Driving Connectivity: How OEMs Can Win The New Race (part 3)

by Srivathsan S and Jeff Kavanaugh

The Connected Car era is re-shaping the fundamental composition of vehicles, impacting the products that comprise them and the interactions customers have with them.  These tectonic shifts, which favor software over hardware and place a premium on interaction with the broader world, will naturally have important implications on how OEMs run their operations.

In this 3^rd post in our series, Driving Connectivity, we will explore the ways OEMs can equip their business to accommodate the blending of software development with traditional automotive manufacturing, touching on topics from project organization to overall technology strategy. Read part 1 here and part 2 here, or download the full Point of View here.

Value realization strategy

Many of the advancements we explore in this paper represent technological innovation.  But in many cases, successfully bringing these innovations to market and realizing their full value is more complex than simply getting the technology right.

The building blocks to these solutions are a combination of traditional OEM elements, such as engines, powertrains and steering apparatus, along with externally supplied connectivity technology such as reliable cellular data networks and mobile application development ecosystems.  It is through the delicate marriage of these two worlds that incremental value can be generated.

For connected products and services, we have observed that OEMs are most successful when they avoid traditional product development techniques used for engines and emission controls, in favor of the agile development principles of software development. Finding the correct balance between these two different worlds of hardware and connected software can mean the difference between success and failure.

In addition to implementing the appropriate product development practices, it is also vital to define an organization design that supports complex, cross-functional interactions and incorporates adequate levels of governance.

The chart below shows how an organization structure can evolve on the journey from functional to agile.

The key to this value realization framework is the way each functional area is brought together and empowered via a cross-functional organizational framework. These teams work best when the overall unit functions as a single, cohesive group that is supported by strong leadership and regularly communicates with the larger organization.  Because the working style of these teams often differs from “business as usual”, it is ideal to form a dedicated project team as unencumbered from historical, day-to-day duties as possible.

Process strategy

The organization described in Part 2 of this series, can also be used to customize existing corporate frameworks, to align with the company’s business objectives for connected cars.  Traditionally, the automotive product development process, while very robust, proceeds slowly.  While these timelines are acceptable for general automotive products, they are not suitable for dynamic feature introduction.

Different processes are used by hardware and software teams. As a result, when hardware and software companies innovate together, the interplay between deliverables on different timelines is another dynamic that requires proactive management.  For example, software might be updated on a bi-weekly cadence, while hardware updated every 6 months, annually, or even only during model changes. A thoughtful, flexible and integrated plan with tight communication becomes critical to harmonizing development and refreshing activities.

Given how deeply product development is entrenched within automotive OEMs, there is a high degree of cultural inertia pushing back against cross-functional, agile models like the one described here.  It can, therefore, be helpful initially to outsource certain elements of the development process to more quickly cultivate a team less beholden to historical norms.  This can be through an external partner, or through the creation of self-contained product units within the OEM.

Sourcing strategy

Among the many differences between hardware and software, one of the most important relates to the way product updates are distributed.  Most car owners have had the experience of receiving an update via old-fashioned snail mail, notifying them that their vehicle has a faulty part.  To correct this, they are instructed to bring their car to a dealer, where a replacement part can be manually installed.  Even in the digital world of emails, this process still requires physically taking the vehicle to the dealership.

Contrast this with how modern software as a service (SaaS) companies deploy fixes.  When a bug fix is completed by their development team, the code is pushed to production and all users of the software immediately –and automatically– benefit from the fix.  This allows these firms to sell a product that is in some ways incomplete and fix it at a later date.  Tesla has seen success with this model in the automotive market, building cars that can receive updates digitally to enable incremental features such as self-parking.

This paradigm shift is particularly important as OEMs consider their future sourcing strategies. Below is an example of a traditional sourcing model for telematics gateway features:

Many of the development cycles for hardware elements include multi-year lead times.  The challenge is that customer preferences – and external competition – are moving on a more frequent, even monthly or weekly cadence.  To compensate for this timing mismatch, OEMs can instead take a more platform-centric approach to major features, enabling faster development at the edge and for partners to focus on areas of core expertise.

