GLOBAL CEO STUDY AUTOMOTIVE INDUSTRY EDITION automotive industry edition 1 INTRODUCTION What wiAA the Enterprise of the Future Aook Aike? To answer that question, we spoke with more than 0,\xf\xf\xf CEOs from around the worAd as part of our bienniaA GAobaA CEO Study series. 0 Across indus- tries, geographies and organizations of different sizes, the view was surprisingAy simiAar: the Enterprise of the Future is hungry for change, innovative beyond customer imagination, gAobaAAy inte- grated, disruptive by nature, and genuine, not just generous.
However, these aspirations hoAd specific opportunities and chaA- Aenges for automotive companies. Based on the responses of the 49 automotive CEOs who took part in our study, we 9ve taken a cAoser Aook at the impAications for this industry. These findings draw on the rich insights from our CEOs through sta- tisticaA and financiaA anaAyses as weAA as the voices of the CEOs them- seAves.
Each chapter concAudes with thoughts about how automotive organizations can move forward toward becoming an Enterprise of the Future and a case study to iAAustrate a Aeading company. GLOBALLY INTEGRATED HUNGRY FOR CHANGE INNOvATIvE BEYOND CUSTOMER IMAGINATION GENUINE, NOT JUST GENEROUS DISRUPTIvE BY NATURE CHAPTER ONE Automotive CEOs anticipate more change over the next ... more. less.
three years than most CEOs, but they aAso report Aess past success managing it. WiAA they be abAe to shrink this growing gap?<br><br> Automotive CEOs are wrestAing with change on many fronts: voAatiAe market demand, escaAating taAent shortages and a competitive Aand- scape that is more gAobaA than ever. ConsequentAy, nearAy nine out of ten automotive CEOs expect substantiaA change for their organiza- tions over the next three years. Yet onAy haAf say their companies have managed such change suc- cessfuAAy in the past (see Figure 0), Aeaving a cchange gap d of 24 percent.<br><br> Automotive companies 9 abiAity to change is simpAy not keeping pace with the AeveA of change they 9re confronting. In fact, automotive has one of the Aargest gaps of aAA the industries we stud- ied 3 second onAy to the media and entertainment industry. HUNGRY FOR CHANGE cOur company has moved crom a traditional light auto maker to a comprehen- sive manu cacturer o c both commercial and passenger vehicles, crom domestic markets to international markets, and crom sel c- reliance to cooperation with coreign companies. d CEO, Chinese OEM automotive industry edition 3 FIGURE 1 AUtOmOtIvE COmpANIEs FACE stEEp CHANGE HURdlE Not only does Automotive anticipate more change than other industries, it is also less success cul at managing it.<br><br> All Industries Automotive 83% 61% 88% 54% 34 % CHANGE GAp 22 % CHANGE GAp ExpECt sUbstANtIAl CHANGE CHANGEd sUCCEssFUllY IN tHE pAst ExpECt sUbstANtIAl CHANGE CHANGEd sUCCEssFUllY IN tHE pAst When we Aook at the financiaA underperformers across our automo- tive sampAe, the gap Aooms even Aarger (see Figure 1). 1 Forty-six per- cent of those companies Aack the change management expertise necessary to respond to the turbuAence they see on the horizon. Automotive outperformers 9 abiAity to change successfuAAy mirrors that of financiaA Aeaders across industries (6 4 percent versus 66 percent).<br><br> But even these automotive standouts seem inadequateAy prepared for the staggering amount of change expected over the next three years. the enterprise of the future 4 AUTOMOTIVE ENTERPRISES AS CHANGE MASTERS Change management is cAearAy a strategic capabiAity for automotive enterprises of the future. In an environment as voAatiAe as our survey participants anticipate, change capabiAities are just as criticaA to business success as engineering or manufacturing.<br><br> FIGURE 2 EvEN OUtpERFORmERs FACE A sUbstANtIAl CHANGE GAp Although automotive outper cormers have stronger change management track records than under- per cormers, they still are con cronting more change than peers in other industries. Underperformers Underperformers All industries Automotive Outperformers Outperformers 83% 54% CHANGE NEEdEd pAst CHANGE sUCCEss 85% 66% CHANGE NEEdEd pAst CHANGE sUCCEss 19 % CHANGE GAp 29 % CHANGE GAp 92% 46% CHANGE NEEdEd pAst CHANGE sUCCEss 94% 65% CHANGE NEEdEd pAst CHANGE sUCCEss 29 % CHANGE GAp 46 % CHANGE GAp automotive industry edition 5 Automotive companies have a sizabAe gap to cAose. To do so, they 9AA need to become change masters 3 experts at pAanning and execut- ing enterprise-wide change.<br><br> Each change initiative shouAd have a documented strategy that outAines the reasons for change as weAA as the specifics about what wiAA change and how. RoAes and responsi- biAities shouAd be cAear 3 and combined with measurements to pro- duce accountabiAity for making change happen. cOnce we understand that we need to change, we 9re good at making it happen.<br><br> But we struggle with defn- ing that picture o c success. d CEO, North American the enterprise of the future 6 CONTINENTAl: RIDING ON A STRATEGY OF CHANGE During its first one hundred years, German automotive suppAier ContinentaA AG has been known as a tire company. But over the past decade, it has become much more than that 3 thanks to the com- pany 9s abiAity to change. AAready one of the worAd 9s Aargest tire makers, ContinentaA reaAized in the mid 099\xfs that it wouAd need to move beyond its mainAine business to continue to grow.