Digital Transformation In Manufacturing – Key Learning Points From The Automotive Industry

The manufacturing industry is positioned to take advantage of the possibilities offered by artificial intelligence, automation, and industry 4.0. To get an idea of the benefits and challenges that lie ahead, it’s a good idea for manufacturers to look towards the automotive manufacturers, which are perhaps further along the journey than other manufacturers.

As a product, cars are evolving rapidly. Combustion engines are being replaced by batteries, connected cars carry an ever-growing array of hardware and software applications, and fully autonomous cars are not too far down the road. In order to cope with the changes to their operations and processes that this fast-paced evolution has made necessary, car manufacturers have established themselves as pioneers when it comes to tackling the challenges of digitization.

As well as adapting to new technological requirements, it has also been necessary for automotive manufacturers to anticipate and align their offerings with changing consumer behaviors. This includes demand for more sustainable and less environmentally damaging products and new ways of thinking about how we use cars, such as carpooling and ride-sharing.

?To get an idea of what the wider manufacturing industry can learn from automotive manufacturers, I spoke to Aniello Pepe, Oracle’s global director for automotive within its Industry Strategy Group.

Pepe told me, "Automotive is an exciting place today – no other manufacturing industry is going through such challenges … the product is completely changing … it’s a product that’s becoming more digital, more software, more electronics … and that implies that the suppliers are changing.

“There are new suppliers, because they can provide new components – batteries, for example.

“As well as this, customers are changing – this is really affecting everything, the way products are conceived, designed, tested, sold – there are new ownership trends and new financial models.”

The period we are going through right now is particularly critical, as automotive manufacturers have to balance their need to innovate and look towards the new era in electric, connected, and autonomous driving with the fact that, for now, the majority of vehicles they sell and service are still built around internal combustion engines. This will be equally true in other manufacturing industries, where it won't be the case that all of their customers will be ready to switch to using new, smart, and automated versions of their products overnight.

The automotive industry is clearly anticipating and reacting to trends that just about every other field of manufacturing will experience soon. So, what are the lessons that can be learned?

Firstly, it’s critical to understand the migration taking place towards platforms. Manufacturers use software platforms in the design and creation of new vehicles and to gather test data on how they will perform in the real world (such as crash testing). Manufacturing is done through platforms – connecting the IoT sensors and devices that make up a modern assembly plant. Platforms exist for the vehicles themselves to enable them to be connected and work together effectively as edge nodes for a cloud platform. Platforms have been built out into sales and customer service operations, allowing manufacturers to predict, based on data, the “next best action” in sales or service that should be taken to achieve an optimal outcome. And customers themselves interact with the vehicle manufacturers via yet more platforms that allow information on their experience to be collected and analyzed for insights into how things could be done better or more efficiently.

Volkswagen Group, for example, has established its own software company, CARIAD, which works on creating platform-based solutions for challenges faced by manufacturers, as well as software solutions for customer problems. This is in line with the wider trend of companies in many industries reimagining themselves as tech companies in order to better position themselves to use technology to solve problems. Currently, just 10% of the software platforms used by Volkswagen are created in-house. By establishing Cariad, it hopes to increase this to 60% by 2025.

Likewise, Renault, in the words of its recently appointed CEO Luca De Meo, intends to transform itself from a car company that works with technology to a technology company that builds cars.

Business models are changing too. Renault’s ambition is to generate 20% of its revenue from services – sold through subscriptions – by 2030.

The second element that it’s critical to understand is the importance of data. Digital services – based on collecting and analyzing data using vehicles and sensors – are expected to generate one-third of the automotive industry's revenue – around $1.5 trillion – by 2030. This will require finding ways to extract insights from data that customers will be willing to pay for through subscription services "bolted on" to their car purchases (or leases). Finding new ways to collect this data, mine it for insights, and package it back to the consumer in return for subscription fees will be a core driver of revenue for automotive manufacturers – and eventually most other manufacturers too.

Pepe tells me that he sees three key challenges that automotive manufacturers are tackling in order to make this vision a reality. Firstly, they need to develop the capability to manage software at scale. This includes dealing with the diverse range of markets and jurisdictions that they operate in, which can involve a complex web of regulations and legislation – particularly in relation to the use of data.

Secondly, it requires a new approach to product life cycles. Software and electronics – which make up 50% of the value of the typical car sold today – require management and updates, and new functionality can be added by creating new applications for existing hardware – such as the range of sensors and cameras that many new cars are equipped with. This enables the creation of new services that can be paid for via subscription (Tesla’s Autopilot being perhaps the flagship example here).

Thirdly, there’s the ever-pressing issue of skills. Automotive manufacturers are now less reliant on mechanical engineers and more reliant on software engineers and data scientists. They need people who are capable of setting up cloud platforms for gathering, storing, and analyzing data – the fuel of automation and industry 4.0 – as well as those capable of deploying cutting edge technologies such as AI – machine learning, and neural networks. The scale of this transformation has been immense in automotive manufacturing, and will be just as massive in other manufacturing industries that are also preparing to make the leap.

All of this means that partnership choices are absolutely critical, and Pepe tells me that this is where companies like Oracle, or indeed SaS, or even Google – cloud hyperscalers – are a natural fit. After all, they have gone through many of the same processes themselves, building out tech solutions with multiple novel customer touchpoints and a service-focused delivery method.

He says, “Automotive manufacturers and their suppliers are still in the middle of their transformation journey. Some are progressing faster; others are plodding along with uncertainty. Winners will emerge quite soon, and I think those will be the ones that are better able to understand the implications of their transformation into software and tech companies, and service and mobility providers – they will be in a better shape to survive and prosper.

"For me, that means adopting cloud-based solutions and leveraging the power of data through artificial intelligence.”

Watch my conversation with Aniello Pepe, Oracle Industry Strategy Group Global Director for Automotive, where we cover many other aspects of the challenges faced by automotive and the wider manufacturing industry during their digital transformations. For more information, also check out Oracle's webpage.?

Thank you for reading my post.?Here?at LinkedIn?and at?Forbes?I regularly write about management and technology trends. To read my future?posts simply?join my network here?or click 'Follow'. Also feel free to connect with me via?Twitter,??Facebook,?Instagram,?Slideshare?or?YouTube.

About Bernard Marr

Bernard Marr?is a world-renowned futurist, influencer and thought leader in the field of business and technology. He is the author of 18 best-selling books, writes a regular column for Forbes and advises and coaches many of the world’s best-known organisations. He has over 2 million social media followers and was ranked by LinkedIn as one of the top 5 business influencers in the world and the No 1 influencer in the UK.