Automotive future: Success with services, not cars

November 12, 2015 // By Christoph Hammerschmidt
Decision makers in the automotive industry should be alert: The digitisation will radically change development processes and business models, a study from consulting company Kugler Maag states. The main challenge: product oriented business models will be displaced by service oriented models, thinking in terms of product will give way to thinking in services – following the example of the IT. Even the classic vehicle architecture is challenged.

Digital competency will decide over the success of the enterprise, this is a first common denominator among 42 top executives polled by Kugler Maag. The study, created in the context of the European research project “Scalare” in cooperation with BMW Car IT, Bosch, Fraunhofer SIT and the University of St. Gallen (Switzerland) examined how digital competency at enterprise level can be shaped and how the enterprises can achieve the required degree of digital literacy.

Digitisation will increasingly challenge the business model of the automotive industry that has been established and refined over decades. Likewise, the structure of the value chain in this industry will be replaced by a more network-oriented business model, the study says. These value-creating networks will integrate different sorts of vendors and providers; examples are IT and Internet providers, car rentals and manufacturers. The paradigm shift lies in the fact that no longer will the car be the centre of the activities but a holistic service around mobility. The interface to the customer, for decades the showrooms of the dealership, will move to IT companies or service providers.

One of the most important management competencies in the automotive industry of the future will be the ability to organise open partnerships. The vehicle will transform its role to become an interface of the IoT. Therefore, business models have to be managed that match the digital economy, the study says. The revenue streams will shift from products to services. In addition, service innovations will less often be created in technical departments and more often in partnerships and cooperations.

This shift of the centre of gravity from product to services will have far-reaching consequences. To take this shift into account, dividing the automotive electronics architecture into two layers will be necessary. While currently the car development process is oriented on separate domains such as body, electronics, undercarriage and powertrain, in the future a “physical layer” will contain all the safety-relevant