Customer driven. How the auto industry is transforming to let customers lead the way. Highlights. Automotive Point of view

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1 Customer driven How the auto industry is transforming to let customers lead the way Highlights The biggest drivers of change in the automotive industry today are the customers. Empowered by technology, transparency and an abundance of information, they dictate the terms for how and when they engage car makers. IBM experience from decades of working with auto manufacturers shows that those who are able to quickly transform to an innovative, customer-centric approach are those best positioned to succeed. The automotive industry is central to the economic vitality of nearly every nation and economy and even other industries. Cars and trucks are the final leg of most supply chains, carrying a steady stream of food, appliances, office equipment and clothing to their final destinations. They are the primary mode of transportation to and from work and leisure destinations for millions of people around the world. And they are also the symbol of the fulfillment of an aspiration for many, a reflection of achievement and a statement of personal freedom. Of course, the automotive industry is an important economic engine all by itself. In a given year, the industry can produce more than 60 million cars, vans, trucks and buses. Around the world, the automotive industry accounts for more than 5 percent of total manufacturing employment. If auto manufacturing were a country, it would be the sixth largest economy in the world, with annual gross revenues of nearly 2 trillion. 1 All of this is why nearly everyone from economists to policymakers to the average consumer takes an abiding interest in the health and future of this all-important industry. It is also why the auto industry is under near-constant pressure to change and improve itself for the benefit of its customers and society in general. Today, the drivers of that change vary across the vast industrial landscape of auto manufacturing. As always, there are significant regulatory pressures around building safer and more reliable cars, but there is also widespread concern around fuel-efficiency and sustainable manufacturing.

2 There are sweeping technological changes that affect nearly every aspect of the design and development of cars. And there is the macroeconomic force of globalization, which is driving new dynamics around the way cars and trucks are manufactured, distributed and marketed. But perhaps the biggest drivers of change in the automotive industry today are the customers. Today s car buyers are a new breed of consumer. They are empowered by technology, transparency and an abundance of information. They expect to engage car makers on their own terms: interacting when and how they want, through physical, digital and mobile means. These consumers compare notes, championing a brand or sullying a reputation with the click of a mouse. One of the top customer demands today is for fuel-efficiency. In particular, these connected consumers are the driving force behind the nascent but growing market of hybrid and electric vehicles. In this new market, the automotive industry is asked to create a new consumer experience, not just by eschewing gasoline, but also by aligning with the digital lifestyle to which consumers have become accustomed in other parts of their lives. But to succeed in this market it will take more than just sophisticated, technologically advanced vehicles. It will also require collaboration with adjacent industries like electric utilities and telecommunications companies, and it will require innovative, new business models that capitalize on the digital capabilities of the new vehicles. It will require a smarter approach to the automotive industry. A smarter approach to the industry Exceeding the demands of customers and embracing new markets is what will separate the winners from the losers in the automotive industry. At IBM, we have worked with nearly all the top automobile manufacturers around the world, and we have seen in practice the key elements of innovative, customercentric, forward-thinking operations. They are as follows: Rapidly launch increasingly complex, sustainable vehicles and e-mobility services Consider this: a typical automobile today has around 30,000 parts, 2,000 functional components, and 100 million lines of code. And that is just the beginning of the complexity! Today s customer expects all of the technological conveniences of their home and work lives to be reflected in the makeup of their vehicles. To meet consumer expectations for new features, fuel efficiency and safety, more and more of the control systems in cars are run by software. Electric and hybrid electric vehicles are especially dependent on software and electronics, and automakers are developing deeper competencies in software development, which includes the integration of innovations coming from partners and suppliers. Auto manufacturers also must have rapid product development in order to keep pace with personal technology and shifting customer demands. All of this must be achieved without additional risk to deliverables and especially to warranty performance. 2

3 A leading automotive manufacturer deployed a suite of advanced collaborative and modeling solutions to design, prototype and build a new vehicle in half the time it usually takes to bring a new automobile to market. Creating a new vehicle from scratch and getting it to market in record time required creativity, coordination across the enterprise, and the tools to maximize team effectiveness in order to bring it all together. The solution this automaker implemented simulates real-world driving conditions and consumer preferences, which resulted in an exciting, smarter automobile that requires minimal gasoline and delivers new levels of Internet connectivity and smartphone-inspired controls. Transform retail and improve the customer experience Sophisticated consumers are changing marketplace dynamics and challenging automakers to respond to far-reaching changes in access to information sources. A highly-informed consumer, one who uses multiple information sources, directly engages automakers in regard to their customer experience, demanding high levels of service for loyalty. This empowered consumer requires automakers to refocus the management of customer relationships on new ways that demonstrate and sell value. With the traditional dealer model under threat, automakers must also navigate new, virtual sales channels that compete for the sales of products and services. This landscape provides automakers with the opportunity to enhance their brands and develop a direct, personal relationship with consumers by effectively assessing and responding to consumer needs. Stronger, ongoing relationships with customers require a greater investment in developing and integrating data from the most common car consumer activities. Outperforming companies use relationship-based consumer data to understand and cater to their customers, and they engage in social media conversations to differentiate their brands. As one recent IBM study indicates: Customers are waiting and willing to be won over, but one needs to listen to the noise on the wire. For example, one major European automobile manufacturer uses predictive scoring to serve up teaser messaging to website visitors. This technology keeps customers engaged, converts them from anonymous to registered users, and has increased vehicle sales. Fiat another major car company uses sophisticated analytics to drive customer retention and vastly improve the way they target and convert prospects into buyers. Create new business models with intelligent, connected vehicles The introduction of intelligent, sustainable vehicles is redefining personal mobility around the world, and connected vehicles are the future of the industry. This connected car is a vehicle with multiple systems that are seamlessly integrated; one that links consumers to their digital worlds. This trend requires added competencies from automakers, especially in collaborating with new partners and developing the ability to pursue new business models. Automakers need to have open, scalable and flexible mobility services that are customizable and differentiated. It is imperative that smart automotive enterprises develop an interdependent ecosystem of suppliers and partners to help them deliver innovative services to their customers. 3

