Rewiring the Auto Industry for the Electric, Connected Future


APRIL 18, 2023

By Abhijit Kodey, Mike Quinn, Aakash Arora, Julie Bedard, Julia Dhar, SK Missert, Tiffany Ho, Sibley Lovett, and Kristy Ellmer

READING TIME: 15 MIN

The entire $3 trillion, 150-year-old automotive industry is shiing to a connected, electric future. And it is doing so faster than many believed possible. By 2035, electric vehicles (EVs) are expected to constitute 60% of new vehicle sales worldwide.

To meet this challenge, many leading automotive players—both carmakers and suppliers—have announced bold visions for where they are headed. Carmakers are either planning or already implementing the following: a complete shi to EVs, becoming EV-first while maintaining a strong

Where to Focus

To overcome these obstacles to a successful transition, automakers must address three key areas: refreshing the operating model, reimagining talent, and changing the organization culture and behavior

Refreshing the Operating Model

Auto players can use the transition to the electric, connected future as a catalyst to rethink how they’ve always done business. They can break through traditional development roles and increase speed to market, look at new ways to build and maintain direct relationships with customers, and streamline their production operations while gaining more visibility into an increasingly complex supply chain. To do this successfully requires the discipline to completely reimagine the operating model. Exhibit 1 outlines what such an approach could look like.

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As auto players start to tackle these fundamental operating model issues, they must keep five key design principles in mind.

Subtract and Simplify. As the scope of activities required of successful automakers has expanded to include soware, battery design, and the monetization of services and data, the addition of new groups and processes has increased complexity and interfaces. In the past, for example, sourcing a radio required automakers to interact with just a few suppliers. Today, however, they must manage across hardware engineering, soware design, and external hardware providers. This means making decisions on a range of issues: Who has ownership? Who decides on the specifications? Whose timelines should be followed? Indeed, the decision-making process itself should be rethought. One company, for example, used a simple design parameter to test new operating model designs: How many people do you need to talk to in order make a decision?

Shitf to “Systems Thinking.” Long accustomed to organizing capabilities within functional silos, automotive players now need to develop a far more overarching, cohesive model. Moving to a “systems” mindset requires end-to-end product ownership and decision rights. For example, product teams must no longer think about cooling the engine, cooling the electronics, and cooling the passenger cabin as separate activities and individual components. Instead, they need to think about the “thermal system” and break down the elements it is made up of to arrive at a more elegant solution that cools the engine, electronics, and cabin while becoming cheaper, lighter, simpler, and updatable with soware. To get there, they must empower leaders with end-to-end accountability across the enterprise. They must also reimagine the product lifecycle management process to seamlessly integrate multiple stakeholders and inputs, including the soware, hardware, and all partners, and reset the definition of success to break down functional loyalties.

Rethink Governance for Continuous Delivery. The auto industry’s operating model used to be defined by the “model year” approach. Automakers were good at defining and meeting stage gates, and it was clear who was responsible for what. Today, automakers are entering a world of continuous delivery that demands ongoing releases of both soware and hardware. When Tesla improves its soware, the company doesn’t wait for the next model or mid-cycle refresh, but instead releases it over the air in a regular cadence. This requires more nimble governance mechanisms that allow for continuous synching, including real-time dynamic capital allocation processes, “product boards” to ensure consistency across groups, and real-time dashboards that provide constant updates— especially as some automakers choose to expand the scope of what they develop.

Refresh Performance Management. Traditionally, auto players had straightforward, well-defined KPIs, such as cycle time, equipment efficiency, and on-time delivery, that followed a clear timeline. But in a world with cross-functional product development and continuous delivery, many of the old KPIs are no longer relevant. What matters now are installed base, attach rate of post-sales products and services, second owner activations, and over-the-air soware updates, not simply how many cars are sold. To reward the right behavior, automakers need to redefine what success looks like. Different parts of the organization will require different success metrics; makers of EVs may prioritize customer lifetime value while the legacy ICE business continues to focus on operational KPIs. Companies will need to adopt a thoughtful, de-averaged approach to their definition of success, and align their production KPIs with the frameworks they use to assess their people.

Embed Technology. Most automakers are working hard on various elements of technology, such as data platforms and analytics, and greater factory automation. Yet there is an opportunity to dramatically increase even further the use of these technologies, making them core to the operating model. Currently available artificial intelligence and machine learning solutions, for example, are still being deployed piecemeal by automakers. But they should look to deploy AI at scale to assist with transactional activities, such as processing invoices, booking general ledger entries, scanning invoices, and the like.

