The Oliver Wyman Automotive Manager
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2017 THE OLIVER WYMAN AUTOMOTIVE MANAGER FOREWORD SEEKING DIGITAL OPPORTUNITIES Dear Readers, Now that “digital” and “big data” start to be established in business reality, automakers need to figure out how to use them to create value. This task is not straightforward. But there are some rules of thumb, and this edition of Automotive Manager outlines a number of ways in which new technology can be turned into new business. First, the digital car will not be completely different from a regular car, at least not initially. Instead, it will be a car with digital features that augment its safety, drivability, and economy. So, automakers need to focus on specific ways in which digital improvements can bring about concrete, incremental increases in value. Second, the impact of digital will go beyond features added to the car itself. Business relationships – whether with customers or suppliers – have traditionally been considered a purely human affair. But digital technology can help both sides of these relationships get to know each other better. It can make their interactions smoother, and it can be a source of new types of service. Normally when digital technology transforms an industry, we talk about it being disrupted. Automakers, however, are not remaining passive: They are determined to carry out some of the disruption themselves, by investing heavily in new technology such as self-driving systems. They are also competing hard with each other in a parallel disruption – electric vehicles – which will change the way cars are manufactured, and have knock-on effects for businesses such as gas stations. However, some of the technology will come from outside the industry. Digital giants have been piling into the automotive sector, developing autonomous driving software and mobility services, for example. Investment is flooding into digital startups. Automakers, as mentioned in the Cover Story, need to figure out what to develop in-house, and when to work with outsiders. This is one of the most exciting times in the auto industry for decades, perhaps for a century. Success – and possibly survival – depends on being nimble, flexible, and imaginative. My hope is that the Automotive Manager will provide you with insights towards meeting the challenges of the future. Best regards, AUGUST JOAS Partner, Head of Automotive Sector CONTENTS COVER STORY: 04 FINDING THE FISH IN AN OCEAN OF DATA CUSTOMER 10 THE NEW DIGITAL CUSTOMER RESEARCH AND DEVELOPMENT PATENTING THE FUTURE OF MOBILITY (R&D) 14 PROCUREMENT 18 DOOMED TO GROW? 22 RETHINKING QUALITY IN THE DIGITAL AGE PRODUCTION 26 THE EVOLUTIONARY CHANGE OF DIGITIZATION 30 PLUGGED IN SALES 34 FINANCIAL RISK MANAGEMENT AS STRATEGIC TOOL 38 ACHIEVING AUTOMOTIVE PRICING EXCELLENCE 42 AUTOMOBILE-RELATED STARTUPS MATURE SERVICES 46 AUTO INSURANCE FACES BIG CHALLENGES 52 NEW PRIVACY RULES FORCE FOCUS ON DATA CROSS-FUNCTION 56 THE GAS STATION’S DIGITAL FUTURE INTERVIEW WITH IAN BROWN, 60 CEO OF RENTALCARS.COM COVER STORY FINDING THE FISH IN AN OCEAN OF DATA The automotive industry needs strategies for managing and monetizing big data As everything in the auto industry – from customer needs specification to vehicle maintenance – develops a big data angle, it has become obvious that digital capabilities are the key to future value creation. But there is less certainty about how to succeed in the digital future. AUGUST JOAS MATTHIAS BENTENRIEDER JUERGEN REINER 4 Material for the next stage in the industry’s evolution is arriving in START WITH USE CASES the terabytes of data generated by cars, drivers, manufacturing plants, and the entire automotive ecosystem. Players have started The first step is to identify the really significant use cases where to consolidate oceans of data – the next step will be to go fishing. big data and digital technology could create value for the end For that, they will need nets: practical, big data applications for customer. Consider, for example, an interaction of the sales and their daily businesses. The revenue of big data and business used-car businesses: A driver might be ready to sell their existing analytics will grow from $130.1 billion in 2016 to more than car and buy a new one. This could mean both a new-car sale $203 billion in 2020. That will mean quickly developing the for an automaker and business for its used-car unit, including capabilities and infrastructure to process and use the wealth of financing and maintenance services. To come up with the best available data. As of now, however, the creation of value from big offer for the driver at the best time requires a range of data on the data is often not fast enough. condition of the existing vehicle, the used car market, and the driver’s preferences and buying habits. So, the automotive industry’s biggest challenge is how to turn big data into valuable data – and make money out of it. The “fish” In sales and distribution cost, dealer margins account for about that are caught in these big data nets may include insights that 30 percent of a car’s list price. This is an obvious area where data result