Increasing Resilience, Profitability, and Sustainability in the Automotive Industry – Futurum Tech Podcast The Intelligent Enterprise Industry Series
This episode of the Futurum Tech Podcast – Interview Series is part of our newly launched Intelligent Enterprise Industry Series — done in partnership with SAP — where I will be speaking with advisors and executives across ten different industries on how they are focusing on furthering their intelligent enterprise story. I’m excited to welcome Tom Madonna, an executive advisor for the automotive industry at SAP.
The Interconnected Automaker
SAP recently partnered with Oxford Economics to conduct a research study to identify how an interconnected mindset impacts organizations, including how data has impacted the supply chain research study and ways organizations are building better workforces. The report includes findings from 3,000 senior executives, including 300 from the automotive sector.
My conversation with Tom revolved around the following:
- How automotive companies, both original equipment manufacturers (OEMs) and suppliers, are starting to build their mobility services and platforms to gain insights about their products and customers.
- The ways customer insights are allowing organizations to evolve and deliver for the next generation.
- How companies within the automotive industry are changing their mindset when it comes to HR and human capital management.
- Collaboration across the supply chain that is requiring more and more data.
- Integrating data both internally and externally to drive insights and analytics when going to market.
Tom and I explored some of the findings of The Interconnected Automaker report that surprised him the most. We only scratched the surface of the report in our conversation. If you’re interested in a comprehensive view of the subject, download The Oxford Economics report, The Interconnected Automaker: Agile and data-driven here.
Listen to my interview with Tom here:
Disclaimer: The Futurum Tech Podcast is for information and entertainment purposes only. Over the course of this podcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.
Daniel Newman: Welcome to the Futurum Tech Podcast, the Interview Series. I’m Daniel Newman, your host today, Principal Analyst, and Founding Partner at Futurum Research. And I’m very excited about this interview that I’m going to have today. It sets up a series of conversations that we will be having here on the Futurum Tech Podcast Interview Series, but we’re going to talk to different industry executives, advisors within SAP across more than 10 industries as the company is focusing on furthering its intelligent enterprise story, talking about the work the company is doing to bring and modernize different industries across the globe.
This episode, Tom Madonna will be joining me. Tom, good afternoon. Welcome to the Futurum Tech Podcast. How are you doing today?
Tom Madonna: I appreciate it. I’m doing well, thank you.
Daniel Newman: I guess everybody now knows, it’s the afternoon, these are recorded shows, so you may be listening to this in the morning, noon or night, but we are in the middle of a pandemic, we are all used to consuming content on demand, we have no idea when it was created and if it was even created in this period time. The only thing we do know for sure is if the show happens to be in public and there’s no masks, we know it was created before 2020.
Anyways, but welcome aboard. It’s exciting to have you. I know you’re down there in Dallas. I love cars, I love automotive, you lead the automotive industry and you are what’s quote unquote called an industry executive advisor for automotive at SAP. Before I jump in and ask you some questions about what’s going on and the transformation of your industry, just tell me what that means, what do you do at SAP?
Tom Madonna: Sure, so I’m responsible for the North America market in regards to automotive and heavy equipment. And what we do is we’re one of the frontline executives that try to go out and talk about the value and the value proposition, how the realization of business problems can then be capitalized into a software purchase. In reality, what we’re trying to do is solve the business problem first, articulate what the benefit’s going to be, and make sure it’s in alignment with the executive that we’re actually going with that particular client to make sure that that’s what they need before we then pull out the schematic and go down to the SKU and try to sell them a piece of software.
Daniel Newman: Yeah, it’s such a big industry, so many moving parts and pieces, no pun intended. Lots of opportunities for software. We’re hearing a ton. Talk to innovation in this space, Tom. I imagine you are getting to be in front of and part of a whole bunch of really big changes, meaningful changes, and this industry is really being reinvented, right in front of our eyes.
Tom Madonna: So one of the things that’s interesting is if we look at SAP 10 years or 15 years back, the three markets we basically went after were the OEMs or the Original Equipment Manufacturers, the suppliers, irrespective of tier suppliers and then the after market services organizations. And so that was kind of the three. What’s happened over the course of the last five to 10 years has been a structure where a fourth dimension has been added to this in regards to dealers and service providers. And then you start to look at what the automotive vehicle is, and what is considered the next form, and whether it’s a driver or a rider. And so you start talking about ICE, or the combustion engine compared to looking at an EV, and electronic vehicle, or an AV in regards to autonomous.