<br><br> As it watched the eAectronics content of the typicaA vehicAe cAimb by aAmost 4\xf percent in five years, the company decided to focus its expansion in that area. 2 However, ContinentaA did not Aeap headfirst into Aines of business in which it had no experience. Instead, it foAAowed a progressive change strat- egy, steadiAy expanding from one adjacent area to the next 3 from tires to brakes to the eAectronics that controAAed the brakes and eventuaAAy to eAectronics used throughout the vehicAe.<br><br> Through a series of acquisitions over the past decade 3 incAuding ITT Automotive in 0998, foAAowed by Temic, then MotoroAa 9s automo- tive eAectronics business and Siemens VDO 3 ContinentaA has trans- formed itseAf from tire manufacturer to strategic automotive suppAier. 4 Its future is no Aonger riding soAeAy on the success of its tire business; its capabiAities extend throughout the vehicAe 3 from brake controAs to teAematics to infotainment. ContinentaA is now the fourth Aargest auto suppAier worAdwide.<br><br> 4 Between 0998 and 1\xf\xf8, its automotive saAes grew more than 2\xf foAd, from US$ 6 4\xf miAAion to US$ 14 biAAion. 6 Ca5e 56u(y 7 INNOvAtIvE bEYONd CUstOmER ImAGINAtION The automotive industry 9s investment in rising consumer purchasing power is extremeAy high and stiAA growing. CouAd this intense focus on new markets cause companies to negAect the needs of increasingAy informed consumers?<br><br> Automotive CEOs are extremeAy upbeat about rising purchasing power around the worAd 3 especiaAAy among the growing middAe cAass in deveAoping economies. Nine out of ten beAieve this rising prosperity trend wiAA have a positive impact on their businesses. For automakers, deveAoping economies are key target markets.<br><br> Some experts contend that China wiAA surpass Japan as the second Aargest automotive market in terms of saAes by 1\xf 0\xf and wiAA rivaA the top market, the United States, by 1\xf 0 4. 6 Innovations such as the Tata Nano (priced at approximateAy US$ 1, 4\xf\xf) are prompting Indian consumers to trade their two- wheeAers for their first automobiAes. Some forecasts suggest that vehicAe saAes wiAA tripAe by 1\xf 0 4, pushing India into the top ten auto- motive markets.<br><br> 8 the enterprise of the future 8 VehicAe saAes in Russia 3 arguabAy the fastest-growing new car mar- ket 3 increased by 2 4 percent in 1\xf\xf 6 and are on course to exceed that rate in 1\xf\xf8. By 1\xf 0 1, Russia 9s car market is expected to be the third Aargest in the worAd, behind onAy the United States and China. 9 AUtOmOtIvE CEOs lEss ENtHUsEd AbOUt mORE INFORmEd CUstOmERs As consumers around the worAd become more prosperous, they 9re aAso becoming more demanding and better informed, thanks to the Internet, with higher expectations and more discriminating tastes.<br><br> As one North American OEM CEO noted, cWe can 9t seAA oAd genera- tion products in emerging markets anymore. d Automotive CEOs are a bit more hesitant about this second trend 3 onAy 6 6 percent view it as positive (as compared to 89 percent for rising consumer prosperity). Across industries, companies are strug- gAing to find new ways to serve this cinformation omnivore, d the con- sumer who has unprecedented access to information and an increasing interest in coAAaboration across sociaA and business networks. Consumers 9 reAentAess appetite for information is about far more than just products.<br><br> Through the Internet, biAAions can now pass judgment on the actions and decisions of automotive companies and the industry as a whoAe. VirtuaAAy every aspect of an enterprise 9s business cWe can 9t copy what others have done and expect to be viewed as a leader. d CEO, North American OEM automotive industry edition 9 is on dispAay 3 how it deveAops, manufactures and distributes its products; treats empAoyees, suppAiers, sharehoAders and activists; manages its finances; addresses societaA issues and more. INvEstmENt mONOpOlIZEd bY NEW mARKEts In terms of spending reAated to these two trends 3 rising prosperity and increasingAy informed customers 3 automotive CEOs are decid- edAy more focused on the opportunities associated with greater consumer purchasing power (see Figure 2).<br><br> Over the past three years, they have devoted nearAy one-third of their totaA investments to capturing this opportunity 3 and are pAanning a 2\xf percent increase over the next three years. FIGURE 3 AUtOmOtIvE INvEstmENt Is FOCUsEd ON RIsING CONsUmER pROspERItY Meanwhile, automotive CEOs are planning only a marginal increase in investment targeting today 9s more in cormed consumer. Automotive investment in rising purchasing power 31% 41% 30 % INvEstmENt INCREAsE INvEstmENt pAst 3 YEARs INvEstmENt NExt 3 YEARs Automotive investment in the informed and collaborative customer 21% 22% 2 % INvEstmENt INCREAsE INvEstmENt pAst 3 YEARs INvEstmENt NExt 3 YEARs the enterprise of the future 10 In contrast, investment growth associated with serving the increas- ingAy informed and coAAaborative customer is essentiaAAy fAat.<br><br> In fact, it 9s the Aowest rate of increase across aAA the industries we studied. Indeed, the automotive industry 9s investment pattern differs sharpAy from the norm (see Figure 4). These findings suggest some criticaA questions for automotive CEOs: CouAd the intense focus on rising prosperity cause automotive com- panies to negAect the needs of informed customers?<br><br> Is the growth from new markets sustainabAe if the expectations of more sophisti- cated customers are not met? How can automotive enterprises max- imize the return on their substantiaA customer investments? FIGURE 4 AUtOmOtIvE INvEstmENt IN CUstOmER tRENds dIFFERs FROm OtHER INdUstRIEs Most CEOs are increasing investment in both areas; automotive CEOs are more single-minded.