Research Perspectives on Innovation in the Automotive Sector

Abstract

With the increasing demand for innovation in the automotive industry, understanding the innovation parameters and their relationship has become important. Researchers have discussed such parameters, often in isolation, and often the comprehensiveness of the complexity of innovation is based on a particular situation. Therefore, the focus of this paper is to provide a comprehensive understanding of research perspectives on innovation in the automotive industry. This paper shows that the innovation level of automotive companies differs based on their core business and often on the resources available. The parameters for innovation in terms of its inputs and outputs, the metrics on innovation within automotive firms, and innovation policies vary across companies based on their organizational culture and business environment, particularly regarding innovation types and contexts such as products, processes, and positioning.

1. Introduction

Innovation is critical for companies to stay competitive, meet evolving customer demands, and address global challenges such as environmental sustainability and safety. Automotive companies, especially in the manufacturing sector, should consider socio-economic and environmental aspects while promoting innovation. A case example is Pontiac cars, which evolved with new products and processes for almost a century but had to be closed in 2009 due to a lack of innovation [1]. Vaz (2017) mentions the need for sustained innovation for environmental sustainability such as in emissions, production, and logistics [2]. In the context of sustainability, five factors were found to be important for automotive firms: external environmental sustainability factors such as crisis or global supply chain restrictions, performance of a new product or technology, market changes, and competitiveness [2]. Researchers have focused on sustainability, innovation dimensions and impacts, qualitative or quantitative assessments of innovation impact, and performance metrics. Most of the studies are generic and not related to the automotive industry as such. Therefore, it becomes necessary to analyze the existing research to develop a comprehensive framework with innovation elements in different sectors of the automotive industry. Such a framework would aim to identify, assess, and prioritize innovative technologies, processes, or strategies within the automotive industry. The framework can be utilized in understanding the impact of technologies on firms, analyzing markets, and identifying constraints. Additionally, it offers executives the opportunity to road map innovation and implement its initiatives including timelines, resource allocation plans, key milestones, performance metrics, and mechanisms for monitoring and adjusting the innovation strategy over time.

The importance of this study, on top of the foundation of the holistic framework, can be explained through three conceptual approaches: the cause of investing in innovation to stay competitive (from manufacturers, dealers, importers, or third-party companies); the classifications of linkages between factors through innovation types after their definition; and the definition of innovation output in line with its impact considering inputs.

Based on the above discussion, this study aims to answer the following three research questions:

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RQ1: what factors are considered to restrict innovation in firms in the automotive industry?

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RQ2: what inputs/outputs are to be considered for an innovation framework in the automotive industry?

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RQ3: what variables should be considered in the innovation framework indicating its influences on the automotive field?

The remainder of the paper is divided into five sections. Section 2 focuses on the review process, providing a holistic review in terms of findings and trends. Section 3 focuses on the methods adopted within the literature analysis. Various types of innovation and metrics mentioned in the literature are also discussed in this section. In Section 4, results are presented before plotting the findings in one framework. Section 5 focuses on the discussion where frameworks for innovation related to the automotive industry from the perspectives of product, processes, organizational, service customer relations, and regulatory and compliance situations are developed and described. The conclusion and recommendations for future research are given in Section 6.

The paper contributes by providing a holistic framework, following the systemic BLOC-ICE approach, which considers four major inputs and two main outputs, five constraints, eleven innovation metrics, and five types of innovation in the automotive sector to produce two main outputs: growth and competitiveness. The framework is holistic and covers all major aspects of innovation to be considered by the researchers and practitioners.

2. Literature Review

The evolution of the automotive industry is deeply intertwined with the advancements brought by the four industrial revolutions. The first revolution took place in Great Britain, the second in Germany, the third in the United States, and the fourth in the United States, Japan, and other industrialized Western countries [3].

The first industrial revolution was between the 1760s to 1840s, which started with mechanization and steam power. Early forms of automobiles, such as steam-powered vehicles, emerged during this period. Innovations in metalworking and manufacturing laid the foundation for engine development in that period. Notable pioneers like Nicolas-Joseph Cugnot built steam-powered prototypes [4]. Early innovations in steam power influenced transport systems that would evolve into automobiles [4].

The second industrial revolution was between the 1870s and 1910s with a focus on mass production and electrification. Production of modern cars was started and the 1886 Benz Patent-Motorwagen is widely regarded as the first modern automobile [5]. Also, Ford’s assembly line for Model T in 1913 pioneered the manufacturing process to reduce its production costs. Ford’s assembly line catalyzed urbanization and economic growth, enabling mass consumption and reshaping transportation [6]. After that, advancements in fuel-powered engines replaced steam, paving the way for gasoline and diesel vehicles.

The third industrial revolution in the automotive industry was between the 1960s and 2000s with key innovations in electronics, automation, and digital technologies. Automation in manufacturing such as robotics and automated systems improved efficiency and consistency in vehicle assembly [7,8]. Additionally, the integration of microchips enabled innovations such as fuel injection, anti-lock braking systems (ABSs), and electronic stability control (ESC). Digitalization of vehicle design through the computer-aided design (CAD) platform also enabled precise modeling and faster prototyping [9]. Ford Motor Company was among the first to adopt robotics and automation to improve efficiency and safety in production lines, leveraging global supply chains to expand production capabilities and market reach [10].

The fourth industrial revolution in the automotive field started in the 2000s with a clear direction towards further digitalization and connectivity [11]. Key innovation factors in the revolution are artificial intelligence (AI), electric cars, and autonomous systems. Companies like Tesla, Ford, and Volkswagen have spearheaded the transition to EVs, driven by advancements in battery technology and environmental concerns. On top, AI and sensor technologies (radar technologies, cameras) have enabled the development of self-driving cars and potentially led to the use of sustainable materials in vehicle production [12]. For instance, Ford has drawn its sustainability strategy for carbon neutrality by 2050 and the development of energy-efficient factories [13]. In terms of connectivity, vehicles have been transformed into smart, connected devices, offering real-time navigation, vehicle diagnostics, and infotainment systems.

