Digital Leadership: Automakers Move To Procurement 4.0

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Automotive procurement leaders are facing challenges from both inside the procurement organization and outside, as impacted by other elements of the industry business.

Inside procurement issues, such as poor spend visibility, compliance, and value delivery are amplified by the overall strategic shift to digital processes and the scarcity of talent to drive procurement initiatives successfully.

Beyond the four walls of procurement, other teams, such as engineering, supply chain, and finance, are demanding more influence over the goals and objectives of procurement as product designs become more complex and connected, the flow of “material to money” receives greater margin scrutiny, and the industry shifts to Mode 2 manufacturing models. Combine this with expected tapering of automotive vehicle unit production in North America and globally, procurement leaders are in a nexus of forces few other executives in automotive companies are experiencing.

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A new role for procurement leaders

As a result, procurement leaders must augment their sphere of influence to source components and material when needed, where needed, and how needed to support Mode 2 manufacturing and virtual inventory goals. These are strategic. With the shift to strategic tasks, more operational tasks in purchasing and accounts payables will go away. Those tasks will need to be replaced with artificial intelligence and machine learning capabilities to deliver on tomorrow’s operating model.

The question we continually ask automotive procurement leaders: are you really leveraging procurement as a strategic weapon? Often the answer is no. We see several factors determining whether automotive companies are seriously leveraging procurement capabilities strategically:

  • Risk: Risk management currently implies compliance. In the future, it will include making risk-mitigating investments and risk-transfer pricing.
  • Talent development: Talent with specific non-core skills must be found and developed. New strategies must be driven outside the current business scope, and the skills to develop these new strategies are in high demand.
  • Innovation: Procurement teams need to expand their expertise in engineering and design, as next-generation procurement strategies are being developed based on outcome-based business models, 3D printing, and connected technologies.
  • Transparency: Social media is making procurement one of the most visible functions, not a back-office activity, as in past generations. As such, automotive procurement leaders need to talk to customers, regulators, and the press with one voice on behalf of the company’s strategic, 24/7, “always on” communications strategy.
  • A new relationship with financeThe global supply base is bringing new financial challenges to procurement. Procurement leaders need to develop financial acumen that rivals that of finance leaders and tighten their relationships with finance teams.

Only by reviewing these areas can procurement leaders honestly assess whether their organizations are prepared for the shift to digital business and operating models in their everyday work lives.

An opportunity to lead

With 62% of chief procurement officers unable to locate and/or develop the talent needed to address future procurement needs and challenges (Deloitte, 2016), automotive procurement leaders are at the tip of the spear to risk losing organizational influence and become a sub-function of finance or supply chain. Given the proper best practices, methods, and new digital capabilities, however, automotive procurement leaders can have a full seat at the executive table with strategic insights, foresight, and direction to maintain healthy working capital and cost of goods sold during the upcoming years of slow but tapered automotive vehicle volumes.

Learn more about automotive procurement and other industry digital advances at the Best Practices for Automotive event September 18-20, 2017, in Detroit. For more information visit the program website.

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Digital Disruption in Automotive

As part of our work with the Future of Cars special edition of Coffee Break with Game-Changers, I sat down with host Bonnie D. Graham and gave my point of view on who were the disruptors and who were being disrupted at the recent Best Practices for Automotive (#BP4Auto) event September 18-20 in Detroit.  Listen to the full cast below, with transcript follows.  For more event reviews, listen to my series re-cap for 2017 live, Tuesday October 10, 2017 at 10AM ET / 7AM PT or on demand here.

Bonnie: Welcome to SAP’s 3rd Annual Best Practices for Automotive Conference. We are bringing together hundreds of professionals in the automotive industry. They’re senior leaders, they’re decision-makers, analysts, super-users, support teams, solution providers, business process owners, we may even have some press and some students and educators there. Why? SAP is sponsoring and hosting a one-of-a-kind experiential event built around  three wonderful factors: learning, innovation, and peer collaboration. Does it get any better than this?

