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Transforming Automakers Into Connected Platform Makers

William Newman

I love January. As the saying goes, “New Year, New You.” And new cars. Lots of new cars, announcements and demonstrations of how the car will evolve with new features, content, and systems.

This year the volley started early, with huge announcements in week 1 at the Computer Electronics Show in Las Vegas, and it will continue in weeks 2 and 3 the Automotive News World Congress and North American International Auto Show in Detroit. There are some megatrends emerging from these recent announcements and from research SAP has conducted over the past six months, which will become available through social channels over the course of 2016.

Economically, a number of factors are at work. With the fall of crude oil prices and other commodities, and North American volumes hitting pre-recession levels of 17.5M units in the passenger vehicle segment, growth is expected to continue. However, it will be a different kind of growth, based on the evolution of the value chain and the expectancy that global AGR levels will taper from 7.8% (from 2009 to 2015) to 2.8% (from 2016 to 2020) according to IHS, and the retention length of vehicles rising to over 12 years on average. OEM consolidation will also likely follow in the next decade to help keep growth moderate and remove industry structural costs.

The future of the car is changing as well. Cars are evolving from mostly mechanical, metal-based vehicles to a connected set of component platforms, plastics, and next-generation materials, essentially becoming a rolling data center providing safety and entertainment going from Point A to Point B.  Social acceptance of a fully autonomous vehicle – and the regulatory environment supporting that – is likely 5 to 10 years out based on current forecasts (OESA, CAR). However, a connected vehicle – depending on your definition of “connected” and which services that uses – is here today, both on the public highways and in prototype communities like M City.

What does all of this mean for automotive OEM and supplier customers? It means companies have significant choices in product design, value chain placement (and respective participation), and customer experience to define the organization for the next few years to come. Last year I asked executives, “Are you buyers or sellers?” This year I am more likely to ask, “Are you a platform maker or owner?” as makers and innovation will rule the ability of OEMs and suppliers to not only have the profit to make acquisitions but also determine the position of the portfolio in the value chain where they will drive content. Content is profit, and profit means growth. And growth means you survive and prosper in an ebbing business cycle.

Here are some disruptors coming out of this month’s automotive announcements.  As more become available during the month (or as forecasts change, which of course they will) I will update this post.

  1. Technology is not the long pole in the tent. Regulatory needs to catch up. The big database technology to manage petabytes (1,000 terabytes) of information such as music, images, maps, and consumer behavior is already here. How we use these – based on location-based privacy and social norms – and what we are able to implement in products – based on regulations – have only partially been defined. This is a real bummer to consumers and tech-savvy developers, who essentially are releasing only parts of consumable disruption based on business environments. Uber, for example, has taken its disruptive model to court in a number of cities and states, and won. Google has sent its driverless, autonomous vehicles to a number of cities with some relative success. Are we ready to give up control of our driving abilities? Not yet. In Michigan you can’t take a driver’s test at the Secretary of State office using a park assist vehicle to parallel park. Clearly, we aren’t there yet.
  1. The notion of a vehicle platform and how it scales and connects has changed. Typically a vehicle has a number of trim packages, platform sizes, power plants, and features. When a manufacturer builds to a variable platform, usually the platform itself is constant down an assembly line and the features and cosmetics adjust per spec of the vehicle. Faraday Future’s announcement at CES of the FFZero1 platform for variant configuration, where the platform itself can stretch and modularly accommodate different power plant designs (e.g. battery pack stacking), has the potential to change how vehicles are designed at the platform level. Also at CES, Delphi announced its vehicle to everything (V2E) platform, allowing vehicles to sense devices, social behaviors, and “things,” an example of how automotive suppliers are moving to become “connected platform makers.” Other suppliers such as Bosch are developing their own platform to connect devices, components, homes, and information. And GM announced a major $500M investment partnership with Lyft to enable fleet connected B2C vehicles. Being able to scale physical and information platforms using very large data sets with consumers is key to transformation success.
  1. The aftermarket segment will collapse, and everyone wants a share — and for you to love them. The bidding war over Pep Boys is likely the first of many acquisition plays and direct-to-consumer moves by auto parts suppliers to converge its OE and aftermarket businesses. With each stage of the aftermarket value chain adding a full price share of margin from one step to the next (usually 80-100% of margin per value chain step, according to the Automotive Aftermarket Supplier Association), it’s no wonder that auto part makers want drivers to access their products directly, to harvest margin otherwise flowing through more expensive OE dealer channels. Will drivers who hold vehicles longer buy directly? Most do already, through eBay, Amazon, NAPA, and AutoZone, to name just a few of the big players. Often this competes with OE interests to leverage their own proprietary dealer networks. How suppliers go after this high margin space, and how they communicate brand interest and customer experience to drivers who normally buy through dealers and distributors, will be key to success.