The next phase of industrial evolution is expected to focus on human-centric innovation and the integration of cutting-edge technologies. There could be different paths of evolution. The first path is AI-driven manufacturing considering smart factories with a focus on optimization and maintenance prediction to reduce downtime [14]. The second is sustainable production and circular economy with greater use of recyclable and biodegradable material and carbon-neutral or carbon-negative production processes. The third is advanced mobility solutions such as expansion in mobility-as-a-service platforms offering shared, autonomous fleets for urban mobility. Additionally, transition to new energy and infrastructure, AI driven solutions are also emerging. For example, enhanced EV infrastructure including wireless charging networks and vehicle-to-grid (V2G) integration, breakthroughs in hydrogen fuel cells or solid-state batteries, and vehicles as dynamic personal assistants integrating seamlessly with smart homes and work environments are being taken up in the automotive sector [14].

Government policies also support investments in research and development (R&D), infrastructure, and industry collaboration [13]. Regulations such as emission standards and sustainability initiatives push automakers toward electric vehicles (EVs), hydrogen fuel, and hybrid technology [13]. The EU’s Euro 7 emission standards and China’s New Energy Vehicle (NEV) policy have accelerated EV development [15]. In terms of advanced driving systems, Germany, Japan, and the U.S. have led in setting standards for autonomous driving and vehicle safety, influencing global automakers to adopt new technologies [16]. Norway and China offer substantial EV subsidies, increasing EV adoption. On the R&D level, countries with strong public and private sector investments in R&D lead in automotive innovation. Home to major automakers like BMW, Mercedes-Benz, and Volkswagen, Germany invests heavily in autonomous driving and AI-based vehicle systems [17]. However, Japanese car makers such as Toyota, Honda, and Nissan focus on hydrogen fuel cells, hybrid technology, and robotics [18]. American brands such as Tesla, GM, and Ford are driving EV innovation and AI-driven self-driving technology [19].

3. Methods

The review of research perspectives is guided through the content, which eventually leads to the suggestion of innovation frameworks. Based on Snyder [20], the method adopted here is called the integrative literature review. The Web of Science, ScienceDirect, Scopus, Wiley, Elsevier, Taylor and Francis, and MDPI databases were used to search for articles with the keywords ‘innovation measurement’, ‘innovation inputs in the automotive industry’, ‘innovation in mobility’, ‘innovation outputs in automotive companies’, ‘innovation quantifications and metrics’, ‘innovation inputs automotive industry, ‘innovation outputs’, ‘automotive innovation metrics’, and ‘automotive innovation constraints’. The search range date was not limited to a specific period; however, most of the collected papers were found to be published between 2017 and 2024. In total, 260 articles (see Supplementary Materials) were collected from the database search, of which 46 present research on innovation at the national level (including 16 studies that focused on innovation quantification/measurements) and 214 present research at the firm level. Of the research related to the firm level, 129 papers discuss the impact of innovation on firms, and the remaining focus on innovation variables in terms of inputs, outputs, and metrics. Finally, 67 papers consider the impact of innovation in the automotive industry, and 61 focus on innovation variables in the automotive industry (Figure 1). The selection was based on defining the innovation types at the first stage. Then, related variables and impacts of these types were consolidated into a framework, which will be discussed later. Out of the 260 collected papers, 148 were found providing more detailed information than others.

The screened literature was regrouped in terms of the research context and research areas (Figure 2) and examined with the content analysis method. This method has been used by many authors as well [21,22]. The research context covers topics such as innovation types at the level of automotive firms, inputs, metrics, outputs, and constraints. The research areas identify the levels and spots which this research focuses on such as dealerships, manufacturers, regulations, and markets.

4. Results

This section covers the literature analysis. They are focused on the two aspects mentioned in Figure 2.

4.1. Literature on Innovation Inputs/Outputs in the Automotive Industry

When considering inputs and outputs for an innovation framework in the automotive industry, it is essential to account for a range of factors that influence both the development and deployment of new technologies, products, and business models. It is also essential to know the contexts, which are the innovation types, to which these influences and variables belong.

4.1.1. Innovation Types

Literature analysis shows five types of innovation in general. The research related to the automotive sector for each of these five types is discussed next.

• Product Innovation: Research shows that product innovation drives a firm’s growth and can be developed through vertical expansion to uplift the technological capabilities and advancements or through horizontal expansion in diversifying products within a product segment [23]. Product innovation requires product planning, which requires enhanced human capabilities [24]. Product innovation, however, requires the development and sharing of knowledge and support from management [25,26].

In the automotive industry, product innovation can focus on changing customer needs, regulatory requirements, or technology development such as electric vehicles or battery electric vehicles (BEVs) [27]. Zhao (2022) mentions product innovation measurements, which can be related to the cost and convenience of vehicles, weight reduction through the adoption of new materials like carbon fiber, aluminum, and high-strength steel, drag and fuel efficiency through optimization of vehicle shape, and the convenience of vehicle charging options [13].

Product innovation can focus on integrating new technologies; improving efficiency; enhancing safety; addressing consumer demands for sustainability; or moving towards EVs, autonomous driving systems and driving assistant systems, connectivity, sustainable material, alternative fuels, and over-the-air updates. Taking electric vehicles as an example, Tesla Model S/Model 3 has revolutionized the automotive market, with high-performance EVs offering long-range batteries and advanced features like over-the-air updates and Autopilot [27]. Another example in the EV context, Ford Mustang Mach-E’s electric crossover, combines iconic branding with cutting-edge EV technology [28]. In another example, Lucid Air is an industry-leading range of vehicles and has luxury features; Lucid is pushing the boundaries of EV performance [29]. Autonomous driving has started in a specific part of the world. Waymo is an example in this context which focuses on fully autonomous vehicles and has deployed self-driving taxis in select cities [29]. Mercedes-Benz has offered DRIVE PILOT as the first level 3 automated driving system approved for public use in Germany and Nevada, allowing hands-off driving under specific conditions. Further enhancements are being made for an advanced hands-free driver assistance systems available in Cadillac and other GM vehicles [17].

