Our Digital Transformation Race to Future (Auto-) Mobility€¦ · · 2016-04-01Our Digital...

Our Digital Transformation Race to Future (Auto-) Mobility

Agree? Disagree? A mend? Please share your thoughts w ith T. Kellermann (Partner) at Consult ing4Drive

1 Our Race Is On – Now! Our Race for future (Auto-) Mobility has been announced for quite some time, now. Battery electric vehicles. Hybrid electric vehicles. Alternative fuels. Automated Driving. And now: Connected Car. However, it is not obvious who is competing with whom: VW vs. Toyota? The German premium brands vs. the US big 3 (or 6)? Tesla vs. the gobal automotive establishment? Google vs. Apple? … And neither is it obvious, for what these players would be competing: The best product? The best connected car? The most customers? The most apps in a store from the same company? (just kidding) …



1.1 A Race Of Reciprocal Core Competences In prior months, we learned that heavy marketing of individual achievements in connected car and advanced drivers assistance systems (ADAS) has been disguising a simple truth: The race is on, but not between individual brands but between software driven companies vs. hardware driven companies. In our opinion, the core difference between all active players in this race is whether their company and cultural DNA is software or hardware driven. Automotive manufacturers: Software or hardware DNA? The world’s leading automotive original equipment manufacturers (OEM’s) have obtained the ability to build very good and safety critical software that is intended to remain constant in their vehicle products over lifetime. Our analysis found, however, that this does not constitute software driven DNA regarding the OEM’s development, decision and customer care paradigms. Tesla’s value proposition tries to address this void but while disruptive to the market; Tesla is still a niche player in terms of market penetration and portfolio.

Very few of the software driven enterprises have managed to build up a dual core competence for both: hardware and software. Apple is perceived to be one of the first exceptions. Apple has managed to combine hardware and software DNA in a single company. Google is clearly dominating the markets with its software DNA and an information “for free” business model. Plus: google is very active on a growing range of consumer products. However, hardly any of those products are market leading. By this measurement, we see google as a software driven company, but with high ambition to become more than that.

1.2 There will be two Finish Lines To This Race Yes two. Players are racing to define the future answer to the needs of

a) Universal Premium And Luxury Individual Driving Solutions b) Urban Green Affordable Individual Premium Mobility

Why two? Why these? Since the first motored vehicle, automotive companies have strived to engineer and build universal vehicles and physical premium services for it. At the same time it is true, that OEM’s portfolios now host an increasing number of derivatives. And one could argue that a two seated convertible is hardly universal in use. But take a step back with us and look at it from a different angle: Universal, Built to Sell & Service Vehicle The universal vehicles we create today are built to sell & service. This is the core of our current automotive business model paradigm. Universal refers to the fact, that regardless of the type of vehicle body (hatchback, limousine, station wagon, SUV, compact, coupe, convertible, etc.) all vehicles are meant to be universally drivable all over the planet. The owner has the freedom to choose what he wants to do with it, therefore it has to be engineered for universal use scenarios. OEM provided financing and leasing we see as attempts to stretch the “built to see & service” business model further than originally intended. But this strategy is about to reach its limitations: Ask any mobility provider today and they will tell you that all vehicles available, today, are sub-optimal for Urban Green



