2013 Toyota Prius liftbackEnlarge Photo
Many who follow the progress of plug-in electric cars wonder why Toyota, despite its leadership in hybrids, lags other carmakers in its electric vehicles.
The business principle of The Innovator's Dilemma suggests that the company has been slow to embrace electric cars not despite its hybrid leadership, but because of it.
And the biological phenomenon known as Kleiber's Law may suggest that Toyota has no cause for concern… just yet.
Toyota began developing its hybrid technology in the mid-1990's, and launched the Prius in December 1997, beating the Honda Insight to market by two years. (Honda did beat Toyota to North America, as the Prius was sold only in Japan for its first three years.)
Since then, Toyota has leveraged first-mover advantage into market leadership and dominance. It offers the broadest hybrid-vehicle selection and captures the greatest sales volume: the Prius family recently surpassed three million sales, and Toyota's 23 hybrid models have now sold five and a half million vehicles between them.
Doubling down on its leadership, the company has announced plans to offer an additional 18 new hybrids in the next three years.
In our current era of expensive, $100-per-barrel oil (about $2.40 per gallon or 60 cents per liter, prior to taxes) it's worth revisiting the world into which the Prius debuted.
2000 Toyota Prius
2000 Toyota PriusEnlarge Photo
By and large, oil prices had held steady between $15 and $25 per barrel for more than a decade, reaching a low of $10 a barrel in late 1998.
Fuel efficiency was not on the radar in North America, though it was a consideration in Europe and Japan, where gasoline was more heavily taxed--perhaps reflecting these regions' nervousness about their dependence on oil imports.
Ironically, the Prius' own technology was partly based on expired hybrid engine patents filed by American firm TRW during the first OPEC oil shock, when oil import dependence first became an issue in North America.
The innovator's dilemma: Why Toyota's tepid on electrics
Long the hybrid leader, Toyota now languishes in third place behind Nissan and GM in cumulative plug-in vehicle sales, and may soon fall further behind Ford and Tesla in monthly figures.
According to the theory of The Innovator's Dilemma, this is to be expected.
Formulated by Harvard Business School professor Clay Christensen, the principle essentially states that the leading innovator in one technology -- call this Tech A -- tends to fall behind when The Next Big Thing -- a disruptive innovation we'll call Tech B -- comes along.
The dilemma occurs because the innovative company's resources tend to get tied up meeting the needs of its current customers. After all, they pay the bills.
This generally means the company exploits its hard-won Tech A advantages, instead of embracing Tech B, which in its early days often offers a compromised solution and lower profit margins.