2019: The Tipping Point For Automotive

Reiner Seiz

With just a few days left in the year, many of us are scrambling to wrap up 2018 with a nice bow. The most important part of this process is reflecting on the successes and challenges we’ve experienced and determining what they mean for the year ahead and beyond. And those of us involved in the automotive industry are no exception.

What should automotive industry players consider for 2019? Here are few of my observations.

1. IT integration and change in the corporate culture

Manufacturers are recommended to define a structured vision for digital transformation that makes employees aware of the goals and benefits of every change. For auto OEMs, this means that IT must no longer be seen as a single business unit or cost factor.

Employees should recognize software as a driver for innovation, customer orientation, and new services. Information technologies, which can be used in many ways, must be a means of differentiating the product and brand from the competition. Management and employees should internalize change as something positive and be prepared to cannibalize their own business areas before outsiders do so.

2. Unique customer mobility experiences

Customers’ preferences will continue to change dramatically. Users will still appreciate technological innovations, driving dynamics and comfort in the future, but seamless mobility as an overall experience enriched with many networked services will become much more important for them.

At this point, digital companies such as Amazon, Apple, and Google are a step ahead of automobile manufacturers, placing customers unconditionally at the focus of their activities. Instead of models with equipment features, customers should be offered personalized greetings and appreciation. Success factors for digital mobility services are availability and flexibility in vehicle provision, simplicity in handling the buying process from booking to payment, value for money, and price transparency. Given that more and more young people are choosing to not drive, the industry will be able to attract new car enthusiasts only through unique experiences of how customer-related digital added value can be gained.

3. Value creation based on vehicle data

Data is the fuel that drives new services and business models. So far, established automotive manufacturers have not used the comprehensive data available from vehicle sensors to create digital added value for users. A modern vehicle generates more than 25GB of data per hour of use. OEMs must learn from successful digital companies.

By analyzing massive amounts of data, automakers can gain deeper insights into customer behaviors and preferences to create targeted offers. If automobile manufacturers proceed correctly, they will not only optimize their products through data analysis but also stay in constant contact with customers via new services and thereby learn more about their wishes and needs. Important digital tools for this are Big Data and analytics. In addition, OEMs can open up new sources of income through platforms by disclosing vehicle and transaction data to third-party service providers such as suppliers, insurers, workshops, or dealers.

4. Collaborations and ecosystems

Boundaries between the automotive industry and IT, telecommunications, utilities, and public administration are merging. As networking increases, the car becomes part of a larger cross-industry ecosystem. Companies that open up their proprietary innovation structures and use external innovations can gain decisive competitive advantages in the future.

A more outward-looking automotive ecosystem with strong innovation partners and external developers can relieve OEMs of their need for innovation. Vehicle-integrated services from third-party service providers could emerge from a wide variety of industries. Daimler’s integration of the Amazon language service Alexa for vehicle-integrated calendar access illustrates the principle of open innovation. The smartphone ecosystems of Google and Apple can serve as role models. Their innovation platforms allow third-party developers to create their own services and offer them on smartphones. Mobile apps like WhatsApp, Facebook, and Google Maps enrich the manufacturers’ products.

5. Corporate startups

Digital mobility services such as car-sharing and traditional vehicle sales are partly offset by each other. A transfer of the management strategies and KPIs used in this context to digital business models drawn up by the platform economy is proving to be a mistake. For digital services such as OEM mobility initiatives, network effects and critical mass must be created.

For strategic reasons, sales and earnings contributions in the digital business segments must not be the primary focus for the time being. Friction resulting from this can be avoided by outsourcing digital mobility solutions to subsidiaries. An organizational separation also appears to be necessary due to OEMs’ rather risk-averse attitude in setting up fundamentally new business opportunities. The corresponding units can thus act autonomously, especially in the initial phase, and can be integrated back into the existing structures after the successful establishment. Management of corporate startups must introduce new key figures such as active user numbers per month or transaction sum of all interactions.

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Reiner Seiz

About Reiner Seiz

Reiner Seiz is Global Head and Director of Automotive Solutions at SAP. He leads a global solution team and supports strategic initiatives for some of the world's best-run automotive companies.