<br><br> Chemical & Petroleum 0% 100% 10% 20% 30% 40% 20% 40% 60% 80% Automotive ALL INDUSTRIES Electronics Health Care Providers Health Care Payers Energy & Utilities Pharmaceutical pERCENt INvEstmENt INCREAsE IN NExt tHREE YEARs tO AddREss INFORmEd CUstOmER pERCENt pOsItIvE ImpACt OF INFORmEd CUstOmERs automotive industry edition 11 AUTOMOTIVE COMPANIES AS CUSTOMER COllABORATORS Greater innovation across both deveAoped and deveAoping markets 3 for the newAy affAuent as weAA as the more informed 3 depends on the automotive industry 9s abiAity to discover and appAy customer insights. It 9s a chaAAenge that wiAA invoAve every Aink of the industry vaAue chain. Automotive OEMs must rethink how customer information is gath- ered and anaAyzed 3 and have processes in pAace to appAy the resuAting insights.<br><br> To drive greater innovation, OEMs wiAA aAso need to invoAve their suppAiers in the process. CoAAaboration wiAA be criti- caA, as the CEO from a Japanese automotive suppAier expAained. cCustomers demand 8connectedness. 9 In the past, automotive OEMs drove technoAogy into the vehicAe.<br><br> Now, OEMs are asking for our insights. d DeaAers are the most direct Aink to the consumer. But informed and coAAaborative consumers are not interested in a traditionaA transac- tionaA reAationship. These buyers are more AikeAy to waAk into a deaA- ership with purchasing decisions 3 perhaps even the purchase itseAf 3 aAready made.<br><br> To them, the opinions of friends and even onAine reviews by strangers matter more than a deaAer 9s saAes pitch. To infAuence buying behavior, deaAers and OEMs must Aearn to engage these consumers in new ways, such as through onAine sociaA networks. cCustomers 9 needs are changing and increasing.<br><br> And so are the market op- portunities 3 such as China 9s rural market and other emerging niche markets. d CEO, Chinese OEM the enterprise of the future 12 As custodian of virtuaAAy aAA consumer data generated during the ini- tiaA years of vehicAe ownership, deaAers have an inherent advantage. This competitive edge grows as consumer data is aggregated and anaAyzed. To date, however, most deaAers have been reAuctant to share this information with OEMs, fearfuA of being ccut out of the Aoop. d SuccessfuA brands and deaAer networks wiAA find ways to over- come this issue and pooA their coAAective consumer insights so that both can benefit.<br><br> automotive industry edition 13 BMW: SMAll CAR, BIG INSIGHTS With its Mini Cooper, the BMW Group is piggybacking on the rising trend of the informed and coAAaborative customer. The company rec- ognized that cconsumers d in other industries were tiring of passive roAes and were interested in becoming more active participants 3 and BMW bet big that the same wouAd be true for car buyers. Its gambAe seems to have paid off.<br><br> The Mini Cooper has heAped cre- ate a new category of cpersonaAity d cars buiAt to suit each buyer 9s unique tastes. Customers can participate directAy in the cdesign d by choosing from 2 6 1 interior and 2 09 exterior options. 0\xf The AeveA of customization is so vast that a buyer has onAy a 0 in 0\xf\xf,\xf\xf\xf chance of ordering the exact same Mini as someone eAse.<br><br> 0 0 It 9s an approach that not onAy offers buyers a highAy personaAized end product 3 but aAso provides BMW with tremendous insights into its customers 9 needs and wants. For BMW, this customer coAAaboration is not just a surface-AeveA gim- mick. It aAso impacts product pAanning and manufacturing.<br><br> Instead of runs of 0\xf,\xf\xf\xf, Minis are buiAt one at a time. Each car coming down the Aine Aooks different. Its parts are kitted in advance and deAivered to the Aine just in time for assembAy.<br><br> ScheduAing and shipping must be precise. 0 1 So, are consumers interested in this AeveA of invoAvement? It appears so.<br><br> A remarkabAe two-thirds of aAA Mini customers choose to person- aAize their car 3 a cAear sign that consumers are ready to coAAaborate, if OEMs, suppAiers and deaAers are. 0 2 Ca5e 56u(y CHAPTER ONE Automotive CEOs are weAA aware of the impact of gAobaAization on their industry. But what wiAA it take to become truAy gAobaAAy integrated?<br><br> Automotive CEOs ranked gAobaAization as the externaA force that wiAA have the greatest impact on their companies over the next three years. And 86 percent are reconfiguring their businesses to take advantage of gAobaA opportunities. Their responses suggest that the automotive industry intends to be one of the most gAobaA in terms of business design, traiAing onAy the eAectronics industry.<br><br> Compared to our overaAA sampAe, automotive CEOs are more focused on optimizing operations gAobaAAy, gAobaAizing their products and brands, and deepAy changing their mix of capabiAities, knowAedge and assets. Automotive outperformers are pAanning even more aggressive moves in these three areas (see Figure 4). In other words, the companies that are doing better financiaAAy are pursuing higher degrees of gAobaA integration.<br><br> GlObAllY INtEGRAtEd cFor Chinese automakers, market competition has not been the simple divi- sion between domestic and overseas markets. The Chi- nese auto market has been incorporated into the global auto market knowingly or unknowingly& d CEO, Chinese OEM automotive industry edition 15 AmbItIONs ARE HIGH, bUt tHE CHAllENGE Is GREAt Despite automotive Aeaders 9 strong gAobaA integration intentions, insufficient taAent 3 particuAarAy management skiAAs 3 presents a sub- stantiaA hurdAe for automotive companies. cWe need gAobaA manag- ers, d the CEO of one North American automotive suppAier expAained.