Embracing Disruption in Mobility — Wilko Stark, Vice President Daimler
The Industrialist’s Dilemma — February 16, 2017
Last year, the three of us embarked on a journey to understand how industrial companies could best navigate the somewhat tumultuous waters of today’s digital disruption. One of the most important lessons we learned through a year’s worth of interviews, research, and dialogue was that there is no simple solution.
Nowhere is this observation more apparent than in the automotive industry. The future is no longer clear for the companies that make the movement of atoms easy and accessible. Daimler is no exception. We were lucky enough to have Wilko Stark, Daimler’s head of strategy, join us for our most recent lecture at the Stanford GSB — and he was transparent: It doesn’t matter that Daimler’s been around since 1886 — there has been no more disruptive time in their industry than right now. Today, Daimler needs to deal with the change from gas to electric propulsion, a shift away from car ownership to ride sharing, autonomous driving cars, and wild shifts in the demographics of its buyers.
Attacks from everywhere and every direction. And luckily for its shareholders, Daimler is trying to make the best of the situation with a strategy for success regardless of how the unfolding landscape of transportation plays out.
But more than just the run of the mill commentary about transformation, three lessons stood out in our mind based on the conversation that we thought we’d share.
Flexibility Resulting from Constraint
Much of our conversation centered on one of the pillars of Daimler’s strategy: “Profitable growth.” It’s a bit funny, but profitability is a subject all too often passed over in Silicon Valley. The thinking is that if extraordinary growth can be achieved in the short term, it will invariably help drive a maximization of long term profits. In some cases this has worked incredibly well. Companies such as Amazon and Uber couldn’t have been built with a focus on short term profitability. But in other cases it results in catastrophe.
Daimler is a different beast. While car ownership itself is being attacked from ride-sharing companies that can raise enormous sums of capital despite massive losses, while the electric transformation is being driven by a company that burns hundreds of millions or billions in cash each year, Daimler is beholden to shareholders that expect profitability.
As such, Wilko explained that flexibility had to be a core part of the company’s strategy. No one knows when electric cars will overtake gas cars in market share. And only foolish automotive OEMs would tell you as much. Therefore, Daimler needs to be able to win in both a gas and an electric world to drive profitability. They need to have the ability to meet internal combustion demand and meet electric motors in any year. To achieve this feat they’re investing to master a manufacturing process that flexibly puts both types of cars on a single factory line. If they need to make 10% EVs, they can. If they need to make 50% EVs, they can do that, too. And if they need to make 100% EVs, it’s a possibility on the exact same infrastructure.
In our class debrief, the three of us thought this was a novel concept. But we also recognized that it was a function of a real constraint; the existing business. If everyone can agree that the future is electric — something Wilko was quick to point out — the ability to build gas cars at all is a short term optimization. It’s a lot like Walmart continuing to expand store infrastructure at the early part of the 21st century while Amazon bet exclusively on digital. Flexibility is a good solution to having to manage short term shareholder demands, but it’s a constraint that vendors like Tesla and Google don’t have.
Some Jobs Are Going Away, Some Aren’t
Cars are pretty pervasive. They used to stand for freedom. An individual turned 16 in the United Stated and sprinted to get one’s driver’s license. But poll our students and you’re likely to have a different picture painted for you right now. Many of our students don’t own cars and would do everything they can to avoid it. With public transportation, Uber, Chariot, and the like… it’s just not worth it.
Or at least, that’s what they’ll tell you for now. Revisit the poll in ten years when many are outfitted with children, suburban homes, and complex schedules to navigate, and you’ll have a different picture painted. During class, this subject came up continuously. And it’s one that is clearly top of mind for Daimler.
The job of occasional transportation for the city resident or student is probably going to see a different solution soon. It doesn’t make sense to own a commodity car to get around if it’s easier and cheaper to use alternative platforms. That’s why Daimler has invested in Car2Go, MyTaxi, and partnered with Uber.
But for the suburban resident, the question is how do they get hired as the solution to the job that arises in their lives. It’s probably not in “Ubering” to work. Instead, the solution might be found somewhere in creating a new type of riding experience that allows these riders to better prepare for the workday, finish getting dressed, and get to one’s location of employment, all from the comfort of an autonomous vehicle. For those jobs that aren’t likely to be replaced by a fleet of managed vehicles, Daimler is thinking that it needs to be the vendor of choice. This requires being honest about what car ownership can provide, what it can’t, and optimizing to win in the future market that is somewhat inevitable.
It’s Impossible to go from Bose to Foxconn
Daimler is a company that has quality automotive manufacturing and design in its DNA. A conversation with any employee will demonstrate as much.
Much of our conversation in class centered around the nature of car ownership. If Uber, Didi, and Grab are going to own the engagement layer for urban transportation, would anyone care about the brand being delivered? Does the brand being used become as irrelevant as the type of server being provided by Amazon when one spins up a new EC2 instance? Most of the students thought so. And to be fair, we still believe there is a healthy debate to be had on this subject. But it was clear that the car aficionados and Daimler employees thought differently. A Mercedes stands for something. And maintaining that purpose is critical in charting a course for their future.
Wilko was the first to admit that some companies in this space would simply become the “Foxconn of the automotive industry.” He posited that it was the responsibility of their leadership team to determine a strategy that continues to build demand for a uniquely luxury class of cars. If they can do that, they could be agnostic to the distribution system (whether it is Uber, Didi, Grab, or their own MyTaxi in Europe). Daimler is betting that people care a lot more about the car they sit in for 30 minutes a day than the server they rent in a data center in a far-away land. So, building not only unique driving, but now also unique riding experiences into their offerings will be a much easier switch for a company that has quality in its DNA.
