Top Automotive Supplier: Trends, Profitability, and Market Strategies

Role: Director Business Development

Industry: Automotive Fortune 500 Supplier

Situation:

Our organization is a Global company with 15000 employees and one of the key Tier 1 suppliers for OEMs but also with a strong presence in the Aftermarket We have a strong set of brands are have been market leaders for more than two decades , we would like to position ourselves in a strong place regarding the new trends around connectivity and electrification and develop a strong set of services beyond our physicals products

Question to Marcus:

“

What are the best frameworks to assess new opportunities? What are the latest trends in automotive connected services ? What are best in class frameworks for got to market service strategies? What are the key practices to assess the profitability of services?

Digital Transformation

For an Automotive Fortune 500 supplier like your organization, Digital Transformation is not merely an option, but a necessity to keep up with the rapid pace of change in the industry. The convergence of physical products with digital services, particularly in the realm of connectivity and electrification, demands a holistic approach to digitalization.

You should focus on integrating Internet of Things (IoT) capabilities into your products, enabling predictive maintenance, telematics, and enhanced driver experiences. By leveraging data analytics, you can gain valuable insights into product performance, user behavior, and potential new service offerings. Additionally, consider partnerships with technology companies to accelerate your capabilities in areas such as artificial intelligence and machine learning, which can enhance your products and service models.

Strategy Development

As a Tier 1 automotive supplier looking to capitalize on new trends, your strategy must be both resilient and dynamic. Adopt a dual approach: continue to strengthen your core business while also investing in emerging technologies and business models.

Use the Ansoff Matrix to identify opportunities for market penetration, product development, market development, and diversification. Given your strong brand presence, co-creating with your OEM partners and customers can identify new value propositions. Moreover, exploring strategic alliances or acquisitions with tech startups could provide quick access to the requisite capabilities and accelerate the development of connected services.

Business Model Innovation

Your transition into services and connectivity will require a shift from a product-centric to a service-oriented business model. Consider how you might adopt a 'Product-as-a-Service' (PaaS) model where you offer not just components but also the associated services such as maintenance, data analytics, and fleet management.

Analyzing successful models like Rolls-Royce's 'Power-by-the-Hour' can provide insights into how to monetize your products' performance data. Furthermore, explore subscription-based models which can create recurring revenue streams and build closer relationships with your end-users.

Value Chain Analysis

Conducting a thorough Value Chain Analysis will help you identify where you can create additional value with services related to connectivity and electrification. Examine your current operations and look for areas where digital services can improve efficiency or customer experience.

For example, incorporating IoT into your supply chain could improve inventory management. In product development, harnessing data from connected vehicles could lead to breakthroughs in design. Consider where in the value chain you can partner with other companies to deliver end-to-end solutions for your customers.

Financial Modeling

To assess the profitability of the new services you aim to develop, robust Financial Modeling is critical. This should involve sensitivity analysis and scenario planning to understand the potential financial impacts under varying market conditions and adoption rates.

Develop detailed cost models that capture the full lifecycle expenses of service delivery, including upfront investment, ongoing maintenance, and potential revenue streams. As services often have different cost structures and revenue models compared to physical products, you may need to adjust your existing financial models to account for these differences. Consider adopting activity-based costing to get a clearer picture of cost drivers and profit margins for services.

Risk Management

As you venture into new domains of connectivity and electrification, you must ensure robust Risk Management practices are in place. The automotive industry faces stringent safety and regulatory standards, which will only grow more complex with connected services.

Develop a comprehensive risk matrix that includes not only the traditional operational risks but also cyber security, data privacy, and compliance risks. Establish a proactive risk culture that encourages the identification and mitigation of potential risks early in the development of new services and products.

Customer Experience

Enhancing the Customer Experience is a critical factor in differentiating your new connected services. Utilize design thinking methodologies to empathize with your customers and understand their journey from end to end.

This will allow you to tailor your services to create more value and a better experience for the customer. For example, use data gathered from connected vehicles to offer personalized maintenance schedules, or provide fleet operators with insights to optimize their operations. The aim is to integrate seamlessly into your customers' lives and workflows, thereby increasing stickiness and loyalty.

Agile

To develop and deploy new services effectively, embrace an Agile approach. This means iterating rapidly, being open to changing course based on feedback, and continuously improving your offerings.

In the context of connected and electrification services, Agile methodologies will allow you to test new concepts in the market quickly, learn from real-world usage, and refine your services in response to customer needs. Cross-functional teams that include members from R&D, IT, marketing, and customer service can help in the rapid development and deployment of new services.

Innovation Management

Managing Innovation within your company is crucial to stay at the forefront of the automotive industry. Encourage a culture of creativity and calculated risk-taking.

Implement a structured innovation process that captures ideas from across the organization and evaluates them systematically. Given the pace at which the automotive industry is evolving, consider creating an innovation lab or a cross-functional task force dedicated to exploring and developing new service offerings in connectivity and electrification.

Supply Chain Resilience

Finally, maintaining Supply Chain Resilience is critical, particularly when diversifying into new areas like connected services. With the automotive industry being deeply interconnected and global, any disruptions can have significant impacts.

Evaluate your supply chain to ensure it can support the new services you plan to offer. This may involve sourcing new components, such as batteries for electric vehicles, and ensuring that your suppliers can meet the required standards for quality and reliability. Additionally, consider the implications of increased digitalization on your supply chain and whether your systems are robust enough to handle the associated risks.