<br><br> cBaby boomers do not have this skiAA and are Aearning the hard way since they grew up in the regionaA modeA. The new generation is aAready thinking gAobaAAy, but they do not have the experience. d The percentage of automotive CEOs who pAan to partner to capitaA- ize on gAobaA integration opportunities is roughAy the same as the overaAA percentage across industries 3 around 9\xf percent. But a much smaAAer group of automotive CEOs intend to partner exten- siveAy ( 2 1 percent versus 4 4 percent across industries).<br><br> dee3/y change 6he 0i9 of ca3a&i/i6ie5, know/e(ge an( a55e65 G/o&a/ize &ran(5/3ro(uc65 O36i0ize o3era6ion5 g/o&a//y main6ain curren6 0i9 of ca3a&i/i6ie5, know/e(ge an( a55e65 loca/ize &ran(5/3ro(uc65 O36i0ize o3era6ion5 /oca//y Globally oriented Equally important Locally cocused FIGURE 5 OUtpERFORmERs IN pURsUIt OF GREAtER INtEGRAtION When comparing automotive outper cormers and underper cormers, we cound the most dramatic di c cerences in three areas o c global integration. 59% 41% 45% 45% 10% 69% 25% 6% 50% 50% 69% 31% 50% 42% 8% UNdERpERFORmERs OUtpERFORmERs UNdERpERFORmERs OUtpERFORmERs UNdERpERFORmERs OUtpERFORmERs cOur management talent has to be upgraded to lead in the new realities o c the global automotive indus- try&Global integration is the biggest opportunity because there is so much value at stake. d CEO, North American OEM the enterprise of the future 16 Among automotive suppAiers, the extensive partnering group shrinks even smaAAer. As the CEO of one North American suppAier put it, cWe invented 8not invented here. 9 d The automotive industry 9s moderate pAans for partnering seem particuAarAy troubAesome given the finan- ciaA impAications we see in our overaAA sampAe.<br><br> Across industries, out- performers are 1\xf percent more AikeAy to partner extensiveAy than underperformers. AUTOMOTIVE ENTERPRISES AS GlOBAl INTEGRATORS The strategies of outperformers suggest that automotive companies must work toward gAobaA integration, not just gAobaAization. However, three main hurdAes stand in the way: a shortage of gAobaA Aeadership skiAAs, insufficient coAAaboration and opposing standards.<br><br> Automotive companies need Aeaders who think gAobaAAy. To deveAop these capabiAities, high potentiaA executives need stretch assign- ments that test their abiAity to work cross-cuAturaAAy 3 managing worAdwide teams as weAA as understanding and serving gAobaA mar- kets. Because the regionaA mindset is so pervasive and entrenched in the automotive cuAture, companies shouAd aAso consider incorpo- rating Aeadership taAent from outside the industry.<br><br> automotive industry edition 17 To be better integrators, automotive companies must become bet- ter coAAaborators. They wiAA need to deveAop a common partnering pAatform that incAudes ruAes, inteAAectuaA property protection, risk and reward sharing and the abiAity to quickAy engage and disengage. The abiAity to partner wiAA become even more criticaA as industries coAAide and converge.<br><br> And as automotive companies form aAAiances with those outside their industry, the nature of the reAationship wiAA be different. OEMs and major automotive suppAiers wiAA no Aonger be abAe to reAy on industry cAout and positioning to dominate reAation- ships. They must know how to work cooperativeAy as partners, not just manage suppAiers.<br><br> CoAAaborative reAationships wiAA be the nexus of innovation. ArguabAy the most criticaA 3 and perhaps the most costAy 3 obstacAe to gAobaA integration is having muAtipAe standards. Before R&D can effectiveAy Aeverage expertise from anywhere in the worAd, before one region can adopt best practices from another, before manufac- turing capacity can be used to meet both AocaA and gAobaA demand, before true gAobaA integration can happen, the automotive industry must unite its standards.<br><br> the enterprise of the future 18 GM: GlOBAl INTEGRATION STARTING WITH DESIGN As the worAd 9s Aargest automaker, GeneraA Motors (GM) has a tremen- dous gAobaA footprint. But the company aAso understands gAobaA integration is just as important as gAobaA reach. The company is working to unify its regionaA vehicAe architectures, disparate components and disconnected processes.<br><br> The 1\xf\xf9 OpeA Insignia wiAA be the first vehicAe buiAt based on the company 9s new midsize architecture known as EpsiAon II, or GAobaA EpsiAon. The five previous pAatforms repAaced by EpsiAon II had underbody geometries and mounting points that were aAA within a few miAAimeters 3 and yet these sAight differences meant the vehicAes couAd not be buiAt on the same assembAy Aines. With the new common gAobaA pAatform, GM expects to save approximateAy US$ 0 biAAion.<br><br> As GM introduces new gAobaA architectures for each vehicAe famiAy, it can transfer tooAing among gAobaA cfAex d pAants and buiAd automobiAes anywhere. 04 The deveAopment of these new architectures aAso aAAows GM to con- nect its geographicaAAy dispersed engineering teams. For exampAe, its Korean team took the architecturaA Aead on one of GM 9s smaAA vehi- cAe pAatforms.<br><br> As a resuAt, the Korean IT systems and deveAopment processes became better integrated with the whoAe of GM. 0 4 The company 9s new organization for hybrids, extended-range eAec- tric vehicAes and advanced battery technoAogy is another exampAe of its continuing march toward gAobaA engineering. This worAdwide team wiAA be based in four Aocations: two in the United States, one in Germany and the fourth in China.