Reimagining Talent

Automakers must deal with the growing scarcity of the right talent as they reinvent their organizations and scope, but relying on hiring to fill the gap will not be sufficient. OEMs and Tier 1 suppliers must begin to diligently shi their efforts to attract, retain, and train talent with new skillsets. With surveys showing that 98% of industry CEOs reporting that talent and skills are among their top three priorities, companies are fully aware of the growing need.

Yet all auto companies are struggling with how to tackle the problem. What specific skills should they recruit for? Where from? How should they evolve their employee value proposition? And how can they retain and develop the talent they do hire? Answering these questions requires an integrated talent strategy.

New Leadership. Automakers will find that upskilling current leadership or bringing in new leaders from industries such as technology and gaming can jump-start their talent transformation. Consider Ford, which has hired a sizeable portion of its senior leadership team from leading technology players, including Apple, Tesla, Hewlett-Packard, and Amazon. Whether appointed from inside or out, these leaders will need to be equipped for a new style of management, managing far more engineers than technology companies typically employ, across both mechanical and digital realms, and blending them into the institutional knowledge and culture of the automotive sector.

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More Multidisciplinary Thinkers. While auto players are catching up on identifying next-generation technical skills, they must also keep up with the paradigm shi from technical expertise to more “Tshaped” skills profiles, with both deep technical expertise and cross-functional skills. For example, engineers will need a strong foundation across physics, data science, programming, machine learning, and AI if they are to innovate across a range of increasingly common integrated components such as ADAS and advanced connectivity systems. Exhibit 2 illustrates many of the new customer-centric, data engineering, and design skills needed throughout the product lifecycle.

A Multipronged Approach to Hiring. The talent gap is too big to overcome simply by hiring more people. Automakers will need orders of magnitude more talent in some areas—and less talent in others—and so must take a de-averaged approach to talent acquisition. In occupations where more talent is needed, such as digitization, teams must deploy a range of levers to expand their talent acquisition processes, and funnels. These include “building” talent internally, “bot-ing” or automating away work (as is already happening in many production facilities), “borrowing” contract workers to fill niche skill gaps, and “bulk buying” through M&A. The right answer to these resourcing strategy decisions will depend on the organization’s current baseline skills and anticipated needs.

Ways of Working for Retention. Acquiring talent is hard, but rewiring the operating model to keep them can be just as difficult. Automakers, particularly legacy players transitioning away from the “old school” practices of long-standing OEMs and Tier 1s, will need to change their ways of working and adopt new policies, such as more flexible career paths and more agile teaming models, to avoid “organ rejection” of hard-won talent. Consider, for example, the far more rapid cadence of technical upskilling or the expectations for decision-making speed at companies like Apple and Google compared with legacy OEMs. These are table stakes for the right talent, and automakers need to invest to keep up.

Distinct Operating Models, One Purpose. Many organizations try to find the right balance between separating and integrating “OldCo” and “NewCo” operating models—whether to maintain distinct ways of working, tools, and technology in recognition of different production processes. This approach, however, risks the organization getting stuck in an interim state that can erode the employee value proposition on both sides. Employees focused on ICE production may feel devalued if they have less growth potential or compensation than EV employees, while EV employees may feel hampered by the old ways of working on the ICE side of the business. To avoid this outcome, organizations must ensure that all employees maintain a shared sense of purpose and collective success, and actively crosspollinate high-caliber talent across business units.

An HR-Business Partnership. To succeed, HR must work side-by-side with business leaders to ensure the talent transformation is deeply integrated with strategic priorities, with ready access to funding and resources. HR leaders can also turn to third-party partners across the human capital management ecosystem to augment their talent-building efforts and free up more time for highervalue-add work.

Changing the Organization Culture and Behavior

Regardless of the strategy, structure or organization model automakers choose, the EV transformation will require a massive shi in culture, behavior, and people engagement. None of these changes will happen by magic. Given that only one in four transformations succeed over both the short- and longterms, the odds are stacked against transformation leaders who do not embark on a change journey with a strong plan to deliberately change culture, anticipate and overcome behavioral obstacles, and thoughtfully engage their people. Achieving the desired organization culture requires leader enablement, people engagement, and executional certainty. (See Exhibit 3.)

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From "Rewiring the Auto Industry for the Electric, Connected Future", BCG.