Monday, 11 January 2016

Industry Practice – 'Value Stream' Exploitation – Identifying New Possibilities (Part 1)

It seems that the very remit of automotive industry forecasters is two-fold, whether as consultancy or guru, to both analyse the winds of change in a seemingly objective manner, yet also subtly promote beliefs about the speed of structural change and so socio-economic transformation.

In effect the balance of the strictures and limitations of the present day versus an apparent emerged tomorrow based upon PESTEL trends. When polished and presented the expected outcome may seem wholly plausible based upon the multi-fold strands of intelligence which range across extracts of scientific journals to the capital markets momentum of new C21 monetising business models.

In short, such forecasting depicts what appears sensibly evolved idioms, which in turn serve as platforms of belief for self-fulfilling philosophy.

Given its massive impact upon the world, the automotive arena has been a – indeed perhaps even the – prime focus over successive decades and generations.

Yet because its own evolution was itself so closely tied to that of national economic growth, infrastructure types and development, sociological change etc, the car has, though very much evolved, remained effectively the same for over 100 years, constrained by the innate boundaries it must operate within.

Those real world limitations means that the tomorrow's world showcased in national Worlds Fairs and corporate 'Futuramas' remain exactly that: fantasy. And although “on the mid-term horizon” for over thirty years, even with sporadic research projects, no publicly marketed partially or fully remote controlled or autonomous vehicles existed over the timeframe they were promised. Furthermore, only by the early 1970s did enabling technical corollaries exist to provide the hyper-efficient close-coupling of vehicles on manufacturers test circuits; notably GM and Daimler.

But given that myriad of real world limitations, little and no self-driving solutions were able to be offered to external customers. Likewise, the urban low speed 'pod' was effectively little more than either a cinematic 'short-hand' ploy so as to indicate “the future”, or when a daring entrepreneur would seek to build such a vehicle, his efforts derided given the innate superiority of the conventional city car.

However, general belief only came when GM and Chrysler (with the then GEM subsidiary), during the early 2000s began to publicise their similar 'pod' inspired take on the created future.  These ideas reasoned answers to the growth and required orchestration of emerging mega-cities.

So whilst the base technologies have been available for decades it was not until the 2000s - with the emergence of digital connectivity, expanded and aligned input-output feedback systems, the reduced cost of mass-data streams and so creation of a low level of so called 'AI' (artificial intelligence) - that a new impetus toward a new automotive future arrived.

Yet fundamentally regards function, the external cyber-based control-architecture of today known as the IoT (internet of things) is little different in basic principle to that of the radio-wave based command-control promise of 60 years ago.

Then, instead of delivering a new mobility future to the American populace, the likes of GM and Ford instead chose to use such vision as the basis for marketing exercises in styling and added feature. Technological revolutions such as the jet-age were instead metaphorically imbued into cars with tail-fins, wrap-around windscreens and extensive application of chromium brightware.

Thus the much flaunted futurism promise was instead delivered within the conventions of consumerism.

The obvious question is whether the very same thing is happening today? Or whether 'Big Data' truly can deliver truly needed, wanted and desired consumer solutions? This across the lifestyle spectrum, and most specifically regards mobility.

Most critically, as now well demonstrated, beyond the personal proximity of the smart-phone and tablet, the vehicle is by a long way the most effectively 'intelligent' machine within most people's lives. Thus far that intelligence has been internalised to operate the array of modern convenience and safety features. Yet that intelligence has over the last decade or so been showcased as able to operate externally so connecting to other parts of someone's life; from home to office to leisure activities. The once introverted, insular box on wheels has increasingly become the contemporary interpretation of the electronic facilitator, not so removed from the philosophical ideals of the 1960s sci-fi robot.

With that understood, the fact is that that the automotive value-stream is perhaps the most valuable available to any firm, its very industrial complexity, social meaning and environmental impact means that technical and brand leadership in this field can be more easily translated into a host of other realms. In essence auto is a socio-technical hub, that can be credibly leveraged: from a far greater public belief in ecological housing, through to more likely acceptance of domestic robots.