Affordable Individual Premium Mobility. Their functionality and total cost of ownership (TCO) is simply inadequate for the business model of shared usage based mobility services. Urban, Shared Economy Vehicles Vehicles for urban green affordable individual premium mobility will need a completely different architectural paradigm from today’s vehicles: “0” maintenance (all maintenance and operations risk remain with the manufacturer) rolling device (driver logs onto a master device, not connecting his smart phone to slave device), self-driving (ultimately autonomous), limited maximum driving performance and speed (50-60mph). limited range (less than 150miles) If this makes you think of de-contented universal vehicles, we can neither see sustained consumer value nor market success in this approach. Urban, shared economy vehicles are in our understanding the hardware part of a new category of integrated mobility solution: a rolling device. Rolling devices are specifically designed for urban shared service mobility. They are manufactured fit-for-purpose. And maintained with hardly any human intervention in the field. Rolling Devices establish the internet of things in mobility. Manufactured under the industry 4.0 paradigm. Managed by self-learning systems in the field with minimum human intervention. They are devices you log into, as opposed to connecting to it. They are master devices (not slave devices e.g.: a watch) that enable you to view and use your digital representation (which is held in to cloud) while you are mobile (i.e.: consuming mobility). Need For Both Solution Categories Based on our research and our project work with clients and consumers worldwide we believe that there will be a need for both concepts categories in the future. We also believe that they cannot share the same architecture nor platform; they can and should, however, share technologies and field resources. We still see a growing market for universal, built to sell vehicles across the globe. But growth rates will slow significantly over time, when new shared services vehicles will address urban mobility needs at a fraction of the cost (compared to individual mobility solutions of today).

2 Winning Digital Business It seems obvious to prognosticate that software driven companies will win the race for urban shared service mobility solutions, while established automotive OEM’s will win the race for Premium und Luxury Driving Solutions. We do not subscribe to this simplistic kind of “weather” forecast. An in commercial vehicles, premium spells cost of ownership and not the best money can buy. The race is on, because we believe that neither player in the software nor hardware driven category already has what it takes to make it to any of the two finish lines: Race Candidate A) Software Driven Enterprises Software driven, digital DNA enterprises usually exert their disruptive force by establishing a highly competitive and transparent digital market place between the consumer and the manufacturer/service provider. This mechanism disconnects manufacturers and service providers from a direct interaction with



their consumer at the critical time of the purchase decision. And: there seems to be little hope for recovery. Manufacturers and service providers need high investments in assets, know-how, processes. Digital market place companies are agile, non-asset, digital delivery with minimal human staff organizations. And when they manage to establish a trust value proposition, they will likely achieve significant market share in months, rather than years. e.g.: paypal (secure and fraud protecting money transaction), Airbnb (insured affordable temporary housing), Uber (individual low cost driving services), etc. Yet in order to win any of the two races or even both, software DNA companies have to solve a complex hardware puzzle: there is no successful blueprint for urban shared service mobility vehicles that you could contract manufacture from a third party. If you want to dominate the market, you have to engineer the future urban vehicle from scratch. You have to have a vision of what superior value proposition means to the urban mobility seekers. This know-how gap takes time to fill and due to the variety of options on how to do it, a difficult debate is needed before investments in real product development are signed off by software DNA company. Race Candidate B) Automotive OEMs Manufacturers know how to engineer and sell perfect hardware. But changing the nature of the product from universal, built to sell to urban shared service is a risk in terms of market perception and positioning: will consumers still perceive the urban vehicle as “premium”? Does it the OEMs legacy regarding brand positioning fit the new value proposition and mobility solution? The risk of losing what you have already achieved is perceived as so high that is has significantly inhibited innovation of leading OEMs in the past few years. And in addition, past investments in technologies, esp. telematics und electric/electronic architecture of the vehicle have limited options they have for tomorrow. The compromise so far was to invest in connected car concepts. The step to leave legacy architecture behind and to embrace a rolling device architecture for a new line of integrated mobility solutions was too big, until now. The biggest challenge we see, however, lays in the OEMs’ self-perception. It lays in the fact that they believe that they are very close to being a software driven company. This misinterpretation originates from the fact, that several hundred people in every OEM organization already create very good software, every day. And in the same line of thought, we find that the fact that OEMs compile petabytes of field data every day does not constitute a big data company. Many legacy IT organizations believe they are prepared to facilitate big data solutions, because of their BI (business intelligence) competence from the past. We found that the disruptiveness of digital solutions often lays in the industrialization (i.e.: the mass series solution): “0” cost per transaction and a delivery time in milliseconds are the two most radical leverages which proof of concept projects (P.o.C.) fail to deliver to. Most P.o.C.s we see, spend all of their energy on proving the consumer functionality (which in most cases is rather trivial). But they fail to give an answer to infinite scalability and flexibility. To us, a show case is a proof of consumer functionality – a lighthouse initiative is an endeavor to create a series solution (i.e.: a new “industrialization” concept) with digitally enabled, infinite scaling & flexibility. The industrialization is the part of the concept, where all business cases that were “red” come together to form one (!) integrated solution and suddenly turn “green”, when you do it right. If you as a management team are not able to distinguish those two categories, you underestimate the challenge, the amount of resources and money needed to form a winning team for the race ahead. Experience shows, that this misconception is based on a central unsolved challenge: a structured, detailed, and discussable roadmap to digital transformation which can be shared and agreed between



