EXPLORING THE MICRO-LEVEL OF TECHNOLOGICAL
INNOVATION SYSTEMS:
EXPECTATIONS AS A KEY TO UNDERSTANDING ACTOR
STRATEGIES IN THE FIELD OF ‘GREEN’ VEHICLES.
Björn Budde1,2, Matthias Weber1
1
Austrian Institute of Technology, Vienna, Austria
2University of Utrecht, Utrecht, The Netherlands
bjoern.budde@ait.ac.at, +43 50550 4526
Abstract
Innovation at several levels is necessary in order to transform the current automotive based transportation system into a more sustainable one. Alternative propulsion systems, like fuel-cell, battery-electric or hybrid vehicles were proposed, as green alternatives to the dominant fossil fuel based mobility system. In particular the technological innovation systems approach (TIS) provides novel insights for the design of strategies and instruments to support sustainable innovation activities. The functional strand of the TIS approach has improved our understanding of the processes of change within TIS, by identifying several ‘motors of change’. However by applying this framework we still do not fully understand the causes which start and reinforce these ‘motors of change’, due to the lack of a micro foundation. We therefore suggest focusing on the actors and their strategies, since the strategies pre-determine if the actors contribute to the system. Furthermore we argue that strategies have to be based on expectations, since strategies are always future oriented. Therefore we analyzed actor strategies in the field by analyzing the expectations they are based on. The results of our strategy analysis of two major automotive manufacturers and the German government support the hypothesis that different types of actors relate their strategies to different kind of expectations. Furthermore our results indicate that not only technological expectations are being crucial for causing the dynamics of a TIS, but also expectations at the regime and socio-technical landscape level.
Keywords
1. Introduction
The mobility and the energy systems are increasingly under pressure, primarily due to their tremendous environmental impact. The challenges to cope with – climate change, problematic air quality, depleting fossil resources – raise new requirements for the current transportation system and they way the energy for transportation is provided. Therefore, innovation at several levels is necessary to transform the current automotive based transportation system into a more sustainable one. In recent years innovative alternative propulsion systems, like fuel-cell, battery-electric or hybrid vehicles were proposed, as green alternatives to the fossil fuel based mobility system. Although hybrid vehicles gain an increasing market share and hopes around electric vehicles are high at the moment, none of these technologies was able to transform the car based transportation system radically towards sustainability yet. Furthermore uncertainty about the winning future technology - or probably technologies - is still high, since most of the large car manufacturers are pursuing diverse strategies including several technological options.
In order to understand the contribution new technologies could make to such a transformation and the instruments by which they could be supported, a number of theoretical concepts have been developed. In particular the technological innovation system (TIS) approach promises to provide novel insights for the design of strategies and instruments to support innovation activities. Especially the functional strand within the TIS literature was designed to support the build up of sustainable innovation systems. The functional strand has improved our understanding of the processes of change within TIS, by explaining its dynamics on the basis of cumulative mechanisms of causation (“motors of change”). Virtuous and vicious cycles are triggered by certain events and contribute to the emergence or the stagnation of a TIS (Hekkert et al. 2007). However by applying this framework we still do not fully understand the causes which start and reinforce these cumulative processes, supposedly due to the lack of a micro foundation. It remains to be clarified why actors responsible for certain events respectively the further development of a TIS engage/disengage in the building up of a TIS. As a consequence, the underlying causes of the dynamics remain vague.
This paper will argue that a micro-foundation of the functional approach to TIS in terms of actor strategies is needed in order to understand and finally support the development of a TIS. We will argue that the analysis of expectations the actors base their strategies on, is a well suited approach to the analysis of actor strategies. We will discuss our conceptual
considerations using the empirical case of actor strategies in the field of ‘green vehicles’. By referring to ‘green vehicles’ we refer to vehicles powered by alternative propulsion systems1, in particular hydrogen or electricity fuelled vehicles. Nevertheless there are different kinds of technology variants, e.g. hybrid vehicles drawing on the power provided by a conventional petrol fuelled engine and an additional electrical motor powered by a battery. On the other hand hydrogen can be used in internal combustion engines or in fuel cells, which in turn could be used as a range extender for pure battery electric vehicles. However, we will focus basically on electrically propelled vehicles, like all kinds of battery electric vehicles and fuel cell vehicles. In addition we will consider the option of hydrogen used in internal combustion engine. We chose this focus since most of the automotive companies refer to them as sustainable long term solution to our mobility needs.
This paper consists of four sections. Section 2 will elaborate on the theoretical background and the need of a micro level foundation of the functions of technological innovation systems approach. Subsequently we will elaborate on our proposed conceptual framework in section 3, before we will provide empirical evidence for our claims and present the methods used in section 4. Thereafter conclusions are drawn and issues for further research are discussed.
