Digitalization in the automotive industry: Act like a startup, scale like an enterprise

Digitalization is transforming the automobile industry’s value chain, enabling the creation of completely new business opportunities and services around mobility. At the same time, more and more industry outsiders are establishing themselves as market contenders. E-commerce giant Amazon is planning online car distribution while Google and Apple are pioneering automobiles as connected devices. This provides a challenge for large automotive companies: how does one catch up to existing and potential competition in order to overtake them?

A need for new cooperations, working methods and team setups

With the development of digital services in the automotive industry, two worlds collide: the comparatively long, several-year innovation cycles required for new car models combined with the industry’s technology-orientated thought processes, are in direct contrast with digital products’ dynamic, agile development cycles, where innovation develops at lightning pace. In order to meld these two approaches profitably, companies are increasingly turning to co-operations that connect the two disparate worlds. Ultimately, in order to create the foundation for new, future-proof digital business models, it is essential to establish both new working methods and team configurations and scale accordingly.

One such example is the partnership between Volkswagen and IBM. Together with the IBM digital agency Aperto, the car manufacturer works in interdisciplinary garage teams following agile principles. The keywords are: co-creation and co-location. In other words, Volkswagen, IBM and Aperto employees gather in one location and work together on new ideas — irrespective of which company is on the business card. The location has been aptly set at Aperto’s agency premises in the heart of Berlin. Work follows the agency’s lean startup principles: iterative processes that use prototypes to test each phase of the product development with users to be certain that they are on the right path.

This collaborative innovation process allows them to validate a significant number of business models quickly and early on in the development. If the prototypes are successful and indicate enough potential, Minimum Viable Product (MVP) and a test of the growth strategies are launched concurrently.

Validating new product ideas in short cycles

In order to stimulate innovation and take advantage of the established customer relationship, the customer life cycle is set as a starting point. Customers want to optimise their time, money and quality of life in real time. During the development, a firm focus is retained on everyday problems and challenges — and their context. For example, lean service creation methods and design thinking can be used to establish and validate initial solutions to user problems. True to the motto “Act like a startup, scale like an enterprise”, working with agile teams and iterative processes in a constant cycle of testing, learning and improving, makes it possible to bring products and services quickly and scalably on to the market.

Platforms and ecosystems as a foundation for new services

The first outcome of the collaboration is the Volkswagen We-Commerce platform, an integrated service that gives drivers recommendations for the best course of action, at the right time, place and with the relevant, available, platform-based company services. For automobile manufacturers in general, the creation of platforms and the corresponding ecosystems are an efficient way to establish new business models and satisfy user needs.

With platforms, companies operate as orchestrators of a network and place themselves at the intersection of service providers and consumers, where they don’t produce but act as intermediaries. However, they also establish the rules for the other actors. Platforms enable companies to reach customers at a relatively low price and unlock new revenue streams. The taxi service Uber doesn’t own any cars. Airbnb owns no hotels and Facebook doesn’t generate any content. But they all make it more convenient for users to fulfill their needs.

In the fight for more customers, ever more companies are forming co-operations or ecosystems. It makes them faster, more flexible and more effective. Another example is the peer-to-peer carsharing platform sharoo, operated by the supermarket chain Migros, the insurance partner Mobiliar, the car import company AMAG and the carsharing pioneer Mobility.

One thing is certain: in the future, mobility needs to be rethought. Car manufacturers have to face new challenges with dynamic, digital developments. The key to a successful business model is the customer, as they become more and more involved. People don’t adapt to cars, cars adapt to people. Companies have to recognise this and fulfill clients’ needs more flexibly. Platforms and the creation of cooperative ecosystems with other companies are the way to remain competitive in the future.

This article was first published in German on the IBM THINK Blog DACH