Automotive

Automotive incumbents strike back: insights from the IBV report

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Change and disruption in the automotive industry is a challenge for executives at every level of the organization. An IBM Institute for Business Value (IBV) report: ‘Incumbents strike back,’ explores how industry incumbents are embracing innovation to become the disruptors. In this blog, we explore the report’s key insights from automotive executives, and the IBM Engineering portfolio solutions that can alleviate the negatives and amplify the positives associated with these factors.

Disruption is inevitable – but not in the way we thought

Disruption remains an ever-present force for CxOs in most industries, including automotive. But the nature and source of the disruption is changing. According to the IBV report, a surprising shift is taking place. The expected disruption from agile start-ups and competition from industry outsiders has not had the expected impact. Instead, it is the innovative industry incumbents – the big established players – that are credited with the lion’s share of the change.

Source: IBV report: Incumbents strike back

The reasons for this shift in dynamic are various, but one explanation is that industry incumbents are snapping up innovator skills and new talent from nascent disruptors. By recognising the value of skilled personnel, and embracing new talent, they have reinvented themselves. The once lumbering industry incumbents are becoming agile, pursuing innovation, and opening the door to success through experimentation.

The most successful CxOs, the ‘Reinventors’, are living examples of this willingness to embrace profound transformation – and of its many advantages, both in revenue growth and profitability.  The study Reinventors as automotive companies who are excelling through their focus on developing breakthrough products, services and business models, at extracting value from their ecosystems and actively experimenting with new ideas.

Even in relatively stable industries, like automotive, the Reinventors are pushing the status quo. For example, auto makers are piggybacking on the success of subscription services by creating their own; offering leasing options for insurance and needed maintenance, and even delivery.

What do the new disruptors look like?

Innovative industry incumbents are achieving innovation in three ways:

  • Technology: They are investing in technology and platform business models
  • Personalization: They are pursuing personalized customer experiences
  • Innovation and agility: They reward experimentation and fast failure

Let’s look at these three areas more closely.

Investing in technology

Software has become a major integration point for this critical transformation that defines both user experience and performance. Achieving this requires a transparency of information and the need for living, on-demand systems that provide engineers with comprehensive information on development status, compliance standards, and asset reuse in product variants.

The Reinventors, the most successful of the industry incumbents, are out-investing other groups in technology. Specifically, technology such as IoT and blockchain that facilitates data-sharing across ecosystems.

The IoT, as a bridge between the physical worlds, is of particular interest here. By leveraging digital value from physical ‘things’, the IoT allows business to orchestrate assets, not simply own them.

One case study from the report explores how BMW intends to shift value from Uber, by optimizing a fleet of its own cars for various services. For example, ride-hailing, delivery or rental by the hour. By experimenting with service provision as well as its core manufacturing competencies, BMW is out-thinking the competition and opening the door to new revenue streams.

Personalization and customer co-creation

Customers’ growing expectations of personalized products and services are well-documented. The ability to create experiences that cater to the individual consumer is something of a holy grail for CxOs, particularly within automotive.

The industry incumbents who are most successful at creating compelling customer experiences are so because they take the time to discover what customers actually want. They embrace co-creation with customers – asking for and acting on feedback to continuously improve their products and services.

Increasingly, successful automotive executives are using AI and cognitive solutions to glean insights from unstructured customer data. By taking the time to undertake robust requirements gathering, innovative industry incumbents get a clearer picture of their customers’ needs, and can feed this information into development cycles for fresh products and services.

Source: IBV report: Incumbents strike back

DHL, for example, has been working closely with its customers to create new experiences for them. One notable experience is a service that delivers packages to the trunks of Volvo owners’ cars – an experience created in collaboration with Volvo. This is an excellent example of both the value of requirements management, and a profitable intersection between customers, auto makers and service providers – getting the most out of a cross-industry ecosystem.

Innovation and agility

Last, but certainly not least, is the willingness to experiment. As Temel Güzeloğlu, Chief Executive Officer, QNB Finansbank, Turkey, puts it, “Experiment. Fail three out of five times. If that’s not your ratio, you’re not experimenting, but waiting for enough information to act. You can’t escape the mediocre that way.” (Source: ‘Incumbents strike back’ – IBV, 2017)

Those organizations that empower their employees to experiment and offer ideas are reaping the rewards. 73% of Reinventors promote exploration by rewarding fast failure, within an agile operating structure that prizes experimentation.

Fast feedback cycles allow industry incumbents to rapidly respond to market changes, incorporate customer needs and offer greater value through continuous engineering.

By streamlining product development and adopting continuous engineering, Reinventors are implementing a more fluid work structure. This in turn means they are agile enough to reinvent their enterprises before being forced to reconsider their options by external forces.

From insight to action: How IBM can help

The IBV’s report: ‘Incumbents strike back’, offers a blueprint for action to help industry incumbents reinvent their vision, culture and operations.

For practical guidance about how our solutions can help you innovate better, and achieve greater customer satisfaction, we recommend these resources:

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