Can Auto CIOs Transform Their Companies Into Software Companies?

The best auto software will determine who controls the future of cars
The best auto software will determine who controls the future of cars
Image Credit: Mirko Tobias Schäfer

Think about the car that you are currently driving. What components go into it? If you guessed metal, glass, and plastic then you would be correct – but you would have missed one key ingredient. Software. More and more the cars that we drive are being controlled and run by software. The problem is that the traditional car makers are good at bending metal, but not so good at creating software. Can their CIOs change things so that they’ll be able to create the cars of the future?

A Change Is Coming

Everyone who is working in the auto industry can agree on one thing. Change is coming. The global auto industry is going to have to reinvent itself. This one gigantic industrial sector is going to have to find a way to transform itself into a nimble sector that can provide both software and services. If you don’t believe me that all that you have to do is to take a look at the market value of Uber which is projected to be US$120B – more than the combined values of General Motors, Ford, and Fiat Chrysler all taken together.

What the senior management of the auto manufactures have realized is that they need to change or else they run the risk of becoming irrelevant. There is a nightmare scenario that they are imagining in which the current auto manufactures become what are called “handset manufacturers”. This refers to the mobile phone industry where manufacturers of commodity hardware have to stand by and helplessly watch as all of the profits that are being made in the sector flow to the software makers such as Google and Apple. The goal is to transform the car companies into firms that provide services that people will buy.

This is not going to be easy to do. The person with the CIO job in the auto industry is going to have to confront entrenched corporate cultures and limited budgets with which to make the transformation. The auto industry has always been a low margin business and is vulnerable to changes in the national economy. The person in the CIO position is going to have to find a way to both keep the current production of millions of cars continuing while at the same time finding ways to invest in expensive future technologies.

What Auto CIOs Have To Do

So what’s going to have to happen here? CIOs are going to have to find ways to change mindsets within the company. They are also going to have to find ways to get different parts of the very large companies to work collaboratively. The problem is that currently car companies are made up of a number of separated silos. Software is also a problem because in the past, auto manufactures have relied on their suppliers to provide them with software and not had their CIOs build internal talent.

An advantage that the car manufacturers do bring to the table is that they have the cars. Unlike some of the newer startups, existing car companies don’t have to convince people to buy their cars. The goal that the CIOs at the existing car companies have is for their company to hold on to their current role as a provider of physical cars while at the same time starting to expand into a new role as a provider of services. One way for them to go about doing this would be for a car manufacture to offer transportation as a service through a network of connected cars.

More and more people are moving to large, congested cities. Technology is giving people who don’t own a car more options for how they get around. CIOs at car companies are trying to diversity into new types of business. What they want to do is to sell transportation as a service. In this model, revenue would be generated by usage of the service as opposed to a one-time sale of a car. This type of service is not nearly as capital intensive as building cars. What this means is that CIOs believe that it can create higher margins in the end.

What All Of This Means For You

CIOs at car companies really do have their hands full. Not only do they have to do all of the normal things that CIOs are responsible for and deal with the importance of information technology, but they also have to find a way forward for their companies. Auto manufacturers are in the process of trying to redefine themselves and they see both software and services as being the key to how they are going to go about doing this.

All of the car companies agree on one thing: they are going to have to find ways to transform themselves. They are going to have to go from being companies that bend metal to companies that provide software and services. What they don’t want to allow to happen is for them to become “handset manufactures” who watch the profits from high value software flow to other companies. Car company CIOs have to deal with entrenched cultures and small budgets as they look for ways to transform their companies. CIOs are going to have to find ways for their companies to start to work collaboratively. An advantage that the car companies do have is that they have the cars – they don’t have to convince people to buy their cars. They would like to evolve to a company that sells transportation as a service.

We’re going to have to see how this all turns out. No matter what, the cars of tomorrow will contain a great deal more software and so the car company CIOs are going to have to develop the teams to create this software. Selling transportation services may be the next step, but car company CIOs have a lot of work to do before we reach that point!

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World IT Department Leadership Skills™

Question For You: Do you think car companies should try to create software or should they get other companies to create this for them?

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What We’ll Be Talking About Next Time

As the person with the CIO job, it is your responsibility to provide your company with guidance on how they can be successful. In order to be able to provide good advice, what we need to do is to take a look at other companies that have learned to use IT in order to be successful and take lessons from them. Good examples of such companies who realized the importance of information technology include Amazon, Google, Microsoft, and Facebook. If we take a look at how they have become so successful we’ll quickly start to realize something: they invest in their own technology.

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