in higher revenues, lower costs, or contributions to higher can generate value. There are vast quantities of unexploited data profit margins. However, there is no magic wand. Smart data points on price points and elasticities, promotion incentives, dealer solutions call for hard work – and they will depend on the specific margins per channel, and customer discounts. Analyzing and opportunities in different parts of the automotive value chain. optimizing commercial patterns with big data algorithms could generate additional value of €500 to €1,000 per car, significantly Most importantly, automakers need to focus on areas where improving the profits of both the automaker and the dealer. they can start to generate incremental value. Then, once they have developed the capabilities to process data and In production, success has long come from ad-hoc problem extract value effectively, they can target large, disruptive solving and firefighting, and from managing complexity through value pools. The next stage is to figure out how best to experience and good intuition. Plants have had to respond to late do this. In some cases, the fastest way may be to recruit engineering changes, the growing number of vehicle launches, digital specialists – whether from within the firm or from the issues with supplied parts, or other unforeseen challenges. outside – but mostly they will have to train personnel in-house. Mastering big data will revolutionize production, transforming The digitization of the auto industry is going to happen fast, and hands-on management into highly industrialized clockwork, which not having the right staff could result in lost time, as rivals rush is complex but controlled. Manufacturing data will be integrated out new innovations. from one end of the value chain to the other, immediately making issues and priorities transparent to all those affected. Fundamentally, there are three work streams to create value from big data: Product development, engineering, and research have always • Use cases: Where to find and exploit the value for the business depended heavily on data, parameters, and digital mock-ups • Data management and IT: How to analyze and process data of components. Yet these digital representations have only with smart IT solutions recently been enriched with information on their functionality, • People and organization: How to develop and organize the material characteristics, and related software. These data will required resources enable amazing efficiency boosts in engineering: Quality issues in EXHIBIT 1: BIG DATA USE CASES FOR THE AUTOMOTIVE INDUSTRY There are a number of substantial big data opportunities along the value chain PRODUCT DEVELOPMENT PRODUCTION, SALES, USAGE, PURCHASING SUPPLY CHAIN AFTERSALES MOBILITY, COMMERCE • Customer-centric • Quality and root • Configuration • Tour planning and car specification cause analytics cross- and upselling live trac • Testing and simulation • Vehicle launch • Pricing and commercial • Location-based services • Customer need management excellence • Remote services management • Supplier integration • Early stage test drives • Uptime optimization, • Software integration • Configuration control • Spare parts pricing total cost of ownership • Parametrization • Production scheduling • Early warning system • Creating new prospects field quality problems Source: Oliver Wyman 6 MORE THAN $203 BN OF REVENUE OF BIG DATA AND BUSINESS ANALYTICS IN 2020 a component will be detected before they result in a defect; and oversee customer adoption and satisfaction. The scrum teams parts assembly will be simulated in advance. Most important, these will also need to figure out IT requirements to make sure the new will contain only the necessary functionalities. applications will work as intended. Mobility services, a relatively new business, are entirely based on data. Whether a service hails a taxi, organizes ride-sharing, SMART PARTNERSHIPS or finds a parking space, its essence is the matching of customer needs with the availability of transport and driver services. Digital innovations will dominate the automotive sector in the Managing vehicle capacity and understanding customer riding future, as the automotive ecosystem links to other areas of the patterns is complex, and early field studies indicate that mobility connected life, ranging from alternative mobility services to in- services will only be profitable at a scale that provides full car information and entertainment. This trend is already a living coverage for, say, a city. So the business case for mobility services reality: Young people, especially, are using their smartphones will depend in large part on the ability to maximize car utilization as mobility planners, to reserve cars in sharing schemes, and to by getting the most out of large quantities of data. (See Exhibit 1.) check the times of connecting trains. Even if fully autonomous vehicles do not become ubiquitous in our streets for many more years, driver support technology is already widespread in the form SCRUM TEAMS AND DATA INSIGHTS of parking assistance systems and speed-and-distance monitors that remind drivers to brake.