leadership team and the subject matter experts. A discussion format which sheds light on the interdependencies of digital transformation and which allows participants to argue over the best concept, regardless of hierarchy.

3 Key Perspectives of Digital Transformation The term digital transformation is used on many occasions but many times it is unclear what it meant. This is what we believe the term should refer to: The sum of all change activities in a hardware driven company that redefine strategy, competences, processes, offerings and corporate culture for a future combined hardware/software driven company. Digital transformation is so complex in content and interdependencies, that managing this complexity becomes a major task in its own right. We found it very helpful to clearly separate one perspective from another and discussing them with an agile and iterative mindset. Specifically these actions are clustered in the following action areas: Consumer Perspective: Consumer Value Proposition (ease of mobility, luxury vehicles, premium driving solutions?) Intimate, detailed understanding of current and future consumer use cases in the field (>100 cases!) Leadership Perspective: Target Solution Scheme (cross functional blueprint of all transformation activities) Structure and format for discussing and communicating digital transformation activities Decision / experience room where integrated digital solutions can be “test driven” before decisions A completely new, digitally driven product management & field data requirements process Business Model Perspective: Integrated value creation stream with pricing model and open collaboration concept for universal premium and luxury individual driving solutions and/or urban green affordable individual premium mobility Required Competence Perspective: Concept to establish new competences for digital transformation initiation and execution Mid- and long-term roadmap to establish competence as competitive advantage Concept of security and governance as new business core competences Competences, Methods & tools to manage software complexity as opposed to reducing them IT Architecture Perspective: 2 speed IT delivery concept Separate leadership and collaboration concept incl. open collaboration roles & responsibilities Vehicle Architecture Perspective: Completely new HMI with maximum ease of use and reduction of complexity for ADAS A new E/E architecture and telematics for a rolling, high ADAS device (not connected car) A profoundly new, digitally driven virtual development process for vehicle hardware which delivers in half the time, from today (24 month vs 48 today) (more perspectives and details available on request) Experience shows, that successful companies structure their digital transformation programs around establishing the new ability of digital delivery. The reason for this is, that a successful digital business model needs a highly scalable, “0” $ per transaction delivery process. Consumer use cases form a



secondary matrix in this organization. Why secondary? Because there is no single “break-through” use case. The magic lies in the industrialization scheme which in turn enables an endless stream updates and new little features. Not individually, but as a whole they create the huge value proposition which the consumers perceive and buy into. 2 Speed Business For many years now, thought-leaders have pushed for a “2 speed IT” organization. This is beginning to take shape in the industry. We believe that the same is true for business: we are in desperate need for a second, independent organization which is not bound to the corporate super tanker processes and a corporate culture that is optimized to grind down any disruptive innovation idea to tiny, evolutional crumbles. Companies who maintain their current functional structure / project matrix and let consumer use cases be the primary project force tend to get stuck in “negative business case per use case” discussions and fail to deliver price optimal industrialization schemes that create a competitive advantage to the entire company or group – i.e.: an integrated digital business model for the (auto-)mobility industry. Without a high speed business organization, established corporate business organization will remain in their comfort zone of doubting new digital approaches, slowing down decision processes and forcing compromise on the lowest common denominator – as opposed to pushing for the best new solution, the biggest common multiple, so to speak.