2 Theoretical background
The innovation system approach is based on evolutionary thinking. Developed from the late 1980s onwards, it has become a key reference in the scientific and policy debates in the field of research, technology and innovation (RTI) (Bergek et al. 2005; Lundvall 2005; Lundvall 1992). Different approaches within the framework of innovation systems proved to be useful concepts in order to explain the emergence and diffusion of innovations. Whereas different approaches for instance focusing on the spatial dimension of innovation systems (e.g.Cooke et al. 1997) and sectoral/technology focused approaches (e.g.Malerba 2005; Carlsson et al. 2002; Malerba 2002; Carlsson and Stankiewicz 1995) were developed the question was raised, if the different approaches within the framework of the innovation system literature share a common understanding of what actually happens within innovation systems.
1
Alternative as it is used here refers to alternatives or supplementary technologies to conventional internal combustion engines.
„It might […] be useful to see if there is any agreement between the approaches with respect to what they claim „happens“ in an innovation system, i.e. what functions are served in the system.” (Johnson 2001:1)
Therefore the focus was shifted towards the activities which are central to the development of the innovation system. In order to conceptualize the different events within an innovation systems, the proponents of the approach used the concept of functions and identified seven functions to capture the processes within an technological innovation system (Bergek et al. 2008; Hekkert et al. 2007).2 Moreover the work by Hekkert et al. (2007) and in particular by Suurs (2009) identifies several ‘motors of change’ within innovation system. These motors of change are certain mechanisms which are responsible for the dynamics of a TIS. They are interpreted as interdependencies and self-reinforcing feedback loops between different functions. These motors which are identified in several empirical case studies (Suurs 2009; Hekkert et al. 2008; Negro 2007; Suurs and Hekkert 2007; Negro and Hekkert 2006) can cause virtuous or vicious cycles in the dynamics of the TIS.
Figure 1: Three typical motors of change (Hekkert et al 2007).
2
These functions are F1: entrepreneurial activities, F2: knowledge creation, F3: knowledge diffusion, F4: guidance of the search, F5: market formation, F6: resources mobilization, F7: creation of legitimacy, Bergek (2008) uses a set of similar functions to these provided by Hekkert et al. (2007). Other authors that follow the functional approach use different categorizations of functions.
These processes are described as processes of cumulative causations, in which one of the motors identified causes a self-reinforcing process. However the interactions of the functions how they are understood by this approach are seen as mutually reinforcing each other in a non-linear way. Although the identification of typical motors of change provides us with a better understanding and a concept to analyze the dynamics of a TIS, little is said about the causes of the ‘start’ of these motors. Hekkert et al. (2007) are using the example of hydrogen technology to show how these motors of change work. They identify the function 4 ‘guidance of the search’ as a common trigger for virtuous cycles in the field of sustainable technologies, for instance, governments setting goals to limit resource utilization and/or environmental damage (Function 4), and eventually providing resources (F6) for research in order to develop more sustainable technologies. These resources, thus, enable more research (F1) which may results in high expectations concerning the technology in focus of the innovation system (F4). In the following entrepreneurs may enter the TIS (F1) adding further dynamics (Hekkert et al. 2007). This motor is labeled motor C in the figure above. Furthermore Hekkert and colleagues identify several other motors labeled A and B in the figure (see Hekkert et al. 2007: 427 for a detailed description). In addition the possibility of vicious cycles, reducing the activities of the TIS is considered.
Although the approach by Hekkert and colleagues described above provides us with a framework to analyze the dynamics of innovation systems, the causes for the ‘motors of change’ remain rather vague. Even though it can explain the dynamic patterns of innovation systems, it remains unclear why specific actors contribute through their activities to the systems functions. The reason for this can be found in the definition of activities: These are performed by actors, and thus actors are a key element for the fulfillment and the dynamics of the innovation system, but in this regard the approach is not offering any micro level foundation, respectively actor model. Such an actor model would contribute to the understanding of the initial causes of the virtuous and vicious cycles. Whereas the patterns of such cumulative causations became clear, it still remains vague why these patterns actually start (or stop). In order to make our claims clearer we will elaborate this on the example given by Hekkert and colleagues and described above. In this example a government is setting goals to limit the environmental pressure of a certain technology or application (F4 guidance of the search), triggers other functions by providing more resources (F6), by stimulating knowledge creation (F2), by establishing conducive framework conditions to enable entrepreneurs and established firms to enter the technological field (F1), and thus eventually enhances the dynamics to the TIS. However, we do not understand why
the actors of the TIS get engaged with the new technology in the first place, for instance why the government sets targets or why specific actors invest in R&D in areas of relevance to the TIS. Whereas these questions can be addressed relatively straightforward, it remains rather vague why a virtuous cycle rather suddenly stops, and may even change into a negative vicious cycle hampering the development of the TIS. The hydrogen case may serve as an empirical example where such a positive cycle of the dynamics of the TIS (Suurs 2009; Hekkert et al. 2007) apparently declined and led to a less dynamic, stagnating and maybe even declining TIS. Although literature gives some hints about the reasons for such relatively sudden changes of the dynamics of a TIS, there is no conceptualization of the micro level which enables a better understanding of such changes.