BMW iVision Circular is promoting the use of 100% recyclable materials, emphasizing sustainability [21,22]. Polestar (by Volvo) is considering sustainability with vegan interiors and bio-based composites [30]. Connected cars such as Hyundai Bluelink and Kia UVO enable remote diagnostics, navigation, and vehicle control through smartphones. Also, Toyota’s Teammate offers advanced assistance in navigation, driving, and parking [31]. Development of hydrogen fuel cell vehicle (FCV) that emits only water vapor is also being considered by major car companies [32]. In terms of safety, innovation is also focused on automatic emergency braking, collision avoidance, and pedestrian safety [16].

• Process Innovation: Research on process innovation is related to manufacturing, supply, retail, or any other process and contributes to a reduction in cost and time, better resource utilization, efficiency and productivity [19], automation, process optimization, waste reduction, adoption of quality control and quality assurance, and clean and renewable energy [33].

In the automotive industry, process innovation focuses on design, manufacturing or assembly, sale, and repair and maintenance to improve efficiency, reduce costs, enhance quality, and respond to evolving market demands [13,34]. For instance, Toyota’s lean manufacturing has become a benchmark for efficiency in the automotive industry. Honda’s flexible manufacturing allows for rapid reconfiguration of production lines to accommodate different models, improving responsiveness to market demands [13,34]. Digitization for optimized production processes, lean manufacturing, and flexible manufacturing have also been adopted [35,36,37,38]. Innovation can also focus on maintenance processes, using sensors to acquire equipment data on vehicle performance to support predictive and reactive maintenance [19]. Sustainable manufacturing practices such as those used by the BMW i factory focus on using renewable energy, minimizing waste, and recycling materials during the production of EVs like the i4 and iX [37]. Ford’s Rouge complex is integrating green roofs, renewable energy sources, and water recycling systems to create an eco-friendly manufacturing facility [28].

Research on quality control and assurance processes through digitization [19], utilization of materials and processes to reduce vehicle lifecycle carbon footprint, [37], and digitization of retailing processes for customer engagement and feedback [38] are also considered. Although there are measurements related to the efficiency and effectiveness of the processes, the overall measurement of innovative outcomes due to process innovation is not clear in the literature.

• Organizational Innovation: Research shows innovation related to internal structure [38]; changes in business models [39]; leadership motivation, organizational competitiveness, and business performance [40]; and employee training and development and employee engagement [41]. GM has adopted ‘Agile Transformation’ to implement agile management practices for accelerated decision-making, particularly in response to the shift toward EVs and autonomous vehicles. Totlani (2023) mentions GM agility in project execution through reorganization into smaller and cross-functional teams [3].

Research shows that business model innovation is required due to technological advancements, shifting consumer preferences, regulatory pressures, and the retail environment. For example, Tesla’s business model for innovation integrates vehicle manufacturing, battery production, proprietary charging networks, and direct sales to the customer through its stores [42]. Uber’s model focuses on subscriptive offers and partnerships [27] and Waymo (a self-driving car project) focuses on the affordability of self-driving taxis [43]. The adoption of micro-factories and crowdsourced designs such as that by Local Motors to produce customized vehicles quickly and cost-effectively through rapid prototyping and localized production [44,45] is also considered.

• Marketing/Positioning Innovation: Marketing innovation should focus on positioning products or services [46] and is performed through enhancements in service or customer experience. It is measured in terms of profitability, cost reduction, improved quality, and changes in corporate culture [47]. Marketing innovation is also considered in online services and digital showrooms [48]. On top of the digital services, financial services such as usage-based insurance (UBI) packages based on actual driving behavior [49] and innovation in relationship management through in-dealership customer experience and post-purchase engagement [50] are also considered. Marketing using social media influencers and referral programs are adopted by Tesla [42]. BMW focuses on personalization through its application “My BMW App”, connecting customers to their cars and offering a tailored digital experience, maintenance reminders, service appointments, and exclusive offers. Additionally, BMW allows potential buyers to configure vehicles online, creating an interactive shopping experience [31] through vehicle personalization. Ford uses augmented reality (AR) such as virtual test drives and interactive brochures and campaigns [28] to promote their vehicles.
• Paradigm Innovation: There are also fundamental shifts in the industry in terms of norms, practices, or models, often leading to new perspectives, breakthroughs, and transformative changes in businesses [51,52]. EVs and autonomous driving vehicles are creating a paradigm shift in mobility and promoting new business models [53,54]. Transformative changes are also prompted through regulatory and compliance requirements such as environmental, safety, technology, cyber security, and connectivity [55,56]. For example, changes in compliance regulations require the development of new technology to meet EURO 7 standards [57] or safety requirements such as NCAP (New Car Assessment Programs), demanding higher safety standards, and UNECE (United Nations Economic Commission for Europe) [58,59]. The mandate by the EU for repurposing used EV batteries for other energy storage applications [60] is a paradigm shift as well.

Therefore, the literature analysis shows that for the automotive industry, organizational innovation focuses more on business model innovation and marketing innovation focuses on service innovation and customer experience innovation. For the automotive industry, paradigm innovation is brought mainly through regulation and compliance. Details on the categories of innovation in the automotive sector will be discussed in Section 4.3.2 and Section 5.

