Binge-watch. Corbynomics. Dadbod. Each year throws up its own eclectic mix of new words. Life is so very random (and I mean that in the highly unpredictable sense, not in the way teenagers liberally scattered it into every sentence a few years back for reasons known only to themselves!).
This happens in IT as well. Each passing year seems to get defined by words that capture the zeitgeist. In recent times, this has included cloud computing, big data and the Internet of Things. I’m old enough to remember grid computing and e-business before that. This year, my top two are “digital” and “disruption”. Cognitive is already my odds-on favourite for 2016.
The IBM Center for Applied insights recently talked to IBM experts in the field of the connected car. All told, these 20 subject matter experts (SMEs) have a combined three centuries’ worth of experience in the auto business, both inside and outside of IBM. We talked about how the industry may change in the years ahead and what auto manufacturers (OEMs) are thinking about in terms of the threats and opportunities brought about by digital disruption.
Disruption equals change, and the auto industry is all too aware change is happening. In fact, earlier this year, the CEO of General Motors, Mary Barra, said: “The auto industry is poised for more change in the next five to ten years than it’s seen in the past 50.” We tested the validity of this statement on a recent webcast, and more than three in four auto execs agree with Mary.
IBM auto SMEs also agree. They think connected vehicles and digital services flowing from this connectivity will reinvent business models, change ecosystems and redesign customer engagement and customer expectations. Along the way, control points and profit centers in automotive will be forever altered.
They believe that vehicles will get more intelligent and more interconnected. Cars will communicate and effectively collaborate not just with other cars but with the infrastructure around them like traffic lights and parking bays. And they’ll facilitate commerce services across retailers, hotels and the like.
Connected vehicles therefore will increasingly form part of a wider system of systems, so much so that the connected car has the potential to become the “poster child” for the Internet of Things. And we are really just at the start of this journey, with many digital services yet to be imagined.
There is a strong sense the industry is on the cusp of reinvention where existing business models will change and new models will be created. But notice I said on the cusp. Our conversations led us to conclude that we don’t anticipate a “big bang” disruptive event, and auto OEMs have time to respond. However, all players will need to keep a very close watch on market developments and adapt strategies in a very agile way. The days of the annual plan are gone. And in all of this, it is far from certain that OEMs will take all the prizes that digital disruption will bring.
We asked our experts about eight specific digital services, to find out which ones would be most likely controlled by the OEMs and the extent of disruption these services may bring. Here’s their thinking on how this evolution will unfold across three core groups of services:
- The in-vehicle experience: This includes services such as infotainment and commerce. In the main, SMEs felt this area would be less disruptive, often times delivered on the smartphone. Our webcast findings suggest more than 70 percent of auto executives have a personal preference for digital services delivered via integration and syncing their smartphone to the vehicle system. Less than 10 percent want them delivered through a standalone built-in system.
- Vehicle data: Another group was based around data coming from the vehicle, such as pay-how-you-drive insurance and vehicle diagnostics. Such services have the potential to be more disruptive, but with a higher degree of control possible for the OEMs – particularly diagnostics. We heard pretty much unambiguously that OEMs are in prime position to own the control points generated by data from within the vehicle.
- Vehicle ownership: Services around alternatives to vehicle ownership likely will be the most significant game-changer for the industry. While car sharing has been around for some years, OEM activity and customer interest does seem to be gathering pace in this area.
Three centuries’ of collective insights clearly point to the fact that a shift is happening in the auto industry, changing where and how value will be created going forward. To borrow from Darwin, the key to survival is being able to adapt.
Digital disruption is going to mandate that all companies in the auto ecosystem ask themselves a very challenging strategic question: what business are we really in? Our experts suggest that some – but by no means all – are already wrestling with this question. Developing agile operations, partnering with non-traditional players, being able to sense and respond to constantly changing customer needs, and testing new business models will be some of the key capabilities required to embrace the opportunities and face the challenges in the road ahead.
Digital disruption and the future of the automotive industry study and webcast