The Drive to be Digital: the automotive race of the future

Digital excellence has now become a must-have for automotive organisations to survive. How can organisations take advantage of this, to not only survive but thrive in the future? Oaklin explores the path automotive manufacturers (OEMs) need to be taking to meet the demands of a rapidly changing consumer world.

Oaklin have been supporting players in the automotive market for many years, from large established organisations that have been operating for nearly one hundred years, to exciting new market entrants. We have experienced first-hand both the challenges and opportunities at the heart of this dynamic industry.

To expand our exposure and knowledge of the industry further, our Oaklin automotive experts recently had the pleasure of attending the @FT Live Future of the Car event. Across the four days, our predominant takeaway was that in order to survive, OEMs must fully commit to becoming digital first organisations.

The automotive industry is currently undergoing a huge transformation. After a hundred plus years of the combustion engine and humans at the hands of the wheel, we are seeing the rapid uptake of new technologies capable of powering and driving vehicles. Also changing is the way drivers purchase, own and interact with their vehicles. To keep up with these disruptive trends, OEMs need to rapidly accept and embrace new technologies, business models, user experiences and strategic partnerships throughout the value chain.

Oaklin supports organisations through digital transformations across a range of sectors. We couldn’t help noticing similarities between the challenges faced by the automotive industry and several other industries we serve. Whether it’s leading retailers successfully blending online and in-store experiences, the utility industry pivoting to energy services and solutions beyond price per usage, or the combination of data and connectivity transforming healthcare, the fundamental need to embrace digital offerings is clear.

Just as the smartphone revolutionised society, the connected vehicle has the power to similarly transform age-old experiences. As basic features are rolled out, customers are already witnessing the benefits of self-locking, location services and vehicle health checks. OEMs are also starting to embrace capabilities such as regular over-the-air software updates and proactive service and maintenance warnings. Even so, these advancements are just the tip of the iceberg.

In the near future, the connected vehicle has the potential to be the most powerful and complex consumer device connected to the internet. The average connected vehicle already boasts over 100 million lines of code, and the expectation is that this will double by 2030. Car to car, car to cloud and car to manufacturer connections will unlock vast enhancements in customer experience. In-car Wi-Fi and streaming will revolutionise how customers use their vehicles, customised vehicle maintenance packages will optimise OEM maintenance, and usage-based insurance, mapping and planning services will spawn new business models and partnerships.

Following in the footsteps of many other industries that have seen a large proportion of sales move online, the industry is also seeing a huge shift towards online direct sales. Volvo, just one of the OEMs we heard from during the FT event, are targeting 50% of sales online by 2025, with many others holding similar ambitions.

To drive successful online and direct sales, it is critical that OEMs embark on the journey to better understand their customers, including maintaining customer relationships in a more relevant, personalised, and human way. Marketing-focused websites and disjointed experiences will not be enough to lead the required shift to direct sales. Instead, OEMs must adopt seamless experiences across both their digital and physical channels, and powerful, transactional commerce capabilities on their digital estates.

This is a significant shift from managing a network of wholesalers, particularly at a time when customer expectations have never been higher and brand loyalty is one bad experience away from complete erosion. Achieving this will require a considerable uplift in digital and customer facing technology, especially for established players saddled with complex legacy estates built over several decades. It is not just the technology platforms that are important - investment in people and skills is essential to ensure digital expertise and software delivery capabilities are available to rapidly implement the changes required.

Given these fundamental shifts, how should OEMs be looking to maximise the digital opportunities available to them?

1. Focus on service not product

OEMs have historically been successful with a product mindset, but the landscape has now changed. Organisations need to shift from selling a range of vehicle products, to thinking about how to offer a set of end-to-end, net zero, connected services in a flexible way. Enabling maximum customer choice and tailoring to different customer expectations is paramount.

Some consumers will always want to own a vehicle; for these groups, additional end-to-end service opportunities arise if vehicles are Connected by Design. By exploiting the connected vehicle, OEMs have the opportunity to be at the centre of a new Connected ecosystem. From media and content to insurance and support, OEMs need to start putting the business models and partnerships in place to monetise new potential service offerings.

On the other hand, the next generation of buyers – Gen Z digital natives – might not want to own and will expect a more rental-based subscription service model. We are already seeing some OEMs test this opportunity through connectivity packages, subscription services and aftercare subscriptions, albeit with varying success.

2. Embrace the digital mindset

OEMs will need to learn lessons from digital native organisations and embrace a digital mindset. This will require a significant cultural shift to empathising with and understanding customers, introducing rapid delivery cycles to provide value to customers earlier, and regularly asking for feedback to improve or pivot. CFOs and finance teams will need to change budgeting and forecasting, CMOs will need a greater understanding of customers and making decisions informed on data, and CEOs will need to get comfortable with the more flexible priorities that are part of agile delivery.

This mindset shift needs to come from the top to be successful. Some OEMs have already recognised this need, looking outside of the Automotive Industry to bring in leaders with a different perspective.

3. Win the fight for talent

Digital disruption within the automotive industry means OEMs are now competing for the same top digital talent as other industries. The OEMs that provide the most attractive opportunities for growth and innovation will attract the necessary talent and ultimately come out on top.

OEMs need to make strategic decisions about which capabilities to retain in-house and where to partner. Strategic digital partnerships need to be more flexible and agile to entice digital natives. When building in-house capabilities, OEMs need to make compelling cases to potential recruits about the excitement of the industry, and the opportunity to make a positive environmental impact as the industry changes.

Some OEMs are already some way along their journey. For example, VW have recently proclaimed they are no longer a car company, but a software company, and one with grand plans. They want to build 40% of software in-house by 2025 and have purchased traditional software companies to support this.

Nevertheless, not all OEMs are at this stage and there is still much to do across the industry.

Oaklin are an independent, boutique management consultancy with expertise in digital transformation and the automotive industry and experience supporting clients on this journey. If you would like to discuss how we might be able to support you on your journey, please get in touch with either stephanie.meehan@oaklin.com or mark.croucher@oaklin.com .