4 To stay competitive and differentiated in the market, automakers are now providing their products with connected vehicle telematics services. But for the market to truly develop and ensure a positive user experience, automakers will need to work closely with utility companies, local and national governments, and telecommunications and technology providers. The European Commission, for example, established a 42-member consortium that was composed of municipalities, industries and utilities to set standards and integrate processes for the development of electric vehicles. The consortium was able to use an advanced requirements definition tool to design and model an extremely complex array of processes to identify overlaps, duplications and missing elements prior to rollout of the actual Electric Vehicle Network, which serves electric vehicle owners by providing a directory of charge points where the vehicles may be charged. Aside from smoothing the path to market for these important new vehicles, these partnerships will open the door to entirely new business models that can create new streams of revenue and competitive differentiation. One example is the development of advanced mobility services, which include everything from intuitive vehicle systems and in-vehicle services, to driver assistance, diagnostics and infotainment. Build and optimize dynamic value chains With demand shifting to emerging markets as well as to sophisticated, connected vehicles, automotive companies are working diligently to alleviate severe stress across the value chain. In the US market alone, 17.8 million cars were recalled in 2012 on top of the 15.5 million vehicles recalled in The shift in vehicle demand to emerging markets is also accelerating, with Brazil, Russia, India and China now projected to account for 30 percent of global demand. Now more than ever, automotive companies need unique operational capabilities in the value chain, with strong ecosystems that meet the challenging demands of today s global marketplace. To achieve lasting competitiveness, automakers require production and supply chain capabilities that are efficient, flexible and adaptable enough to respond to shifting market demands. Successful manufacturers capture real-time production and logistics information and apply predictive analytics to optimize material and production flow, reduce inventory and improve responsiveness to market conditions. These organizations integrate processes and systems to create a transparent view of what is happening across the value chain to reduce management complexity and increase efficiency. Warranty and service management are also optimized to accelerate problem detection while improving product quality through analysis of historical data. 4

5 A leading auto manufacturer in China achieved significant benefits by transforming their production operations. The company had struggled to manage the realities of demand fluctuations and the rapid expansion of its production sites. By implementing a solution that analyzed purchase order data and automated business and production rules, the company was better able to manage the flow of work and construct what-if scenarios to improve decision-making. Overall, the company achieved a 10 percent improvement in manufacturing productivity, and 15 percent reduction in production costs. Conclusion The automotive industry is increasingly complex, both in the kinds of products and services that it produces, and in the value chain that creates and delivers them. These complex systems call for an integrated approach that provides the ability to see how the parts fit and work together to meet the needs of a fickle, sophisticated customer base. For more than 100 years, IBM has helped industry after industry capitalize on complex systems. As a global manufacturer ourselves, we understand the issues that automotive companies face. Our automotive industry solution portfolio for product and system development, advanced mobility, manufacturing productivity, and marketing, sales and service has been developed and continuously refined through implementations with clients around the world. Our portfolio is augmented by the applications of leading partners, and enabled through an IBM solution framework which allows automotive industry enterprises to accelerate the deployment of new capabilities to speed time to market and cut costs. More importantly, IBM has partnered with the automotive industry for many years, helping transform its organizations while satisfying customer expectations which is the biggest and the most important driver of change in the automotive industry. For more information For more on how to take a smarter approach to becoming customer-driven, please visit: ibm.com/automotive Additionally, IBM Global Financing can help you acquire the IT solutions that your business needs in the most cost-effective and strategic way possible. We ll partner with credit-qualified clients to customize an IT financing solution to suit your business goals, enable effective cash management, and improve your total cost of ownership. IBM Global Financing is your smartest choice to fund critical IT investments and propel your business forward. For more information, visit: ibm.com/financing 5

6 Copyright IBM Corporation 2013 IBM Corporation Sales and Distribution Route 100 Somers, NY Produced in the United States of America March 2013 IBM, the IBM logo, and ibm.com are trademarks of International Business Machines Corp., registered in many jurisdictions worldwide. Other product and service names might be trademarks of IBM or other companies. A current list of IBM trademarks is available on the web at Copyright and trademark information at ibm.com/legal/copytrade.shtml This document is current as of the initial date of publication and may be changed by IBM at any time. Not all offerings are available in every country in which IBM operates. THE INFORMATION IN THIS DOCUMENT IS PROVIDED AS IS WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND ANY WARRANTY OR CONDITION OF NON-INFRINGEMENT. IBM products are warranted according to the terms and conditions of the agreements under which they are provided. 1 International Organization of Motor Vehicle Manufacturers website: Please Recycle AUW03004-USEN-01