Furthermore a micro level foundation of the TIS is crucial with regard to policies drawing on the functional approach which is aiming at adding dynamics to a certain TIS. Whereas it is important for the formulation of policies to aim at the system level, it is crucial to address policy instruments to the actors who have to contribute to the system functioning for the emergence of a TIS.
Therefore this paper tries to shed some light on the patterns “behind” the interplay of function of the TIS (the “motors”), i.e. to the actors who are responsible for the activities contributing to the operation of the system. This will hopefully not only contribute to the understanding of relatively sudden changes of the dynamics of a TIS from very positive to negative dynamics, but will contribute to the understanding how the functions interact with each other, respectively why certain like F4 ‘guidance of the search’ can be regarded as one of the key functions of TIS in the field of sustainability technologies (Hekkert et al. 2008; Alkemade et al. 2007).3
In the following section, we will elaborate on our approach how to conceptualize the actor level and how to analyze actor behavior by focusing on the expectations actors are holding.
3
Hekkert et al. 2008 and Alkemade et al. 2007 show that in their analysis almost 40% of all activities are related to this function.
3 Conceptual framework
This section elaborates on our conceptual framework on how to explore the micro level of TIS. It contains three major steps of argumentation before we discuss the overall picture of our conceptual framework: First we suppose that actor strategies have to rely on expectations, since they are always future oriented.4 Second, we assume that strategies of actors guide their decisions and activities which contribute to the functions of the TIS. Third, we distinguish three different levels of expectations. Finally we elaborated how expectations, via strategies and activities contribute to the functions and thus the dynamics of the TIS.
3. 1. From expectations to functional dynamics
Starting point of our considerations is the role of expectations, which can be assumed to play a major role for the behavior of the actors in the TIS since innovation activities are by definition future-oriented. Therefore actors5 have to build their strategies under uncertainty and thus expectations play a crucial role:
“Often actors (whether R&D focused or policy minded) are initially driven by little more than a hunch.” (Hekkert et al. 2007)
Actors have to anticipate the future; they are generating expectations about the future and use them to guide their decisions. The role and importance of technological expectations for innovation activities has been shown by several studies (Borup et al. 2006; Konrad 2006; van Lente and Rip 1998; van Lente 1993).
So the important role of expectations has been acknowledged already within the functions of TIS literature. Furthermore the important role of expectations has been acknowledged in a broad range of literature: sociology (e.g. Dahrendorf 2006; Luhmann 1984; Parsons 1964), economics/finance (Rosenberg 1995, 1976; Lachmann 1943; Lundberg 1937), marketing studies (Teas 1993; Cardozo 1965), medicine/health care studies (e.g. Thompson and Sunol
4
However, expectations are may be based on experience in the past. 5
By actors we refer to organizational actors, not individuals within these organizations. Nevertheless an even more micro-focused analysis looking into the interactions of different departments, may even individuals with each other may contribute to our understanding.
1995). Some studies conducted, even try to enhance our understanding of expectation building processes as principal working mechanisms of the human mind (Haith et al. 1988).6
Since it is the aim of this paper to develop a concept explaining the execution of certain activities which are eventually contributing to the functions of the TIS, we will start by analyzing the strategies and resulting decisions of the actors. These decisions make up activities and therefore - in the very end - contribute to a function (or not). These contributions eventually lead to the emergence of the aforementioned virtuous or vicious cycle.
Summing up we propose to start the analysis by looking into the expectations actors hold, since these are important for the actor strategies which decide if actors contribute to the functional dynamics of the TIS.
3.2 Expectations and actor strategies
Furthermore we assume that the strategies which guide the activities rely on expectations; since strategies are always future oriented, thus, have to be based on expectations. By an actor strategy we understand
“[…] the determination of long-term goals of an organization that guide decision making, management activities and the necessary allocation of resources.” (Markard and Truffer 2008; Chandler 1962)
An important article from management science by Barney (1986) is supporting this view, by explaining the success or failure of strategies of firms basically by their ability to generate adequate expectations7:
“Thus, any current above normal returns enjoyed by a firm because of its ability to uniquely implement a strategy must either be a reflection of that firm’s more accurate expectations of the value of that resource when it was acquired or, if the firm had no special expectations concerning the value of the
6
Nevertheless we will basically focus on the findings of strategy analysis and management science.