<br><br> 06 Ca5e 56u(y 19 The majority of CEOs across industries are impAementing extensive business modeA innovations. Automotive CEOs, however, seem more entrenched in current modeAs. WiAA the next major transportation innova- tion come from outside the industry?<br><br> Despite the externaA forces that are unsettAing the industry, onAy haAf of the automotive CEOs are pAanning significant business modeA changes (see Figure 6). In fact, Automotive is one of the Aeast active industries in terms of business modeA innovation 3 at the back of the pack with other capitaA-intensive sectors such as utiAities, petroAeum and aerospace. dIsRUptIvE bY NAtURE FIGURE 6 FAR FEWER AUtOmOtIvE CEOs WIll sIGNIFICANtlY AltER tHEIR CURRENt mOdEls Across industries, more than two-thirds o c CEOs are planning extensive innovations while, in the automotive industry, less than hal c are doing so.<br><br> Degree of business model innovation Extensive Moderate Limited/no All Industries 69% 29% 2% 49% 45% 6% 20 % FEWER Automotive cWe are only doing 8selective 9 business model innovation. It is too risky to try to innovate with our largest customers and our core business. d CEO, North American Supplier the enterprise of the future 20 Of the three types of business modeA innovation discussed with CEOs 3 enterprise modeA, revenue modeA and industry modeA 3 the one attracting the Aeast attention is industry modeA innovation. This is not particuAarAy surprising since it the most difficuAt to achieve.<br><br> OnAy 06 percent of automotive CEOs are contempAating innovations that redefine their existing industry, cross over into another industry or estabAish an entireAy new industry. Another 1 6 percent of automotive business modeA innovators are reshaping their revenue modeAs with new approaches to pricing or reconfigurations of their vaAue mix. AAthough the industry continues to promote a pAethora of financiaA incentives, major breakthroughs in revenue modeA innovation have been few and far between.<br><br> As a resuAt, some consumers are turning to other business modeAs that better meet their transportation needs. VehicAe sharing and subscription-based mobiAity services 3 such as Zipcar in the United States 3 provide drivers the fAexibiAity to choose the type of vehicAe they need on a particuAar occasion, and avoid the maintenance burden of vehicAe ownership. 0 6 And as budgets tighten and citizens become more environmentaAAy conscious, adoption is AikeAy to acceAerate.<br><br> The rising popuAarity of these services on coAAege cam- puses is particuAarAy criticaA; the next generation of automotive cus- tomers may be predisposed to aAternatives that eAiminate the need to buy a car. automotive industry edition 21 Enterprise modeA innovation is the focus of the Aargest percentage of automotive CEOs ( 26 percent). These innovators are attempting to speciaAize and deAiver greater vaAue by rethinking what is done in- house and through partners.<br><br> AUtOmOtIvE CEOs FOCUsEd ON dIFFERENtIAtING ENtERpRIsE mOdEls Three-quarters of those pursuing enterprise modeA innovations toAd us they intend to speciaAize in areas that are truAy differentiating. One exampAe of an automotive company that has successfuAAy foA- Aowed this strategy is mirror maker Gentex. It speciaAizes in high- vaAue mirrors with high-tech safety and convenience features.<br><br> This singAe-minded focus has heAped the company achieve superior financiaA performance in what most wouAd consider a commodity business. 08 Among the enterprise modeA innovators, two-thirds are pAanning major coAAaborations with externaA partners over the next three years. HistoricaAAy, the automotive approach to partnering has been rather insuAar 3 with OEMs deveAoping strategic reAationships mainAy with traditionaA automotive component suppAiers.<br><br> But some unconven- tionaA coAAaborations are beginning to appear, such as Ford 9s tie-up with Microsoft on Sync, its voice-activated in-car technoAogy. 09 We expect to see even more cross-industry partnering as traditionaA boundaries bAur. cWe must cocus on apply- ing investments uniquely to di c cerentiate ourselves, not inventing things we shouldn 9t be. d CEO, North American OEM the enterprise of the future 22 AUTOMOTIVE COMPANIES AS DIFFERENTIATORS AND DISRUPTORS Growing concerns about the economy and the environment are significantAy aAtering consumer expectations about transportation 3 and overturning some fundamentaA tenets of the automotive indus- try.<br><br> These shifts are creating tremendous opportunity for automotive Aeaders to differentiate and disrupt the competitive pAaying fieAd through innovative revenue, enterprise and industry modeAs. For exampAe, consumers today often feeA compeAAed to purchase vehicAes based on their cpeak d requirements. They buy a truck because of an occasionaA need to hauA Aarge Aoads or a midsize sedan for added comfort during famiAy vacations.<br><br> But new revenue modeAs couAd offer consumers access to a garage of vehicAes rather than just one 3 different vehicAes for a variety of uses, a transportation time- share of sorts. 1\xf Widespread adoption of aAternative power trains may aAso spark revenue modeA innovation. For instance, the purchase, Aease or financing of a battery couAd be separate from the vehicAe it powers.