Digital Challenges and Chances in the Automotive Industry

Strategy | Pascal Binkert |
03 November 2020

This year’s automotiveIT Kongress focused, unsurprisingly, on the major talking points in the industry: Customer-centric product definitions, overall new business and revenue strategies, and the ongoing need for digitisation of complex workflow landscapes of big auto OEMs. The last topic highlights the urgent need to increase OEM’s efficiency in the day-to-day business operations and to break down existing silos within their organisation or group.

As an example, Volkswagen AG, which has more than five high-volume manufacturers all interconnected due to their MQB/MEB platforms, needs to reduce costs, create leaner structures, and ultimately become more agile. This is in order to build the base for a crucial future success factor – the capability to deliver shorter product or feature lifecycles around the car, hence offering customers what they are used to from the fast-paced consumer goods industry.

The above example explains quite nicely why a well-orchestrated digital ecosystem will be key for future success within the automotive industry. It also perfectly describes one of the reasons why Tesla is the benchmark for the industry. At the company’s core is a perfectly aligned IT landscape – internally as well as “externally” – with a high focus on customer needs. There is clearly more to the story of Tesla, but in this regard, they built their organisational structures with IT and the customer at the core, versus a classical engineering background found within most automakers. This enabled Tesla to gain a competitive advantage and become the game changer of the industry.

The focus on “renovating” their IT landscape offers the big industry players new business opportunities, but it also shows their need to build alliances with well-established technology partners that know the art of the possible. Some auto firms will have to go into renovation mode, defining their digital restructuring before orchestrating.

PLACING CUSTOMERS IN THE FOCUS OF INNOVATION

I was keen to hear the presentation of Volvo’s CTO, Henrik Green. Volvo is one of the industry players that understands the need to shift from the classical car business model towards a customer-centric one. The Swedes, who are part of the Geely Automotive conglomerate, have got two things right: For one, they have the right portfolio strategy with regards to environmentally friendly powertrains and a high focus on safety, with both strategies focusing on the EU zero-emission and zero-accident target for 2050. For another, they answer the need for flexible mobility services and aim to reform their dealer network.

Volvo recognised very early the shift away from owning a car toward getting a car via subscription (Care by Volvo) and on demand. Convenience is the number one priority: Customers want to be able to easily order/subscribe and cancel/unsubscribe, for example. In the future, Volvo will use their dealers as “agents” where you will only go to pick up your car and for maintenance, rather than for purchasing and contracting.

Due to progressing urbanisation and the growing purchase power of Generations Y and younger, the industry will drift away from car ownership and gravitate more toward on-demand car usage. Those OEMs who are first to develop a sustainable, scalable business model utilising their dealer network, and who make it convenient to buy on demand, will gain a significant competitive advantage. The car will need to be accessible within the consumers’ digital environment with as little friction as possible along their journey. Contracting, leasing, or monthly subscriptions for a car of your choice on social media platforms such as Instagram or TikTok are going to be expected by digital natives.

Thus, an “old & stiff” economy with significant heritage and business experience has to join forces with the “new economy”. Otherwise, they might become just hardware suppliers for the tech giants that already see the potential of the mobility space. It is no surprise that industry leaders like Volkswagen announced long-term technology partnerships with tech companies like Microsoft in order to get the necessary support with IT and Cloud.

STREAMLINING AND ENHANCING INTERNAL IT SYSTEMS

Talking about Cloud, another topic the automotiveIT Kongress touched on was the shift to fast product updates and shorter product lifecycles. “Functions on demand over the air” is the idea behind it. Again, Tesla is the benchmark here, and there is not only the pure customer benefit to it. Equipping each car with the same hardware ultimately results in lower complexity within a plant, production line, and for the suppliers. This also means lower costs regarding production time, logistics, and operational frameworks, also within the sales and marketing departments down to the salespeople at a dealer.

Granted, the overall costs per car will increase, but the advantages of lower complexity and the ability to continually drive business after the initial car purchase will make companies fit for the future. Their opportunities around CRM, loyalty, and brand experience will be bigger and easier to leverage as they are more connected, and data is being constantly evaluated. This leads to better personalisation, higher customer satisfaction, and higher brand loyalty.

Hence, a personalised sales experience in which customers will be able to seamlessly order, subscribe, and purchase mobility services in their digital environment is the ultimate strategic goal for the industry. The technological baseline for this is the “cloudification” of an OEMs internal processes and of their products. From my experience working in the auto industry, I know how basic many internal structures and IT systems still are today – if there is an IT-based system at all. Low transparency even within departments, few synergies between sub-brands, and still a lot of unfitting tools cost the OEMs millions of dollars each year.

Internal efficiency and productivity are, aside from CO2 compliance, the most important topics on the agenda of top executives. The shift towards costly BEVs or PHEVs in order to be able to continue selling very profitable ICEs does and will continue to cost the OEMs significant amounts. Therefore, internal cost reduction will be one of the measures to master this shift into an environmentally friendly product portfolio.

There are many opportunities here, since this change is needed in every department within the project world. Tools for marketing efficiency and automated competitor analysis can save a lot of resources in the day-to-day business. Scaling this globally could increase powerful synergies.

As mentioned before, the opportunities are endless and we’re still at the start of seeing these through – or something even better! If they start utilising easily accessible data, like monitoring the actual usage of each item in a car, then OEMs would gain a constantly running real-time market research machinery. This can provide a much better perspective for future positioning and R&D spending along the product development process. Customer-centric cost-saving potentials are key elements for future success in the auto industry as addressed by the speakers and attendees at the automotiveIT Kongress this year.

Pascal Binkert

Automotive Industry Senior Consultant

Pascal has 10+ years of experience in the Automotive industry, working in Product Management and Product Marketing with a major global car manufacturer before joining Endava. Through his worldwide work, he gained insights into Asian, American and European markets, and he learned to find the right balance between customer importance, brand strategy objectives and business efficiency. Outside of work, Pascal is a big sports fan, and he’s planning a grand adventure to visit all the best diving spots in the world.