7
However it has to be added that Barney (1986) was introducing some additional concepts to explain the performance of companies (e.g. about resources of a company and their (future) value). Nevertheless his basic assumption is that expectations (or good fortune and luck) are the key characteristics which explain the performance of a companies strategy.
resource when it was acquired, these above normal returns are a manifestation of a firm’s good fortune and luck.” (Barney 1986, p. 1236)
Drawing on the contributions by Chandler (1962) about the role of strategies in general and Barney (1986) about the key role of expectations we will follow these ideas in order to analyze the actors strategies in a TIS to gain more insights in the functional patterns of the TIS. Eventually this will enable us to gain an understanding of the emergence of the functional pattern described as virtuous/vicious cycles.
Here, we assumed that strategies are pre-determining the activities of the actors. These strategies are as previously proposed based on expectations.
3.3 Types of expectations: A multi-level perspective on expectations and strategies Additionally our research conducted concerning the fuel cell hype going on around 2000 indicates that actor strategies in the field of this kind of vehicles changed within the last decade (Konrad and Budde in preparation; Budde and Konrad 2009). Furthermore at least the TIS on hydrogen on fuel cell vehicles8 positive as well as negative dynamics can be observed, which are not fully understood (Suurs 2009; Hekkert et al. 2007).
Although consultancy approaches to the role of changing expectations (Fenn and Raskino 2008; Linden and Fenn 2003) emphasize (and evaluate) the role of technological expectations our research indicates that in particular non-technological expectations about broader issues (e.g. climate change and its effects) appear to be crucial (Budde and Konrad 2009). However, within this literature, no clear distinction is made in order to disentangle the expectations at various levels. This distinction is neither made with regard to the function of TIS approach, as for instance by Hekkert et al. (2007). Figure 1 is emphasizing the role of expectations in general, however, making no conceptual difference between expectations at the technological or the more societal landscape level. Whereas Bergek et al. (2008) do list several indications of different kinds of expectations (e.g. expectations about the technology, expectations about future factor prices, regulations, etc.) no conceptual framework how to distinguish these expectations is provided.
8
The observations are based on the TIS in the Netherlands, however our research indicates that similar patterns occurred in all over Europe, the USA and Japan
Therefore we will combine the multi level perspective with our view on expectations in order to distinguish the different levels of expectations.9
Drawing on the multi-level concept of transition theory (Geels 2002), which conceptualizes three levels which are relevant for sustainable innovation processes (niche, regime and socio-technical landscape level) we assume that there are not only activities and actual developments at each of the three levels, but as well expectations and visions10 addressing future activities and developments at the landscape, regime and niche level as shown by Fehler! Verweisquelle konnte nicht gefunden werden..
As niche and regime, or regime and landscape developments can support and reinforce or contradict and weaken each other and ultimately exhibit complex dynamics, in principle the same holds for expectations and visions.
Expectations at the landscape level, for instance an expected shortage of fossil energy resources, may support expectations at the regime level, e.g. the vision of a transition towards an energy system based on renewable energies. Furthermore, expectations regarding landscape developments may support expectations on specific niche innovations, as we observed in the case of fuel cells and climate change (Budde and Konrad 2009).
We assume that all three levels of expectations are relevant for actors for their strategy building, however to a different extent. It is hypothesized that expectations about the socio-technical landscape, e.g. climate change, are more relevant for some actors than for others. As the empirical case studies will show, not only expectations about the niche/technology are decisive but as well about the future regime and the socio-technical landscape. Furthermore the empirical case study on the German government will support the hypotheses, that for these kind of actors socio-technical landscape expectations are of importance.
3.4 The dynamics of expectations, actions and functions
Concerning the dynamics, the ‘motors of change’, we will try to explain rather sudden changes in the dynamics of a TIS by changes of the expectations actors are holding, and
9
see Budde and Konrad (2009) for a more extensive discussion about the usefulness of using the multi level perspective to analyze expectations
10
By expectations we refer to specific assumptions about future developments or states, which have mostly an anticipatory and cognitive character, whereas visions refer to coherent sets of expectations which are largely normative imaginations about how the future should be, see also Budde, et al. (2008).
which are subsequently translated into concrete decisions. In fact, the temporal dynamics of expectations are very different from those of activities, not to speak of functions. Expectations can change quite quickly, whereas system functions require usually much more time to evolve. Still, we argue that there is a “knock-on” effect from expectations via strategies and activities to functions, which must be observable empirically. To study this effect it is particularly interesting to look at examples that are characterized by a high degree of uncertainty, i.e. where the likelihood of abrupt changes in expectations are quite likely. Therefore the empirical examples in the field of ‘green vehicles, since it is an field characterized by a high level of uncertainty.
Figure 2 presents our conceptual framework along the three levels of the multi level perspective plotted on the y-axis and the conceptual building blocks along the x-axis.