4 Our Fuel Of Change – The Second Operation System Heart, hand and mind. So simple, so difficult: To start the transformation, the people in our organization with a burning desire to create a brave new world of solutions have to come together in a network of entrepreneurial volunteers. They must not be selected or ordered to participate, because of their title nor rank. Non-believers will stall the entire team by explaining why things will never work. They are the drop of oil, that spoil an entire body of potable water. In our network team, we need a healthy mix of “doers” and “thinkers”. In a matter to complex, we often fail to “think it through” in due time. We need an “act culture” to start fast and then adapt. But we still need our thinkers to help us create perfection. The discipline to aggregate all little aspects into one bigger scheme – a big picture, a seamless value creation chain, an integrated business model, a digital strategy for success – comes from the mind. Again, this in many cases we find undervalued in What does it mean to a leader? Are you a leader in a digital initiative? Congratulations. And our condolences (just kidding): Because chances are, you may misinterpret what leadership is in a digital team. It is the opposite of what it is in a line organization. In a line organization you became a leader because you have better experience, better competence and a broader, more strategic perspective than your peers. You are a decision machine. In a classic organization, you have become a leader because you had better skills, more experience, better processes and knew better than you peers how to get your team to the top.



In a digital entrepreneurial team, you are a member. Assume you know less than your peers and have zero experience and what you try to accomplish. At best, you hold one piece of the puzzle or a few, and the others all the rest. “No single person knows the answer” is a pretty plausible mantra. The team – if well assembled – will create the answer from their individual competences. As a senior execute you don’t know your ways in digital. But this is no deficiency – no one does – it is mostly uncharted territory. So leave your “I know what to do” attitude with your line job and open your mind. In a digital entrepreneurial team, it makes sense to use your experience, wisdom, seniority, broadness of perspective to foster the unthinkable. Teach your peer to believe in your vision and teach them to overcome fear and uncertainty. Protect the spirit of innovation. Use your network to attract more talent. Demand excellence, where the team is tempted to slip into complacency. Add fuel to the fire of change and help move people out of the way of the future who persist that yesterday was good enough. Yesterday is never good enough for tomorrow. That we know, for sure.

5 Judge And Jury – Who Sets The Stage? The jury – in our firm opinion - is the consumer. Consumer. Not Just Customer. We change our wording here from customer to consumer for two reasons

a) We believe that shared service mobility is about consuming, not necessarily buying. Potentially even consuming free of charge (see google’s or facebook’s business model). The term “customer” in our mind is too closely associated to old economy, where becoming a customer was a process of hours or days that involved physically signing contracts. Consuming in the digital world a purchase usually takes less than a second in is constituted by a tap to agree the T&C’s or a fingerprint confirmation.

b) The power of non-customers to influence a market offering through social media opinion sharing has grown so immense that we think it would be foolish to believe that the job is done when a customer has signed. Whether we like it or not: every bad comment on the internet will be of an OEM’s concern – customer or not.

Over their past market success, many automotive companies have given in to the temptation of starting a product ideal with the sentence: “what’s in it for me?”. The question of the value proposition to the consumer in many cases was not taken seriously enough and top management too often preferred business projections to customer value. We find that this faulty mindset is the root cause of most failed feature-by-feature business case style solutions that never to succeed in the market. Consumer value is the start and the end of any business model. Income thus is the result of value. A sentence that is so common sense that we have to re-apprehend it. Digital Business Model When consumer value is high, there is potential to make many from it. But there is a catch: in a digital economy, money in many cases cannot be collected from the consumer at the point and time when a service is rendered. In order to be successful in this type of a “for free” world, companies will need an integrated business model where money is collected at the points of low consumer price sensitivity and in collaboration with partners for a constant stream of creative value propositions (open business model), thereby sharing the innovation risk while increasing volume and speed of execution.