4.1.2. Innovation Inputs

Innovation in the automotive industry requires different types of inputs [10]. Researchers have mentioned research and development (R&D) as a prerequisite to innovation in terms of business performance [61,62], quality and new market development [63], and product and process innovation. From a process point of view, R&D can lead to reduced energy, material, or labor, thus increasing flexibility [64]. R&D can also help in reducing CO₂ emissions in processes or enhancing battery life [65], developing technology for the use of new energy such as hydrogen or other renewable energy sources for vehicles [66], developing lightweight materials to reduce vehicle weight and improve fuel efficiency [67], and increasing sustainability [32,68,69]. R&D has also been considered in the automotive industry to facilitate virtual design, autonomous driving, advanced driver-assistance systems, vehicle-to-vehicle and vehicle-to-infrastructure communication, and telematics [16].

As mentioned earlier, R&D has also led to the development of simulation models, better vehicle designs, and fostering a culture of creativity and continuous improvement [17,70,71].

Research mentions technology acquisition/advancement as another factor that can help to drive innovation. Enhancing the core competency and branding of the company can be facilitated by technology acquisition [71]. An example from South Korea shows that the development of the current core automotive capability is due to the induced technology acquisition [59] in earlier years, and this type of action leads to the competitiveness and branding of the company [41]. Research shows that scientific, financial, commercial, and market opportunities for a firm increase with technological development, and customer loyalty increases with adequate marketing [72]. However, companies have to focus on investment volume, the degree of environmental impact, and customer satisfaction [73] while deciding on technology acquisition. Not only technology acquisition but also talent acquisition is important to drive innovation [74].

The literature also considers funding or investments as another input to enhance the innovation capabilities of an organization [75]. The focus on investments could be to induce better cash-flow, lower volatility, and better residual value [76]. However, it also depends on the CEO’s decision-making attributes on innovation [76].

Innovation inputs also come from the knowledge of strengths, weaknesses, opportunities, and threats (SWOT) analyses [77]. The literature shows that due to the knowledge gained through SWOT, a Chinese car manufacturer, Chery, used a five forces model [78] to assess the business gain through innovation by considering the threat of new enterprises, competition inside the industry, and the threat from the provider, consumers, and substitutes. As a result of the assessment, Chery found that it needed to focus on enhanced brand awareness, R&D, product quality, and sales and after-sales services [78,79].

4.1.3. Innovation Outputs

Research shows that the output from innovation initiatives cuts across different areas of automotive organizations. Outputs could be measured through performance metrics and attributed to some of the inputs. The outputs could relate to reduced lead time, increased on-time delivery and processing time [80], increased profits [81], and quality improvement through process innovation that can result in the durability and recyclability of vehicle parts [82]. The quality outputs are also linked to the CSI (customer satisfaction index), accuracy rate, and reworking rate. The adoption of new equipment may also lead to process innovation for productivity [82].

Innovation in safety measures and the integration of advanced driver-assistance systems help in lowering accident rates and service costs [69]. Product innovation outputs are related to efficiency in terms of cost and effectiveness of the product, and they can lead to sustainability in terms of energy, environment, and responsible consumption and production [83,84,85]. Innovations in vehicle technology like that for hybrid and electric vehicles reduce emissions [86]. For example, Sdoukopoulos (2019) mentions that transportation sustainability can be measured through economical, environmental, and societal metrics [87].

A very important output of product innovation is product/service quality, which is specifically important in the automotive industry. Product innovation can also raise customer satisfaction [88].

Outputs related to marketing innovation focus on positioning or marketing products, firms, or brands in markets [89]. Research shows that branding and improvements in public relations can be obtained through investments [90], technology [91], and interactions with the customer through digital showrooms or virtual test driving [92]. Similarly, improvements in customer communication can also be the outcome that can come through the media, celebrities, and social media [93,94]. Another outcome could be the provision of subscription-based instead of ownership-based mobility [95]. The development of new markets can be a result of the right positioning of a product in the markets [96]. Productivity output is important [97] and it can be obtained through marketing new technologies and raising the awareness of a product. For example, for connected cars, manufacturers focus on a vehicle’s infotainment system [97]. Advanced analytics can help an automotive firm focus on trends, behavior, and sales outcomes to rightly position the product in the market [98].

Outputs related to organizational innovation can be in terms of shared knowledge, autonomous human resources, stable workforce, and resilience; however, such outputs are based on the adopted organizational structure and culture, the learning process, and knowledge management [99]. In the short term, organizational innovation nurtures the efficiency of employees and career stability [100]; however, in the longer term, inductive training to increase their capability would enhance their autonomous role in innovation [101].

Outputs related to paradigm innovation can be in terms of changes in the materials, production system, business, or the type and volume of production. Paradigm change can happen due to eco-innovation, ecological changes, product value changes, and product/technology performance [102]. For example, the shift to near-zero emissions due to ecological aspects is promoting EVs and hydrogen fuel cell vehicles (FCVs) [103]. Sustainability force can lead to experimentation with biofuels and automotive technology running on it economically. Such changes may be accelerated with regulatory and policy changes. Research shows that policies to reduce emission thresholds will push for cleaner technologies, and policies to promote sustainable urban mobility may reduce reliance on personal vehicles [34].

Based on the discussion above, two major innovation outputs can be considered as important for the automotive industry: a firm’s growth through sales, performance, and return on investments (ROI) and a firm’s competitiveness through sustainability in terms of positioning (Figure 3).

4.2. Impacts Restricting Innovation in Firms in the Automotive Industry

There are barriers to innovation as well, which often arise from internal organizational challenges, external market conditions, and industry-specific constraints. Research shows that innovation can be constrained by financial [104] regulatory situations and technology capabilities [105], organizational strategies such as green automotive initiatives, firm size in terms of the implementation of innovative technology, demography [106] with a main focus on the adoption of new automotive technology, and the replacement or reuse of materials [107].