Figure 2: Conceptual framework: from expectations to functions
The main focus of this paper is to add a micro level to the functional TIS approach. In doing so the analysis of the actor strategies is crucial. These strategies are based on several levels of expectations shown on the left. The actor strategies eventually pre-determine the activities which are finally contributing to the functions of the systems. Although not discussed in detail here, the fulfillment of the functions is influencing the expectations actors
hold again. Therefore the functional dynamics of the TIS can be explained by the dynamics of expectations (which are in turn influenced by the fulfillment of the functions of the TIS). However, we assume that not only expectations about technologies itself play a major role, but expectations about broader issues at the regime and in particular at the socio-technical landscape level are an important cause for he emergence of virtuous and vicious cycles.
To summarize, we first we suppose that actor strategies have to rely on expectations, since they are always future oriented. Second, we assume that strategies of actors guide their decisions and activities which contribute to the dynamics of the TIS. Third, we distinguish three different kinds of expectations: expectations concerning the technology in focus / the niche level, expectations about the regime (e.g. the future mobility or energy system) and expectations about the socio-technical landscape level (e.g. climate change, local air quality). Finally we elaborated how expectations, via strategies and activities contribute to the functions and thus the dynamics of the TIS. Furthermore we hypothesized that different actor types of the TIS refer stronger to certain levels of expectations than to others.
4 Analyzing actor strategies
Drawing on the conceptual framework previously discussed, this chapter will provide three empirical examples to support our claims. Following from our considerations above, we will analyze the actor strategies in the field of ‘green vehicles’ and try to explain them by focusing on the expectations these strategies are based on. The case of the automotive industry and ‘green vehicles’ in particular hydrogen and electric vehicles is well suited since it is an field characterized by a high level of uncertainty, and thus expectation dynamics are considered to play a major role for the dynamics of the TIS.
“[The] automotive industry and the regulatory climate have been characterized as highly uncertain. It is unclear which technologies will win, which regulatory standards will be set and firms thus face uncertainty on how to translate variable futures into their R&D strategies.” (van den Hoed 2004 p. 94)
This paper focuses on the first (left in Figure 2) part of the conceptual framework, respectively the analysis of actor strategies and the expectations these strategies are based on.
We will focus our analysis on the micro level of the TIS, the actors and their strategies. Following our conceptual framework we will first give an overview of the strategy, and will then explain the strategy based on the underlying expectations. Building upon the conceptual framework previously discussed we will focus on the expectations as an anchor
point to analyze and understand the actor strategies. Therefore we primarily raise the
question on which expectations the strategies are based on.
We will put forward the hypothesis that different types of actors relate their strategies to different types of expectations. In order to do so, we will focus on the analysis first on the large automotive companies, often referred to as OEMs (Original Equipment Manufacturers). We will focus on this actor group since they are often referred to as key actors in terms of expectations about the future of the automotive industry, by other actors of the TIS.11 We hypothesize that for their strategies expectations about the future regime; in particular their future customers, regulations and their competitors are decisive. Furthermore we will elaborate as well on the policy field, in order to discuss the importance of expectations about the socio-technical landscape for this kind of actors.
We will start the analysis by looking at the case of the BMW Group and Daimler. An extended version of this paper will include as well GM (respectively their German subsidiary Opel), Honda, Toyota and Volkswagen. In doing so we will first discuss the strategy of the actor in focus, followed by a discussion on the expectations the strategy was focused on. Our analysis will focus on the time period from the 1990s to approximately 2007, having in focus a case study on hydrogen and fuel cell technology.
In the following we will first give a short overview of the strategy of the actor, followed by some hypotheses which expectations were in particular relevant for the aforementioned strategy.
4.2 Methodological approach
11
We heard that comment several times while attending workshops concerning past and future strategies of actors in the field.
In terms of methods this paper will draw on evidence collect by the use of a mix of methods (literature analysis, interviews, discourse analysis, literature). The necessity to draw on a number of sources in order to cope with two major problems: First, research and development strategies and activities in the automotive industry are considered highly confidential due to their strategic importance. Second, in particular concerning expectations actors were holding in the past, are difficult to investigate, since actors may not remember or partly conduct ‘retrospective sense making’ (Eisenhardt and Graebner 2007; Eisenhardt 1989).
The interviews were supplemented by visits of conferences and workshops on lessons learned and actual strategies on alternative propulsion technologies of actors in the automotive industry. This combination of retrospective and real time (actual strategy) analysis is regarded as another key approach to cope with impression management and retrospective sense making (Leonard-Barton 1990). Altogether about 30 interviews were conducted during 2007 and 2008. The persons interviewed came from all parts of the innovation system (car manufacturers, suppliers, policy actors, academia, finance actors, public RTD promotion agencies, and pioneer users12).
Additionally a discourse analysis provided important insights in the expectations actors were holding. The results from the discourse analysis (see Konrad and Budde in preparation) were an important source, since they allowed to reduce the potential bias caused by impression management and retrospective sense making.