So all of those things are driving the market both up as well as broad in regards to conversations. You talk about a lot of those moving parts. When you start talking about some of those new interventions in regards to EVs and AVs there’s less parts in them. A lot of that’s not moving parts. So you’re talking about transition and electronic components that don’t have moving parts, they’re going to be solid state. So therefore, the ability to change those out, and to go after complexity is going to keep the maintenance of those vehicles on the road a bit longer.
The other thing that’s interesting about this is that consumers are keeping their vehicles longer. Typically, a three year or four year purchase and then you turn it back over, we see vehicles on the road, eight, 10 years prior to going through and getting rid of a vehicle. There’s that, and then there’s also the millennials, so you start to look at the study that occurred with Oxford and some of the trends and some of the marketplace and what people want to spend their money on. There is a big millennial structure where the new generation doesn’t have the same capacity or the same want to actually physically drive. Me, I got to have my keys, I was 14, I got my permit, 15 I was driving, and the next thing you know it’s how fast can you go, and what’s the next thing out. A lot of what we’re seeing right now with the new drivers, they don’t want that. They just want the opportunity of the Uber relationship.
Daniel Newman: I’m an old millennial, I’m born in 1981, to date myself, and I love cars, I love driving, I love anything, I like horsepower, I’m very traditional, but just a few years later, my oldest daughter who’s 19 or almost 19 she wanted to drive. My 15, almost 15 year-old daughter really doesn’t have a whole lot of interest in it. It’s just weird how that’s spanning down and the interest is waning as you get younger and younger and younger, and how the industry is going to be able to address that.
I got a few questions for you, I’d love to dive in recently SAP did a big Oxford economic study that was diving into really a more comprehensive view of what’s going on across industries, and so I’ll definitely want to give a chance for our audience to tie back to that, but you specifically handling the automotive side of things, I’m interested in how automotive companies are working to from an OEM standpoint from a supplier standpoint starting to build their mobility services, some of the things you talked about, how are they building these services and platforms in order to gain the insights from their products and about their customers. This is going to be pivotal to understanding the customer to evolve and deliver what the next generation and stuff that we talked about wants. What are you seeing there?
Tom Madonna: It’s interesting, your vehicle today if it’s dated anywhere from five, eight years old and newer has an open bus in it. This connects a bus and look at that open interface and grab that data. What is that data going to tell? The data is going to tell how you drive, how you’re working the engine, when the car is sitting, et cetera. Right now, most of that data is sitting in the OEMs. So it’s going to be something that the OEMs are going to own. Anybody that’s basically servicing the vehicle can actually plug into that. And even the insurance companies can plug into that. So you just start to look at the platforms and the services, the question becomes the new currency out there is dated, so what can you do with that information. That information then can be turned into discounts. Or add ons to things like insurance. Things like where you’re at, in regards to location. If you’re driving down the road, and the car sees you jitter or move out of line, it may then start looking for a Starbucks for you. Pops up the Starbucks in regards to what’s going on. I’ll give you the two Starbucks that are out there.
Your gas gauge is starting to go on, so it’s going to start giving you a location of where the gas places are. The mobility structure and the services that are being added on as an OEM are extremely interesting in regards to where that sits, and they own that data, so when you buy that vehicle, you’re giving your rights to them to own that data and how they use that data. So what’s now changing? With the new mobility and the new structure, those tier suppliers and tier two suppliers are putting sensors on their parts, and now they’re able to capture some of the same data, and they can feed that back to the OEM. So now they’re selling their services and their data.
The other piece of this is what happens when the next Uber [inaudible] happens with a vehicle. If your vehicle sits in your driveway eight hours a day, what happens? Can you lease it out for four or five? Someone pick it up, drive it and bring it back? Can you get some capitalization or monetary input back to that particular vehicle while it’s not being used? Part of what we’re seeing right now within the I-Structure, or the combustion engine and going down is the cost of ownership by mile is extremely high right now. So the question is, that’s going to continue to go down, as it goes down, how is that monetization going to occur. Is it going to occur by the customer getting that, is it going to occur by the OEM and the data going from the car? Is it going to be something that’s going to happen with the supplier?
Secondary to this is all the other things that are coming out of this. Automotive is a prime structure in regards to looking at startups. So you start to see things like Uber, Lyft, those things are coming out. You start to see things around doing a bus rental, looking at how you’re going to move things back and forth. All of those services, all of those customers are new platforms and new executions. So there’s new entrance, there’s new way of doing it. Just look at how long it takes to take a model from ignition through engineering through production to put it out. Three to five years. Some of these business models are coming in place in three, to four, five months. So the ability to move, the ability to take what you have, to expand that experience to the customer, onto your product, understanding your product, understand the customer experiences are where these new models and new mobilizations are starting to be monetized. And I think that is the direction that is new, interesting. It’s also where you see a lot of the money coming in to the industry in regards to those new platforms.
