Digital Gravity – A Global Automotive Study (by KPMG and Egon Zehnder)

The automotive industry has enjoyed huge success. The structures, processes and leadership that this success has been built on have all influenced other industries’ development. But these well-established processes and structures are beginning to change. The force behind this is digitalization.

Leaders clearly perceive a new force pulling the automotive industry towards unfamiliar ground – we call this force “Digital Gravity”. But the industry seems to be clinging to its old ways. Our research has found that despite an awareness of the challenge facing it, the automotive industry has still not undertaken the work that will enable it to respond to this new force.

The digital transformation of the industry is high on the agendas of executives, who show a willingness to try new things and an understanding of the importance of digitalization in general. In this study, no single definition of digitalization or what it meant for the automotive industry was given to the executives we spoke to. Nevertheless, of the 527 executives questioned, 92% responded that they have a clear picture of digitalization.

When asked what role digitalization should play, however, their answers vary. 44% name “design and control” of new business models, with another 40% selecting “design and support.” On the other hand, 14% say that digitalization plays a supporting role in existing business. This type of response can be found throughout the study. Awareness is high, but responses are inconsistent.

The challenge faced by the automotive industry is complex. How can businesses make the most of the approach that has been so successful, while building the new structures that and complex mobility solutions that will allow them to respond to Digital Gravity? Industry must aim at a moving target, integrating innovative approaches with current ones.

At the beginning of a new era, what can help the industry cope with Digital Gravity?

• Be more aware of where the automotive industry is coming from: a process-oriented world with world-class products. It was clearly structured and had well-defined innovation goals. But this clear-cut world is gone.

• Build bridges between traditional and new approaches with a serving, open leadership style. Understand individual capabilities and speeds as well as the impact that single departments can have on the overall development of the organization.

Capturing ecosystem logics

76% agree that new business models will only arise through cooperation with non-asset-based companies. The automotive industry understands that in the new world of Digital Gravity, new approaches are essential. Automotive companies can learn from the approach that has worked for tech companies – creating visions for customers and thinking in terms of ecosystems, networks and collaborations.

But we found that within the industry, openness to this new collaborative approach varied widely. While 86% of respondents from digital departments agree with the idea of collaboration, strategists are struggling (only 65% agree). Similarly, while more than 80% of CEOs and C-suite executives are open to collaboration, heads of department show the lowest levels of enthusiasm with 19% disagreeing with the idea.

How can collaboration help companies cope with Digital Gravity?

• Clearly articulate how success in the digital world is measured. Learn from tech companies and their approach – the meaning of vision vs. product-centric strategies. Focus on the vision and put to one side short-term ROI or the bottom line (this will be unusual, if not painful, because traditional industry processes work differently).

• Think about business development needs – and look for mutually beneficial collaborations that can positively influence an organization’s development. Remember that the days when the automotive industry could solely dictate the terms of such collaborations are over.

Hiring cultures

No other chapter in our digital study reveals such a deep gap between awareness and the current state of digitalization. 92% believe it’s necessary to define a new cultural approach. But only 45% have started the process of defining the new culture – the rest say that nothing has been done so far. On the other hand, an overwhelming majority believe an integrated and intelligent mix of old and new values is necessary to shape a culture in digital times (87%).

To create a new culture, the organization must be exposed more closely to Digital Gravity. This means establishing a variety of collaborations with truly digital players that will leave a mark on one’s own organization. Creating a blend of cultures – and actually “hiring” different cultures – should be higher on CEOs’ agendas.

Exploring new network families

Only 61% of the executives we spoke to believe in collaborations with competitors or a digital company. Almost 40% state that the automotive industry can handle digitalization on its own, even if they need to rely on external expertise. When asked to identify the main driver of digitalization, the most frequent answer was collaboration with players from one’s own industry (almost 25%). 66% say that traditional and new business models need to run “side by side,” while only 34% “believe in a complete shift in business models and products despite a clear awareness that the return on new businesses might still be negative today.” Although the automotive industry can perceive the need to adapt to Digital Gravity, the established ways of doing things have their own pull.

How can building new networks help companies cope with Digital Gravity?

• Acknowledge the inertia that the industry’s mindset creates – established ways of doing things create their own ‘pull’ or gravity. Without this step, no change will ever take place.

• Build conviction and alignment within the organization, across hierarchies and departments.

• Let external networks shape your companies’ development. Collaboration with technology companies and others outside the industry will enhance the ability of both sides to tackle the challenges facing them.

• Allow the organization to partially break away from traditional processes and structures.

Open up to diverse orbits around a new center of gravity

When we asked executives from the automotive industry about their strategic approach to digitalization, we could observe the mindset of the past: a clear, uniform strategy with a clear goal. 79% say that their organization has a uniform digitalization strategy. Only 12% pursue several strategies in their organization. And while a majority (68%) state that digitalization is approached very disruptively, this view is not shared by strategists (only 53% of whom agreed, while 28% disagreed – the highest rate in our study).