In short, the central enabling role of the car over the last century, and the ingrained 'social contract' now associated with car-makers. means that in an age of public distrust of politicians and government, it is the revered enabling brands of car-makers that today best espouse the libertarian freedoms extolled by Jean-Jacques Rousseau et al.

Although unstated, it is undoubtedly with that very concept in mind that a new crop of possible auto-sector disruptors have come to the fore, seeking to themselves inter-link much of the everyday human functionality of an increasingly cyber-based, 'augmented-reality', new world.

The Threat of the New...Once Again -

The notion of auto-sector disruptive all-new entrants has been with us for decades, most prevalent over the last 20 years or so, the start of this phase in the mid 1990s. Back then scenario planning exercises created for board-room contemplation expected the likes of Sony and Virgin – respectively representing the “hi-tech brand” and “new service” leadership – to be the avant garde pioneers; which could potentially disrupt the near strangle-hold of established vehicle producers.

Though then seen as potentially powerfully disruptive, Japan's economic stagnation and Branson's preference for brand collaboration rather than true innovation, means that Sony and Virgin were relatively quickly superseded by a far more aggressive crop of global reach Californian IT companies.

Today these appear, at least theoretically by way of experimentation and high profile press publicity, to pose the greatest threat. Google's massively adapted self-driving cars and its 'POD' demonstrator, Apple Inc's concept of an all-electric (ZEV) 'iCAR' (still only a story likely aimed at car-makers for a JV), Tesla's partial “self-drive” feature on its cars using tailored software , and now the all new start-up named Faraday promoting its cyber-centricism per business model and supercar (another story). Whilst perhaps less known is the LUTZ, from the UK, government funded via the Catapult Scheme its very name – echoing Bob Lutz of GM – appears to deliberately seek to serve Detroit's future possible need for 'pod' vehicles, the likes of which it illustrated in years previous. Elsewhere, unsurprisingly the Japanese have been conceptualising a myriad of urban 'pod' cars or decades as the natural determinant to an ageing population and further miniturisation of the Kei Car.

Whilst a mix of hyperbole and incremental real technical achievement, the fact is that rather like a bloc-chain system in Fintech, Californian entrepreneurs are seeking to create what could be viewed as discrete corporate components to tomorrow's “automotive-bloc-chain”: ie 'value streams'.

When taken to speculative ends, brands which are able to encompass a broad range of lifestyle solutions via the smart-phone, 'wearables' and mobility devices etc – specifically when 'bundled' together – would effectively have successfully expanded the realm of socio-commercial tribalism / loyalty.

Theoretical Possibilities... -

Prior to this weekend's dedicated verbatim snapshot of the digital-age now influencing automotive (after previous 'software', 'electronic' and 'mechanical' ages, The Financial Times' Lex column provided a short but useful overview as how such new disruptive ventures might be theoretically feasible. With expectation that fruition would be brought about in the following manner; (ranked as most probable):

1. Chinese (or Indian) auto-player takes on the mantle as contract manufacturer.
2. Western Tier0.5 operator [integrator] (notably Magna Steyr) serves likewise.
3. Western auto-player allies with IT firm to offer excess capacity / new capacity.

However, whilst theoretically “a slice of the pie” appears to be on offer, as a secondary beneficiary to those newly gained tech-brand auto sales, the reality presently looks rather more stark.

...Seemingly Presently Unlikely -

It seems unlikely that either Magna Steyr might be willing to undertake such a prolific venture given its revenue reliance upon the long established volume manufacturers; switching allegiance to promote what the old marques as their own value destruction would not go down well; any attempt likely to see attempts of hostile takeover of any such new Tier 0.5 provider.