Platform makers OEMs as well as suppliers – will garner market share moving forward. Tesla, Google, Faraday, Bosch, and Delphi (among others) have stated their interest and staked their claim as disruptors owning a platform,  not necessarily as classic car companies. Companies that are unwilling to digitize their product portfolio along with their business operations and unleash new platform business models will be relegated to “seller” status as we move toward the 2020s.

Based on these and other mega-trends, automakers and suppliers must stake their claim now in order to build their financial assets and continue growth throughout this decade and beyond.

For more on what the future holds for the automotive industry, see Why This One Decision Will Make Or Break Automakers In 2016.

This blog originally appeared on the LinkedIn Pulse

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William Newman

About William Newman

William Newman serves as Industry Value Advisor for SAP’s Midwest Industry Value Engineering team with a focus on digital strategies and transformation in automotive and discrete manufacturing. He brings more than 30 years of experience in strategy, transformation planning, and value realization across multiple industry sectors including automotive, aerospace, industrial machinery and components, and high tech.

Beyond Smart Cars: Smart Car Production

Larry Stolle

By now we’ve all heard of smart vehicles, which are cars that are enabled with sensors, networks, communication interfaces, and other tools. These will one day replace more accident-prone human drivers. The result? Safer, more efficient roads.

Of course, driverless cars are not infallible; recent minor crashes of Google’s self-driving car prove that. Still, the concept of cars that talk to one another is powerful, and could reduce accidents and traffic and improve road performance.

These visions of the future go beyond cars that know how to accelerate, brake, and turn for you. They also extend to the production of these newfangled cars. Believe it or not, how we manufacture cars matters a great deal to their efficiency. Transformations in automotive manufacturing software, computer crash simulation technology, and automotive industry standards will play a major part in the cars of the future.

Below we’ll look at the most important aspects of new car production. We will consider the role that smart plants will play and how logistics will change the building, scheduling, and maintenance of cars. We will also consider what supply-side coordination means for the auto industry.

Smart plants

Building better cars is about more than ensuring they’re safe and effective on the road. Automotive quality management starts at the plant.

Automotive industry trends are headed toward “smart plants.” These will use vehicle analytics based on sensor data to construct better vehicles. Each iteration will use information from the previous one to ensure smarter, safer cars. Car design software will coordinate spare parts, work, and logistics. A digital automotive network will enable better service and coordination with plants.

The systematic management of data offers other perks as well. Auto designers will have greater visibility of plant operations as well as better remote monitoring and control. They will also experience better production systems and faster issue resolution.

Logistics

Cars are multifaceted objects, and their production requires massive coordination of information and data. Even the environmental friendliness of hybrid cars has been called into question. This makes it important to create cars that reduce environmental impact and solve problems. One way to do this is to be smarter about the production process.

Logistics are a crucial part of any operation. The automotive network logistics hub will need to manage vehicle-related inbound and outbound traffic. Distribution, upgrades, and servicing will be carefully tracked. This will enable more efficient processes at the plant and at the service level. People will receive cars that match their needs sooner. They will also enjoy faster, smarter service.