<br><br> As personaAization and driving cexperiences d become more impor- tant to consumers, automakers wiAA have greater incentive for enter- prise modeA innovation. Differentiation wiAA increasingAy depend on innovative partnerships and aAAiances 3 particuAarAy with those out- side the industry. automotive industry edition 23 In fact, the intersections between industries are fertiAe ground for industry modeA innovation.<br><br> In coming years, overAap among the auto- motive, teAecom, eAectronics, media and entertainment, and energy industries is AikeAy to yieAd entireAy new types of businesses. AAthough major industry upheavaA is unAikeAy in the short term, auto- motive Aeaders are aAready preparing for significant business modeA innovation. They are making their businesses more fAexibAe and adaptabAe, experimenting with new modeAs and buiAding reAation- ships and aAAiances with an eye toward a very different future.<br><br> the enterprise of the future 24 BUYING MIlES lIKE MINUTES: A NEW INDUSTRY MODEl FOR ElECTRIC CARS A joint venture (JV) between the RenauAt-Nissan AAAiance and CaAifornia-based Project Better PAace is piAoting a new business modeA for eAectric cars, which is simiAar to that of mobiAe phones. Consumers buy subsidized hardware, in this case a car, and pay a monthAy fee based on miAes driven. 1 0 As part of this agreement, Project Better PAace provides the batteries and recharging infrastructure 3 pAugs on city streets and service stations aAong highways to repAace spent batteries with fresh ones.<br><br> 1 1 RenauAt and Nissan provide the cars. And governments 3 IsraeA, Denmark and PortugaA so far 3 provide incentives, such as tax breaks, that make it cheaper to buy eAectric-powered vehicAes than gasoAine- engine aAternatives. 1 2 In IsraeA, the JV estimates the cost of operating an eAectric car to be haAf that of a traditionaA automobiAe.<br><br> In 1\xf\xf9, the partners expect to be serving a few thousand IsraeAi consumers, growing to 0\xf\xf,\xf\xf\xf by 1\xf 0\xf. 14 In JuAy 1\xf\xf8, the RenauAt-Nissan AAAiance announced another part- nership that invoAves the State of Tennessee and the Tennessee VaAAey Authority (the Aargest pubAic power provider in the United States). 1 4 These partners wiAA conduct an eAectric vehicAe feasibiAity study, which wiAA incAude a AocaA eAectricity-charging network.<br><br> As negotiations with other entities across North America, Europe and Asia continue, the RenauAt-Nissan AAAiance is adapting both its prod- ucts and its business modeA to suit each market 9s specific needs. Ca5e 56u(y 25 Automotive CEOs are working hard to reduce the carbon footprint of their products, with more hybrid, eAectric and fueA-efficient modeAs avaiAabAe than ever before. But is the industry ready to take on a much broader set of sociaA responsibiAities?<br><br> It 9s no surprise that automotive CEOs are more concerned than CEOs in other industries about environmentaA issues. However, the degree of difference is dramatic 3 2 1 percent of automotive CEOs see this as a major change driver versus 08 percent across the fuAA sampAe. What 9s even more intriguing is that 8 2 percent of automotive CEOs 3 as compared to the 69 percent cross-industry average 3 beAieve customers 9 rising corporate sociaA responsibiAity (CSR) expectations wiAA have a positive impact on their businesses.<br><br> And automotive CEOs are pAanning a 2 4 percent increase in investment over the next three years to capitaAize on this opportunity (see Figure 6). Much of this investment is focused on new markets and segments. As the CEO of one automotive suppAier based in AustraAia toAd us, cEnvironmentaA issues are driving entry into new market segments as avenues of growth. d GENUINE, NOt jUst GENEROUs cOne percent o c our proft a cter tax goes to address CSR, health, education and environmental issues. d CEO, Indian OEM the enterprise of the future 26 Through ongoing product innovation, automotive companies are pAaying an important roAe in reducing our pAanet 9s dependence on fossiA fueAs and heAping cAear the air of poAAution and noise.<br><br> The num- ber of hybrid and eAectric vehicAes in use is growing rapidAy; aAthough stiAA a smaAA percentage of the market, gAobaA saAes are expected to tripAe between 1\xf\xf 6 and 1\xf 0 1. 16 However, green cannot be the onAy coAor in automotive CEOs 9 paA- ettes. As the CEO of one Chinese OEM warns, companies must caAso pay cAose attention to socioeconomic factors. d An emerging genera- tion of sociaAAy minded consumers, workers and investors has grow- ing expectations for ethicaA corporate behavior and increased transparency across a broad spectrum of issues.<br><br> cConsumers are driving OEMs to do more, d expAained the CEO of a Japanese auto- motive suppAier. cOEMs are taking a more active roAe 3 for instance, ensuring no chiAd Aabor is used anywhere across the extended vaAue chain. d FIGURE 7 CsR INvEstmENt CONtINUEs tO RIsE Automotive CEOs have already invested heavily in CSR, and their spending shows no signs o c slowing. All Industries 11% 13% 25 % INvEstmENt INCREAsE INvEstmENt pAst 3 YEARs INvEstmENt NExt 3 YEARs Automotive 13% 17% 35 % INvEstmENt INCREAsE INvEstmENt pAst 3 YEARs INvEstmENt NExt 3 YEARs automotive industry edition 27 AUTOMOTIVE ENTERPRISES AS CSR lEADERS With the average passenger vehicAe emitting somewhere between 1 0 and 2 4 tons of carbon over its ten-year AifecycAe, automotive com- panies have justifiabAy focused their CSR efforts on making their products more environmentaAAy friendAy.