Hello, I’m Bonnie D. Graham, the producer and host of The Future of Cars with Game-Changers radio, presented by SAP. And on the other side of the microphone is, I can say, my good friend, and he has been many times on our radio series. He is now taking over as the owner of the Editorial Calendar for the Future of Cars—It’s William, I’m allowed to call him Bill, Bill Newman, Strategic Industry Advisor, North American Automotive at SAP.

Hi Bill, how are you today?

Bill: I’m good, Bonnie. How are you doing this afternoon?

Bonnie: I am well. I wish I was there with you in Detroit. I heard from David Parrish and Pradeep Amladi and everybody says it’s a great conference. I hear there’s some amazing cars here on the show floor. You want to tell me just for a second what you’ve seen before I get you my questions?

Bill: Yeah, sure. I mean, it’s a great event. We’ve got close to 400 people and we’re all here in Detroit, the hub of the car industry here in North America. We’ve got, I think, over 20 countries represented.

We’ve got a packed house full of great partners and vendors that are with us today, and we had a nice opening earlier today who is Stefan Krauss, who is our Global Head of our Automotive Industry here in Detroit. It’s just been really great to come together.

We were actually walking through the lunch line and I bumped into an old colleague from Volkswagen and we were joking about how this is a bit of a homecoming. Everyone kind of moves around in automotive and really, nobody leaves. It’s a nice intimate environment given so many people so I think everybody’s really got a nice vibe going on today.

Bonnie: That’s a really nice perspective, Bill. Thank you—I wasn’t planning to ask you that but I know that you’re a good on-your-feet talker, if you will. So I really appreciate that. I love the idea that it’s a homecoming of sorts and at the very end of the interview, in a few minutes, I’m going to ask you a question about why people who are listening to us but not there this year should be there next year. So maybe we can drop that word on them once again.

Bill Newman, our listeners are from all overall the world. You know, you’ve been on Game-Changers with me many times. We have a global audience and they’re wondering, what does SAP see as the top trends and/or the top challenges facing the automotive industry today? What’s your POV? What do you see, Bill?

Bill: I think in terms of a digital disruption, everybody’s trying to do it. There’s not an emerging standard or business model that all of the, let’s say, automakers and of course, their suppliers are moving, too. So they’re trying to understand, first of all, what is it that they’re trying to move to? We looked at autonomous shared electrified vehicles. What does that mean for a particular company and everybody’s trying to figure that out. And then as an aggregate, how is the industry going to move there?

You and I spoke very recently on our Future of Cars with Game-Changers show and we were talking about some of the new federal regulations that are going to allow a certain number, I think a couple thousand a hundred thousand vehicles, level three, level four autonomous vehicles over the next five years operate on the road.

Everybody’s trying to figure out, how do we digitize, so that’s operationally, and then how do we monetize? So if you look at some of the work that McKinsey and Roland-Burger and IHS, some of the other auto think tanks that have thought about—they’ve actually suggested that the big upside isn’t the car that you buy and we park it at our garage and it sits there for 70-80% of the time or more when we’re not using it but it’s really the digital services and the consumerization of the automotive is really another device.

Everybody’s trying to figure out where they play in that space and that, according to McKenzie, is going to be a $1.5 trillion dollar marketplace by 2030. So that’s huge. And you’re seeing some of the companies begin to make moves to put their bets on that. Maybe it’s the case of GM pulling out of Europe and selling their operations to Peugeot, PSA, and you’ve got winding down some operations that weren’t really performing particularly well in India and making their bets on high growth, BRAC markets, or the new digital space.

That’s just one example, but again, everybody’s trying to figure out what that means for them and arguably, if I can return to the GM example, that was a big thing. They have been working to become profitable in Europe for decades and finally, arguably achieved that to a point where they decided that they felt comfortable then, carving that out and putting those assets on other bets.

So, you don’t need to be the largest revenue car-producing company, but we want to get a share of the higher margin automotive services, vehicle space, next generation vehicle. Obviously, that’s a big bet that takes a lot of capital investment, so each automaker is sorting that out right now. That’s a really big deal in the industry.

Bonnie: Thank you, Bill. You answered my next question in advance. Let me just read the question. You covered it, but I have a part two to the question. I was going to ask you which of the top trends you’re seeing will spawn or spark, I should say, the most significant new business models in automotive? I think you just talked about that, so let me move to part two, which is, where is SAP in being able to be positioned to help companies realize the value, the benefit, the profitability of those models?