While regulations often aim to promote safety, environmental protection, and economic stability, they can sometimes have unintended consequences that restrict innovation. Balancing regulatory objectives with the need to foster innovation is crucial for sustainability in the automotive industry [108]. For example, the recent U.S. tariffs which were imposed, reaching up to 25% on imports from several countries including Canada, Mexico, and China [109], will raise production costs for U.S. automakers, particularly those reliant on imported components, potentially limiting funds available for research and development. Additionally, the European Commission imposed high tariffs on Chinese electric vehicles to protect domestic manufacturers; however, these tariffs could reduce competition, potentially slowing the pace of innovation within the EU automotive sector [109]. Regulatory restraints like China’s support for its domestic automotive industry, including subsidies, and the restriction of autonomous vehicle registration and market access by foreign companies are criticized for non-competitiveness in China [37,109].

Innovation Research Areas

As shown in Figure 2, research areas related to innovation encompass dealerships, government regulations, manufacturing, and markets. Dealerships can support customer management through the measurement of customer needs and satisfaction [110]. Concepts like “innovate for customers” and “innovate with customers” for developing partnerships between customers and firms have been established for product and manufacturing process innovation [111]. The focus here is on enhancing customer experience in automotive products, technologies, services, and others [112]. Innovation outputs from product development are considered through four dimensions [113]: customer identification (such as gender, generation, and markets), customer attraction (action plans that “lead to sale”), customer retention (by creating brand and service image), and customer development (by enhancing the relationship with customers by adding new lines of business, technology, and customer service). Customer relationship development is also suggested as an output of investment in innovation through offering new innovative ways to retain customers [114]. These dimensions and related customer needs are shown in

Table 1. Links between customer dimensions and needs in the automotive field.

Dimensions	Customers’ Needs	Ref.
Customer Identification	Consideration and utilization of more sustainable mobility solutions. Availing economical solutions for different ages in terms of ease, comfort, flexibility, and environmental friendliness.	[114,115]
Customer Attraction	Customers are attracted to new trends in terms of technologies such as electrified powertrains, digital connectivity with vehicles, and new driving modes. Adapted and updated sales and after-sales processes in terms of the experience and the expectations that customers are attracted to.	[116]
Customer Retention	Customers expect to get more from brands, dealerships, importers, and companies in terms of experience, service, and quality to retain customers. Organizations are expected to maintain their values even though moving to sustainable solutions might be more practical but with no compromise on uniqueness, premium, and sometimes luxury. Among different automotive levels and natures, customer expectations remain a very important factor for customer retention.	[117,118]
Customer Relationship Development	Individualization and customization have raised the competition and it has a clear impact on an organization’s competitiveness.	[118]

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Customers and relationships with customers have been promoted in a lot of the collected papers as a motivation for firms to invest in innovation to acquire their satisfaction. This has also been seen linked to specific innovation types. We expected to find other innovation types to consider this important element in the context of framing innovation.

Based on customer needs, the outcomes have to be measured through metrics or indicators as performance measures for innovation.

4.3. Innovation Metrics and Framework in the Automotive Industry

Based on the review, an innovation framework is proposed in this paper. This section describes the metrics and leads to the development of the proposed framework.

4.3.1. Innovation Metrics

Researchers have mentioned the need for innovation metrics to support innovation [119,120]. Both quantitative and qualitative metrics are used to measure the effectiveness of research, development, and the implementation of new technologies, products, and processes.

Some general metrics on the financial services mentioned in [121] are modified for application in the automotive industry [122]. Innovation in financial services at automotive firms focuses on enhancing customer financing, improving operational efficiency, and leveraging digital transformation to create new revenue streams. Therefore, advancements in vehicle financing, insurance, leasing, subscription models, and blockchain-based transactions are to be considered. These metrics will be reflected in the framework as profit margin and efficiency. For example, financial performance metrics in the automotive industry can be related to sales and profit margins, cross-selling, and up-selling, which will eventually lead to increased revenues.

The market-related metrics could relate to net promoter score (NPS), customer engagement, referral rates, and customer awareness [123]. Net promoter score (NPS) is a key customer loyalty metric that measures how likely customers are to recommend a company’s products or services. In the automotive industry, it helps assess brand perception, customer satisfaction with vehicles, financial services, and after-sales support. The referral rate is a key customer acquisition metric that measures the percentage of new customers who come through existing customer recommendations. Market-related metrics, therefore, mean the penetration to new markets [124,125], competition bar for a brand [126], customer service [127], and market share of a brand [31]. Market penetration metrics measure how successfully an automotive firm enters and grows within a new geographic region, customer segment, or product category. These metrics track sales, brand adoption, and competitive positioning in new markets. Service efficiency metrics measure response time and repair time. After-sales metrics measure warranty claim resolution rate, service retention rate, and parts availability rate. Staff training can be considered as a part of this metric. The competition bar metric considers pricing strategies, branding, new models and launches vs. competitors, and repurchase rates.

Finally, the third group of metrics is related to opportunities like service quality, responsiveness, customer satisfaction index (CSI), trust, training, talent retention, productivity, efficiency, employee satisfaction, and sufficiency of infrastructure. The opportunity-related metrics can be translated into sales and after-sales service quality [128]; implementation efforts [129]; the utilization of materials, energy, and costs [82]; the availability of qualified human capital [129,130]; the productivity of technical and non-technical staff [131]; the efficiency of the qualified employees [23]; and the development of policies to address automotive demands [124]. Reducing labor costs while maintaining efficiency is a key focus for automotive firms. This involves optimizing production processes, leveraging automation, and improving workforce management. Below are key strategies and metrics to track implementation efforts. On the other hand, to optimize efficiency and profitability, automotive firms track the utilization of materials, energy, and costs. These metrics help reduce waste, improve sustainability, and enhance overall production effectiveness. The third group also considers the human capital metric, which measures the percentage of a firm’s workforce that possesses the necessary skills, certifications, and qualifications to perform their job roles effectively, especially in high-tech and specialized areas like automotive engineering, manufacturing, and after-sales services.

4.3.2. Innovation Framework for the Automotive Industry

Innovation in the automotive sector needs to consider the type of innovation and metrics that support the enhancement of innovation through measurements. Innovation outcomes support a firm’s growth or competitiveness. Innovation is also constrained by the environment in terms of the market, rules, funding, and technology innovation.