Other benefits: Each customer or single point car dealer will be able to track cars and parts with ease. This enables better warranty and claims management, keeps customers happy, and ensures better relationships at the dealership level.

Both inbound and outbound logistics will rely on company or cloud-based systems. Automotive enterprise resources planning software will be crucial to production and commerce. Automotive supplier relationships and the automotive manufacturing process will both depend on smart software. It must meet the needs of manufacturers, dealers, and customers.

In order to best meet these needs, supply-side coordination will be crucial.

Supply-side coordination

Matching supply and demand is critical to a well-functioning automotive industry. It can ease market volatility and reduce inventory that is dormant with high carrying costs. The effect is better procurement and distribution. This helps reduce waste and dissatisfaction all around.

The definition of supply-side economics holds that the best way to create a booming economy is to make it easy to produce goods and offer services. We believe it is more complicated than that. Coordinating automotive suppliers is key: Smart plants must talk to dealers, dealers must communicate with customers, and all must use data from service providers. This offers the best chance of a robust, streamlined, and waste-free economy.

Automotive product life-cycle management will also benefit. Tracking each stage of production, sales, and use is crucial, offering information about what works and what doesn’t. It will help providers tweak models or completely reimagine them. And it will enable various manufacturers to work together toward common goals.

Traffic safety is one example. The National Highway Traffic Safety Administration collates vast quantities of traffic data every year. Coordinating this data with supply-side efforts will make cars safer from the get-go.

In other words, ensuring the automotive industry offers the right supply will make roads a safer, smarter, better place to be.

A budding future

To learn more about digital transformation in the automotive industry, click here.

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Larry Stolle

About Larry Stolle

Larry Stolle is the senior global marketing director for the Automotive Industry at SAP. He has over 45 years of experience in the automotive industry with experience, ranging from dealerships to manufacturers and importers to technology companies such as IBM. Stolle currently holds two patents for dealer and manufacturer communications and for quality insights.

How The Digital Age Is Driving Auto Industry Transformation

Chet Harter

Few companies are more dependent on technological sophistication than those in the automobile industry. As fast as digital technology is developing, savvy consumers still want more. But consumer demand is just one of the drivers pushing this transformation to digital. Others include Big Data, itself. Mobility and connectivity also play major roles as transformation drivers.

Consumer behavior

From design to retail sales, the auto industry is transforming faster than ever. Consumer demand drives this rapid transition through digital marketing. Consumers have access to this marketing anywhere and anytime at their discretion. When they feel ready to dig deeper, consumers can research vehicles online. They can even set up the vehicle purchase online through franchised distribution channels.

As Big Data makes more information available to them, consumers can take part in communication and collaboration all along the value chain. They can take advantage of value-added services from adjacent industries like the travel industry. And most important of all is their fascination with in-car connectivity and vehicle telematics.

Connectivity

Today’s consumers enjoy high levels of connectivity. These levels stretch the limits of innovation. New vehicle buyers are experienced with social media and smart devices. They want and expect these things in their cars. And not only are consumers connected, their vehicles are connected, too. Today’s cars share connectivity with their drivers and with other vehicles. They are connected to external networks such as General Motors’ OnStar monitoring service. This trend will only continue to develop further.

Our cars can now diagnose their own problems and warn us of them as the problems develop. Vehicle insights and analytics create and protect value for the consumer. As these are demanded by consumers, they also create value for the companies producing the vehicles.

KPMG, a professional auditing service in The Netherlands, conducts an annual survey of auto industry executives. Their 2016 global survey indicates that connectivity is one of the three most urgent imperatives for industry decision-making.

Connected consumers have access to a range of new technologies and information. This connectivity creates an omnichannel of seamless experiences in-car, online, and everywhere in between. We are rapidly moving toward a time when we will have connected fueling, connected parking, and automated payment systems. We will have connected electric vehicle re-charging, vehicle reservations, and payments.