Bill: Well, I’ll go back to part one and tell you where the biggest barrier is right now, which is a question you weren’t going to ask me, so let’s go there. That’s talent management.

Bonnie: Really?

Bill: Absolutely. We’ve got all of these—you keep hearing about it—if you’ve got kids or friends with kids in school and they’re talking about STEM (science, technology, engineering, and math), they’re just not enough of those graduates to go around.

Now, SAP, in conjunction with many of their user groups, both in North America and throughout the world, have excellent qualification and certification programs ready. Graduates coming out of university and four-year colleges [are ready] to take on those positions, but they’re very competitive and other industries outside of automotive are vying for the same talent pool and resource.

Even in engineering and manufacturing practices, we see the lack of talent in those practices actually equating to—and this is the Center of Automotive Research – so this isn’t just something we’re pulling out [of the air] – a 6% capacity gap. Meaning that the whole industry could be operating at a 6% higher volume level rate right now if we had the talent available to do all of the things that we wanted to do, to make cars and to move to digital. So, that’s a pretty big gap. So what’s SAP doing? Certainly, we’ve got a number of functional expertise areas across.

So for example, to address talent management, to address procurement for digital leaders in finance and manufacturing, I think the exciting thing in automotive and in particular, is that we’re addressing three very specific needs in automotive.

The big data, with our large HANA platform and memory platform that’s been in production. We’ve got thousands of consumers, whether it’s analytics or running ERP or moving to a new S/4 platform that are being able to take advantage of that.

I think the second is business networks, so being able to monetize the purchasing power through our Ariba products, to look at time and expenses through Concur that tie back into finance. We’ve got these broad multi-million individual and company networks.

The third area, which I think is the most exciting, is SAP vehicle networks where we are creating apps that actually go into the on-board services of vehicles that our customers are making. And in this way, we truly are an automotive supplier now.

We are putting content and applications, whether it’s figuring out where you’re going to park next to where you can route and then bill your expense report or whether we can do some promotions or some consumer driven services, where you might go out to dinner.

All of those things are being developed now with our great customers and partners and they’re being targeted for use in both the commercial and light passenger vehicle market space. Truly, we can stand up and we can make our claim that SAP is truly an automotive supplier in that sense. I think that’s really exciting.

Bonnie: It’s very exciting. I wasn’t aware of that level of positioning, Bill. I’m still reeling over your comment that there’s a talent challenge, getting kids through the STEM programs and into the automotive industry to bring brilliance, not only in technical skills but probably in the way they think and the visionary qualities of how they approach—

Bill: Indeed.

Bonnie: Yeah, that’s where you cannot have a shortage, especially right now. You know what? This leads me—I think it’s a nice segue, Bill Newman, to my next question. Stefan Krauss, the opening keynote speaker at the conference today, asked the question of the audience, “Are you the disruptor or the disrupted?”

This goes back, I think, to your comment about the talent pool. How do you disrupt if you don’t have a talent pool that is helping you become the disruptor? Meaning you’re not the victim, but you’re on the leading edge. So let me ask you a question, Bill—what do you see at the event in terms of companies—on what end of the spectrum?

They might start out as disrupted and then move toward being the new disruptor and we know we’ve talked on Game-Changers radio that I’ve said, the industry is just layer upon layer of surprising disruptions. It just isn’t settling down anytime soon. Who’s attending? Are they disruptors? Disrupted? Or someone on that continuum?

Bill: Yeah, we’ve been able to see a few of the early breakouts and they’re just excellent, talking about everybody’s journey, whether it’s in people or talent or manufacturing or supply chain, it’s just really exciting. That’s what I like most about this program, in conjunction with our [friends at] Eventful Conferences and ASUG, which is our North American SAP user group. It’s really for SAP customers by SAP customers.

So you’re going to get a little of our teams and our positioning but really, it’s our stories that are coming from the field from colleagues—your own industry colleagues if you’re one of our customers, which I think is great. So I think we’re at a crossroads.

