2019 Predictions: The Tipping Point for Automotive

An important piece of beginning a new year is to reflect on past successes and challenges and determine what they mean for the next year and beyond.

Here are some thoughts:

IT Integration and Change in Corporate Culture

Manufacturers are recommended to define a structured vision for digital transformation. Employees must be made aware of the goals and benefits of digitization. For auto original equipment manufacturers (OEMs), 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. Versatile information technologies must be understood as means of differentiating 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.

Mobility as a Personalized, Customer-Oriented Experience

Customer preferences change comprehensively. Users will continue to appreciate technological innovations, driving dynamics, and comfort in the future, but seamless mobility as an overall experience enriched with many networked services will become more important. Digital companies, such as Amazon, Apple, and Google, are a step ahead of automobile manufacturers, unconditionally placing customers as their focus.

Customers should be offered personalized address and appreciation instead of generic models with equipment features. Availability and flexibility in vehicle provision, simple handling of the usage process from booking to payment, value for money, and price transparency are all factors for success for digital mobility services. As more and more young people choose not to drive, the industry will only be able to attract new consumers by harnessing this customer-related, digital added value.

Value Creation from Vehicle Data

Data is the fuel that drives new services and business models. Even though a modern vehicle generates more than 25 gigabytes of data per hour of use, established automotive manufacturers have not used the comprehensive data from vehicle sensors to create digital added value for their users.

OEMs must learn from successful digital companies. By analyzing massive amounts of data, these companies gain deeper insights into customer behavior to create targeted offers. If automobile manufacturers proceed correctly, they can not only optimize their products through data analysis but also stay in constant contact with customers via new services to learn more about their wants and needs. In addition, OEMs can access new sources of income through platforms by disclosing vehicle and transaction data to third-party service providers, such as suppliers, insurers, workshops, or dealers.

Cross-Industry 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 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 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, or Google Maps enrich the products of the manufacturers.

Corporate Startups

Digital mobility services such as carsharing and traditional vehicle sales are partly offset by each other. A transfer of the management strategies and key performance indicators (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 digital business segments must not be the primary focus for the time being. Friction effects resulting from this can be avoided by outsourcing digital mobility solutions to owned subsidiaries.

An organizational separation also appears to be necessary due to the rather risk-averse attitude of the OEMs in setting up fundamentally new business opportunities. The corresponding units can thus act autonomously, especially in the initial phase, and be integrated back into the existing structures after the successful establishment. The management of corporate startups must introduce new key figures, such as active user numbers per month or transaction sum of all interactions.

The key to all of this will be tapping the power of industry clouds to define a path to the Intelligent Enterprise.

Learn how discrete manufacturing companies are making all of this possible with SAP.