Daniel Newman: Yeah, absolutely. You make a lot of great points. I just keep thinking about how we saw digital transformation accelerate at exponential speeds throughout the COVID-19 pandemic, how much faster companies that needed to move were able to prove that these companies were able to move. So automotive has historically moved somewhat I wouldn’t say slowly, but it’s big and expensive to move, and change is expensive. We saw when there was new regulations put into place about fuel efficiency, how much stress that put. It doesn’t mean that these companies don’t want to do it, it just means that being able to do it under a timeline puts a lot of pressure. We saw that kind of pressure with COVID on industries like retail, and to some extent, automotive, but people owned cars still had to pay for them whether or not they were using them.
So it was a little bit different, but less people were buying cars, and then of course you saw supply chains get shut down when you had manufacturing in places like Germany and the United States and Italy shut down. Mexico, so there was constraints. And now trying to catch up on that demand. So a lot of things going on there. And I think that open bus thing you mentioned is really interesting too, because I always think about I know Progressive insurance does things like that snapshot and you see some of these different data collect … Boy, doesn’t that just take all the fun out of it?
And I do know in the future that for insurance sake, yes they’re going to need to be able to track that to get precision, and if you don’t want that data you’re probably going to pay a lot more. It’s like getting life insurance without a screening. Because that data is available. So it’s going to get really interesting how much data is going to be able to help industries progress. And then it does go down to the end.
I remember mobile world congress testing out and seeing some of these, whether it’s getting your parking spot off of your ADAS or your system, your navigation system or like you said being able to say I’m hungry, I want to go eat, and right now we do everything on the smartphone, but how can the car be intertwined with the data on our mobile devices to be able to perhaps suggest to us a favorite location to go eat, and maybe even offer us a special to stop now, so you can get us to take action, and you can start to convert every bit of data, so that is interesting.
I want to flip the conversation, I want to talk a little bit about the inside of the automotive industry. It’s an old industry, but data can be used equally on the insides of these companies, enhancing human capital, bringing better talent to the industry, tech like SAP. The industry has sort of become a monopoly of some of the world’s best talent. I sometimes wonder how much faster we could solve some of the global dilemmas if our best talent wasn’t building social media engines, and instead was in bio farm, or automotive. But that’s where the money is, there’s a lot of excitement in this industry. The technology you’re selling, developing, building an SAP is also being used to drive human capital. Talk about how that’s being impactful across the automotive space today.
Tom Madonna: Sure, so let me take that example and lead in that question. What happened with the smartphone? The smartphone typically the number of apps people have on the smartphone today have basically antiquated 10, 15, 20 different things you actually are using. You don’t carry flashlights anymore, you don’t have a watch anymore, you don’t buy an alarm clock anymore, you don’t have a compass anymore. Well guess what, what happens if you no longer have a smartphone? What happens if your smartphone has got four wheels and actually operates for you based upon voice commands. So that takes technology to a different approach. A completely different level of educational skills and a process of technology of innovation. So you think of automotive, the old automotive, very capital intensive, very much hands making building et cetera, and the robotics that have gone into basically replace human capital on that side.
So the mindset change is actually changing an automotive across the board in two facets within what we call human experience management. You’ve heard the hire to retire, I’ve actually added a few too where it’s a hire, train, retain as well as then retire. What do I mean by that? Well, one you got to find the right person. You’re spending thousands of dollars to basically go recruit someone. Second, you want to keep that person up on their skills. You want to keep that person up-skilled or re-skilled because it’s going to be cheaper to basically do that, than it is to go out and find someone new. You want to retrain them. So if you look at some of the studies out there right now, and Oxford’s a prime example of that, an average person’s career is somewhere between 3.6 years and four years. They rotate. So what happens when that doubles. My folks, your folks, most likely were one or two careers throughout their lifespan, as compared to nowadays the kids are basically flipping jobs right and left.
And then lastly, there’s also a downward push, particularly within the COVID pandemic where people where we’ve had five generations of people working. What happens when that fourth generation or fifth generation decides they’ve had enough? They want to move on. They want to retire. They’re being forced out. And we’re moving down from a five generation to a four generation or a three generation. So what happens with all that skill, all that mind drain.