Considering the information above, an innovation framework for the automotive industry is proposed in Figure 4 based on the BLOC-ICE concept proposed in [132], where inputs and constraints drive the innovation and metrics to lead to innovation outcomes. The two groups inside the rectangle are loosely arranged in terms of two subsystems (innovation types and innovation metrics) with components inside that can have multiple interlinkages. For example, product innovation may have a link with business model innovation and regulatory and compliance innovation. Similarly, the increased sales revenue metric may have interlinkages with competition bar and market penetration.

The innovation framework provides a holistic overview of innovation. There could be causal relations between the types of innovation and one type of innovation may lead to another type of innovation. For example, a regulatory compliance-based innovation may lead to process innovation to reduce carbon footprint or to the development of new materials that can make vehicles lighter and more efficient.

The framework shows constraints as well. For example, green product innovation in the automotive industry considers several challenges, primarily due to the complexity of integrating sustainability into a traditionally resource-intensive and emissions-heavy sector. Financial constraints can significantly impact automotive innovation, as the industry requires substantial investment in research, development, testing, training, and production. High R&D costs in developing technologies such as EVs and advanced driving assistant systems may hinder innovation.

Resource constraints such as skilled professionals for the development, design, and implementation of new technologies and products are also important. A skilled workforce is required for advanced engineering, software development, and the development of new manufacturing technologies. Training and developing such a workforce require time and investment. There could be material constraints such as the limited availability of lithium, cobalt, and nickel, which can increase costs and limit a firm’s competitiveness.

Other constraints to innovation could be infrastructural limitations (such as EV charging or hydrogen fueling stations) and demographics (such as changes in consumer preferences and behavior, affluence, and urbanization) that will impact market demand and consequently the firm’s growth. Firm size can influence automotive innovation in various ways, although both large and small firms have opportunities to drive advancements in technology, product design, and business models. However, the smaller firms may have limited resources to initiate innovation or make a substantial impact.

5. Discussion

Various components of innovation types and innovation metrics are shown in Figure 4. In the next section, research related to the connectivity of these components on different types of innovation, like product innovation and service innovation, is presented, and another set of frameworks is built to show this connection according to the reviewed literature.

The research on automotive sector focused on dealerships, regulations, manufacturers and markets. Automotive dealerships have been evolving rapidly with advancements in technology, customer expectations, and market dynamics. With virtual and augmented reality, dealerships can offer virtual showrooms, allowing customers to explore cars and interact with different features without being physically present, on top of online configuration as advanced tools enable customers to customize vehicles in real-time, selecting colors, trims, and features before they even step foot in the dealership. Consequently, many dealerships now offer the ability to complete the entire car-buying process online, from research to digital financing and trade-in and even home delivery. When it comes to EVs, many dealerships are incorporating electric models into their offerings. Some dealerships are adopting sustainability practices, such as using solar energy, reducing their carbon footprint, and offering home charging station installations. As the automotive industry shifts toward EVs, many dealerships are incorporating electric models into their offerings. Additionally, interaction with customers through customer experience frameworks has also evolved. Sales staff can conduct remote video consultations with customers, walking them through vehicles, explaining features, and addressing concerns. Many dealerships also offer robust post-purchase services, including maintenance reminders, vehicle health tracking, and loyalty programs. Finally, adopting digitalization through automation and marketing channels is further enhanced. Dealerships are automating administrative tasks such as paperwork and inventory tracking, freeing up staff to focus on customer interactions. Even on the level of used cars, online platforms for buying and selling used cars are booming, with dealerships partnering with or launching their own digital marketplaces to cater to the growing demand for pre-owned vehicles.

Innovation in automotive regional offices is focused on adapting to the rapidly changing landscape of the automotive industry, improving operational efficiency, and fostering deeper connections with local markets. Regional offices are increasingly utilizing technology, sustainability initiatives, and data-driven strategies to enhance their effectiveness. Data analysis along with market studies and target setting are present at this stage to gain insights into market trends, regional preferences, and customer behavior. Thus, communication and collaboration through modern channels such as cloud-based platforms allow for smoother sharing of information and resources and consequently improve efficiency and customization/adaptation. Regional offices also play a role in promoting electric vehicles (EVs) by helping to develop and promote charging infrastructure, as well as educating local consumers and businesses on EV adoption. Regional offices play a crucial role in providing information to the manufacturers on local regulations and coordinating after-sales services, ensuring that customers have access to maintenance, repair, and warranty services close to their location, which enhances customer satisfaction and loyalty.

Innovation from automotive manufacturers is fundamentally reshaping the industry, with a focus on sustainability, technology integration, and enhanced manufacturing processes. Electrification, autonomous driving, and advanced driver assistance systems have become more advanced in terms of navigating and making decisions. Process-wise, robotics, AI, and machine learning are transforming assembly lines. Robots now perform more complex tasks like welding, painting, and even quality control with high precision, leading to more efficient and accurate production in the context of smart factories to meet the demand of customers and their configurations. Safety-wise, AI algorithms are being used to optimize vehicle design, simulate crash tests, and predict performance outcomes, leading to more efficient and safer vehicles. AI is also being used in research and development to accelerate the innovation process. Finally, sustainability and green manufacturing set specific goals in terms of carbon neutrality, closed-loop recycling, and sustainable supply chains.

5.1. Automotive Product Innovation

Figure 5 shows the framework for automotive product innovation, which is drawn based on Figure 4. Figure 5 shows three applicable constraints for product innovation. Green product innovation relates to the adaptation to green innovation requirements [133], but this may be limited in firms due to constraints in terms of costs, infrastructural readiness, and environmental friendliness [134]. Resource availability and human capital readiness are important as they can fuel innovation drive and having trained human capital is always beneficial. However, developing human capital at all times may not be possible as it requires investments [135], and there may be limits in terms of the availability of funds in the firm. These constraints force certain relations between the inputs and the outputs as given below.