I think there are a lot of people here trying to understand and learn, which is wonderful, about what people are doing. And then you’ve got some digital leaders like Karma Automotive and others who have gone pretty deep into their digital journey with us at SAP. Arguably, Karma—I used to work at Volkswagen when we owned Bentley and Rolls Royce. We used to joke it was a vitamin business. You only had to sell one or two cars a day and everything was fine.

Arguably, Karma – the former Fisker Automotive – is a bit of that same uber-lux market. And they’ve literally invested talent—here we go, talent again—as well as capital assets into creating an uber-lux, not only buying experience for their customers, more of a concierge and thematic experience.

For example, if you feel like you’re fall and you want to go hiking, Karma will be happy to orient the interior the car to that theme, if you will. So it’s really the uber-lux experience. But also to the operations of the manufacturing of their new plant in Southern California. That’s very exciting and of course, it’s still a driver-powered vehicle, but digitized and electrified type of product. That’s really exciting to see.

And we do have some industry crossover, so Lockheed Martin spoke earlier this morning, giving a little bit of a story about what they see both from an aerospace as well as a contract vehicle manufacturing journey that they go through. Both very large and very small companies, and again, partners – we have such a fantastic partner ecosystem –  that are able to come in and play those specific roles to help our customers. It’s just really good to see. We’re going to see more over the next two days that we’re together.

Bonnie: Very exciting. You mentioned the word ‘electrified’. I was going to say what you’re telling me, Bill Newman, is electrifying. It’s very exciting. You mean seriously, uber-lux? You’re talking about customizing the interior of a vehicle for the experience you’re about to be taken to? What are you, talking about a wallpaper color or like the color of the floors? So what are you talking about?

Bill: Yeah. So, trims, maybe it’s the type of wood or the color scheme or the feel. Are you a rugged type of person or are you more of a plush person? That’s really the high-end experience. When you’re paying the low to mid six figures for a vehicle, you can begin to enjoy—

Bonnie: Anything you want.

Bill: Pretty much, right? And that’s the whole idea. It’s really a concierge experience and it’s all powered by SAP and our hybrid product suite as well as our S/4 enterprise and our operating environment for ERP. So it’s just really, really fantastic.

Bonnie: Well, that is really exciting. I was going to ask you a question we do at the end of all of our Game-Changers show. Look into the crystal ball and tell me what you predict will be the most dramatic game-changer for automotive between 2020 and 2025, but in my opinion, I think you just told me already. But do you have a different game-changer you want to predict, Bill?

Bill: Well, I think overall, everything is going to change. I think it was Mary Barra, CEO of GM, that said, we’re going to see more change in the next five to ten years in the auto industry than we have seen in the last 50. I think we’ve used this quote on your show before, but that was two years ago. It’s hard to really understand what the car as a vehicle will look like and express.

For those of you listeners who want to learn more, we’ve talked about trucks. We’ve talked about passenger cars. We’ve talked about taxis even most recently, and those shows are all on-demand. But I think it’s really going to be a question of how does the value chain look? So you could argue that the automakers currently, today, could end up being the fleet owners.

We all subscribe and you get a truck on the weekend and a nice passenger vehicle during the week and it rolls up to you and you drop it off or whatever. You buy subscriptions based on your miles and your vehicles come and go as you need them. Well, maybe the automakers don’t want to run that business. Maybe there will be emerging fleet companies.

Maybe the next generation, maybe the Uberized version of the car rental industry as we know it today, maybe they’re going to own the fleet. They’ll manage the maintenance. When you operate a vehicle at 80-90% or higher, there’s a whole different vehicle maintenance model that you have to think about. That’s a cost.

As we figure out how we monetize the vehicle today and into the vehicle tomorrow and we get to that tipping point where you’ve got more autonomous vehicles on the road than you do classic, traditional vehicles, that really becomes an interesting time. That’s the time where we get close to that. That’s when I think people are going to have to commit to certain business models and really take the plunge one way or the other.

So, I think that’s going to be—there are so many things changing that I think fundamentally, who owns the fleet is really going to be the big change that we’ll see over the next ten to twenty years.