Beside the interviews conducted a literature review of the rather extensive work dealing with strategies of automotive companies and policy makers concerning alternative propulsion technologies was done (Maruta 2008; Kalhammer et al. 2007; Greaves and Hart 2004; van den Hoed 2004; Weider et al. 2004; Greaves and Sharman 2003; Weider et al. 2003; Kalhammer et al. 1998). Although, most of this literature does not deal explictily with the role of expectations, and thus no conceptual framework concerning the role of expectations was applied, these analyses proved useful to provide empirical evidence for our conceptual claims.
12
Although a number of studies analyzing the dynamics of TIS are based on event analysis, based on media databases we choose the aforementioned mix of methods avoiding a bias by analyzing the PR (or discourse) strategy of key actors of the TIS.13
In the following three selected cases are presented, supporting the hypotheses previously stated. The presentation of our results will follow our research process: At first we will focus on a description of the strategy of the actor in focus. Thereafter we analyzed on which expectations these strategies were based on, taking into account our conceptual framework.
4.4. Case studies
The first two cases support the hypothesis, that for automotive companies, expectations at the regime level are crucial for their strategy concerning ‘green vehicles’:
BMW Group
The case of BMW is an interesting case, since BMW pursued a technologically different strategy compared to most other OEMs over the past years. The level of R&D activities concerning alternative drivetrain technologies can be regarded as modest, whereas BMW was investigating several options from pure battery electric vehicles to hybrid and hydrogen powered cars (van den Hoed 2004; Weider et al. 2004). Whereas most of car companies were investing heavily in hydrogen and fuel cell technology, BMW was following another trajectory, aiming to use hydrogen in a modified internal combustion engine. In general BMW started the R&D activities concerning hydrogen in the 1970s due to the local air pollution problems, which where leading to compulsory introduction of the catalytic converter. However BMW was expecting that regulations will become increasingly hard to comply with by using internal combustion engines. In the 1980s BMW was testing different configurations of electric vehicles concluding, that these technologies were not suitable to be introduced any time soon by BMW. Concerning the fuel cell experiments conducted in the 1980s and the beginning 1990s BMW came to the conclusion that fuel cells were not suited to propel a BMW car either. Anyhow, the BMW strategy department was becoming aware of future regulations concerning not only local air pollution as in the 1970s and 1980s but as well concerning CO2 emissions. Furthermore the Californian zero emission vehicle mandate (ZEV mandate) was putting pressure on the automotive manufacturers, although BMW was
13
not affected initially by the mandate (Weider et al. 2004). They expected increasingly ambitious regulations, since the ACEA, the European Automobile Manufacturers’ Association, presented their proposal for a self regulation of the automotive industry concerning the average CO2 emissions of their vehicles. Although the first target of 140g CO2 per km was expected to be achievable with conventional technologies, it was expected that these numbers will go down over the years. This would require an alternative propulsion technology on the long term, reducing local emissions and greenhouse gas emissions. Hydrogen powered combustion engines were still considered to be the most viable. In spite of this expectation, the presentation of the NECAR vehicles, in particular the NECAR II by Daimler was spurring the interest of BMW again. Nevertheless hydrogen combustion engines were regarded as the most promising solution to BMW. However, fuel cells were regarded to be an option to supplement or replace the battery on board of the vehicle to supply the electricity needs of the car (entertainment, on-board computers, etc.). However in recent years the assessment of the hydrogen combustion engine become less promising from the perspective of BMW, while the interest in electric vehicles was rising again, followed by demonstration projects and product announcements for electric vehicles. Anyhow it should be acknowledged that most of these activities are related to the Mini brand or a potential new brand for the announced mega city vehicle.
Underlying expectations
Looking behind those strategies and the reasons why BMW chose the strategy shortly described above, it becomes clear that the landscape related expectations as local air pollution and climate change were acknowledged. In spite of that expectations at the regime level in particular about future regulations and the future behavior of competitors (like Daimler) played a major role. Even more important were the expectations BMW held about their future market (and what customers would expect from a BMW car). Whereas the expectations about the different niches respectively technologies, such as fuel cell vehicles or electric vehicles were not considerably different from those Daimler held at the time, the assessment of technologies was mainly done with regard to the expected future markets (and in turn what customers would expect from a BMW car). Due to the image and unique selling point (USP) of BMW as a luxury sportive car, it was decided that hydrogen powered combustion engine would be the best option for the company. Furthermore in relation to their competitors BMW is a relatively small manufacturer, and thus its resource situation may favored the likely less cost intensive option of hydrogen combustion engines. Nevertheless it
became clear from the interviews and the literature review that the expectations about the future regime, and BMWs position as a relatively small manufacturer supplying sportive luxury cars to the market was crucial for BMWs innovation strategy.
