University / Organisation : SKEMA Business School

Paper or project ? paper

Title : Adopting ADAS and AI: Knowledge Integration and Outsourcing Choices of OEMs Facing Technological Discontinuities

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Abstract : In response to technological discontinuities, traditional car manufacturers (OEMs) chose different approaches to incorporating artificial intelligence (AI) technologies into their products. While modular adoption strategies help OEMs navigate technological uncertainties and maintain flexibility, some may invest in multiple partnerships with AI providers to avoid lock-in to a single trajectory. The influence of industry architecture dynamics and other factors on incumbents' strategic choices during early industry evolution after technological breakthroughs remains poorly understood. This study aims to develop a framework to explain the conditions under which different strategic choices of incumbent firms emerge in response to technological uncertainties, considering factors such as the organisation of their knowledge base, proximity to the technological frontier, and the technological leadership of specialist suppliers. Relying on patent data and outsourcing data from 1990-2021, we describe and analyse the strategic outsourcing decisions associated with their knowledge base decomposability and advantages in capabilities. Our findings indicate an inverted curvilinear relationship between the outsourcing decision and the decomposability of a firm’s knowledge base. Firms with stronger AI capabilities are generally less likely to outsource, responding less to changes in decomposability and opting to retain more tasks in-house across all levels of decomposability. Furthermore, the technological leadership of specialist suppliers influences outsourcing decisions differently across technology types, reflecting distinct strategic considerations for each type. We conclude with a discussion on the trade-offs incumbent firms make between the advantages of a modular knowledge base and the cost associated with the loss of their bargaining power when assessing the ability to capture value in a dynamic and uncertain technological environment.