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Published: February 26, 2013
 / Spring 2013 / Issue 70

 
 

Hyundai’s Capabilities Play

In general, Hyundai seeks to establish deep long-term relationships with its suppliers and examines their manufacturing processes to help them improve quality at a lower price. “My suppliers are part of the family,” says David P. Mark, head of parts purchasing. The stability and quality of the supply base enable suppliers to create modular subassemblies, reducing assembly time on the Hyundai line and decreasing the possibility of human error. The plant also makes extensive use of robots; as a Sonata comes down the line, for example, a robot twists and grabs a complete dashboard, then twists it again and installs the dashboard in the Sonata. What would take two people half a minute takes just a few seconds. As a result, the Sonata is built in fewer hours than any other midsized car on the market. This ultimately helps Hyundai set aggressive price points for its vehicles at the same time that it maintains high profit margins.

Design and Innovation

Chung continued to push the quality initiative through the mid-2000s, but as the company grew more capable, he began to set out other major goals, launching them once again with initiatives from the top. One was design. In an age of cost cuts and customer focus groups, most car companies had settled on a few familiar, pragmatic, aerodynamic shapes for their sedans. The design process at companies such as Toyota, Honda, and GM was consensus-driven and familiar; the designers themselves were aging. Chung and his team felt that consumers were getting tired of incremental changes to the same basic look. This was a major step for a company that had sometimes suffered criticism for having derivative designs.

Chung began by quietly seeking out top-level design talent in Germany, Italy, and the United States. Then, at the Los Angeles Auto Show in December 2009, he proclaimed that Hyundai would adopt a new design approach called “fluidic sculpture,” inspired by natural shapes. To many observers, this was a signal that Hyundai would no longer follow the bland styling cues of the rest of the industry.

Two aspects of Hyundai’s workplace culture helped the company create edgier, more distinctive cars. First, its designers were younger. “Design is a young-minded person’s business,” says design chief Chapman, who is based in Irvine, Calif. “We’re in the business of making people feel young.” He says the design teams he inherited, consisting of both Americans and Koreans, display “fearlessness” in their approach to design.

Second, the Koreans tolerate the kind of internal competitions that led to the Veloster door design—and they thus accept a level of conflict that would be anathema in a Japanese car company, where nobody likes to see anybody lose. At Toyota and Honda, after the dimensions and market segment of a new car are defined in the planning process, executives tend to lock in early on a design and rarely change it as the vehicle winds through the development process of three to four years. That means that designs may no longer be fresh by the time the car hits the streets.

John Krafcik, CEO and president of Hyundai Motor America—who previously worked for Toyota at its joint venture with GM in California called NUMMI and then for Ford Motor Company—takes a direct interest in building the company’s innovation capability, in part by setting stretch targets. “We often say, with a smile, we never set a target that we know how to hit,” Krafcik says. “We always under-resource our organizations, in terms of both head count and dollar operating budgets. The thing that fills the gap is innovation.”

 
 
 
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Resources

  1. William Barnett, James March, and Mooweon Rhee, “Hyundai Motor Company,” Stanford Graduate School of Business, 2003: A case study of the company’s struggles to establish itself in the United States.
  2. Brian Collie, Scott Corwin, and Arjun Kakkar, “Optimism Returns to the American Automotive Industry,” s+b [online only], June 4, 2012: The U.S. auto market is recovering, and other automakers will be competing fiercely with Hyundai.
  3. Detroit Free Press, “Hyundai Leapfrogs Toyota in Quality,” June 8, 2006: An early article describing how Hyundai was successful in improving its quality.
  4. William J. Holstein, “Convincing Consumers to Spend Again,” s+b [online only], Apr. 7, 2009: A look at how Hyundai achieved a marketing breakthrough in a moment of economic fear.
  5. John Pearley Huffman, “The 2012 Hyundai Accent GLS: So Perfectly Ordinary That It’s Extraordinary,” New York Times, Apr. 13, 2012: A sampling of how automotive critics describe Hyundai’s success.
  6. Alex Taylor III, “Hyundai Smokes the Competition,” Fortune, Jan. 5, 2010: A rare conversation with Chairman Chung Mong-Koo.
  7. For more thought leadership on this topic, see the s+b website at: strategy-business.com/auto_airlines_and_transport.
 
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