So part of what we’re seeing with human capital is one making sure that the average employee his morale, his experiences are good. Two, tracking where that demographic is within your organization, in regards to how, who, what and where they’re being used. And three, what’s the succession planning for that particular individual if that particular individual was leaving.
Secondarily is we talked in the first set of questions in regards to this mobility platform, and all the technology to go with it. People are going to need new skills. One thing I say to a lot of my mentees, and even my kids, there’s two things that happen in life as far as learning goes. Either you continue to learn until you die, or you continue to learn until you go and basically become irrelevant. So your point is either continuing to learn and continuing to advance in your careers, and then be happy with where you’re working and track that and be able to gauge where that may go or not.
And automotive has been slow to this. So it’s been an interesting situation where we’re the biggest, we’re the best. We’re automotive, we don’t have to worry people always come to work for us. Well, that’s different than Silicon Valley, that’s different than technology organization, because they have people drilling to work there because it’s new, it’s cool. So part of moving into this new piece is making sure you’re also up-skilling those systems and those processes, to make sure the people you’re actually going out and hiring are the people you want to keep. The people you’re going to want to retrain, and that they’re getting a good experience by staying with your organization.
Daniel Newman: You make a lot of great points there. I can’t even begin to scratch the surface on how much I’ve been talking about re-skilling. We haven’t talked much Tom, but my listeners out there probably know, I’ve written seven books. My last book was called Human Machine, the book before that was called Future Proof, and so I’ve been spending a lot of time focused on these very topics. Both how do businesses and individuals and there’s an interdependence there. A business cannot future proof without future proofing its people. A business also cannot proceed without a certain balance of adopting the most modern technologies. Things like AI and automation that are certainly going to change business, but that doesn’t mean you’re going to eliminate the human component of a business, it means you need to up level, it means you need to move people away from mundane tasks. Before gas lighting was a term that we used politically there was actually a job, there was gas lighters, people that went around town and lit the lamps, the gas lamps in their cities. The point was, when electricity came those jobs became obsolete, but those people didn’t just stop and to your point, you didn’t stop learning. You had to find something new.
And so now the biggest difference is industrial, people that have maybe more limited technology skills are going to have to gain stronger technology skills, and I look at the tech industry as a beacon of hope for being the companies that really up-skill and up-train and up-level people, but it’s going to happen in every industry. Automotive will of course be one of them.
Tom, one more question for you. And Tom, I really appreciate the time, I’ve enjoyed having SAP and I appreciate SAP for being a partner in these podcasts. Great to talk about automotive, just all these industries. I think people a lot of times they work in an industry and you hear about digital transformation, but maybe you’re in automotive, maybe you’re in manufacturing, you kind of wonder how does this impact meet? Because it’s like digital transformation is such a buzz word. But every industry, everybody’s lives it sort of impacts uniquely. So let’s bend on supply chain for a moment. Collaboration in the supply chain is certainly going to create and require more data. Therefore, it’s going to need more integration, it’s going to need more information to be visible inside and externally. Supply chains have to work with a lot of … I still remember EDI data systems and stuff that could get data from one company’s ERP to another. Now it needs to be much more fluid. It needs to be much more comprehensive, it needs to be much more visible. Talk about how that’s been done. How is an industry as dependent on supply chain as automotive making that data usable by all parties in the supply chain to really create the efficiencies, and productivity gains that tech should be enabling?
Tom Madonna: So supply chains are no different than just the integration of multiple companies up and down the structure, and being cooperative in relation, and moving that data back and forth between them. Because in reality, if a sensor is sitting on a power train, and that sensor basically indicates something that may have tens of thousands interactions per second, that can be collapsed down to a integration point that basically says x, y, z needs to happen with maintenance x, y, z needs to happen with a long term updates. Or in x percentage of time, the predictive model is going to say that’s going to break down. That can be passed over to the OEM in a matter of seconds. The OEM can then take that simplifies that, come up with their algorithm in regards to other impacted systems, and within a matter of seconds or minutes, prompt what happens with that particular piece, go to a dealership, worry about it in a week, worry about it in a month. That’s the type of integration that’s going to be there.
Second piece of this is the ability to get into what I would call the make of one. So one thing the automotive industry has done throughout history is, and this goes back to Henry Ford, you can get it in any color you want, so long as it’s in black. The auto industry has basically produced all these vehicles, put them on dealerships lots, and then basically said, “Okay, you come out and you pick what you want.” What happens if you could basically detail out to the nth degree what you wanted to build, and then you sent that to the dealer, and you actually got it back in a relatively easy period of time? That would be great.