The Judge The “judges” of what is allowed and what not, will be the legislative bodies in all global regions. They will amend current rules and regulation for emissions, privacy, information security, automated and autonomous driving, and many other areas of relevance to society. It believe it would be a misunderstanding that rules & regulations will be established first and then innovation will follow. It is the other way around: we have to be innovative about future solutions and work closely with legislative bodies and how to set standards and how to measure compliance. Hopefully, this does not mean trial and error but a systematic effort. To be successful, this effort has to be conducted an agile and iterative mindset throughout the team and all hierarchies. One key factor here is not to center your company’s strategy around the most restrictive region. Center it around the most innovation friendly legislative region and scale down for more restricted regions. Again, a simple change in wording leads to a tremendous change in mindset.



6 Are You / Is Your Company Prepared? There is a lot of difference between being ready and being prepared. As established automotive heavy weights, all manufactures are prepared and ready to compete in their classic race for the best and safest premium automobile hardware. But this race will be held under new rules: Questions you should ask yourself What is my company’s DNA, today: hardware driven or software driven? Be honest. Do I have a company-wide, specific, detailed, overall solution scheme for the digital

transformation process ahead? Do I have a dialogue format at senior management level where digital solution concepts can be

discussed on a regular basis in detail, without the pressure of instant decision or progress? Am I investing my money, resources and ingenuity into proving, that the companies past

decisions were correct or…into new, ground breaking consumer value propositions that may not turn a single dime at the point where these services are consumed?

How many senior executives have understood that we need to lead two separate business streams simultaneous, from now on:

Maintain existing (old) business model -> focus on maximum efficiency & minimal investment Build up new business model with new skills and completely different approach for

industrialization --> create new radically individual, flexible and scalable value propositions for every mobility consumer on the planet

Do we have the critical amount of entrepreneurial capabilities in our leadership team? Have we created sufficient change within out organizational culture to Are the different activities in my company really tied together in a well lead, broader scheme or

are they just incidentally happening in parallel? If the honest answer to those questions makes your stomach turn as a responsible senior executive here is some good news: if you are not prepared today, you are running about average. It is a race. It’s on. It will continue for some time. The bad news: every month counts from now on. Even indecision is a decision that will inhibit success, three years from now. Fragmented, uncoordinated transformation activities will yield very high task force costs when it becomes apparent that partial solutions won’t work together. It is human nature to simplify when it becomes complex, to stick to what you know when confronted with the uncertain or the unknown. To avoid risk. To revert to small steps, rather than to prepare and execute few but big steps. Whether your strategy is to lead or to follow – it all starts with a consumer value proposition and ends with an intimate understanding of our business model and how we want to transform it for market success in an increasingly digital world. Do you Agree? Do you Disagree? Do you wish to amend? Share your beliefs and findings with!



7 About Consulting4Drive Consulting4Drive is an automotive consultancy which specializes in strategy transformation. Speeding-up innovation, successfully engaging markets, boosting performance and optimizing costs along the value creation chain are the four areas of C4D competence. Consulting4Drive is a wholly owned subsidiary of IAV, one of the leading engineering service providers with over 6,000 engineers and competencies for the entire development of commercial and passenger vehicles. Your benefit from working with Consulting4Drive and IAV is the strong combination of both: strategy excellence and engineering excellence. More competitiveness in less time and at a superior cost/result ratio are your advantage. The C4D leadership team is very senior and combines technical, business and IT understanding to boost your company’s success. Timm Kellermann is a Partner at Consulting4Drive with over 20 years of experience in consulting and line managing roles. Before taking over his current role in 2008, Timm has worked for Daimler, Hewlett-Packard and BMW Group in various global transformation programs. He is the author of this draft for discussion and your contact person for digital transformation.

Our Digital Transformation Race to Future (Auto-) Mobility€¦ · · 2016-04-01Our Digital...

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