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What are the digital transformation challenges for the automotive industry
Thank you for your question to Wonder regarding the digital transformation challenges facing the automotive industry.
In short, the digital transformation challenges that the automotive industry faces, include IT security and regulation compliance.This is due to the large scale incorporation of new technology with cars and the expected V2V (vehicle to vehicle) laws that will be enacted. Rapidly changing consumer habits and desires, coupled with the consumers' digital expectations will challenge the automotive industry to refocus their efforts, to ensure they understand the modern consumer. Moreover, as cars become moving supercomputers, the problem of big data handling, storage and sharing poses a challenge for the industry. Additionally, the challenge of working with new digital partners who are not automotive specialists and adjusting to the evolving value chain that is expected to profoundly change every aspect of the automotive industry.
Please find below a summary of the industry and scholarly articles that address each of these digital transformation challenges. An additional link to the references and articles can be found in this attached spreadsheet.
METHODOLOGY
By searching through research paper databases, I was able to find two research papers that analyzed the digital transformation challenges that the automotive industry is facing. In order to understand which challenges were viewed as most important or the most difficult, I then searched for news articles by industry analysts and specialists in order to compare the themes that were constantly discussed. Through this method i was able to confirm the themes that I outlined in the above overview. Therefore, my research is a summary of the information that I found, focusing on these five areas of digital transformation challenge; Security, Consumer Desires, Big Data, New Partners and the Value Chain. Due to the fact that many of the article cover multiple themes rather than focus on one specific challenge, I have only included links to the references in the spreadsheet attached and summarized the article below.
SECURITY & COMPLIANCE
An industry report by CA Technologies commented on a recent global survey. The survey reported that 38% of automotive companies cite security and compliance as the top challenge in digital transformation. This concurs with data quoted by Microsoft when they referred to a survey conducted by Wakefield Research/Spireon Study. Their survey noted that 51% of respondents prefer safety and security features in a connected car over other features. This is in agreement with a research paper published by the International Conference on Information Systems, observed that in the brainstorming phase of their Delphi study, many IT security challenges associated with the impact of digital transformation in automotive organizations.
These included:
- Ensuring IT security in the adoption and implementation of digital technologies.
- Embedding digital content and services into products (the car) while considering cost efficiency, but without compromising safety and security.
- Balancing customized digital services that provide added value by leveraging customers’ personal data with data security and privacy.
Due to the massive incorporation of digital technology expected in the auto of the future, cybersecurity will become the biggest digital transformation challenge for the automotive industry. As such, a recent article in PRNewswire quotes the thoughts of Frost & Sullivan Mobility Senior Consultant Sriram Venkatraman, who remarked that new models of cars will have to consider cybersecurity. The article explained that this development will mean that OEM's (original equipment manufacturers) and tier 1 suppliers will seek partnerships with technology vendors and specialists for cloud computing, cybersecurity going forward.
New government regulations could also prove to be a major challenge for the automotive industry. The websites McKinsey and Forbes both report that in the United States, the National Highway Traffic Safety Administration (NHTSA) recently announced that it plans to make vehicle-to-vehicle communications mandatory. After an extended testing period, NHTSA published the notice of proposed rulemaking (NPRM) for what is expected to become Federal Motor Vehicle Safety Standard (FMVSS) 150. These developments, which could be imitated globally, would create new challenges for the automotive industry. Forbes explains that if these plans become law, all manufacturers would be required to install dedicated short-range communication (DSRC) radios into new vehicles, probably starting in about 2020.
CHANGING CONSUMER DESIRES
Several industry analysts pointed to the changes in the desires of the consumer as being a key digital transformation challenge that the automotive industry is having to face. The World Economic Forum, in their collaborative white paper with Accenture, explained that some of the challenges that need to be understood include factors such as the pace of changing customer expectations. Their report notes that for the first time in history, more than half of the world’s population live in urban areas, which currently stands at 3.7 billion and is predicted to increase to 66% by 2050. The reason this is important for the automotive industry is that 'urban mobility, connectivity and the demand for a wide array of digital services, will dominate the future of the automotive industry'. The paper summarizes that 'continuing demographic changes mean it is critical to understand and anticipate consumer needs, aspirations and behaviors'. Here lies the challenge for the automotive industry.