Bonnie: Absolutely fascinating. Now I have one last question for you, Mr. Newman. I want you to just give me a one sentence answer because I know you want to get back to the event.

The event takeaway—there are people who are not among the 400 or so people who are there with you and Pradeep and David and Stefan right now. Why should our listeners who did not attend this year—why should they plan to attend next year? What’s the top reason to be there at Best Practices in Automotive in 2018? Bill Newman, one sentence.

Bill: I think it’s a homecoming and you learn so much from your peers. We mentioned it earlier—you just get to be with so many great people, people that we know, people that we work with, and you learn so much from those people and it’s not a pressure situation.

Everybody’s here to learn and engage and to have a good time. And take at least one thing away that they can put to work either in their plan or immediately into their business when they get back to the office. It’s a homecoming for those that want to learn and have fun.

I personally invite everybody to attend in 2018 back in Detroit and hope to see all of your listeners then.

Bonnie: Thank you. Bill Newman, it’s always such a pleasure and I must say, I learned so much from you during our brief time together today. This interview will be posted on our Future of Cars with Game-Changers radio landing page very soon.

I’m going to wish you a great rest of the event, Bill Newman. Can’t wait to hear what you have to say on our upcoming Future of Cars with Game-Changers radio shows. Have a great time and thanks for taking time out of a very busy schedule to meet with me, Bill. All the best.

And to our listeners, I’ll be back with more very soon. Bonnie D. Graham, signing off. Have a great day.

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Changing The Face Of Finance In Automotive Companies

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Automotive finance leaders have a new opportunity to mentor colleagues across the manufacturing organization.

Automotive finance leaders are feeling the pressures of a new landscape of change. This is coming from two compelling waves. The first wave originates in market volatility and risks as the industry transforms to an Automotive 4.0 digital model. This means that operationally, finance leaders can’t manage the old ways of the early 2000s. They need to develop and hone new methods to meet a new digital organization.

The second wave is business model change across all industries. Automotive finance leaders are being asked to drive strategy in a whole new and different way – advising on investments, mergers and acquisitions, and business model transformation. New operating models involving core financial and fintech advancements have created the need to develop responses to new competitive forces.

The combination of the shifts in the market due to this volatility and risk, as well as the move to digital business models, has driven a need for finance leaders to think and behave differently. In short, new management methods are needed to respond to these competitive forces.

These new competitive forces are vast and different, compelling automotive finance leaders to look beyond the immediate functions of reporting, disclosure, accounting, and controlling. For example, real-time, 24/7 reporting requires a look toward “lights-out operation,” whereby general ledger and accounts are soft-reconciled and reported on a continual, daily operational basis. Finance is also being asked to look deeply into not only core manufacturing and supply chain functions to improve margin linearity though “build to margin” scheduling, but also examine new ancillary considerations in insurance and advanced payments fields. All while keeping a secured, controlled, and threat-mitigated operational environment company-wide.

Finance leaders therefore find themselves as active leaders – and even mentors – on a number of these topics, forcing their field of vision above the normal corporate finance landscape. As digital mentors as well, automotive finance leaders need to prepare for tomorrow while managing the activities of today in a nonstop, always-on environment. The ability of automotive finance leaders to mentor and coach other C-level leaders inside the company is proving to be a key success factor as companies modernize, digitize, and compete for the same market resources as their peers, not just in the automotive industry, but also in the high-tech, transportation, insurance, banking, and retail segments.

James McQuivey of Forrester Research sums it up this way: “You always knew digital was going to change things, but you didn’t realize how close to home it would hit. In every industry, digital competitors are taking advantage of new platforms, tools, and relationships to undercut competitors, get closer to customers, and disrupt the usual ways of doing business. The only way to compete is to evolve.”

As automotive finance leaders work to change the face of finance and play a more significant role in other aspects of the automotive business, the ability to move to digital will prove to separate winners and losers in the coming years.

This article originally appeared in D!gitalist Magazine (available with additional infographs at link) as part of the CFO Knowledge community.

Want to learn more about how leading automotive companies are making the shift to digital operations? Join us in Detroit September 18-20 for the Best Practices for Automotive (#BP4Auto) event at the MGM Grand Hotel. Early registration extends to August 11. 