<br><br> 1 6 However, this is onAy the taiA end of the chaAAenge. Factoring in component sourcing, inbound and outbound Aogistics and vehicAe manufacturing, the typicaA auto- mobiAe 9s carbon footprint grows by another 9 tons. To attack the environmentaA probAem hoAisticaAAy, automotive compa- nies must examine their operations end to end.<br><br> A host of decisions come into pAay 3 the type of energy consumed in manufacturing and distribution, the materiaAs used for packaging, inventory poAicies, Aogistics options and more. But perhaps even more criticaA, automotive companies need to think beyond their ecoAogicaA impact and consider the overaAA cfootprint d they Aeave on the communities in which they operate and from which they source. For many consumers purchasing vehicAes, investors managing portfoAios and empAoyees choosing where to work, deci- sions are no Aonger made based soAeAy on a company 9s products, but aAso its demonstrated concern for society.<br><br> In an industry in which product innovation and new service offerings are rapidAy emuAated by competitors, true differentiation may very weAA come from a com- pany 9s approach to corporate sociaA responsibiAity. cCSR 3 in this industry 3 by de cault will be the dominant driver. d CEO, North American Supplier the enterprise of the future 28 TOYOTA: MOVING TOWARD SUSTAINABlE TRANSPORTATION Toyota Motor Corporation 3 one of the worAd 9s most respected auto- motive brands 3 is tackAing environmentaA issues head on in one of its Aargest markets: North America. It 9s approaching the chaAAenge Aike any other business pAan, by setting aggressive targets and mea- suring its progress.<br><br> The company 9s comprehensive environmentaA action pAan attacks the probAem aAong a number of fronts: energy and cAimate change, recycAing and reduced use of resources, sub- stances of concern, atmospheric quaAity, environmentaA risk man- agement and cooperation with society. 18 Its goaAs are specific and measurabAe. For exampAe, between 1\xf\xf 1 to 1\xf 0 0, the company aims to reduce totaA energy use in North American manufacturing and operations by 1 6 percent per vehicAe produced.<br><br> 19 Toyota 9s vision for sustainabAe transportation has made it a Aeader in hybrid vehicAe technoAogy. More than one miAAion Toyota hybrids have been soAd worAdwide. 2\xf The company 9s proactive position on an issue of criticaA importance to society at Aarge has not onAy eAe- vated the perception of its brand, but aAso boosted its bottom Aine.<br><br> From 1\xf\xf 1 to 1\xf\xf 6, Toyota 9s net income has increased at a com- pound annuaA growth rate of more than 1 0 percent. 2 0 Ca5e 56u(y automotive industry edition 29 BUIlDING YOUR ENTERPRISE OF THE FUTURE Automotive CEOs fundamentaAAy agree with the CEOs in our overaAA survey sampAe about the characteristics that wiAA distinguish success- fuA businesses in the future. Their responses suggest that the Enterprise of the Future 3 as we have caAAed it 3 wiAA be hungry for change, innovative beyond customer imagination, gAobaAAy inte- grated, disruptive by nature and genuine, not just generous.<br><br> However, the chaAAenges automotive CEOs face differ from those of other CEOs in various respects. They anticipate more change but feeA Aess confident about managing it successfuAAy. The asset-intensive nature of their industry makes business modeA innovation more diffi- cuAt.<br><br> They 9re a bit more uncertain about how to respond to today 9s increasingAy informed and coAAaborative consumer. And they 9re under tremendous pressure to heAp soAve the worAd 9s environmentaA chaAAenges. The criticaA question is: are automotive companies adequateAy pre- pared?<br><br> Do they have the adaptabAe processes and infrastructure they need to manage more change at a faster pace, and capitaAize on the new opportunities that gAobaAization, increasing affAuence and greater connectivity are creating? The partners they need to innovate? The fAexibiAity they need to adapt business modeAs?<br><br> Integrated gAobaA execution to seize opportunities wherever they appear? the enterprise of the future 30 We Aook forward to Aearning more about where you think the auto- motive industry is heading 3 and working with you, as you buiAd your Enterprise of the Future. HUNGRY FOR CHANGE INNOvAtION bEYONd CUstOmER ImAGINAtION GlObAllY INtEGRAtEd dIsRUptIvE bY NAtURE GENUINE, NOt jUst GENEROUs Ad hoc and reactive change Customer inteAAigence ExpAoring gAobaA opportunities ExpAoring Business ModeA Innovation opportunities ReguAatory compAiance Project driven change Customer information transparency Driving specific gAobaA initiatives Experimenting with BMI Strategic phiAanthropy Change portfoAio and program Two-way customer interaction BuiAding gAobaA capabiAities systematicaAAy ImpAementing BMI initiatives VaAues based seAf-reguAation Anticipating and proactive change Customer coAAaborative deveAopment GAobaA centers of exceAAence MuAtipAe BMI strategies Efficiency through CSR Change becomes the strategy Expanding customer aspirations GAobaA enterprise innovation RadicaA and pervasive BMI CSR as growth pAatform AUtOmOtIvE AUtOmOtIvE AUtOmOtIvE AUtOmOtIvE AUtOmOtIvE bui/(ing 6he En6er3ri5e of 6he Fu6ure FIGURE 8 ARE YOU REAdY?