Daimler14
Daimler is generally described as the fuel cell pioneer in the automotive industry (Aigle et al. 2007; van den Hoed 2005, 2004; Weider et al. 2004, 2003). Daimler was the first major car manufacturer presenting prototypes of fuel cell vehicles, after the General Motors (GM) experiments with this technology in the 1960s in the USA. Consequently Daimler focused the research in the field of alternative propulsion technology on fuel cell technology in the 1990s. Although Daimler was not immediately affected by the ZEV mandate in California, the company was expecting regulations concerning local air pollution becoming increasingly challenging and eventually requiring alternatives to fossil fueled combustion engines. Daimler research was investigating all major alternative drivetrain configurations such as pure battery electric vehicles, hybrid electric vehicles and fuel cell vehicles.
The idea and competences needed to use fuel cells in vehicles came into the company, by the aerospace subsidiary Dornier. The company was bought by the Daimler corporation since it was the vision of the top management to develop a network of companies including Daimler and its links to the European aerospace industry and to transform it into a leading global technology company. In the 1990s Dornier had a small team developing fuel cells for the European space glider project “Hermes”, which was eventually cancelled. Therefore the engineering team was looking into alternative application fields within the company and convinced the management to build a prototype showcasing that fuel cell technology is feasible to propel a car. In 1994 Daimler presented its first prototype NECAR I (New Electric Car as well as referring to Neckar river near Daimlers headquarter in Germany) triggering large interest in the technology. The following NECAR II was raising even more interest, since the Daimler engineers managed to miniaturize the fuel cell system enormously, causing huge optimism and triggering the dynamics of the TIS. In 1997 it was decided to intensify the research efforts and focus on the development necessary to introduce fuel cell vehicle to the market. Internally the status was changed from a ‘basic research’ project into a
14
Respectively DaimlerChrysler from 1998 to 2007, nevertheless we will refer to Daimler since the major share of the fuel cell activities within the corporation were conducted at European Daimler facilities.
‘development project’ aiming for concrete marketable products. In the following years Daimler announced several times a market introduction of relatively large number of vehicles (up to 100.000) within a short time frame, while the first commercial vehicles would hit the market until 2004. Furthermore Daimler was (and is) cooperating with the Canadian fuel cell company Ballard and Ford Motors leading to the foundation of a joint venture. Whereas the organization and shares in this endeavor changed considerably over the years, Daimler still pursues the option of fuel cell vehicles although it became much less euphoric about a large scale introduction within the next years. Moreover fuel cell technology has become one out of several options.
Underlying expectations
Analyzing Daimler’s strategy and the underlying expectations we conclude that, similar to BMW, expectations at the landscape level like local air pollution and later on climate change were playing a role, but solely through the regime level expectation that regulations will become tighter, eventually requiring alternative propulsion technologies. As Daimler was and is regarded as a leading car manufacturer technology wise, in particular their Mercedes brand, Daimler’s management expected that their business model requires the most advanced technology for the premium market their cars are aimed for. In contrast to BMW, Daimler believed that their future customers would ask for the most advanced technology, fuel cells. The expected customers to adjust to the new technology, not based on combustion engine as it would offer efficiency advantages over the use of hydrogen in combustion engines, which customers would value. Daimler expected itself to secure its role as a technology leader, which was assumed to contribute to Daimlers USP. Therefore their expectations about the future regime, including regulation authorities and especially competitors played a major role for their fuel cell dominated strategy. As a matter of fact, expectations about the potential of fuel cell technology had to be optimistic and fit into the expectations about the future mobility system. Due to the expectations about the mobility system and a rather slow build up of a hydrogen infrastructure Daimler was proposing and developing a methanol based solution. In particular individually owned cars should be fuelled with the relatively easy to handle methanol, which would be converted to hydrogen on board of the vehicle. Later on Daimler stopped this trajectory due to several reasons, including technical problems and resistance from other actors of the TIS.
A policy perspective: The German government as an actor of the TIS15
The third case supports the hypothesis, that expectations at the socio-technical landscape level are crucial for the strategies of policy actors.
The German Government supported and partially funded fuel cell research activities over the last 30 almost 40 years to a different extent. During the early periods until the beginning of the 1990ies activities were first triggered by the oil shocks in the 1970 and focused in later years more on stationary applications (Weider et al. 2003). The vision of a solar hydrogen economy emerged and raised the interest of policy actors. This vision of the future energy and mobility system/regime assigned a key role to fuel cell technology as the main converter of solar produced hydrogen (potentially in large scale solar farms in the desert) into electricity. Such a solar hydrogen based economy would resist any shocks caused by volatile oil prices. Moreover the use of hydrogen would dramatically reduce or eliminate the emission of air pollutants, which were a relatively large issue at that time. Nevertheless the issue of local air pollution and acid rain was becoming a minor one, since better filter technologies and the mandatory introduction of the catalytic converter improved the situation. Eventually policy/politics actors lost the interest in hydrogen and fuel cell technology and research funding was dramatically reduced in 1995, despite considerable progress on the necessary technologies. It was concluded that most of the previously specified R&D targets could be achieved, and that hydrogen technology would ready in principle. Despite this progress the large scale introduction was not expected within a foreseeable timeframe without massive subsidiaries. A large scale introduction was expected earliest in 30 or 50 years (Weider et al. 2003, p. 11) After these conclusions the TIS on hydrogen and fuel cell technology was not considerably supported by the German federal government anymore. Just the activities by the industrial actors, especially by Daimler and government support programs in Japan and the United States were bringing fuel cell technology back on the agenda (Weider et al. 2004). However just when the expectation that fuel cell technology would be necessary to maintain the competitiveness of the German automotive industry was established, the government contributed to the positive dynamics of the TIS again. Furthermore the policy actors in California and the ZEV mandate, requiring the large car
15
manufacturers to produce a certain amount of no emission vehicles in order to reduce the air pollution in (Southern) California was triggering action in Germany, since California is an important export market for German cars. However, it can be observed that the public funding at the national level in Germany was only raised considerably when the issue of climate change was becoming important to German politics. So the expectation that climate change will become a major problem appears to be crucial for the increase of the public funding in Germany (Budde and Konrad 2009).