The U.S. Department of Transportation (USDOT) estimates that vehicle-to-external connectivity could prevent 70 percent of vehicle crashes. And revenue from connected vehicles is expected to grow to $36.6 billion by 2025.

Digital data

Data itself is driving much of this transition. Big Data provides information on a wider scale. And vehicle data drives a need for sensors and in-car electronic monitoring devices. Portable computers interface with the consumer’s vehicle for data recording and transfer. And our vehicles are rapidly moving toward a time when the vehicle itself will be an extension of data. They will be data-connected vehicles in an automotive network of information. We are already seeing subscription services based on multi-channel access.

Autonomous vehicles are on the horizon. They are already warning drivers and taking control when it is necessary. They are monitoring and relaying information in real time on safety issues. They offer predictive data about other vehicles and traffic situations. In-car technologies already include cameras, maps, software, GPS, radar, and lasers. When enabled, automated driver assistance systems can take over in emergency situations.

The end point in this progression lies in the self-navigating driverless vehicle. These are not far off in the future. The multinational management firm, Boston Consulting Group, says the market for these cars may be worth $42 billion.

Mobility

Intelligent and agile transportation networks have changed the auto industry’s concept of mobility. There has been a shift in focus from products to services. We are seeing increasing demand for services that bundle mobility with other ancillary service offerings. These integrated mobility services become shared experiences, shared services. Mobility is now just-in-time and on-demand. We are beginning to see individualized mobility for both short distance and long-haul situations.

International management consulting firm Oliver Wyman predicts that there will be up to $100 billion potential value in mobility services.

The future: Where is this taking us?

Is there a down side to all of this? Yes, there is, but it is just one of many hurdles that the industry is fighting to overcome. The idea of driverless cars is not attractive to people who enjoy driving their cars. This, however, is just one factor in a volatile market situation.

But the upside is considerable. There will be tremendous improvement in traffic safety. Traffic deaths will plummet. The insurance industry will save billions of dollars in costs.

Besides, there is no stopping this future. The automotive industry value chain is already in transition to a digital network. It is already approaching the next-generation ecosystem. The logical prediction is that fairly soon, at least some vehicles will be driverless. To meet these growing industry demands, automotive companies are re-imagining their business models. They are looking to the future.

To learn more about digital transformation in the automotive industry, click here.

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Chet Harter

About Chet Harter

Chet Harter is a member of Industry Value Engineering at SAP and is the North American lead for Automotive. For over 12 years, Harter has helped many of SAP’s OEM, supplier, and dealer customers in the automotive, truck, and heavy equipment segments apply new technology to address current business issues and opportunities. Prior to SAP, he spent 12 years in various positions in materials and production management for global tier 1 supplier companies.

How Much Will Digital Cannibalization Eat into Your Business?

Fawn Fitter

Former Cisco CEO John Chambers predicts that 40% of companies will crumble when they fail to complete a successful digital transformation.

These legacy companies may be trying to keep up with insurgent companies that are introducing disruptive technologies, but they’re being held back by the ease of doing business the way they always have – or by how vehemently their customers object to change.

Most organizations today know that they have to embrace innovation. The question is whether they can put a digital business model in place without damaging their existing business so badly that they don’t survive the transition. We gathered a panel of experts to discuss the fine line between disruption and destruction.

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qa_qIn 2011, when Netflix hiked prices and tried to split its streaming and DVD-bymail services, it lost 3.25% of its customer base and 75% of its market capitalization.²︐³ What can we learn from that?

Scott Anthony: That debacle shows that sometimes you can get ahead of your customers. The key is to manage things at the pace of the market, not at your internal speed. You need to know what your customers are looking for and what they’re willing to tolerate. Sometimes companies forget what their customers want and care about, and they try to push things on them before they’re ready.