My last vehicle, I won’t say the brand, was basically ordered and it took nine months for me to get it. The integration of the customer experience, the customer wants through to the ability to configure, all the way ability to the actual manufacturing, the actual suppliers would be fantastic if that needs to be there.
Back to your point in regards to the gas lighters. One thing that’s been interesting about it in regards to the evolution and again Industry 4.0 is part of this, it’s the ability to take what needs to be done, the analytical view of what needs to be done, as well as how it needs to be done on an acception basis, and then being able to look through and have somebody look at that. As compared to going through mandating, set of transactions and doing it all the time. If you do that, you can put a bot on it, you can put an RPA on it, and off you go. So part of what we’re seeing right now is not only the integration of the data, the analytics to go along with the data, but then up and down the supply chain and the impacts of that.
And so as you start to see that, you start to see a faster way to market, you see a faster way to provide services, you see a faster way to monetize that execution. A study again goes back and it shows that. It shows at this point in time the shift. It shows the shift in manufacturing, reducing the ability to bring a new model to market in 12 to 18 months as compared to three to five years. It shows the integration of interoperability in regards to having two or three suppliers to actually help you bring that particular product to market so you don’t have to worry about a pandemic and getting parts into the United States based upon where things sit, or having a title wave hit a plant and knock out a particular production line for x period of time.
So all of those things give an ability to not only be agile, or as we’re calling it the corporate agility structure, it also gives the resilience of bouncing back so that let it be the financial crisis that occurred 12 years back, let it be the pandemic of this year or what’s next. What you start to see is the automakers in particular did a lot of good things after the financial crunch. So a lot of the impacts, and one thing you did point out earlier was people stop buying cars. Actually, they didn’t. There was actually an uptick in April. There was more cars sold in April than there had been sold in the previous segment. Two reasons, one you had a lot of people who weren’t spending money driving, you got a lot of people not spending money going out to eat, et cetera had built up capital and wanted to change out their vehicle. So they could afford it and did go out and buy. Then there was a downturn.
So you start to see these inflection points in regards to how certain things are going to play out, and based upon the economic or environmental impacts that go with it. Supply chain has to react accordingly.
Daniel Newman: Yeah, and I bought a car during the pandemic. I laugh Tom, but I’ve been traveling so much that by weekend time, I didn’t have the energy to go car shopping, so it was like I finally was home for weeks at a time and I was looking for something to do, and so it was like I went out and did it. But I think overall again it was the whole supply chain got disrupted, but there was certainly a period of time where some excess capital flowed in. It’s been a very weird economic set of circumstance and automotive was no different. Stimulus money came in, some people probably took that and went and bought a car or down payment. There was a lot of different things that ended up driving the industry.
There’s still a big affinity for vehicles. I do know what we talked about early on, the younger generations affinity is different than mine, which is probably different than yours. Since you’re not actually watching this, Tom might be a little older than me. I’ve already disclosed my age, he can choose to or not to. But the point is that we’ve seen the way people’s passions for vehicles and maybe one of us maybe it was a Camera, one of us maybe it was 911 and one of us maybe like my kid maybe it’s a Tesla that they think is the super cool car of the future. And the point is that still that affinity still exists. So it’s a really interesting industry. I don’t see it going away either. As a futurist, I see it changing, I see people’s utilization changing, I see the ADAS and the [inaudible] full autonomy will come, no doubt about it, but I still think driving at some point then will become an experience. Some people just love to drive. So I said some day it will become a novelty to go out and drive, to physically drive a combustion engine, it will be total recall.
So anyways, I got to wrap up here. It was a great discussion with you. You heard us a few times throughout the conversation refer to the Oxford Economics Report, and there was a lot of really interesting data in that report, we really only scratched the surface here. In the show notes to the podcast here, I’d love for you to go down, click on that link, and download that report. I promise you, there’s a ton to learn, you can learn a lot more about the interconnected automaker. Tom, thank you. Thank you SAP for joining.
Tom Madonna: Thank you. You have a good afternoon.
Daniel Newman: Absolutely. For everyone out there, go ahead and hit that subscribe button, we love having you here on the Futurum Tech Podcast for all our regular shows and our interviews. Like I said, this is a series, so I’ll be talking to executives from SAP across many different industries, similar conversations, but not really, because it will be about completely different businesses, so like I said, hit that subscribe, socialize us if you like what you hear, check out the Oxford report that I’ve mentioned now three or four times. And for now I got to go, I got to say goodbye. Thank you very much. See you later, bye.
Daniel Newman is the Chief Analyst of Futurum Research and the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio