In Part 1 of the Why does automotive struggle series, we took a look at quick numbers, lessons learned and the history of the automotive industry to give us a full overview of what is currently happening in the industry.

Part 2: Reasons for the automotive industry struggle

Resistance to change management

Car, as a means of transport, was born from an entrepreneurial spirit and a will to transport people and goods from A to B with continuously improved safety and comfort. The industry has been pioneering and leading worldwide research and development measured not only by invested amounts. Many areas continuously improved, however, little has been done to present new services and ways for individuals to travel and commute. Until recently.

Thanks to digital services, non-traditional automotive companies have disrupted the marketplace with new business models and new ways to move people from one A to B. Based on an IBM study, "Automotive executives have taken notice and now realize if they don’t reignite their entrepreneurial passion, they might be left in the dust. This could be why 82% of executives expect a culture of entrepreneurialism and new ideas to significantly contribute to their success and growth."

In other words, people in decision-making positions in automotive companies today expect that change will come from the outside. Someone will come and change everything for them. 

"More than 80% of executives say incorporating new ways to work will contribute to the success of their companies." They want to improve on HOW they are doing things, not WHAT they are doing. This approach has significant parameters of a “Cash-cow” approach and positioning, predetermined to remain forever behind the “Star” companies.

I’ve experienced top managers in the past years, responsible for R&D in automotive, who did not even use email and were reading printed versions of emails. They were obviously replying in writing. The text was typed back to email by their assistants. I am not even mentioning the ability to distinguish backend and frontend, or for instance, changing the language on an iPhone which is sometimes needed to test the new connectivity apps. 

Back to numbers. An IBM study says that 50% of automotive executives say that to succeed or even survive, their organizations need to digitally reinvent themselves.¹

But what about the other 50%? They think they are fine… Another major reason for the current state of things is unclear and shredded responsibility, no clear leaders, and limited time contracts. The management rotates fast and aims for short-term profit (another topic of KPIs), thus decisions made are doubtful and short-sighted, such as limited amounts of ordered chips during the start of the pandemic which resulted in huge delays in car delivery afterward.

Approach to software development (and more) 

Another topic to discuss is the software development approach in the light of methodologies, organizational structure, and management style, or rather the philosophy of management.

Many say "Car is a smartphone on wheels". Yes, in essence, I agree, but this perspective also requires corresponding organizational structure, mindset, design thinking, and development methodologies. 

Currently, all features are developed based on the possibilities and limitations of the hardware system. And the “legacy” burden is enormous. Dozens of control units have their own “OS” and software. Different versions and combinations bring complexity, therefore the risk of bugs is sky-high and any new feature implementation is a difficult quest. Software engineering must be user-centric. In the middle, there should be the user, and features must be tailored to the needs of this user. This is the main philosophical starting point. Then, on top, comes the development approach.

Here comes the biggest challenge - how to combine the traditional waterfall vehicle hardware development with a widely-spread and “standard” agile software development approach. These two worlds are literally colliding. It is difficult to maintain high safety and quality standards for hardware development with an agile approach. On the other hand, using a waterfall software development approach with yearly updates, bug fixes, and new feature releases brings pain to drivers, drastically limits the amount of implemented features, and decreases the users' trust in the product. Unfortunately, the automotive industry giants release software that is outdated at the moment of leaving the production line, especially from the UX/UI perspective. It does meet years old requirements, it's often buggy and therefore makes the drivers disappointed. Something has to change. 

An analysis of how to overcome this will come in the next chapter.

Now to the organizational structure. Speaking from my personal experience, the biggest pain I felt while participating in digital projects in an automotive company is split responsibility. 

In a single project, there were always a number of “key” stakeholders and decision-makers. One would never know who actually can make a decision. The motivation for decision-making also remained blurry for me.

The same pattern repeats itself while going up in the organizational structure. Key discussion points are always around the visual side of PowerPoint presentations. I am by far not the only one with this impression and experience.

The absence of that one strong leader, who is able to define and promote the vision, set up, clearly communicate, track and iterate goals, is a big pain. The different development levels are isolated, and the number of employees in every department makes versatility almost impossible. Information, goals, and visions are lost and dissolved. 

How is it possible that products like the connected car solution, carsharing service, and others, which theoretically can be delivered by a 20-member team each, are developed by different and disconnected teams counting high hundreds of specialists? This reminds me of an old project management fairytale about a dead horse and the need for team scaling to make the horse actually ride. 

This brings us back to a loophole in the discussion above on cost/efficiency ratio and reasons for failed automotive companies.

Skills

With the fast pace of the industry change, gained skills become obsolete quickly. A more recent analysis shows the half-life of skills is now only five years.² This means the skills learned today are only half as valuable five years from now—and we don’t even know what we don’t know yet. What budgets and personal development programs should exist? This factor becomes extremely dangerous, especially for companies with thousands of people working within software and development services. 

Summary 

We just went over the current situation and a number of probable causes - internal and external - wrong investment decisions, poor quality of produced vehicles, lost competitive advantage, high production costs, absence of flexibility to adopt a change, and the ever-present aim for just a short-term benefit while making decisions.

If we distill out the reasons for failures, we can come to a set of causes that should be avoided in the future by companies that are taking the market positions of current automotive “mammoths”:

• Short-term thinking (internal, management)
• Quarterly/yearly financial numbers as main performance indicators 
• Poor quality of vehicles
• Cost/efficiency ratio
• Absence of purposefulness (adaptation to a purpose, as the purposefulness of an architectural design)

Especially the last one. Purposefulness. This word should be written over the entrance of every modern company. Working people should always think first about for what purpose they are doing each and every activity or task.

I will be very honest and straightforward on this topic - I have no idea what the real reasons for the current state of things are, but I see a clear pattern:

• The environment (external factors) is changing
• Automotive corporates are not flexible enough to react
• Lessons learned are not followed
• Failure

With the current fuel price rise, purchase power decline, and development cost growth, it will be hard to maintain the commuting habits of people. 

Even something as sacred as the vehicle Brand could lose its importance in the mobility-as-a-service world.

We'll look at the Automotive buzz-words in Part 3.

Gerasim, Co-Founder

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^{1 Automotive 2030, IBM, November 2020. https://www.ibm.com/downloads/cas/NWDQPK5B}

^{2 Kasriel, Stephane. “Skill, re-skill and re-skill again. How to keep up with the future of work.” World Economic Forum. July 31, 2017. https://www.weforum.org/agenda/2017/07/ skill-reskill-prepare-for-future-of-work/}