As a matter of fact, organizations need to adopt different approaches to responding to the new Digital Gravity. The level of commitment to doing so is far too low today. If an organization does not openly allow for more trial and error, the likelihood of failure will rise. These are some of the most dramatic results of our study. There is certainly no single path to digitalization. Organizations have to learn to tolerate this and be open to different speeds and approaches. They must learn that we are transforming from a traditional product-oriented automotive world into a digital era in which flexibility and agility counts.

Engage the organization to do things differently

The majority thinks that digitalization mainly involves “process changes” (57%). Cultural changes and leadership awareness are ranked lowest. When asked about AI and other digitalization technologies, 50% revealed an “early follower” strategy, while only 40% aim to be first movers.

What do these results tell us? First of all, that the industry sees the established ways of doing things as powerful and sufficient. And while this is certainly true of the past and will always be true when it comes to building a technical product, it does not apply to the Digital Gravity the industry is now facing. The significant challenges are:

• Shifting mindsets throughout the entire organization. Digitalization is not about top-down strategy

• Valuing diversity and fostering it within the organization – not building the same networks, but relying on Diverse Network Families (DNF)

• Reconciling the new and the old in unique ways

• Making bold moves, entering new territory, and striving to become a first mover

But how? We asked the executives about issues of organization, culture, and leadership which we consider essential to success:

Selecting the right route for organizational change

Asked about organizational challenges, the majority think that digitalization pertains mainly to IT and that all other areas are affected far less. They find these challenges highly relevant and are confident they can manage them (63%). There is widespread conviction (76%) that establishing a CDO function is necessary for successful digital transformation. However, executives do not count these challenges among the greatest in their company’s history (41%).

This does not point to an industry that is ready for the organizational changes associated with Digital Gravity. There is a high degree of awareness, but little willingness to take a holistic approach to organizational change.

There is no silver bullet except the need for an integrated approach. Traditional business and digital can’t run “side by side” in isolation.

In our in-depth interviews, however, we discovered that the industry seems to be testing different organizational approaches – and this is certainly the right thing to do.

Blending old world and new world leadership models

Again, there is a clear conviction that change is needed: Almost 86% say that leadership models have to change in the future. But when asked about the guiding principles of a digitalized world, the reply was “efficiency and speed” (64%). Creating a failure-tolerant environment or an organization with flatter hierarchies is considered the lowest priority of all options.

It is clear that establishing a culture of openness driven by a variety of forces – chief among them curiosity – should be high on the automotive CEO’s agendas. But a change in mindset is needed towards a serving style of leadership that is prepared to “sense and respond” rather than “command and control,” and to build bridges between the traditional automotive world and new digital players. There is no doubt that Digital Gravity is here to stay – businesses, and their leaders, must adapt or be left behind.

Integrating Digital Gravity in the automotive industry

The automotive industry is one of many that are grappling with how to approach Digital Gravity. Our experience – and observing companies that appear to be managing the transition well – shows there are lessons to be learned for every organization and every executive. These measures can vary significantly and need to be individually adapted.

Lessons learned

When companies have created momentum for Digital Gravity they need to work toward it in a manner uniquely tailored to their organization. Still, the guiding principles are clear:

• Pick your battles. Ask where to focus on when adjusting to the new Digital Gravity. Not every approach is outdated and some things will remain relevant. So instead of bringing in digital on too many fronts, focus on strategically relevant fields.

• Bring in new digital expertise (primarily through mutually beneficial collaborations) and create bridges between your established business and digital exploration.

• Locate and develop talent that can bring the desired culture into the organization and bridge the gap between traditional expertise and new digital capabilities. This new talent does not necessarily have to come from the digital world. Some people from this field are just as constrained by their own traditions as the traditional automotive world.

• Learn to measure executive excellence differently – the old metrics no longer apply because the new world is largely about trial and error, and paths to product success are incomparably long.

• Leaders must pursue and foster a new culture, but cultural transformation must happen at all levels of the organization – a top-down approach alone will not work. Get used to the fact that the era of the all-knowing CEO and executive board has passed.

• Let culture play a major role throughout the organization. Without a spirit of openness, curiosity and learning, companies will struggle to create a blend of the old and the new.

Leaders must also change their own mindset. These steps are impossible without a serving, inquisitive and humble leadership style that extends to the very top of the organization. Although strong executional direction is still needed, establishing a new culture of openness, curiosity and the power to connect is essential. The spirit of collaborative leadership must prevail – and can ultimately enable an organization to accomplish something new and better.
 

View the complete findings of KPMG and Egon Zehnder's study of 500 global automotive executives: