external positions and internal capabilities
5.2 What types of hurdles or failures are possible and should be accepted as part of the entrepreneurial path?
5.3. What kind of learning milestones should the company set for itself?
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i
http://www.cnbc.com/id/101846396
ii
http://www.intel.com/content/dam/www/public/us/en/documents/white-papers/automotive-autonomous-drivingvision-paper.pdf
iii
http://www.rigetti.com/ http://www.dwavesys.com/
iv
http://www.itp.net/599671-google-to-build-quantum-computer
v
http://www.bbc.com/news/technology-25653253
vi
http://www.forbes.com/sites/bruceupbin/2014/01/08/lets-go-for-a-ride-in-traffic-with-audis-self-driving-car-video/
vii
http://www.teslamotors.com/blog/dual-motor-model-s-and-autopilot
viii
http://www.driving.co.uk/news/exclusive-ford-says-fully-autonomous-cars-may-never-be-possible/
ix
http://www.google.com/about/careers/lifeatgoogle/self-driving-car-test-steve-mahan.html
x
http://money.cnn.com/2013/01/04/autos/toyota-self-driving-cars/
xi
http://www.telegraph.co.uk/motoring/news/9871743/British-researchers-on-the-road-to-an-affordable-self-driving-car.
html
xii
https://www.sciencenews.org/blog/scene/teens-take-home-science-gold-intel-isef
xiii
http://blog.ycombinator.com/for-10-dollars-000-your-car-can-drive-itself-cruise-yc-w14
xiv
http://www.caam.org.cn/AutomotivesStatistics/20140113/1605112297.html
xv
http://www.accenture.com/sitecollectiondocuments/pdf/chinas-automotive-market-cosumer-digital-marketing-insights.
pdf
xvi
http://autos.jdpower.com/content/study-auto/f85EfAp/2013-u-s-automotive-emerging-technologies-study-results.htm
xvii
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/10/23/heres-what-it-would-take-for-self-driving-cars-tocatch-on/
xviii
http://www.usatoday.com/story/news/nation/2013/07/29/states-driverless-cars/2595613/

2014 Olaf Groth, Hult International Business School