Automakers need to hit the gas on reinventing themselves

AUTOMAKERS NEED TO HIT THE GAS ON REINVENTING THEMSELVES

Bain & Company identifies eight actions that carmakers can take to compete

MUNICH - 2 July 2018 - Autonomous driving, e-cars, digital services and mobility platforms: The auto industry has a history of innovation and plenty of turbulence, but it's never been quite like this. High product quality and brand reputation still matter but have lost their luster as selling points, while attributes like technological innovation and transparent cost of ownership rapidly move to the top of what customers want from a car.

A new report from Bain & Company, Innovation in the Automotive Industry: No More Experiments, suggests that to maintain a leadership position in the automotive market and survive for the long haul, companies will have to virtually reinvent themselves—and quickly. The next generation of leaders have started to embrace some common principles as they reinvent themselves in the face of cost pressures.

“Automaker face a market where new technologies are developing at breakneck speed,” said Joerg Gnamm, a partner at Bain & Company in Munich and lead author of the report. “At the same time, the things that customers value the most are evolving. Winning companies will need to invest in new technologies and really look towards the future.”

A Checklist for Innovation and Growth

Bain & Company has identified eight actions that carmakers can take to reinvent their businesses:

Addressing the big picture. For years, many companies have underinvested in new technologies. The days of pilot projects and digital labs are over. Rather than dabbling on a small scale with mobility apps, for instance, the next-gen automakers are striving to become world leaders in electric drives and making similar investments to push their core businesses forward. It's an altogether new tack—push ahead or perish.

Making the future the No. 1 priority. The task of reinvention is not limited to R&D. Some management teams are urgently focused on redefining the core business of the future and deciding on strategies for their companies to stand out from the competition. Successfully implementing this approach requires managers to map out a development strategy for the entire company.

Budgeting for growth. It takes resources to drive the key strategic innovations forward. Next-gen leaders recognize it will be necessary to spend up to 30 percent of the total R&D budget on new technologies by 2020.

Mincing no words. Reconciling the urgent need for more innovation power with the pressures to reduce costs is really a false dilemma: Leading companies are solving it by defining clearly what is truly necessary to achieve differentiation in a market and by devising more efficient approaches to innovation.

Making tough decisions. Many companies still believe in developing the old along with the new. Leading companies are taking a different approach, clearly defining what to push and what to cross off the portfolio or to acquire from outside sources.

Introducing new methods. Many companies still struggle to tap into their full potential for efficient development. The leaders are building experience with new approaches, such as Agile development, to significantly improve the productivity of R&D. As these new methods catch on and become more consistent in their application, expect to see innovation and productivity accelerate.

Working in partnerships. As the industry rapidly transforms, no single company has the full set of skills in new technologies and methods. What the emerging leaders lack in know-how, they are filling in through acquisitions, networks and partnerships. They recognize that waiting for this know-how to grow organically falls short and takes too long.

Making the most of positive momentum. A compelling innovation strategy does much more than create value on a sustainable basis or boost a company's competitive strength. It also drives the necessary cultural shift in companies and attracts fresh talent from outside.

“These actions may appear daunting at first for automakers,” said Ralf Kalmbach, a partner at Bain & Company in Munich and a co-author of the report. “But companies that commit to a transformation roadmap, define what and how to develop, and effectively steer and manage the change will end up well-equipped to compete in the future.”

Editor’s Note: To request a copy of the report or schedule an interview with Joerg Gnamm or Ralf Kalmbach, please contact Aliza Medina at aliza.medina@bain.com or +44 207 969 6480.

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About Bain & Company, Inc.

Bain & Company is the management consulting firm that the world's business leaders come to when they want results. Bain advises clients on strategy, operations, information technology, organization, private equity, digital transformation and strategy, and mergers and acquisition, developing practical insights that clients act on and transferring skills that make change stick. The firm aligns its incentives with clients by linking its fees to their results. Bain clients have outperformed the stock market 4 to 1. Founded in 1973, Bain has 55 offices in 36 countries, and its deep expertise and client roster cross every industry and economic sector. For more information visit: www.bain.com. Follow us on Twitter @BainAlerts.