R. “Ray” Wang: You need to be able to split your traditional business and your growth business so that you can focus on big shifts instead of moving the needle 2%. Netflix was responding to its customers – by deciding not to define its brand too narrowly.

qa_qDoes disruption always involve cannibalizing your own business?

Wang: You can’t design new experiences in existing systems. But you have to make sure you manage the revenue stream on the way down in the old business model while managing the growth of the new one.

Merijn Helle: Traditional brick-and-mortar stores are putting a lot of capital into digital initiatives that aren’t paying enough back yet in the form of online sales, and they’re cannibalizing their profits so they can deliver a single authentic experience. Customers don’t see channels, they see brands; and they want to interact with brands seamlessly in real time, regardless of channel or format.

Lars Bastian: In manufacturing, new technologies aren’t about disrupting your business model as much as they are about expanding it. Think about predictive maintenance, the ability to warn customers when the product they’ve purchased will need service. You’re not going to lose customers by introducing new processes. You have to add these digitized services to remain competitive.

qa_qIs cannibalizing your own business better or worse than losing market share to a more innovative competitor?

Michael Liebhold: You have to create that digital business and mandate it to grow. If you cannibalize the existing business, that’s just the price you have to pay.

Wang: Companies that cannibalize their own businesses are the ones that survive. If you don’t do it, someone else will. What we’re really talking about is “Why do you exist? Why does anyone want to buy from you?”

Anthony: I’m not sure that’s the right question. The fundamental question is what you’re using disruption to do. How do you use it to strengthen what you’re doing today, and what new things does it enable? I think you can get so consumed with all the changes that reconfigure what you’re doing today that you do only that. And if you do only that, your business becomes smaller, less significant, and less interesting.

qa_qSo how should companies think about smart disruption?

Anthony: Leaders have to reconfigure today and imagine tomorrow at the same time. It’s not either/or. Every disruptive threat has an equal, if not greater, opportunity. When disruption strikes, it’s a mistake only to feel the threat to your legacy business. It’s an opportunity to expand into a different marke.

SAP_Disruption_QA_images2400x1600_4Liebhold: It starts at the top. You can’t ask a CEO for an eight-figure budget to upgrade a cloud analytics system if the C-suite doesn’t understand the power of integrating data from across all the legacy systems. So the first task is to educate the senior team so it can approve the budgets.

Scott Underwood: Some of the most interesting questions are internal organizational questions, keeping people from feeling that their livelihoods are in danger or introducing ways to keep them engaged.

Leon Segal: Absolutely. If you want to enter a new market or introduce a new product, there’s a whole chain of stakeholders – including your own employees and the distribution chain. Their experiences are also new. Once you start looking for things that affect their experience, you can’t help doing it. You walk around the office and say, “That doesn’t look right, they don’t look happy. Maybe we should change that around.”

Fawn Fitter is a freelance writer specializing in business and technology. 

To learn more about how to disrupt your business without destroying it, read the in-depth report Digital Disruption: When to Cook the Golden Goose.

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Our Government's Legitimacy Is In Danger

Hein Keijzer

It is a growing phenomenon: Governments are gradually losing support from their citizens. Citizens in European countries are also becoming disillusioned with their governments. This calls for a drastic improvement of the services provided to the most important and sole shareholder of the government—the citizen—because the government’s legitimacy is at stake.

Citizens’ confidence in government has been waning for some time now. There are reasons why populist and eurosceptic parties  have been gaining votes over the past years. The government must do everything within its power to win to rebuild confidence, and not just by fulfilling its basic tasks, because a feeble six can no longer save the parliamentary democratic system.

The victory of populist parties is the beginning of the end of the current democratic order. It is very likely that these parties will not participate in the government, because the other parties will mostly exclude them. As a result, the chasm between citizen and government keeps growing, creating a situation that reinforces itself and that holds very little chance of success in the future.