Underlying expectations
Taking into account the three levels of expectations, we can conclude that expectations about future challenges at the socio-technical landscape level seem to be vital for policy actors in their strategy processes. Especially the reductions in public funding in 1995, although expectations held about the technology were rather positive, support this hypothesis.16
The three cases of actor strategies discussed above indicate, that the analysis of the underlying expectations provides us with some useful hints. First, beside expectations about the technology other levels of expectations are crucial. For OEMs in particular expectations about the future (automotive) mobility system and their position on the market for vehicles are very important. Moreover the case of the German government clearly indicates that although expectations about the technology were positive, policy actors seem to rely more on expectations at the landscape level in order to decide if the contribute to the positive dynamics of a TIS.
5 Conclusions
In this paper we proposed an approach to explore the micro level of TIS by analyzing actor strategies and focusing on the underlying expectations. The micro level is important in order to understand the causes of the vicious and virtuous cycles which previous studies of several TIS showed. However the underlying reasons for these dynamics remained vague,
16
For a more detailled analysis of the policy sphere see Budde and Konrad (2009). Furthermore a modified version of this conference paper is in preparation at the moment.
since the TIS approach lacked a micro foundation. Therefore it was not fully understood why actors contribute to the functions of the TIS and thus the dynamics and why not.
We therefore suggested focusing on the actors and their strategies, since the strategies of the actors eventually pre-determine if the actors contribute to the system. These strategies again are based on expectations, since strategies are always future oriented. Therefore we suggested starting the analysis of actor strategies by analyzing on which kind of expectations there are based on. Drawing on the multi level perspective of transition theory we used this concept in order to distinguish three levels of expectation as well to analyze different kinds of expectation dynamics. Therefore changes in the dynamics of the TIS can be regarded as a consequence of rather volatile expectations dynamics at different levels. Consequently the analysis is offering an explanation why rather positive dynamics within a TIS, can suddenly change into a stagnating or declining TIS: Expectations at the socio-technical landscape level or regime level may play a crucial role for important actors in order to decide if the decide to engage. E.g. changing expectations about future societal challenges changed from expecting local air pollution being the major challenge to climate change, leading to consequences on the level of several TIS, since some technologies are expected to be more adequate to fight local air pollution while others are expected to contribute more to limit climate change.
We were putting forward the hypothesis that different types of actors relate their strategies to different kind of expectations. This hypothesis was supported by looking into the strategies of two major automotive manufacturers and the German government as a policy actor. Whereas for the automotive manufacturers expectations on the regime level were crucial for their strategy, the landscape level seems the most important to policy/politics actors. These results indicate that not only technological expectations (and their changes) can be regarded as being responsible for causing the virtuous or vicious cycles of a TIS, but also expectations at the regime and socio-technical landscape level. In particular the case study in the policy field showed, that although expectations about the niche of hydrogen and fuel cell technologies were rather positive, these technologies were not supported extensively anymore by the German government. The reason could be found in changing expectations at the landscape level, leading to the conclusion that these technologies would not be needed in the short and medium term.
The introduction of a micro level therefore provides us with some hints why certain actors positively or negatively contribute to the dynamics of a TIS, which could not be fully understood previously. A striking example is the reduction of activities of the German government and its repercussions on industry although the results and thus expectations about the technology itself were rather positive. Drawing on existing literature such a change in TIS dynamics from a virtuous cycle into a vicious cycle could not be explained.
Nevertheless this paper is just a first step towards a micro foundation of the functional approach to TIS. Further research is in particular necessary (and underway) to provide more empirical evidence to support our conceptual considerations. One the one hand more actor strategies from different parts of the TIS should be included, and on the other hand are more detailed analysis of the actor strategies and the relation to the underlying expectations appears to be necessary. Furthermore an analysis of the patents of the car manufactures could provide additional insights in their strategies.
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