This could indeed be done in a syndicated manner in which a number of producers to create a shell company / investment vehicle with the implicit intention of extinguishing the threat, and likely use the assets gained for their own traditional purposes.

Similarly, so as to retain brand standing and so 'share of mind' (vs a powerful new entrant easily able to 'brand extend' ) an incumbent western auto-player would likely shy away from such a deal – unless itself in dire straits – so as to not eventually have its own market share markedly diminished.

It is well recognised that whilst GM went through its massive Chapter 11 re-shaping exercise to off-load excess capacity and degraded marques, others – typically European – sought to protect their own excess capacity as much as possible, 'mid-term moth-balling' awaiting return of the economic upswing, and so gain from the in-situ plants and machinery. They did this for their own future gain, not for that of another entity.

Exploiting the Commercial Halo of 'Tech' -

No doubt such entrenched players would like to fully exploit the business relationships already formed with the likes of Microsoft, Apple and Google regards in-cabin info-tech systems. Today these integrated hardware and software 'solutions' are marketed to potential buyers to market and promote the profile of model or brand, such as Apple's 'iPLAY, but this is done essentially 'invisibly', so as to convey this virtue upon the model and car brand.

The next step would be a 'visible' JV, but to retain power in the brand-buying equation, the traditional auto-producer likely to use a short-term co-branding exercise, itself related to a specific USP of the car's feature-set; this specifically evolved as client-supplier contract.

Thus, although (to re-quote the FT) theoretically “a slice of the (commercial) pie” created by the generation of an iCAR or similar would indeed be had by the VM – acting as vehicle supplier itself - it would most likely come with a gradually debilitating cost to itself over the long term.

As is also understood, Apple products are effectively a branding exercise in fashionably packaged first release systems and software; Jonathan Ive's retro-modernist physical product design allied with intuitive interface and solutions; ostensibly contract manufactured in China and SE Asia. Given its own integrated connectivity with the human mind and customer, an iPhone, iPad etc then is far more than the sum of its parts to the user; hence brand appeal.

This is wholly understood by automakers, who themselves would ideally like to replicate that brand-consumer relationship for themselves, and regard the very complexity of their vehicles – physical and metaphysical – as the probable route to do so; whether through conventional cash sale, high margin earnings credit provision for lease and loan or through possibilities for traditional car rental schemes of newer owner-car share templates that align the to much heralded C21st sharing-economy.

“Vigilance” + “Value Stream Exploitation” -

Stories of disruptive future-tech, such as autonomous cars etc, whilst avidly digested by the public must be seen for true impact such stories actually convey in reality. Apple's and Google's publicised ambitions have indeed becoming incrementally crystallised as the delivery mechanisms for such radical vehicles have been matured via research and development efforts, Google's planetary digital mapping core to its hopes.

But whilst gaining traction in 'laboratory' conditions and low-complexity 'in the field' environments, it would be very wrong to view Google or Apple as an immediate threat to conventional auto-players and their business models. A myriad of issues exist: from e-infrastructure re-fuelling to state by state and nation by nation legality to design and build routes are still challenging; even if the California tech firms recognise the need to create an incremental PESTEL road map which allows them to reach their goal step by step. Thus 'the future' is far from immediate; even if streamed depictions of that tomorrow is seen upon a smart-phone itself driving a commercially based augmented reality.

Yet equally, it would be foolhardy to disparage these efforts given the enormity of the task ahead. A poor analogy is that of the “self-parking” family hatchback recognised on an evolutionary path as the simple 'amoeba' over generations evolving into the intelligent 'mammal'. Thus whilst the autonomous vehicles of Google's test fleet look ungainly - presently encumbered with somewhat cumbersome 'bolt-on' technologies – some of the autonomous driving solutions therein have, in simpler form and driving solution, been retro-fitted to various conventional cars and are being publicised by early-adopter users to expand demand.

Given that pace of advancement it would be wholly dangerous if an auto-maker simply disregarded with off-hand disbelief – and thus ineffective monitoring - of the potential threat.