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Enter the Digital Consumer, Driver, Services Buyer

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LinkedIn Pulse The driver consumer holds the keys to $1.5T in future vehicle enabled digital services.

 

Working with a number of our large automotive customers, it becomes clear that what it means to become digital – and to run a digital business – can take on many forms and meanings to different companies based on their organization and their position in the automotive value chain. I have written about the advent of connected platforms, whereby suppliers are moving to land grab specific elements of the ecosystem and lay claim to their use. This includes a number of scenarios about the enhancement and transmission of information from the individual consumer as a driver whether it be to the car, the home, the household appliance and mobile device. McKinsey estimates the market for vehicle enabled digital services to grow to $1.5T by the year 2030.

Understanding how the consumer will function as a services buyer, however, is an entirely different matter whether that individual is a personal vehicle owner, rideshare passenger, renter or simply a passenger in a friend’s car out to the movies and dinner. And while automakers are determining how to enable that customer experience one thing is clear: the driver consumer wants the same, easy to use experience to carry with them from one vehicle to the next, regardless of role or method of use of a vehicle.

What do I mean by this? Digitally connected customers move seamlessly across vehicles with their secured personal identity and profile available for the use and purchase of services. Vehicles maintain the most driver desired customer experience based on real time feedback to engineering designers, significantly reducing warranty claims and updating software during non-use windows. It shouldn’t matter if I’m a passenger in a rideshare or renting a luxury vehicle for the weekend in the big city, my wallet and profile move with me based on personal credentials, personal preferences (pre-sent entertainment, services palate, etc.) and secure on-board data connectivity.

Vehicles are maintained based in similar consistency. Soft service events – uploading software versions or even tuning firmware – occur in off peak times or as needed based on severity. Hard service events occur at low-use hours to reduce labor and operating expense while maximizing availability of vehicles during peak times. Parts are available as needed, at the quickest route to service locations.

Automakers are learning more about the advanced options to support consumer connectivity as drivers, buyers and passengers and the ability that secure data environments supported by SAP HANA can deliver.

This article previously appeared in LinkedIn Pulse and D!gitalist Magazine. Learn more about trends in autonomous and connected vehicles at SAPPHIRENOW in Orlando, Florida (May 15-19) and secure your spot today!

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Top 5 Trends In Automotive For 2017

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It’s always fun this time of year to look into the crystal ball and consider what the key trends for the coming year might be. After consuming key messaging over the past several months from a number of industry related briefings and research, I’m here to offer my top 5 trends in automotive for 2017. In no particular order they are:

  1. Products will become smarter, smaller, and more connected as platforms
  1. Industry disruption and confluence will continue and accelerate
  1. The talent war will become critical, even a pinch point to growth
  1. Customer engagement will continue to grow in importance
  1. New digital business models will emerge, and most haven’t been created yet

Let’s break each one of these down and discuss some of the relevant proof points on each and the industry impacts for 2017 and beyond.

1. Products will become smarter, smaller, and more connected as platforms

On the topic of product design, there are a number of factors. First, vehicles continue to be designed under emission reduction guidelines. As such, the notion of “light weighting” vehicles continues at a rapid pace. New tech companies working with composites and new alloys are popping up like Internet startups in the late 1990s and early 2000s. The ability to simulate structural impact conditions with the use of very sophisticated analysis tools (along with large, massive data calculations) makes the ability to “fast fail” before committing to physical metallurgy a reality. These are all positive indicators that automobiles will become faster, lighter, and more fuel efficient.

An interesting caveat and counter-balance trend to the progress of light-weighting is the effects the industry faces as we move from “Level 1 and 2” autonomous vehicles (requiring the use of a driver/controller) to “Level 4 and 5” (generally considered by approved for driverless operation – see this funky graphic for a simple explanation of the NHTSA and SAE levels). While vehicles will have more autonomous features, the need to add redundant systems – including the weight of the driver – will counterbalance vehicle-lightening initiatives during the transition period, until Level 4 becomes more reality and less fantasy (and is approved by regulators for general population). How automotive suppliers connect in terms of their respective digital products and platforms will also evolve (see #2).

