Guest commentary: As California's 2035 EV mandate looms, can industry pass innovation test?

Ripples are still being felt in the wake of California's pending 2035 ban of new gasoline-powered vehicles. And despite the outward confidence being projected in the automotive space, there is more than a fair share of trepidation within the industry.

This regulation makes things very complicated for the automotive industry because it begins to eat away at its key electric vehicle safety blanket: time. For years, the automotive industry has been trying to paint over the cracks posed by EV material and general innovation problems by projecting outward confidence about new technological advancements and material sources being just over the horizon. The reality, of course, is starkly different as companies continue to battle it out for access to rare-earth metals mines and patents in lieu of the greener pastures they were hoping to be operating in by now.

Therefore, questions about the industry's ability to innovate and dramatically ramp up are hugely valid, and undoubtedly interesting times lie ahead.

There are no easy answers. Car companies cannot just push hard in the race to scale EVs by 2035. Rather than reacting to each disruption with the same tools as before, automakers must build a strategic innovation capability, spanning every aspect of the modern corporation. At a very high level, here's what that looks like.

Businesses need to develop a balanced-portfolio approach to innovation management, with separate tracks for core innovation ("in the business") and strategic innovation ("building the future"). This approach will allow organizations better insight into their entire innovation ops performance while allowing businesses to spread resources around as opposed to banking on a handful of short-term projects that are either not worth the time or pumped out with no real needle-moving impact.

One of the biggest hurdles within any business when it comes to innovation success is a lack of bespoke innovation leadership. All too often, innovation is only touched on an annual basis by the C-suite. From there, the C-suite hands off a laundry list of unscientific goals to on-the-ground teams with little or no engagement or oversight from the C-suite until the "same time next year," when the same process repeats itself. Innovation success is a hands-on proposition that, like any other department, requires clear strategic vision, objectives, benchmarks and strategies directly from the top. To accomplish this, the answer is actually relatively straightforward: Appoint a companywide innovation czar or chief innovation officer that reports directly to the CEO. In addition, provide the innovation office with an independent staff and budget for strategic projects and investments that don't fit elsewhere in the business.

For as much as innovation is a staple of corporate marketing collateral — not to mention the amount of money corporations pour into innovation — in many cases, corporations lack the fundamental governance structures and metrics to determine innovation success. Instead, they rely on metrics from other departments — such as finance — to guide their innovation decision-making that prioritize short-term ROI, not mid- or long-term growth. These governance mechanisms need to be replaced by a set of board-level "innovation health" metrics around:

1. Strategic growth leverage (e.g., development of next-generation technologies).

2. Disruption readiness (e.g., flexibility/resiliency) beyond the context of quarterly or annual financial reporting.

These findings then need to be brought to a C-level steering committee, meeting at least quarterly, to adjudicate innovation priorities and then marshal resources for strategic innovation projects as needed.

Creating a robust and dynamic innovation infrastructure also needs to be a collaborative process between internal and external stakeholders. There is a common misperception when it comes to innovation that because it is proprietary, external collaboration should be eschewed. But this simply is not the case. The insights and expertise between organizations often contain many nuances that can be essential in shaping innovation success. Moreover, organizations more often than not have shared interests in pushing forward innovation. To capitalize on this, it is essential that automotive organizations develop a companywide approach to external innovation partnerships — for sponsored research, emerging technologies, market access, customer insights and more. In addition, this broader strategy should be underpinned by the implementation of a companywide process and system for knowledge capture and innovation management — to share accumulated expertise and coordinate cross-departmental initiatives. This creates an ecosystem where innovation is more natively internalized and prioritized and can lead to sustainable and evidence-based innovation success.

Many automotive executives believe they already have these attributes in place. Most believe their corporate strategy can double as an innovation strategy, but this is badly misguided. Most believe they already have effective innovation governance, but experience has shown that even small leadership changes will cause the innovation committee to vanish overnight. And so on.

For years, we've known that the automotive space would need to move full force toward EVs "at some point." Now, the direct pressure — not just from California regulators but from consumers and the public — is unavoidable. It's time to move past "innovating by exception" via special projects and window dressing. Auto companies must now transform top-to-bottom into strategic, adaptive, resilient organizations. Otherwise, they will not be equipped to compete in the new innovation era.