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R&D is impactful for product innovation by proving a strong correlation between R&D and management innovation for ROI [136,137].

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Technology acquisition can also be related to green products. Such a decision impacts the quality and sustainable usage of materials and energy [138].

To show the relationship between the output the metrics in this specific innovation type, colored links were used where blue links are used linking metrics to competitiveness and red to the growth. The same applies on other figures.

5.2. Automotive Process Innovation

Figure 6 shows the framework for process innovation. In this framework, firm size is also considered in addition to other constraints mentioned for product innovation. Egbetokun (2016) listed some constraints such as economic infrastructure, systems, capabilities, and policy constraints which are considered here as resource constraints, workforce capabilities, and demographic constraints [134].

The metrics contributing to firm growth and competitiveness provided in Figure 6 show that competitiveness can be obtained, for example, by focusing on service, competition, productivity, and efficiency. Masias (2021) showed the impact of process development or innovation in manufacturing lithium-ion batteries considering manufacturing costs, policies/regulations, and sustainable energy sourcing [136]. The selection and training of human capital in the context of process innovation have also been discussed [137]. Specifically in the automotive industry, Petruni showed a clear impact of the process on the training level of the people within the industry and the performance level [137]. These constraints force certain relations between the inputs and the outputs as given below.

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R&D is impactful for process as well as product innovation by proving a strong correlation between R&D and management innovation for growth [137].

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Technology acquisition can also be related to this type of innovation. It impacts the competitiveness and growth considering quality and sustainable usage of materials and energy [138].

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SWOT analysis is also an input for this innovation type, impacting both outputs [137].

5.3. Automotive Business Model Innovation

Figure 7 shows the framework for business innovation. It is noted that organizational sustainability and competitiveness are important to a firm [139]. Human resources can be a more significant constraint among the others, as the availability of capable persons becomes a prerequisite to drive changes in the model, and it can be a challenging proposition in many organizations [140]. The size of the firm can be another pressing constraint, as larger firms may have gravity in terms of resources and access to focus on organizational innovation [141]. The relationships show that the ability to enter new markets, having a competitive bar, and increased market shares are related to organizational innovation leading to a firm’s competitiveness. Similarly, organizational procedures should support methods to increase sales, enter new markets and increase market share, and the use of less labor can increase a firm’s growth. Four inputs are considered for this type of innovation.

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R&D is needed for innovation in business models [140].

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Technology acquisition can also be related to this type of innovation. It impacts a firm’s sustainability in the context of bringing about new businesses and models [141].

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SWOT analysis is also an input for this innovation type, impacting both outputs [139].

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The decision of executives is the last input, addressing all other aspects of achieving the sought outputs [140].

5.4. Service Innovation

Figure 8 shows the framework for service innovation. Automotive technology acquisition (for connectivity, digitalization, autonomous driving technologies, and other recent technologies) and SWOT analysis (for measuring the changes, investing in all opportunities, and avoiding threats) are important for service innovation. Six metrics are found to be important for growth and competitiveness from a service innovation point of view. The availability of funds and workforce capability in terms of training poses constraints [139] to service innovation for growth and competitiveness. Two inputs are considered in this innovation type.

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Technology acquisition as an input impacts growth and competitiveness, addressing technological solutions for this type of innovation [136].

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SWOT analysis is also an input for this innovation type, impacting both outputs [137].

5.5. Customer Experience Innovation

Figure 9 shows the framework for innovation in customer experience. Marketing and brand innovation are important in this innovation. Brand loyalty helps in positioning/marketing the product and affects the sales volume [142]. Kato [139] listed several factors linked to customer loyalty in the context of marketing practices within automotive companies. Investment in advertising for the attractiveness of the product is also an indicator of the ability of the automotive company to enter new markets [142] and it also enhances the competitiveness of the firm in the automotive market. As in business model innovation, four inputs are considered for this type of innovation.

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R&D is needed for customer experience innovation [140].

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Technology acquisition can also be related to this type of innovation. It impacts a firms sustainability in the context of focusing on the customer as a center [141].

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SWOT analysis is also an input for this innovation type, impacting both outputs [137].

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The decision of executives is the last input for this type of innovation [140].

5.6. Regulatory and Compliance Innovation

The framework for regulatory and compliance innovation is given in Figure 10. The automotive sector faces unique challenges due to safety standards, environmental regulations, and the rapid pace of technological advancements. This leads to the co-development of technologies and new markets according to Vidmar [140]. A strong link is established with customers if firms utilize paradigm innovation effectively. It also enhances the ROI simultaneously [142,143]. Three inputs are involved in regulatory and compliance innovation.

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R&D is needed considering all the constraints to review all updates and policy upgrades [136,140].

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Technology acquisition is another input for this type of innovation [137].

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The decision of executives to invest in innovation is also needed at this level [135].

5.7. Discussion on the Research Question Outcomes

This review focused on three research questions related to the automotive industry. The findings from the literature are discussed next.

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RQ1: what factors are considered to restrict innovation in firms in the automotive industry?

The analysis of the literature shows that innovation is impacted by factors related to the market, human resources, finance, and sustainability. The factors pose challenges for green product innovation or technological use, thus eliminating chances for a sustainable innovation process in the firm. Finance is the second most impactful factor as it impacts the level and speed of innovative activities to increase competitiveness and growth. Resources are seen as the third factor: human resources, materials, technology, trained human capital, and sometimes demography. A firm’s size is also found to be a factor as smaller-size firms may be hesitant to invest in innovation in comparison to large firms.

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RQ2: what inputs/outputs are to be considered for an innovation framework in the automotive industry?