2. Industry disruption and confluence will continue and accelerate

It’s already hard to tell how much a vehicle company is a manufacturer, retailer, bank, and marketing firm these days, and those segments will continue to muddle as the industry morphs into Transportation as a Service (TaaS) business models. As vehicles move into a TaaS-based operation environment, a funny thing happens: the rate of use skyrockets from about 20-30% of total available use (when a personal vehicle is parked or idle) to about 70-80% (when fully autonomous or fully driver/consumer engaged). Automakers are considering what this means to service and aftermarket parts, particularly when the rate of use can shift to non-owner/vehicle customers. Will the current dealer infrastructure be deep and wide enough to manage demand? What about the insurance industry? Who insures the car when it is not a personally owned asset? If the vehicle is a personally owned asset, can I as an automaker share driver information with the insurance industry as it is collected? Am I allowed to sell these assets? What does this mean in terms of micro-royalties passed to connected suppliers who provide automakers the platforms to connect this information?These elements need to be factored into tomorrow’s business models, business processes, and data analytics.

3. The talent war will become critical, even a pinch point to growth

The biggest challenge most manufacturing and engineering-related companies have today is the ability to attract and retain key technical talent. Without talent to move into the new demands of the connected and autonomous industry, products, and operations, the growth rate of companies could become constrained just like any other capital asset. At the recent OESA Annual Conference, management consulting firm Boston Consulting Group identified through its survey work that the #1 issue facing the automotive industry is management, with the top area of concern there being talent management. The big fight for talent is just getting started.

Case in point: Last year I was with a company whose entire IT architecture team was approaching mandatory retirement age. Earlier this year I was with another company that needed to maintain its engineering workforce as a key to growth as it replaced retiring skilled workers and designers and built product sales volume. In short, every company in the industry has a talent-management problem, and everyone is competing for the same skilled resources in science, technology, engineering, and math. These STEM resources are of top demand in the workforce and will command attention, compensation, and flexibility in terms of how work gets done in automotive and manufacturing companies.

4. Customer engagement will continue to grow in importance

Driver consumers will continue to demand greater engagement in services and other delivery models with automakers, and automakers are extremely interested to accommodate these new, largely millennial drivers. A McKinsey study published earlier this year suggested an estimated $1.5 trillion in digital services would be rendered through connected vehicles by 2030. This represents by far the largest growth area for the automotive industry, with personal vehicle sales expected to grow modestly between 2% and 4% during that time (IHS, Frost & Sullivan, others). So how do automakers tap into that engagement model at a deeper, more meaningful level? My colleague Thomas Leisen from our organization and talent group suggests the answer is be purpose-driven and authentic. According to Thomas, when it comes to millennials in particular, “this generation is really sensitive as to whether a brand purpose is authentic or not. If millennials don’t buy your claimed purpose on the fly, not only are you throwing away a lot of money for all of your marketing campaigns, but they might also get the wrong impression.” Pushing that level of authenticity – with deep data accuracy and meaning – to driver consumers will require new and evolved thinking to capture this massive future wallet share.

5. New digital business models will emerge, and most haven’t been created yet

And this is just what we know. What about digital business models that haven’t even been created yetAccording to IDC, by year-end 2017, over 70% of the G500 will have dedicated digital transformation and innovation teams. In addition to those digital (DX) transformation efforts, by 2019 40% of all digital transformation initiatives – and 100% of all effective Internet of Things (IoT) efforts – will be supported by cognitive/AI capabilities. When the industry moves into AI and machine learning concepts, the role of the human is one more of oversight and control and less one of execution: intelligent machines, building intelligent vehicles, servicing intelligent machines.

Case in point: Much like many household connected items, the first interaction with a digital device is with your phone to match/pair, personalize, and engage the product. What will the phone – or some other primary device – in the future represent? How will we use that to onboard and personalize a vehicle? These are questions that automakers are considering today, even with the rapid pace of current change, to be ready for tomorrow.

So how did I do? Long shot or bull’s eye? Check out my top trends for 2016, and listen to my crystal ball 2014 predictions from SAP Radio Coffee Break with Game Changers.

