Managing Director & Senior Partner
Digitalization and a host of societal and technological trends are transforming the automotive industry. Advances in autonomous driving, the Internet of Things, and big data analytics are redefining how drivers interact with vehicles and creating opportunities for innovative products, services, and business models. Urbanization, ubiquitous connectivity, and the embrace of mobile devices and social media, meanwhile, are giving rise to a mass customer base that is increasingly open to replacing car ownership with shared, on-demand mobility services, ushering in a new era of digital service solutions.
This convergence of forces is causing a paradigm shift in how automotive original equipment manufacturers do business and organize their companies. In the past, OEMs saw themselves primarily as providers of hardware. Now, they are beginning to evolve into providers of connected mobility solutions. Until very recently, OEMs interacted with customers mainly through intermediaries, such as dealerships. Now, they are recognizing the value and the necessity of engaging directly with customers throughout a vehicle’s life cycle and beyond.
To seize the growing opportunities in new digitally enabled businesses, automotive OEMs are looking to adopt the flexible, agile, and collaborative approaches that have succeeded in the faster-moving tech industry—and that have been adopted by such attackers as Tesla. These strategies include:
For most automotive OEMs, adapting to these new rules of the game will require a transformation of the organization. However, the traditional automotive manufacturing business will not disappear. The challenge will be to integrate the traditional business with the digital business so that they complement and work alongside one another.
To be sustainable and to ensure that all parts of the company operate in sync, this digital transformation requires a holistic approach. It should begin at the strategic level and extend through product offerings, the value chain, organizational structure, and mindset.
Virtually every major automotive OEM has begun to offer connected mobility services in some form and to adapt its organization to the digital era. But some are further along than others. While there is no one-size-fits-all template for what the digital automaker of the future should look like, clear patterns are emerging.
We see five topic areas at the intersection of the traditional automotive and the digitally enabled business that OEMs must be able to address: mobility, connectivity, autonomy, digital retail and services, and Industry 4.0. On the basis of our analysis of 20 automotive OEMs in North America, Europe, and Asia-Pacific, we also have identified four basic organizational archetypes, or stages, that major automakers adopt, generally in sequence, on their digital journeys: the opportunist, the transformer, the pacemaker, and the digitalist. (See Exhibit 1.)
An individual OEM’s position on this evolutionary path can be plotted along two axes. The first is its level of sophistication in digital activities—from small pilots to mature businesses—in the five topic areas. The second is the degree to which digital activities are synchronized across the organization. This can range from limited coordination to an organization in which digital is fully synchronized and ingrained, as it is in the tech industry. (See Exhibit 2.)
As their digital businesses become larger and more complex—and the need for cross-functional collaboration rises—automotive OEMs tend to move from opportunists to digitalists. They need not follow the stages in sequence to succeed in digital, however. The starting point will depend on the activity or technology the OEM is pursuing. And the speed required to reach the desired stage will depend on a company’s circumstances, capacity, and skills. The key is to ensure that the OEM’s organization fits its digital strategy.
In many cases, OEMs can successfully launch connected-car solutions, enter the digital retail space, and implement basic Industry 4.0 technologies while they are still at the opportunist stage. The development of self-driving cars, however, requires a greater degree of coordination across components and subsystems. It also requires a step change in software and digital capabilities, which must remain closely integrated with the traditional product development cycle. Therefore, OEMs typically need to have reached at least the transformer stage. Mobility services pose a fundamental challenge to the traditional OEM business model. Because they are in the nascent stage, they require both focus and agility. Consequently, many OEMs that are introducing mobility services at scale are following the pacemaker model.
Of all the automotive OEMs around the world, only one, Tesla, is in our view at the digitalist stage. The digital organization of another leading US carmaker is rapidly moving toward that stage: General Motors is reintegrating many of the services developed by its former digital powerhouse, OnStar—such as navigation, remote diagnostics, and subscription-based communications—into its core product development function. Leading German manufacturers of premium automobiles have established digital powerhouses. French and other US OEMs are in the process of doing so, but their organizations are less digitally mature. Most Japanese automakers are at the transformer stage but are in the process of reorganization. Most other Asian automotive OEMs so far are at the opportunist stage because they lack the internal capabilities and fast decision-making processes to succeed in digital mobility solutions.
The first step in reorganization is to develop a clear picture of what the car company of the future will look like and the factors that will be critical to success. What kinds of technologies must be mastered, and which capabilities will be required? A rigorous health check can gauge the current level of readiness for competing in each of the major topic areas: mobility, connectivity, autonomy, digital retail and services, and Industry 4.0. An OEM can then identify gaps between the company’s current capabilities and where it needs to be, as well as the roadblocks in the way.
We have identified seven success factors for digitalization. Their importance depends on where OEMs are in their evolution. (See Exhibit 3.)
Only if the whole organization supports digitalization, and achieves the seven key success factors, can an automotive OEM work in a fully digitalized way, as a technology company does.
As OEMs embark on the path to becoming a digital organization, executives need to ask themselves three questions:
The most successful automakers have already begun to refine their digital organizations to reflect the breadth and maturity of their digital businesses. OEMs in the vanguard are learning from companies in the technology and digital consumer product industries how to raise their game and build organizations that can deliver on the possibilities for new mobility solutions for customers. Automotive OEMs that embark on this journey now will be in a much stronger position to realize the enormous growth opportunities of the digital age.
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