One of the buzz phrases that has inspired prophesies in recent years is the “frictionless economy.” The idea first popped up in 1996 when the Internet was gathering serious steam and Bill Gates outlined his vision for “friction-free capitalism,” but the notion has been embraced by many other notables since then such as Mark Zuckerberg, who recently has been promoting the idea of “frictionless sharing” for social network users. The concept behind the frictionless economy is to remove the impediments to processes in order to promote efficiency and growth.
Today, the world seems to be moving toward such a frictionless economy, with one example being a theoretical trading environment where all the costs and limitations associated with transactions are non-existent with the transition. Certainly, a frictionless economy must also be a paperless economy; a place where we no longer have to carry cash at all, but simply swipe a card for anything and everything. One could say that this idea is also embodied in the transformation of dumb objects to smart ones via the Internet of Things.
Technology is at the heart of the frictionless economy, where digital transformation impacts processes, products, the value chain and the future. Industries respond at different rates and in different ways to such changes, with those that have a long legacy and embedded culture like the automotive sector less quick to embrace the new processes that create a frictionless economy. However, change is inevitable — just look at the attitudes of millennials, emerging consumption models and the consumerization of electronics — so it’s important for the automotive industry to identify key steps along the road to achieve this digital transformation.
Impact of Digital Transformation
Certainly, the evidence is all around us that such change is underway. The analysts at International Data Corp. expect that the percentage of enterprises creating advanced digital transformation initiatives will more than double by 2020, from today’s 22% to almost 50%. Meanwhile, Gartner Group reports that 125,000 large organizations are launching digital business initiatives now and that CEOs expect their digital revenue to increase by more than 80% by 2020.[i]
Digitization is happening in all areas of life and business. Consider the banking industry; how often you visit a bank now? Everything is digitized, from online banking to scanned check deposits, with most processes designed to be done on the go.
Yes, the move to a frictionless economy can lead to the removal of some service workers in the middle. Why do we need clerks in banks or sales people in the retail sector? This change will irreversibly transform ways we live, work and drive. Digital assets across the entire economy doubled over the past 15 years as firms invested not just in IT but in digitizing their physical resources. Digital usage in the form of transactions, customer and supplier interactions and internal business processes grew by almost five times across industries.
Cutting the cost of human labor in a frictionless economy also reduces the price of goods. For instance, Amazon allows you to select what you want from their site rather than deal with a store clerk, then get these items delivered where you desire. Similarly, those using Uber/Lyft need not call a taxi dispatcher or cab company; hit a button on your smartphone and the closest driver will pick you up. In fact, many members of the younger generation — consider them the “digital natives” — haven’t lived in a world without technology, which confirms that this transformation can only go forward, not backward.
Automotive Industry Digital Trends
The automotive industry is slowly but surely moving toward digitization. “Slowly” because our industry, which began in the 1890s, has a long history but change for such a huge sector won’t take place overnight. Consider the background of us at Movimento Group. We had the advantage of being a younger company, launched in 2003, with an original focus on car reflashing, which is the updating of the Electronic Control Unit (ECUs) in vehicles. Despite its technology focus, this service was originally performed by taking vehicles into the dealer or repair shop, which is hardly frictionless.
We reflashed millions of vehicles per year but in 2015, we decided to evolve our service by creating the technology to perform the software updates in these ECUs wirelessly over the air (OTA) by using the network. We’re now the world leader in OTA vehicle updates but this was just one element in our transformation. Like a few other automotive colleagues, we believe that the software-defined car and autonomous vehicles represent the future of our industry so we’ve been realigning our business to address a new definition of “the car,” turning it into personalized, efficient, software-defined machine that becomes an extension of today’s technology-driven lifestyle.
Our commitment to evolve our technology stems from the expectations of our customers. Following the example of renowned companies like Apple, we want to delight our customers, which will give us a competitive edge in our industry. The advanced electronics in today’s vehicles are all about software, which is where we’ve planted our flag for the future. We believe our OTA software and data management platform will revolutionize the industry in the future. This technology platform can manage software across the entire lifecycle of a vehicle and throughout departmental silos, increasing operational efficiency and creating new value generation and opportunities. But such transformations aren’t always easy, with many of our former partners becoming competitors, so we have had to overcome many hurdles in order to accomplish what we have achieved.
Steps towards the Digital Transformation in the Automotive Industry
At Movimento, we had the advantage of being a younger company with a technology focus, which was beneficial in our digital transformation. However, other automotive companies need only look at the approaches and culture of Silicon Valley to chart a successful journey toward a frictionless business model. And the benefits are enormous given the ongoing need to acquire new customers, grow top-line revenue and generate new revenue streams. Along the way, pursuing digital transformation can increase business and employee agility as well as flexibility.
The industry’s customers of the future are comprised of the digital natives, who fully embrace new concepts like car sharing and ride sharing. For such customers, value is not driven by physical assets but by digital services that may or may not tie to physical assets. To attract these people by achieving a true digital transformation, automotive digital executives should keep a few important lessons in mind:
- Encourage an agile culture and continuous lifetime learning of new and disruptive technologies and adoption of the mantra of “fail fast and fail often,” which means learn from your mistakes and start over quickly.
- Learn to embrace change because it’s going to happen regardless so it’s best to get comfortable with it.
- Understand technology because that’s what drives the business world and knowing it helps you anticipate the next big step.
- Drive innovation across the company, experiment with new collaborative models such as office productivity tools, data sharing across the organization and partners through virtual collaboration.
- Initiate customer-centric digital services with an effective online presence. Co-innovate and co-produce with your partners and learn how to have the flexibility to personalize offers and services.
- Investigate build versus buy digital platforms, acquire the digital capabilities and digitize the end-to-end process and develop a frictionless service.
- Exploit new opportunities and evaluate the value chain and examine adjacent markets.
- Experiment, experiment, experiment. Never stop trying new things almost every day.
The most crucial factors for a business that wants to survive disruption are being innovative and adaptive. Innovation and adaptability apply not just to technology but to business models, too. If you aren’t willing to walk away from an existing business that’s become threatened, you may not be able to adapt fast enough when change comes. You need to leverage the disruptive forces like connectivity, cloud and context wherever possible to help you stay ahead of the disruption.
The power of the autonomous car in the automotive space is on everyone’s mind and sufficiently deep understanding of this area will help you grow your business. The self-driving car definitely will change our lives but it will also change how cars are being considered and built from the automakers through Tier 1s all the way to the bottom of the supply chain.
Digital transformation will affect many related industries. For instance, what will insurance providers insure if people stop driving? The rise of car sharing and the autonomous cars will directly affect the industry and it means the industry needs to reassess its traditional business models and come up with new business models for a new era.
Moving ahead, every company will be a software company and this transformation is happening very soon, as small and large company’s ascend to transform themselves into completely digitally driven organizations.
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