Understandably, many will view the firms that proffer partial and full autonomous driving solutions as little more than apparent full-scale sector disruptors, who in actuality are simply seeking a high priced exit strategy, able to sell such technologies and sub-brands to a traditional vehicle producer, so as to absorb the threat.

In reaction, auto-producers have grown their own research and development capabilities, with the German's specifically recognising the need to not only boost internal efforts, but also acquire the specialist knowledge necessary so as not to be inadvertently reliant upon Californian technologies: whether at vehicle level, or indeed at the intelligent terrain mapping level.

Hence, a BMW-Mercedes-Audi syndicate named “HERE” purchased the mapping and location services business of Nokia in August 2015, thus partaking a direct interest in forming the roll-out of 'intelligent mobility' far beyond conventional SatNav over the years to come. The phrase 'digital eyes' used by Audi for a vehicle's ability to deploy on-board sensors - evolved from the likes of self parking, lane recognition, speed limit recognition and anti-collision automatic braking - to continually 'read' the world around.

Given its promised contribution, from today's passive safety solutions to the energy-cost efficiencies upon tomorrow's 24-7 tolled-road systems, this perhaps the most important future-forward investment ever seen within the auto-sector.

Examples such as this prompt and highlight the need for auto-makers to look beyond 'business as usual'. Not just in reaction to obvious external threats from possible new entrants, and so creating parallel operations,but to critically maximise the potential of internally generated opportunities aswell. Those opportunities more immediately at hand, made available from their own 'hard' and 'soft' assets, and could in turn be used as additional long-term revenue provision by which to effectively support the barricades against the threat of the new.

Though typical as a dual aspect strategic consideration of corporate 'defence and attack', the necessary daring of the HERE syndicate illustrates that such thinking and execution must undertaken in a more expansive, inquisitive and intelligent manner than has been the sector's norm.

Most pertinent, a deeper recognition of how a firm's own internal resources may be alternatively commercialised and inter-played, and additionally, how external relationships with goods and service providers could be expanded into new areas. This in parallel to the all too usually prescribed panacea of 'complementary' trade acquisitions.

Thus an expansive review of the full “internal value stream”, ranging from balance sheet structure, cash and credit resources, real-estate, plant and machinery, personnel (at functional management and functional staff levels). Additionally, as a secondary route of enquiry, how other alternative potential gains may be achieved from better integrating and expanding in situ commercial inter-relationships; whether they be within a diversified conglomerate, or relative to independent external suppliers, across the spectrum of goods and services.

In effect a 360 degree 're-commercialisation' review: to both maximise effective gains from in-house core competences, and those strategic and income advantages to be had by broadening toward better managed secondary and tertiary competencies.
Part 2 of this web-log illustrates how auto-makers should 'de-construct' to 're-construct' themselves philosophically, so that if deemed appropriate they might lay 'revenue-roads' in strategic new direction. Some B2C, seeking to re-establish through re-invention the once very broad consumer solutions and so social impact experienced in the distant past. Others B2B whereby auto-players recognise how their own internal competencies and capabilities may be externalised.

The Las Vegas located CES 2016 has just finished, and ironically it seems that many of the established electronics companies are rehashing old technical answers or simply added low-value feature so as to be seen to be new and improved; much of the young CES crowd applauding and cheering what is effectively 'the emperor’s new clothes'.

Meanwhile it is the auto-makers who are seen to truly add-value to the consumer. BMW's re-appropriation of 'google glass' technology in its own motorcycle helmet giving a rider what could be life-critical HED (head-up display) information within milliseconds and seemingly so much more for the individual or group.

Whilst as yet unavailable, the fact that BMW looks to deploy the helmet within its BMW Motorrad business model eco-system highlights just how well auto-companies could create their own similar plug-and-play branded-centric consumer eco-systems.

This a prime example of the very definition for “new value stream exploitation”.