The automotive industry’s digital awakening

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How do planning processes that are traditionally oriented towards the development of vehicles become agile and multi-layered?

The automotive industry’s digital awakening began a few years ago, with autonomous driving, the electrification of driving, connectivity, new mobility concepts, and the combination of on- and offline. Mostly, the implementation of digital transformation is still regarded as a technical task, but, in fact, it is more a question of cultural transformation. Especially with connected cars and mobility, there is a convergence between automotive companies and internet giants like Google, Amazon, Tencent, and Alibaba as well as with consumer electronics leaders like Apple and Samsung. The competitive landscape of automotive is changing significantly. While fundamental performance values, such as the number of units sold, remain relevant, new approaches, such as invoicing by mileage or per ride are emerging and with them, growth prospects. Even more than electric cars, digitalization and autonomous driving seem to change the industry. Players like Didi (Tencent Group) in China or Uber in the US are driving a trend where reach, customer contacts, and customer centricity are in focus. This trend brings with it the integration of design thinking into established automotive players to systematically develop consumer centric-products and service innovations.

Newcomers in connectivity and mobility have the advantage that they don’t have to take into account traditional technologies, existing structures, or business models. Their market capitalization depends more on future perspective than on immediate profitability. Meanwhile, established players need to balance both margin from current core business and investments into the future. Nevertheless, if in this phase of upheaval, public trust in the company is shaken, as it was with the diesel scandal, then the pressure for a quick transformation increases. And, despite continued good sales figures, the “burning platform” is visible for changes.

In particular within the technology divisions of companies, a change in thinking is noticeable. Agility, task boards, and scrum sprints have conquered automotive companies and their suppliers. Small cross-functional teams step up and follow agile role models like Spotify, ING DiBA, and Google with the idea of clear client focus and result-oriented processes. Prototypes are developed within a short period, not only by innovation labs, start-up garages or data hubs, but also in the traditional line.

This development is accompanied by improvement in software skills of the value chain in the automotive industry. Nevertheless, the manufacturer’s distinguishing feature remains the product, and that now has now to be enhanced with mobile software to become the ultimate mobile device. Instead of developing another type of powerful combustion engine, it might be more relevant to identify services around mobility and gain practical experiences with those services. At the same time, it is crucial to form a portfolio in line with the essence of the brand. Only then does the connection of digitalization and the car lead to new possibilities, highly attractive client-focused offers, a strong market position for the future, improved risk management, and above all, long-term prospects.

The challenge lies in implementation: How can the development cycles of product and software be reconciled? How do planning processes that are traditionally oriented towards the development of vehicles become agile and multi-layered? How do purchasing processes and regulatory frameworks fit together with the ideals of agile development? For support divisions in particular—such as purchasing, HR, marketing, finance, and planning—the new digital culture is a big challenge.

The current structural change brings new tasks and new competitors to the established leaders of the last decades. It brings new opportunities and new risks, where all relevant players have started to reinvent themselves. The top-down clarity to drive the change that accompanies massive investments demands respect. Nonetheless, the true hurdle to overcome is the transformation of pure product companies to customer-centric players. After many years of successful development, the “iphone moment” is on the horizon for the automotive industry. This means elegant devices with user-centric consumer electronics are coming to market. The race is on.

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