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Krafcik on Customers & Competitors

Hyundai is rapidly ascending the rankings of consumer quality lists—lists that it once bumped along the bottoms of. So what is the strategy that has transformed something of an also-ran to a strong competitor?

Everyone knows that the customer is important. But some companies think that the customer is more important than others do. And some think that the customer is more important than the engineers with the cool/clever ideas.

 The key success factors at Hyundai, says John Krafcik, Hyundai Motor America vice president of Product Development and Strategic Planning, are quality and reliability, excellent ergonomics and “being obsessively focused on the customer.” He cites the position of BMW, one reflected in a recent series of print ads in which the company proclaims that it will now compromise its engineering prowess, as one that is “challenging. They choose to lead on the technological edge. We would never take that approach,” he says, adding, “We’re not shy about doing market research and validating that what we’ve done is good.” This checking with the market could lead some to believe that Hyundai’s products would be comparatively behind times, as people may have a tendency to ask for what they already have, but Krafcik denies this, saying “We don’t buy into the notion that we’re getting yesterday’s products,” and he actually counters the position by saying, “We have the confidence to put the product up for review,” implying, perhaps, that making this check is actually bolder than not. He calls this “consumer-driven product development.” He adds, “This doesn’t mean that we’re not being unique. We want to be unique—and appealing.” But he thinks that there are some engineering-driven products that just don’t make a whole lot of sense. He cites, for example, the Honda Ridgeline, which he describes as being a remarkable bit of engineering that’s “oh so Honda,” adding, “It’s amazing, but who wanted a $32,000 vehicle like that?” Another engineering-driven vehicle that he cites is the Porsche 911—and then acknowledges that he recently bought one.

Maybe they really aren’t obsessed with beating Toyota. Maybe it just so happens that Toyota makes vehicles that serve as benchmarks—that they’d like to better. When describing vehicles that are competitive with those of Hyundai, there is a tendency—a frequent tendency—for Toyota products to come up. Like the Camry with the Sonata and the Highlander and the RAV4 (and even mention of the Lexus RX 330) for the Santa Fe. Which leads to a question as to whether there are “Beat Toyota” signs affixed to the walls throughout the Hyundai product development organization. Krafcik denies that this is the case and simply states that it just so happens that Toyota has competitive products. “A year from now,” he remarks, “we might be talking about the Ford Edge.” Whatever the case is, it is clear that they’re doing some intensive spreadsheet analyses at Hyundai and working hard to make sure that when they fill in the cells, their data is comparable or better than the best. Which often leads them to Toyota products.

How he rates the four big functions. (Yes, yes, they’re all important, but c’mon...)

Design. Engineering. Production. Management. How does Krafcik rate their relative importance?—and yes, he says that they’re all important, but that pat answer doesn’t get to play. “Design is number one with a bullet,” he says, explaining that in the company’s product development matrix having “standout” exterior design is a top priority—“especially for a brand like ours,” as he notes that they’re still at 3% market share, so it is important that they achieve positive visibility in the market via design. Certainly among vehicle manufacturers Nissan has taken a strong position as regards design, and Krafcik says that so far as he’s concerned they will work to make design as integral to the Hyundai brand as Nissan has accomplished.

“Engineering is so key,” he insists. He explains that they work at HyundaiSpeed (yes, spelled like that) in product development and engineering, so they perform engineering tasks fully recognizing that change will occur, so “we might as well do it with minimal fuss.” Krafcik says that there is “an overarching, unique philosophy at Hyundai, which is getting things done quickly.” A word that he uses is “impatience.” He quips, “Frugality is in the company credo.”

The importance of production can be seen not only in the fact that they’ve established the plant in Alabama for vehicle build and engine production, but they’ve done so fully anticipating they’ll be making varied products (to wit: the Sonata and the Santa Fe, which have different platforms, are produced in one consolidated body shop). What’s more, he points out that when the various J.D. Power and AutoPacific surveys are consulted, the Sonata ranks at or near the top of the charts. This is a new product being built at a new plant with a new workforce. “You’re not supposed to be able to do that,” he says, adding that so far as he knows, the launch of the Sonata in Montgomery may be the best-ever in automotive history.

Which leaves management. “We think lean is a virtue,” he says, explaining that comparatively speaking (remember: Krafcik came to Hyundai from Ford, so he has direct experience as regards how things are done elsewhere) they have a small staff. He says that in his area there are just 20 people. But rather than taking this as being a deficiency, he thinks that it allows them to make better decisions because there aren’t a multitude of layers, to say nothing of seemingly endless meetings. Management makes decisions. Fast. Presumably at HyundaiSpeed.

Faster is better, so these guys don’t spend a whole lot of time standing still.
The issue of speed leads to time-to-market expectations for Hyundai. Krafcik says that from product approval to Job 1 they’re working at a pace of from 22 to 24 months, though he says they’re working to reduce that. One of the goals is to become a full-line manufacturer in comparatively short order, so this means they need to get things done sooner rather than later. “Align and deliver.”

Seeing proliferation of products and fuel cells in the future.
Looking ahead a few years, as the head of advanced product development must do, Krafcik thinks that there will be more variety than ever, with “more brands in more segments.” As he makes the remark, a Porsche Cayenne drives by, and he adds, “We’ll continue to see this as in the European premium brands going into more segments.” And, yes, he thinks that there will be brands like Hyundai going further up market, but whether this will be as Hyundai or via a different channel (such as Honda with Acura, Nissan with Infiniti, and, certainly, Toyota with Lexus), he says they’ve yet to decide.

