Image: McKinsey

Consultancy firm McKinsey&Company has come up with a series of recommendations for successful digital transformation for Tier One automotive suppliers, noting that most in this sector have only recently started to develop new digital products, services and processes.

It warns that, for example, scaling-up transformative measures can be hard; roadmaps are often either vague or too narrowly-focussed; and that there is often no overarching digitization strategy or coordination within an organization. Its “Blueprint for successful digital transformations for automotive suppliers” identifies six core areas, summarized below:

Digital strategy and targets: A strategy should first take into account how digital technology can add value. On the external side, this means suppliers must consider new approaches for engaging with clients with reference to autonomy, connectivity, electrification and shared mobility, and even direct interactions with end users; internally, a focus on how digital technology can optimize business and organizational processes. The strategy must then be expressed in a clear roadmap with specific actions and KPIs to be executed.

Organizational structure: McKinsey’s analysts suggest that the most successful digital transformations follow one of three types: establishing a new, separate digital unit; embedding a digital business within an existing unit; or, most relevantly for automotive suppliers, establishing a digital center of competence (DCoC) under a chief digital officer. A DCoC is responsible for setting direction and sharing learning, and should take on three key functions: developing products and services; building skills across business units; and creating external networks.

Pilot projects that use a test-and-learn approach: McKinsey recommends that small cross-functional teams create and test prototypes – both for process improvements and customer-facing initiatives – that can quickly gather feedback and, if necessary, ‘fail early’ and rethink. This approach needs initial funding allocation; the building of effective teams (which could involve partnering with start-ups); strict testing and accountability protocols; demonstrating successes to create enthusiasm; and standardizing an approach to scaling-up and developing a common technical platform for key specifications.

Talent and capabilities: McKinsey suggests locating offices close to technical hubs to attract the right talent, be near experts, and to position a firm within the digital ecosystem. It notes that ideation and prototyping teams may work better physically if close to the core business, for agile working and cross-functional communication, and that internal innovation challenges are good for encouraging and optimizing knowledge and creativity.

Ecosystem: Attracting the right partners is crucial, and McKinsey recommends both visiting and tapping into tech hotspots to learn about new technologies and novel working practices. It cites how one Tier One supplier supports start-ups with access to resources such as office space and media relations advice, thus benefiting from “their new ideas and entrepreneurial energy”, plus the different levels on which Tiers Ones can work with start-ups, from collaboration to outright acquisition.

Culture change: Finally, the analysts point out that, in a traditionally conservative and traditional sector, it is vital to change culture and mindset at every organizational level and across all business units. This involves building a clear understanding of the opportunities and how they could transform the business; establishing structures to support innovation and the digital goals, including empowering of front-line team members; and rewarding role models.

“Automotive suppliers that can manage successful digital transformations will position themselves to win in the new world that is emerging”, the report concludes.

-Farah Alkhalisi