As IBM explain in their Executive Summary of the digital transformation challenges the automotive industry faces; population growth and pollution issues motivate consumers to consider the limitations of vehicles, greater urban transportation
data, smartphones and pervasive telecommunications provide the
opportunity for new, exciting digital offerings. However, continues by warning that in order to stay relevant, businesses will need to 'rethink what customers value most and create operating models that take advantage of new possibilities'. The summary also highlights that regardless of population growth in urban areas, most consumers don’t want to give up access to vehicles. Therefore, automakers are challenged to bundle the right mix of cars and other transportation modes into compelling, integrated new offerings.
A second report by the World Economic Forum remarked that 'digitally enabled and empowered consumers increasingly demand that their vehicles provide the same level of digital utility and capability they have grown accustomed to in their electronic devices'. An article in PRNewswire agrees, stating that the consumers' evolving digital lifestyle expectations and demands for new and innovative services will affect all components of the digitalisation of the automotive industry.
BIG DATA
With vehicles incorporating more computer technology, the problem of how to handle all of the inevitable data will become a challenge for the automotive industry. Intel estimates that autonomous cars could generate 4 terabytes of data per day.
Brian Krzanich, CEO of Intel explained the 4 terabyte conclusion as factoring the use of cameras, radar, sonar, GPS and LIDAR. He said that "cameras will generate 20-60 MB/s, radar upwards of 10 kB/s, sonar 10-100 kB/s, GPS will run at 50 kB/s, and LIDAR will range between 10-70 MB/s". The website Datacenter Frontier advised that we should view autonomous vehicles as 'the equivalent of supercomputers rolling down the highway'. But these vehicles will require low-latency wireless connections to fiber networks and data centers. The article quotes Jim Poole, Vice President of Ecosystem Development for Equinix, who remarks that "there are major challenges related to volume and latency" when attempting to provide data storage facilities for autonomous vehicles.
German global IT services and consulting company T-Systems, notes some barriers to the successful application of big data handling in the automotive industry. In a recent white paper, they highlighted the biggest challenge in this area being access to data analytics experts. The paper explains that data analytics experts are few and far between and not on most companies’ payrolls. Another challenge is that some data sources, such as information streams from cars or social media platforms, must first be tapped into or acquired from other companies – with possible legal implications.
Additionally, the World Economic Forum/Accenture white paper mentioned earlier, noted that the automotive industry faces a challenge to create a central data market, where information can be stored and shared. The paper explained that in order to fully realize the commercial and social benefits of the data that is generated across the automotive industry, participants need a secure and robust data market where they can trade data. Although the benefits of such a market are clear, there are many challenges and barriers to implementation. Such as, how a data market could be managed across organizations and countries, and by who.
NEW PARTNERS & CHANGING VALUE CHAIN
Digital translation for the automotive industry means working alongside companies that are not specialist industry, but will be essential for future success. As the PRNewswire article quoted earlier mentioned; OEMs and tier 1 suppliers will seek partnerships with technology vendors and specialists for cloud computing, cybersecurity, telematics, connectivity and 3D printing solutions. This mean that new partnerships will have to be formed, which creates challenges for automotive industry. IBM anticipate the problem that could arise, as being the management of 'complex alliances with companies that don’t have the bulk of their business within the auto industry'. Moreover, telecommunications, software and content providers and electronics manufacturers who operate mainly outside of the automotive industry, traditionally have faster innovation cycles than car makers. These new and necessary partnerships will provide a challenge for the automotive industry.
The World Economic Forum also sees an impact on the traditional automotive industry value chain. While observing that the digital transformation of the automotive ecosystem has permitted that a 'nontraditional, technology-based companies' could enter at various points along the automotive value chain, their report states that this occurrence presents a 'growing challenge to the business models' of automotive OEM's and all entities along the traditional value chain. Frost & Sullivan go even further, stating that all aspects of the mobility value chain will be digitalised. In their view, everything from 'the shortening of product life cycles due to higher software dependency, the transformation of car dealerships, the actual sales process and maintaining the relationship with the customer', will all be affected by the opportunities and challenges digitalisation offers. A research paper by Georg August University of Göttingen in Germany, agrees with these sentiments. It supposes that the business model that the automotive industry traditionally employs, will be 'enriched and enhanced' by digital transformation and technology.
SUMMARY
To wrap up, the digital transformation challenges facing the automotive industry center around security and compliance, the rapidly changing consumer desires and digital expectations, how to handle big data, working with new partners who are not auto specialists but digital specialist and the evolving value chain affecting every aspect of the automotive industry. Please find links to the references, articles and research papers in the attached spreadsheet.
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