Sarwant Singh, Senior Partner at Frost & Sullivan had the pleasure of engaging in a free-wheeling discussion with the CDO of Volkswagen group, Johann Jungwirth, discussing the future of digital transformation of the automotive industry and the advent of IoT platforms. Johann brought an innovative perspective on how digital transformation will be the biggest value driver in the next 10 years.

Sarwant Singh: What is your role as CDO of the company and how do you define Digital Transformation in VW group?

Johann Jungwirth: I report directly to Matthias Muller, the chairman of the board of management of the Volkswagen group. I work as the CDO across all the 12 brands at VW.

To me, Digital transformation is about the digital customer, digital products and the company.

We have grouped these under six different categories i.e. the digital user experience (where the user becomes the central focus), then digital products and services, smart mobility, digital customer and retail, industry 4.0 and business 4.0 (these 4.0’s highlight more of the internal company transformation). With respect to the digital customer we are building future centers; we have one in Berlin, one nearing completion in Beijing and one planned in California. We bring together what is very unique in the automotive industry i.e. fusing the interior and exterior design with UX design. We are trying to recreate what Jonathan at Apple did.  I approach user experience with a holistic view with respect to fully autonomous vehicle (Level 5) ,without steering wheel and pedals.  Another important opportunity is digital product and services. This covers autonomy, connectivity, connected home, software over the air updates and the larger topic of health wellness and wellbeing.

In smart mobility we cover ride hailing, ride sharing and mobility on demand. For an autonomous future we need a mobility platform that can manage bookings and payment. This is why we invested 300M   in Gett last year to start our own mobility on demand brand MOIA. Using MOIA we were able to foray into the mobility on demand field with on demand shuttles in cities and so on. In addition, we have what is known as the mobility control center, to control an autonomous fleet. This is based on machine learning and AI to bring together demand and reduced wait times.

When you look at digital customer and retail, this is about programmatic marketing, which means marketing for all with customer ID/ profile. This platform is an entire digital ecosystem and the online retail portion is not only about configuring vehicles but you can also order and pay, across brands and it includes parts and services as well

From the digital company perspective which is more of an internal approach and we call it business 4.0 and industry 4.0. Business 4.0 includes the digital transformation of the company with digitization of the core processes across the value chain.  We also look at it from an employee perspective, example: what digital tools are we offering, how do we become attractive as an employer so that we are able to source the best talent.

The last piece of the digitalisation journey is what we call Industry 4.0., a digital platform that encompasses a value chain. This speeds up development which includes customer data in the development process connected through the internet of things and sensors. This approach includes its own specific set of challenges.

Sarwant Singh: What Mega Trends do you believe are driving Digitalisation of the Auto Industry?

Johann JungwirthDigital transformation for me is the biggest value driver in the next 10 years. It is so big that when we look at it from an overall trend perspective, three big megatrends for me are “Digitization”,” Urbanization” and “Sustainability”.  Under these you cover everything else. I believe autonomy will be here in the next 3 to 5 years and European OEMs need to take that seriously and go all in especially when it comes to autonomy and connectivity.

Even when you look at the truck business, they don’t need cabins to drive containers from A to B. If you look at mini vans for deliveries within the city or passenger transport with all sizes of vehicles, I actually think that the other axis of disruption is going to be ownership to shared especially towards shared autonomy not just  mobility on demand. I actually think we can reverse the trend from shared back to ownership. The main reason is that when you look at the advantages of owning a vehicle, it’s your personal expression, you can configure it and there is a strong emotional connect to the vehicle. In addition if you look at the advantages of mobility on demand, ride sharing, ride hailing you don’t have to look for parking, it’s all the convenience and so on. If you look at the larger study on autonomy done along with The World Economic Forum and we were a part of this project. 5,600 people in 10 countries and in 27 cities were interviewed, the number one reason as to why all the people said they will buy an autonomous car is that they don’t have to look for parking and we know that ~30% of traffic in cities is attributed to searching for parking

Sarwant Singh:  We see a trend of OEMs launching IoT platforms for vehicles and creating an eco system which will provide vertical and horizontal integration of the industry value chain ? What are your views on this development?

Johann JungwirthDigital platform is the number one priority for us and the industry. Digital platform according to me is the key to success and I am convinced of having two digital platforms in VW group, one for B2B i.e. the truck and bus group and another one for our Passenger cars business. We just world premiered the digital platform for the truck and bus group at IAA Hannover called RIO which will go live in spring of 2017. RIO is like a digital operating system in the cloud and we will have it in all our CV brands –  MAN, SCANIA and VW commercial vehicles implementing the Open Platform architecture platform.

Its open in two ways, one towards developers and partners and which means there is an SDK for them. The second part is that it is open for competitive vehicles, not just SCANIA or MAN – it can work with any vehicle and any service provider. We are using standardized telematics interfaces and anyone can run their platform on this, we use AWS and it’s scalable and this platform is completely built in-house.

  •  The 2nd digital platform will be to focus on B2C, giving every VW group customer/user a customer ID and profile, which can be used within the 12 brands creating a digital space around the customer. This profile will grow/become rich over time using artificial intelligence and customers can carry this across vehicles within Volkswagen be it seat settings, climate control, ambient lighting. This is huge for me, it will be positive locking and it will be difficult for people to leave their digital profile and move on to a rival brand.

Sarwant Singh: We believe platforms will become a commodity, they already are. How will you differentiate your platforms?

Johann Jungwirth: I think there is some confusion between what a platform is and what it means. It may be the ecosystem around the platform or an ecosystem built or based on a platform. Let’s say if you are not player in the digital era, you don’t have your platforms and ecosystem, and don’t have your customer ID and the customer is not linked to you but to another ecosystem, you will lose the valued link to the customer which will be fatal. Whatever we do should be strongly linked to how we create this ecosystem, so that we have a unique positioning with the customer. Digital products and services are built around the customer, creating the digital transformation through these 3 levels.

ou need to be linked and you need to own a good piece of the value chain in order to create the best experience and I always like to say it needs to be a deep vertical integration of hardware, software and services. If you are only in the hardware field, not into software or services, I don’t think you can be a long term winner.

Make sure to also check out Frost & Sullivan’s Mobility practices video and research service on Automotive Digital Transformation https://bit.ly/2mlg8fW and https://frost.ly/1f4. For more on the Future of Mobility please visit: www.frost.com/mobility

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