To do this, instead of developing features internally on multi-year lead times, manufacturers can expose internal vehicle elements via application programming interfaces (APIs) and include an in-vehicle mechanism to run applications provided at a later date.  And by making these APIs available to external application developers and supporting it with an OEM-specific app store, they provide a seamless way for innovative entrepreneurs to deliver beautiful, responsive solutions in a way that greatly enhances the customer experience.

To give a simple example, imagine the interactive touchscreen on a new vehicle.  Even on high-end vehicles, these customer experiences lag well behind newly released iPhone or Android devices.  To solve this, OEMs could simply focus on delivering high-end hardware (e.g. plasma screens) and leave the software development to external partners to be continuously delivered and improved on over time.  This would allow a vehicle that was purchased three years ago to run interactive software developed the previous month.  And because OEMs are supplying the end customers, they can play an active role in both the curation of apps and their monetization.

Referring back to the telematics gateway, a simplified future-state architecture is shown below:

There are significantly less customer-facing elements with multi-year lead times.  While the Teslas of the world have moved in this direction, many OEMs still possess legacy structures that make such changes appear formidable. However, we believe that this shift to simpler, API-rich micro-services architectures is inevitable and that early adopters will have a significant and decisive advantage.  In fact, some of our OEM clients are already pursuing this approach.

Technology strategy

No discussion of connected cars is complete without mentioning fundamental technology strategy. While the topic can quickly become arcane, there are a few high-level strategic elements we believe OEMs should consider.

In its simplest form, connectivity architecture includes two things:  data sources and a unified hub or platform to allow these sources to communicate with each other.

This platform provides basic connectivity services, such as authentication, service discovery, and routing, along with VPN connections, software cache and settings.

Given that connectivity-based innovation will continue, connectivity platforms should provide a solid, extensible foundation to quickly onboard new capabilities. A cloud-based platform can be an ideal choice, as it provides scalability, cost efficiencies, and rapid time-to-market capabilities.

Cloud-based solutions provide more flexibility over time, guarding against technical obsolescence. OEMs should also retain architectural flexibility in authentication techniques, security, routing, caching, application hosting, load balancing, monitoring and logging, administration, directory services and external integration brokers.

Establishing such a foundation is key to the technology strategy for connected cars from both a product and services perspective.

Security

Connected technology holds unrivaled promise, but for this potential to be realized, these new features must be secure.  And while security is critical for any IT-based capability, one can argue the bar is even higher for vehicles. Unlike computers and phones, where security breaches can lead to identify theft headaches, autonomous operation errors can literally put passengers’ lives at risk.  A robust security mechanism, with multiple levels and redundancies, is therefore critical to prevent potential threats to the car and its internal systems.

Privacy

The automotive sector has experienced a significant increase in litigation over the last several years.  With the transformation happening with connected and autonomous vehicles, these risks are likely to increase in volume and magnitude. Connected features typically depend on the collection and distribution of customer and vehicle data to third parties such as infrastructure operators, insurers and external service providers.

Automotive OEMs need to think carefully about how to use this information (get, store, analyze, transmit) to ensure ongoing compliance with applicable privacy regulations such as the newly introduced European Union General Data Protection Regulation (GDPR).

At a corporate level, OEMs will have to adjust their policies to the following questions:

• Which information is collected and not collected?
• How the information is collected?
• Which information to be stored?
• How and which information can be securely transmitted?
• What information is shared vs. retained for competitive reasons?

To maintain competitiveness, OEMs must manage these pitfalls without continually escalating the investment required.  To do this, it will be important to architect multiple layers of flexible data-level security to prevent the need to re-engineer products as regulations continue to evolve.

Connectivity has rapidly changed – and will continue to change – the way customers interact with vehicles and the basis upon which they make automobile purchases.  The potential exists for OEMs to deepen their customer relationships and to solve an entirely new set of customer problems that can benefit society as a whole.

The automotive industry is experiencing a period of tremendous change.  While questions remain as to the details, what is certain is that connected cars will continue to rapidly evolve and customer expectations will continue to increase.  To capitalize on these trends, automotive OEMs need to have the courage of their convictions to make the bold moves required in their operating model, product platform and risk tolerance.  With autonomous driving and electrification on the horizon, there has never been a better opportunity to increase market share and simultaneously change the world for the better.