This article originally appeared on LinkedIn Pulse and Digitalist Magazine.

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Automotive Industry Briefings Highlight “Peak Year” Challenges, Opportunities

Bumper to bumper traffic

The past month I was fortunate to attend and moderate a number of automotive industry briefings which highlight the challenges and opportunities the industry faces as it moves into its anticipated peak years of 2017-18.  As was pointed out in August at the annual Management Briefing Seminar sponsored by the Center for Automotive Research (CAR: www.cargroup.org), with the industry tapering to 17.7M units in North America for 2017, industry management skills can be historically challenged given the sharpness of action stemming from growth and decline cycles.  Long term, slow growth remains vexing for most companies – making it more difficult to place their bets – and how best to emerge prepared and readied for the next wave of growth opportunities in a vastly different (and digital) ecosystem.

At the recent Best Practices for Automotive event co-sponsored by SAP, ASUG and Eventful Conferences, Executive Vice President of Research Dave Andrea of CAR brought this topic up again during his keynote and challenged those in the room with thinking differently and embracing the rapid digital changes sweeping the automotive industry.  His head-scratcher question of “is the automotive industry ready to become a utility?” in light of emerging Transportation as a Service (TaaS) models sweeping automaker boardroom left many attendees re-evaluating their own directional response to these changes.  IDC Principal Analyst Jeff Hojlo contended that key issues from vehicle security to the open platform of the Internet of Things (IoT) and how we securely connect various components together to provide a personalized driver consumer experience would remain at the forefront.  I had the pleasure of moderating the financial transformation track featuring presentations by FCA, Karma Automotive and Delphi which further explored how these companies were readying for – and embarking – on their digital journeys.

The Annual Original Equipment Supplier Association (OESA: www.oesa.org) further challenged the industry to move to a “new clock speed” and how the disruption in the industry has changed the notion of a “vehicle” to more a personalized transportation model.  Tesla stands as a disruptor in this area impacting the industry supply chain by behaving (and demanding) more and different relationships from suppliers while providing the personalized driver consumer experience echoing other briefings this season.  Management remains the top challenge facing suppliers, with talent management now the primary management issue given the continuing workforce transition, Millennial shifts, and need for transition planning at all levels of the workforce. (Catch my full audio recap of the OESA conference here or listen below).

And finally the Automotive Aftermarket Supplier Association (AASA: www.aftermarketsuppliers.org) Tech conference yielded a number of industry opportunities including the findings of the joint white paper with SAP. As part of our findings, we learned that the aftermarket segment does indeed have aspirations to move to digital – particularly in the on-line self-service consumption of product information that is so key to engaging Millennial buyers.  However the gap between “where we want to go” and “where we are today” across the industry is pretty stark.  When buyers can go to Amazon.com and engage in a fully preferences-driven experience – even touchless routing to recommended parts and equipment – it puts most conventional parts suppliers to shame.  This high bar is reality today, and the “Big 4” aftermarket direct to consumer distributors (Amazon, Ebay, Autozone and Napa) are capturing the lion’s share of Omni-channel (web, phone, app, etc.) sales in the segment. (Read the full discussion and find a link to our whitepaper here).

With the 2017 “peak year” on the horizon, automotive companies clearly have to focus their investments to prepare for a more digital and connected future.  Making those decisions now will enable companies the ability to fund investments now while moving towards a more moderated growth forecast in the coming planning round cycles.

(This article originally appeared in the SAP Community Network. Follow me on Twitter @William_Newman as well as my LinkedIn Pulse blog).

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Highlights of the 2016 OESA Annual Conference

Today the Original Equipment Supplier Association (OESA) held their annual conference at Cobo Hall in Detroit (Michigan).  This week’s podcast covers some of the highlights of outlook and forecast sessions.

Key presentation including:

  • Gary Silberg – Partner, the Americas Head of Automotive, KPMG
  • Xavier Mosquet – Senior Partner and Managing Director, The Boston Consulting Group (BCG)

Follow us on Twitter using the handle @TheViewCLevel and comment using hashtag #TheViewFromCLevel and #FutureOfCar.

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