It is no secret that players in the automotive industry are investing heavily in their software development capabilities. This strategy is driven by two fundamental changes in the industry: 1) the product – in this case, the car – is being completely redefined and 2) the business model for automotive manufacturers is changing from selling cars via dealers to providing mobility to customers.
The Car Becomes a Software Product
Product-related changes, including autonomous driving, electrification, connected and shared mobility, are heavily reliant on software solutions based on new technology. The heart of all these solutions and applications is the car operating system. For automotive manufacturers, this means IT and engineering are converging.
The Automotive Business Model Relies on Connectivity
The new business model automotive manufacturers must build to provide mobility requires a strong connection between the car and user data and the data and apps that make the car ecosystem run. Based on new services and revenue models, manufacturers are using “user stories” to develop software and solutions that provide new user experiences for drivers and additional value streams for themselves.
With all this focus on software development and the challenges it brings, the good news is that the topic itself is not new. It has been a capability in most manufacturers’ enterprise IT for decades and an important part of the electronic components systems in cars programmed by hardware suppliers and OEMs. Still, the car and the automotive business model are changing – and executives need to be prepared to build a support environment for the success of the industry’s transformation.
What are the key areas the executives should address?
Bring Enterprise IT and Engineering IT Together
New car software will combine engineering software components and backend enterprise IT components. The new functionalities and user stories will require an end-to-end flow of data, functions and connectivity. Although the two IT organizations have been separated in the past, this will no longer suffice. Some companies have already established organizations to bring both sides together. One of the major challenges is to translate the engineering requirements and its specific glossary into IT requirements, technology and solutions. As the investments in the future will be huge, the IT organization has to understand the requirements and find scalable, competitive and cost-efficient solutions in-house or in the market.
Build a New Partner Ecosystem
Many enterprise IT service providers have invested in recent years in the extension of their capabilities for design, engineering, user experience and technology specifically for the automotive industry. They are no longer only enterprise IT providers for towers like server, storage and network services; they are becoming solution providers for automotive IT transformation and digitization. These companies can deliver solution elements to map across the industry’s connected, autonomous, shared, electrified (CASE) dimensions. Car makers are finding the benefits of establishing partnerships with these providers that allow them to build new business models.
Update Your Sourcing Strategy
Different sourcing models and implementations have been critical to enterprise IT for many years now. This includes sourcing software development and applications in different depths and breadths. In many engineering sourcing models of the past, the hardware or unit provider offered the control software as a bundle, and software development focused on the physical components.
The new car software architecture will focus on enterprise IT experiences like standardization, integration, scalability and open architecture. Since manufacturers cannot deliver all future requirements in-house, they will need to continuously validate internal capabilities and capacities and assess the success of external sourcing agreements for innovation, competitiveness and time-to-market.
Establish a Modern Software Organization
To meet the increased requirements of software development, many car makers are establishing new organizations or reforming existing ones. In this new organization, the classic enterprise IT tower structure is not suitable. Instead, the structure must be product- and solution-oriented to provide a foundation for agile teams to drive digitization and combine the product view with the new end-to-end value stream, including the user, product and IT backend. This organizational model requires strong governance and management. In addition, the security requirements and the need for reliable, scalable and comprehensive applications and functions in the car create new challenges. They can put extra pressure on an agile implementation and restrict a “fail fast” culture.
This new way of structuring IT for manufacturing does not require the invention of brand new methods and approaches. We have seen successful examples of organizations that cross the CIO´s enterprise IT organization and engineering business functions. Most advanced enterprises directly merged specific roles and functions into a more vertical and IT/ET integrated organization and broke up the existing silos.
Either way, transformation and organizational change cannot be avoided. Software and software solutions will become the new benchmark for automotive manufacturers. Car makers that integrate, steer and govern their existing instruments with strong software capabilities and partnerships will have the chance to create competitive advantage in a changing market.
ISG helps manufacturers find, integrate and govern organizations to optimize inhouse and external teams. Contact us to find out how we can help.
About the author
Andreas Fahr is ISG partner and manages clients in the automotive industry for several years in the DACH region. He has a long-lasting experience in leading IT transformations. He helps clients to define their strategy, apply methods and best-practices and implement the future mode of operation. Andreas manages IT optimization projects based on market knowledge and industry data and is expert for sourcing strategy and initiatives. This includes the transaction, transition and contract management phases. Andreas supports clients in defining and implementing an end-to-end IT governance model to steer the IT and provide value to the business.