The analysis shows that there are four major inputs and five major outputs for innovation in the automotive industry. The four inputs are R&D in automotive firms, the firm’s SWOT analysis, the executives’ focus on innovation, and technology acquisition. The two major outputs are the automotive firm’s growth and its competitiveness. Studies have shown strong links between the inputs and outputs. For instance, R&D is a catalyst for innovation, driving technological advancements, economic growth, and competitiveness. First, organizations that recognize the importance of investing in R&D are better positioned to navigate the challenges of the future and lead in their respective industries. Second, technology acquisition is a strategic approach to tap into external expertise, accelerate development, mitigate risks, and gain a competitive advantage. It complements internal R&D efforts and enables companies to stay at the forefront of technological advancements in a rapidly changing business landscape. Third, when executives decide to invest in innovation, they are essentially making a strategic commitment to the long-term success and sustainability of the organization. This decision involves a holistic approach, considering not only product innovation but also process improvements, talent development, and a proactive response to the dynamic business landscape. Fourth, SWOT analysis can help organizations develop strategies to leverage their strengths, address weaknesses, capitalize on opportunities, and mitigate threats. The insights gained from the analysis can guide the development of a robust innovation strategy that aligns with the organization’s overall goals and objectives.

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RQ3: what variables should be considered in the innovation framework indicating its influences on the automotive field?

The review shows that 11 metrics can be used as variables in the proposed innovation framework. Each of these metrics is based on inputs such as finances, technology, and human resources.

• For increased revenues/sales, the introduction of new and improved products, enhancements in existing products, service innovation, adaptation to innovative marketing strategies and campaigns, technology integration, and customer engagements are important.
• For automotive market share, success depends on numerous factors, including effective marketing, customer satisfaction, and the ability to execute and scale innovations.
• For service quality, the level of service reliability, responsiveness, assurance, and tangibility are important.
• For efficient resources and material utilization, optimal resource use can increase a firm’s efficiency, sustainability, and competitiveness. Similarly, trained human capital as a resource drives progress at individual, organizational, and societal levels. Investing in education and training contributes not only to the development of skilled individuals but also to the fostering of a culture of innovation that propels growth and prosperity within firms.
• For fewer implementation efforts, studies mention that innovation can transform industries through the introduction of technologies and processes that reduce labor requirements and enhance overall efficiency.
• An additional metric, a combination of market penetration and innovation, is found in some studies for creating a strategy for sustained growth.

6. Conclusions

This paper provided a review of the literature covering the associated factors for innovation measurement in general and their importance and applicability in the automotive industry. The paper is the first comprehensive review related to innovation in the automotive sector.

Most large automotive firms invest in product innovation, but the performance in terms of organization, the market, investments, growth, competitiveness, and sustainability should also be considered. Innovation is constrained by various factors and the availability of funds, resources, skills, and firm size. Smaller firms consider themselves to have less potential for investments and outcomes through innovation efforts unless they are focused on specialized products. Regulations, such as that for greening the products, the demographics covered by the firm products, and the customer understanding of the innovation effort are also important factors for innovation in the automotive sector. The review shows that firms should explore innovation potential of different types and develop measurement methods by considering the constraints and available inputs to enhance their innovation outputs.

6.1. Limitations

This review process was based on definitions of the variables of innovation to form a framework for innovation measurements. The variables and metrics proposed here are based on general variables and metrics available in the literature. Although the authors believe that the proposed framework contains only the applicable variables and metrics, not all organizations in the automotive industry may be focusing on all of those metrics.

6.2. Future Research

As a result of this study, five research directions are proposed. Each research direction is discussed below.

The first direction is concerned with the factors. The review has shown that most research papers do not consider the measurement of the impact of innovation on automotive firms. The factors or metrics were addressed as qualitative measures with little consideration of the industry being considered in the review. The technological impact through innovation types such as product innovation that was suggested by [19] highlights the qualitative results on companies’ performances. Process innovation in terms of emissions and subsequently the impact on the automotive firm’s performance was also addressed in the literature [13,31]. However, the factors and outputs of firms have not been addressed explicitly. Therefore, the first research direction could be in terms of evaluating the current factors mentioned in this paper in terms of outputs and extracting factors that are important for driving innovation in large and small firms.

There are processes related to the design to manufacturer [144], design to assembly, and design to store [25,145,146], for example, and each may be needed in the automotive industry as well. The development of innovation capability in an area may have a causal impact on other innovation capabilities [128]. There is a lack of research on developing models and frameworks that an organization can use to address different aspects of innovation capabilities and their impact on a firm’s overall performance and innovation maturity [17]. Therefore, the second direction can be to extend the research to different market-based conditions, technological development, or policies of the organizations by collecting the data from the real world and analyzing them in a multicriteria type of analytical model to enhance the decision-making for innovation in the automotive sector.

KPI analyses such as efficiency and productivity, quality, cost reduction, flexibility and agility, and customer experience within different departments of automotive companies have been carried out by different authors such as those in [21,147]. However, studies showing the measurement of these KPIs and the value of adopting such KPIs are still lacking. Therefore, the third research direction could be to develop models for examining the level of innovation readiness through the KPIs of the whole organization.

Branding was studied by Kato (2021) in detail for marketing innovation [139]. However, there have not been many studies highlighting the importance of branding within the automotive sector. Branding can push innovation and the relevance of an organization. Relevance leads to competitiveness and finally to the creation of both tangible and intangible values. New technologies are being adopted for better performance of the mobility sector, but companies may not have been able to accrue value because of the lack of branding. Therefore, the fourth research direction could focus on the relationship between branding and innovativeness and branding and value creation for the automotive industry.

The literature shows the impact of the firm’s size on organizational innovation [148]. It has been noticed that firms’ sizes impact most innovation initiatives. However, the literature does not show how these firms can capitalize on their size and stay relevant in the related innovative aspects [148]. Therefore, the fifth research direction is to consider a mixed approach of analysis to consider firm approaches and their quantitative impacts, like in terms of costs, benefits, or quality enhancements for different size firms, focusing on different types of products and services within the automotive sector [148].