Digital transformation is crucial for car makers to stay competitive in today’s fast-changing industry, even though it comes with challenges, writes Dhananjaya K, Vice President – Global Markets, Product Launch Techsoft Pvt. Ltd. and Naveen M S, Business Head – Software and Systems Engineering, MicroGenesis Techsoft Pvt. Ltd
Today, Tesla is the most valuable car maker in the world. Despite decreasing sales and falling market cap, Tesla and technology-first manufacturers continue to maintain their lead over incumbent OEMs (Original Equipment Manufacturers), signaling the disruption of business as usual in the automobile sector.
To compete, traditional car manufacturers must redefine their business from the ground up in a rapidly changing industry— yesterday—because the future belongs to those that are truly digital-enabled. – BLURB
The Future Is Connected, Automated and Digital
One of our clients worked with multiple Tier 1 and 2 suppliers in different countries. The lack of a common platform and processes resulted in miscommunications and revisions, which led to delayed timelines and increased costs.
We worked with the client to deliver a platform that ensured each supplier’s process fit into a large, overarching system. This improved efficiency by 80%, reduced time to deploy from 4 hours to 10 minutes, and reduced helpdesk tickets from 9000 to 3000 per month.
Digital transformation, a game-changer
As traditional OEMs make their digital leap into a brave new world, the benefits of digital transformation are hard to ignore. According to Accenture, 83% of automotive leaders believe digital will be their key differentiator by 2040, and with good reason.
Traditional supply chain processes are breaking down and being replaced with IoT sensors that provide real-time visibility throughout the ecosystem. Manual inspections and quality testing are being proactively managed throughout the lifecycle using automation, AI, and robotics resulting in decreased costs and faster time to market.
Expensive on-site training is being delivered via a computer or mobile screen as just-in-time learning with lower overheads and reduced errors. Intelligence derived from data ensures that trends and customer shifts are identified early. In addition, revenue streams are moving from traditional car sales and operations to digital mobility services.
That comes with a hefty price tag
It is no wonder, then, that some experts suggest that automotive manufacturers will increase their digital investment by up to 24% in the next few years. This is significant because OEMs have already funnelled $280 billion into innovative automotive hardware and software solutions so far.
As far as spending in digital transformation—the global digital transformation market has been calculated at US$791.4 billion for 2024—the automotive sector is right up there alongside financial services as one of the big spenders.
OEMs have begun experimenting with digital transformation in some form or another, encouraged by stringent regulations and compliances, changing customer demands, and increasing competition. Digital technologies, it is said, represent approximately 50% of a vehicle’s total value.
And beset with high risks
However, with a 90% chance of failure, every digital transformation project carries high risks.
Today, car manufacturers must face the decline of the decade old internal combustion engine, changing customer demands, and shrinking profit margins while simultaneously increasing investments in electric vehicle technology.
They must also deal with supply chain disruptions, escalating energy costs, skilled labour shortages, and a complex economic and political landscape while investing a significant portion of their budget in digital transformation.
No wonder many OEMs are satisfied with implementing small digital transformation projects here and there without harnessing its full potential.
The Challenges of Digital Transformation and How To Overcome Them
Given our 20+ years of experience, we’ve seen the ebbs and flows of the industry. We know which technologies are passing fads and which ones are likely to disrupt the market. So, when it comes to challenges, we understand the dynamics of the problem and the solution the business needs, and we find they fall into the following problem clusters.
Inadequate strategy and planning
The first step in any digital transformation journey is to clearly map out objectives and requirements. Then, create a roadmap of achievable targets with adequate checks and balances to ensure adherence to the plan. When this is not done properly, it leads to time and cost implications that often result in failed implementations.
Our Solution: Hire experts who can guide you through the process of planning your digital transformation. Ensure the process is detailed and thorough, with some elbow room for manoeuvring around unforeseen obstacles. Adequate trials and tests are also imperative to set expectations in terms of the effort involved and outputs realized. Setting objectives requires a practised eye that can distinguish between utopia and reality.
High initial investments Most automotive businesses use decades-old software and hardware that are incompatible with modern digital solutions. In addition, the upfront investment for digital transformation can be substantial, often climbing into the millions for large enterprises. One report found that the average digital transformation project can cost enterprises approximately $27.5 million.
With a need to maintain maximum uptime, most automobile manufacturers are content to patch-fix their systems rather than truly redesign them. This limits the impact and benefits that the business can garner from its digital transformation investments.
Our Solution: Prioritize critical areas for digitization and implement changes in phases.
Consider software-as-a-service (SaaS) solutions to reduce initial capital expenditure or hybrid cloud solutions and offline capable applications to mitigate connectivity issues.
Careful planning is crucial for successful digital transformation. This phased manner calls for the adoption of middleware solutions to integrate legacy systems with new technologies. Scaling new technologies correctly unlocks additional efficiency gains over time, closing spend-benefit gaps. A phased IT modernization roadmap helps prioritize revamping high-impact areas first to enable innovation in waves.
Despite the high cost of digital transformation, neglecting to invest in digital initiatives will impact long term competitiveness.
Lack of a conducive culture:
Another critical aspect of a successful digital transformation implementation is having buy-in at the CXO level. Without their stamp of approval, change management is slow or non-existent. In addition, it is important to keep fears of job losses, and risk aversion at bay.
Our Solution: Foster a culture of innovation and change that involves all levels of the business. Have a clear strategy for reskilling and training programs for existing employees. Consider having knowledge exchange sessions with other businesses to ensure an open, learning culture. Clearly communicate benefits and involve employees in the transformation process.
A gaping skill gap
High-tech talent is in scarce supply, especially within the automobile industry. There’s a shortage of professionals skilled in areas, such as AI, machine learning, data science, and IoT. This requires the hiring of professionals from outside of the industry.
Our Solution: The automotive sector must be seen as attractive to active job seekers. With a plethora of options before them, top talent will rarely seek opportunities in the automotive sector. That can change with attractive compensation (monetary and non-monetary), clear career roadmaps, and adequate counselling. Hiring top talent across multiple levels will also ensure that the right talent is attracted and retained in the sector.
Data security concerns:
Digitization increases vulnerability to cyber-attacks, data breaches, and industrial espionage.
Our Solution: Implement robust cybersecurity measures, including encryption, multi-factor authentication, and regular security audits. Develop a comprehensive data protection strategy and train employees on best practices.
Strict regulatory compliance: Keeping up with evolving data protection and privacy laws while digitizing operations can be complex.
Our Solution: Stay informed about regulatory changes, engage legal experts, and build compliance into digital transformation strategies from the outset.
Embracing Digital Transformation for a Smarter Future
Successfully navigating these challenges ensures that your organization stays ahead on the path to a more innovative, secure, and intelligent future. Digital transformation isn’t just about staying competitive—it’s about revolutionizing how you operate. By streamlining processes, enhancing efficiency, and fostering a culture of continuous innovation, digital transformation will become a core strength of your organization, empowering you to thrive in an ever-evolving industry.
Disclaimer: The views expressed by the authors are their own and do not necessarily reflect the views of FMM magazine.
Dhananjaya K
Vice President
Techsoft Pvt. Ltd
Naveen M S
Business Head
MicroGenesis Techsoft Pvt. Ltd.