Powertrain choices will vary in the future, as well. Hyundai is working on diesels, trying to get them to comply with the ’07 emissions regulations so as to be 50-state compliant. Yes, there is an on-going hybrid program, and Krafcik says they’ll have one available in the U.S. by the end of the decade. The hybrid will be setup for delivering economy (like the Civic and the Camry) not performance. And there is an on-going hydrogen fuel-cell initiative (including a Department of Energy grant). He says that they’ve developed a fuel cell stack that offers the lowest temperature starting capability in the industry. A Santa Fe test vehicle is rolling around with a Hyundai fuel cell.

 

The Road to Santa Fe

The ’07 Santa Fe is the first Hyundai vehicle—production vehicle, that is—designed at the company’s studio in Irvine, CA, under the direction of Joel Piaskowski, chief designer. One interesting aspect of the design approach taken by the Hyundai team was, as John Krafcik, vp of Product Development and Strategic Planning at Hyundai Motor America, puts it, to “segment up” when they did competitive benchmarking. That is, while the competitive set for the Santa Fe includes the Toyota Highlander and the Toyota RAV4, rather than benchmarking those two CUVs (and in the case of the latter, the current, third-generation model was being developed at approximately the same time as the Santa Fe, so it would have been not particularly useful to concentrate on the second-gen vehicle), they used the Lexus RX, as well as the Acura MDX and the Volvo XC90 for benchmark comparisons. Thus, although they were looking to have a competitive price point within their price space (secondary competitors include the Chevy Equinox and the Ford Escape), they looked to higher-price vehicles for direction. Consequently, in the interior there are such things as color-keyed power outlet caps, seat buckles, and cupholder inserts, and flocking of the console bins, glove box and upper IP storage tray, all of which Krafcik describes as “a small point, but indicative of getting it right.”
The theme—or the answer to the question “What do we want the vehicle to stand for?”—is “Assertive Grace.” A physical representation of this is, Krafcik explains, a speed skater, someone who combines “a muscular physique with gracefulness.” Olympic speed skating medalist Rusty Smith was brought in to give a demonstration to the development team.

When asked how important the Santa Fe is to the Hyundai lineup, Krafcik provides an answer—in light of the success of the Sonata sedan—that is somewhat unexpected: “It is the most important product in the lineup.” He goes on to explain that the Santa Fe is helping Hyundai attract valuable customers: according to Strategic Vision information, the family pretax income for calendar year ’05 for Hyundai owners as a whole was $53,900, 42% are college grads. For ’05 Santa Fe owners, the income jumps to $65,700 and college grads account for 49%. What’s more, Krafcik says they’ve estimated that whereas the median age of the owner of the current Santa Fe is 53, the ’07 model will bring that down to 45, which is the youngest in the segment. What’s more, Krafcik anticipates that the midsize sedan market will decline going forward while there will be growth in this smaller SUV segment, particularly as people become more concerned with fuel prices (the Santa Fe is offered with two V6s, a 185-hp 2.7-liter available with a four-speed automatic or a five-speed manual, which offers from 19/25 city/highway miles per gallon in a four-speed automatic/all-wheel-drive setup (a Borg-Warner AWD system provides up to 50% of the torque to the rear wheels when necessary); a 242-hp 3.3-liter is available with a five-speed automatic only, and it provides 19/24 mpg).

Speaking of the Santa Fe, he states, “It is the cornerstone of our brand.”

There are a couple of key differentiators of the ’07 Santa Fe as compared with vehicles in its competitive class. For one thing, it offers third-row seating, which is something that the others, with the exception of the Highlander, don’t offer. The Santa Fe provides 32.3 in. of legroom and 34.8 in. of headroom in its third row, the Highlander offers 30.2 in and 32.3 in., respectively, even though the overall length and wheelbase of the Santa Fe are slightly smaller than the Highlander. Santa Fe overall length: 184.1 in.; wheelbase: 106.3 in. Highlander overall length: 184.6 in.; wheelbase: 106.9 in. Clearly, the interior designers did a lot of packaging work.

Second, Hyundai is working to achieve a top position in offering safety technology, so the Santa Fe has as standard features six airbags, including side curtain bags for all three rows; electronic stability control; brake assist; ABS; and active front head restraints.

A seemingly minor but critically important aspect of the Santa Fe is the attention to detail. For example, the power outlet caps, seat belt buckles, and cupholder inserts are all color-keyed, not merely a default plastic color. There is blue backlighting not only of the gauges, but even around the center console-mounted cupholders. The little storage bins are lined with felt. Small but key design details in a competitive set.

And then there is the not-so-trivial issue of pricing. Three trim levels: GLS @ $21,595; SE @ $24,295; Limited @ $26,595, which they figure the mix will be 50%, 25%, and 25%, respectively. And, yes, there is that warranty that Hyundai offers (10-year/100,000-mile powertrain; five-year/60K bumper-to-bumper). Krafcik says that offering that warranty is quite a financial commitment—one that the built-in quality of the recent vehicles has meant they haven’t had to worry about.