The base

We must return to the base to touch on the core of the problem. Western governments are complex bodies, but the basic idea behind them is rather simple: Citizens pay tax to a central, democratically elected system. In return, they expect basic services such as security, education, physical infrastructure, healthcare—and in the case of the Netherlands, dry feet, i.e. protection against water. It is not unreasonable to expect a western country to provide at least this bare minimum.

But this is where things is going wrong these days. Every country is dealing with at least one case in which the tax payers’ money is not allocated correctly. The Panama Papers is a recent example of this. The term cover-up often does not apply anymore, because civil servants are no longer even capable of hiding the chaos in a cover-up. These days the media are capable of making the content  of the cesspool available to the public in no time. A ministry that cannot manage its internal affairs has even more trouble proving its legitimacy to society.

The government must not only deal with organizational problems; mentality comes into play as well. Many governmental institutions see the taxpayer as such: a taxpayer with mostly obligations. This mindset need to change. It is time for a customer-centric approach: The citizen is the customer, and the customer is king. As is the case with the boardroom of a commercial party where shareholders cannot get away with mismanagement, the government should not be able to get away with mismanaging the assets of their sole shareholder: the citizen.

This approach requires a number of very strong measures:

1. Earnest use of apps and social media

In the past it was necessary to go to an office and make an appointment in order to communicate with the government. These days, social media allow for much more efficient communication. Governments can use apps and social media—potentially—to more quickly discover trends, indicate problems, and communicate with citizens. Now digital communication is mostly housed in separate departments. This is not sufficient for the much-needed model in which the citizen is the shining center of the services provided. Communication with the citizen should be at the core of the organization.

2. Make the policy completely transparent

Backroom politics and convoluted decision-making are no longer feasible. Citizens are entitled to the best possible access and information provision. The government has come a long way with open data, but is still very far from doing enough.

3. Clear communication

It is the duty of a good service provider to communicate clearly with its client. This also applies to the communication of the government with the citizen. Unfortunately, this fails all too often. Vague, official language and unclear wording are the order of the day. If a citizen does not understand the government, it creates a wedge. Civil servants should be forced to follow compulsory courses on clear communication on a B1 level. This is an official language level that is understood by the majority of the population and is effective to communicate messages in a clear way.

4. Smarter information linking

The government knows a lot about their citizens, but this information is not linked well or not linked at all. As a consequence, the government does not know anything about us at all. From a privacy point of view, this is of course not unattractive, but it is disastrous for the provision of good services.  The government cannot think with us if it doesn’t know who we are, if it doesn’t know our preferences and our problems. In order to achieve this, systems and an integral data policy must be connected, for one version of the truth. I provided a few examples of this in my previous blog.

Unfortunately these four points are still far from reality. This isn’t the first time that I have broached these problems. The communication between the government and the citizen is often very difficult. There are few apps, and the government uses social media in a very reactive way. It is not rare to only receive an answer after a few days. Smart connections between citizen data points are missing. Many governments are developing the majority of their IT solutions themselves, and barely believe that integration via standard solutions is possible. The government’s outlook is inward and doesn’t change, because there is barely any staff turnover.

Governments could follow the example of the Australian government, which started a digital transformation with a genuine Digital Transformation Office. Its primary focus is efficient and transparent service provision toward the citizen. Its motto: “Simpler, clearer, faster public services”—an easy but meaningful statement. It touches the core of what has to happen here as well.

The gap between government and citizens will not close on its own. A digital transformation is unavoidable if the government wants to stop the downward trend and not lose its legitimacy completely.

For more insight on digital transformation in the public sector, see Unlocking The Benefits Of Digitization For Governments.

 

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Hein Keijzer

About Hein Keijzer

Hein Keijzer is customer solution manager for the Public Sector Business Unit at SAP Nederland. After his education in Applied Economics and Public Administration, Hein worked for the Dutch Ministry of Finance, Budget Affairs directorate, and since 2000 at SAP. Connect with me on Twitter @heinkeijzer or <a href="https://nl.linkedin.com/in/heinkeijzer"LinkedIn.