<br><br> We 9ve plotted the industry 9s overall progress toward the Enterprise o c the Future below. Where would you place your organization? automotive industry edition 31 FOR MORE INFORMATION For additionaA information about the IBM GAobaA CEO Study, pAease visit ibm.com /enterpriseofthefuture To discuss these industry impAications further, we invite you to e-maiA one of the foAAowing contacts: Global Sanjay Rishi email@example.com Americas Mahesh Lunani firstname.lastname@example.org Karen Newman email@example.com Asia Pacific (excluding Japan) Seong Yol Kim firstname.lastname@example.org Japan Tomoaki Takemoto TTOMOAKI@jp.ibm.com Northeast Europe Alexander Scheidt SCHEIDT@de.ibm.com Southwest Europe Oli0ier Payraud email@example.com IBM Institute for Business value Kalman Gyimesi firstname.lastname@example.org ACKNOWlEDGMENTS We wouAd Aike to thank the Automotive CEOs from around the worAd who generousAy shared their time and insights with us.<br><br> We 9d aAso Aike to acknowAedge the contributions of GAoria lara and KaAman Gyimesi who Aed the deveAopment of this Automotive Industry Edition of the IBM GAobaA CEO Study. the enterprise of the future 32 ABOUT IBM GlOBAl BUSINESS SERVICES With business experts in more than 170 countries, IBM GAobaA Business Services provides cAients with deep business process and industry exper- tise across 17 industries, using innovation to identify, create and deAiver vaAue faster. It offers one of the Aargest Strategy & Change practices in the worAd, with over 3,250 strategy professionaAs.<br><br> The IBM Institute for Business VaAue, part of IBM GAobaA Business Services, deveAops fact-based strategic insights for senior business executives around criticaA industry-specific and cross-industry issues. NOTES AND SOURCES 0 cThe Enterprise of the Future: The IBM GAobaA CEO Study. d IBM Institute for Business VaAue. May 1\xf\xf8.<br><br> 1 For companies with pubAicAy avaiAabAe financiaA information, we compared revenue and profit track records with the averages for those in the same industry across our sampAe. Companies that performed above average on a particuAar financiaA benchmark were tagged as outperformers , and those beAow the average were AabeAed as underperformers . Throughout our anaAyses, we Aooked for insights based on these top- and bottom-haAf groupings.<br><br> 2 Kozyra, WiAAiam. Presentation at the Automotive News WorAd Congress. January 1 1, 1\xf\xf8; Kranz, Rick.<br><br> cContinentaA CEO: Our diversification worked. d Automotive News . January 18, 1\xf\xf8. 4 Kozyra, WiAAiam.<br><br> Presentation at the Automotive News WorAd Congress. January 1 1, 1\xf\xf8. 4 cTop 0\xf\xf GAobaA SuppAiers. d Automotive News supplement .<br><br> June 1 2, 1\xf\xf8. 6 Kranz, Rick. cContinentaA CEO: Our diversification worked. d Automotive News .<br><br> January 18, 1\xf\xf8. 6 Ban, linda, Bruce M. BeAzowski, Stefan Gumbrich and Jimin Zhao.<br><br> cInside China: The Chinese view their automotive future. d IBM Institute for Business VaAue. November 1\xf\xf 4. automotive industry edition 33 8 BeAzowski, Bruce M., AAAan Henderson and Penny Koppinger.<br><br> dInside India: Indians view their automotive future. d IBM Institute for Business VaAue. June 1\xf\xf 6. 9 Bush, Jason.<br><br> cRussian Auto Market Now Europe 9s largest. d BusinessWeek , JuAy 0 0, 1\xf\xf8. 0\xf Maynard, MicheAine. cBMW Has Maxi Expectations for Its Next, SAightAy larger Mini Cooper. d The New York Times .<br><br> October 0 0, 1\xf\xf6. 0 0 cIndividuaAity. Your wish, our command. d http://www.mini.com/com/en/ manufacturing/index.jsp 0 1 Maynard, MicheAine.<br><br> cBMW Has Maxi Expectations for Its Next, SAightAy larger Mini Cooper. d The New York Times . October 0 0, 1\xf\xf6. 0 2 Ibid.<br><br> 04 Brooke, lindsay. cPushing the enveAope. d Automotive Engineering International . May 1\xf\xf8.<br><br> 0 4 Ibid. 06 cGM Forms New VehicAe Engineering Organization For Hybrids, Extended- Range EAectric VehicAes And Batteries. d GeneraA Motors Press ReAease. January 14, 1\xf\xf8.<br><br> 0 6 FowAer, Bree. cZipcars taking off in urban areas, as popuAarity of car-shar- ing grows amid higher gas prices. d Associated Press Market SpotAight. http://biz.yahoo.com/ap/\xf8\xf 4 09/zipcar_market_spotAight.htmA?.v= 0 08 IBM Institute for Business VaAue anaAyses based on Thomson ONE Banker financiaA data.<br><br> 09 Sync Web site. http://www.syncmyride.com 1\xf Rishi, Sanjay, Benjamin StanAey and KaAman Gyimesi. cAutomotive 1\xf 1\xf: CAarity beyond the chaos. d IBM Institute for Business VaAue.<br><br> September 1\xf\xf8. 1 0 ErAanger, Steven. cIsraeA Is Set to Promote the Use of EAectric Cars. d The New York Times .<br><br> January 1 0, 1\xf\xf8. 1 1 Ibid. the enterprise of the future 34 1 2 Wortham, ApriA.<br><br> cNissan Aaunches zero-emission partnership. d Automotive News . JuAy 1 1, 1\xf\xf8. 14 ErAanger, Steven.<br><br> cIsraeA Is Set to Promote the Use of EAectric Cars. d The New York Times . January 1 0, 1\xf\xf8. 1 4 cThe RenauAt-Nissan AAAiance & Tennessee Form Zero-Emission VehicAe Partnership. d RenauAt-Nissan AAAiance Press ReAease.<br><br> JuAy 1 1, 1\xf\xf8; Wortham, ApriA. cNissan Aaunches zero-emission partnership. d Automotive News . JuAy 1 1, 1\xf\xf8.<br><br> 16 cOutAook for hybrid and eAectric vehicAes. d InternationaA Energy Agency 3 Hybrid & EAectric VehicAe ImpAementing Agreement. June 1\xf\xf8. 1 6 IBM anaAysis.<br><br> 18 cEnvironmentaA vision and action. d Toyota. 1\xf\xf 6. http://www.toyota.com/ about/our_commitment/environment/index.htmA 19 Ibid.<br><br> 2\xf cToyota Motor Corporation Surpasses 0 MiAAion GAobaA Hybrid SaAes. d Toyota press reAease. June 6, 1\xf\xf 6. http://www.toyota.com/about/news/ product/ 1\xf\xf 6/\xf6/\xf 6- 0-hybridsaAes.htmA 2 0 IBM anaAysis of Thomson FinanciaA data.<br><br> CHAPTER ONE GBE03122-USEN-00 © Copyright IBM Corporation 2008 IBM Global Services Route 100 Somers, NY 10589 U.S.A. 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