OEMs at the Crossroads Part 4 | Surfing or Drowning? How Well Do You Cope with Change?

Written by Jason Craker on 14 Aug, 2023

“The greatest danger in times of turbulence is not the turbulence – it is to act with yesterday’s logic.”

This fourth article in my short series about change in the automotive industry focuses on mindset. It defines how we approach problems and dictates how well we deal with change. The quote above is from Peter Drucker. I used it in my recent keynote at the Vehicle Electronics and Connected Services (VECS) conference because I believe it perfectly encapsulates the challenge facing today’s OEM leadership teams and their traditional culture.

The landscape of upheaval OEMs need to navigate is as daunting as it is diverse:

• Political and environmental pressures forcing a shift from internal combustion engine (ICE) vehicles to EVs.
• Changing customer attitudes to ownership and disruptive new entrants accelerating the emergence of new ownership models, which in turn is driving the need to become a truly digital company with direct customer engagement.
• A need to rapidly acquire new capabilities such as customer-centricity and data analytics.
• Rapidly accelerating innovation cycles.
• Growing pressure to deliver on the promise of software-defined vehicles.
• Tech competitors with deep pockets and a ”move fast and break things” mindset.

The list goes on and on. And that’s on top of ongoing operational issues like supply chain shortages.  

The DNA of most traditional OEM management teams (unsurprisingly) has a strong manufacturing bias, its heritage steeped in seven-year product lifecycles, bureaucratic product development processes, multi-billion-pound investments in factories, production lines, and complex supply chains. Risk aversion isn’t just common; it’s a survival trait - or was. Unfortunately, OEMs now face competitors with a culture of rapid experimentation and development who can rapidly pivot based on changes in consumer demand.

A “new normal” is taking shape. Ignoring that fact and sticking to Plan A isn’t an option for any company that wants to remain relevant.

I don’t believe this is primarily a technology problem. Yes, OEMs will need to embrace new technologies and develop new capabilities, but I believe it’s the adoption of a new mindset that’s the critical success factor - putting customers’ wants and needs at the centre of everything rather than developing “solutions” in splendid isolation. No matter how hi-tech a hammer is, it will still see everything as a nail. I also believe the OEMs that survive - and thrive - will be those whose leadership teams not only adopt this new mindset but also become change agents and transform their company’s culture.  

Until relatively recently, OEMs have been poor collaborators. The last meaningful example of inter-industry collaboration I can recall is Volvo’s three-point seat belt – and that was 1959. Given the increasing complexity of mobility solutions, no single company can hope to hold the required expertise and experience in-house. The ability to collaborate and build an effective ecosystem in which many (or even most) of the participants don’t have an automotive manufacturing background will be the basis for future competitive advantage. To quote McKinsey’s uncompromisingly titled “Reimagining the auto industry’s future: It’s now or never” – “Auto-industry incumbents face rapidly growing and hugely inventive tech players whose leaps and pivots are leaving their slower-moving peers in the digital dust. Their success often results from collaborations with other players…”  That paper also highlights that the number of collaborations around autonomous technologies, connectivity, electrification, and shared mobility (ACES) has increased by a factor of 40 in the last decade.

The pace of innovation, development, and production are all accelerating. Companies must rapidly respond to changes in consumer demands with compelling value propositions that not only attract but also retain customers. Having the right staff is a prerequisite, but the people with the desired skills and experience are scarce - and sought after by multiple industries. Being the highest payer no longer is a guarantee to attracting and retaining staff. Having a culture people want to work in and offering work they feel is meaningful are increasingly more important factors in hiring, and hence, building a business’ future success. 

Leadership teams must understand the skills their organisation needs and attract, retain, reskill and retire their workforce accordingly. McKinsey believes this dispassionate appraisal mustn’t stop at the boardroom door: “Historically, companies that have emerged stronger from a crisis do not hesitate to act when underperforming, even letting go of their top management team if necessary”. It’ll make uncomfortable reading in many C-suites, but more than one participant at our industry event last November suggested an infusion of fresh blood may be required for the automotive industry’s transformation.

I believe those who can make decisions quickly and turn them into action equally fast will be the success stories in the new normal. The industry’s disruptive entrants are clearly set up to do this. It is traditional players, with their siloed organisations and hierarchical decision-making processes, that will struggle. Mental flexibility, open-mindedness, and the ability to jettison cherished dogma and embrace new ideas are vital. Kriegel and Brandt published Sacred Cows Make the Best Hamburgers back in 1997, but its core message is still relevant today, perhaps more so given the rate of change has only accelerated in the intervening years.

Seismic change is painful, but history shows OEMs can successfully adapt when pressed. Sometimes that means creating your own competition, either building a start-up designed to think and act exactly like a disruptor or acquiring a company with a very different culture and being smart enough to let it do its own thing. If someone’s going to eat your lunch, it’s better they’re family. When Hewlett-Packard ventured into the printer business, it located its new division in Idaho, not California, so it would be far enough away from the corporate mothership to ask forgiveness rather than permission. Volvo and Polestar are another case in point. I’ve held leadership roles in both companies and the corporate start-up’s appetite for risk was radically different from its more traditional parent in 2021.

As Drucker said so succinctly, the way you approach a problem might be the difference between success and failure. Stop assuming yesterday’s way of doing things is relevant to tomorrow’s challenges. The most powerful tools for surviving change aren’t technological, they’re human: mindset, vision and culture.

Catch up with the full series...

Part 1 | Customer Intimacy and the Rise of the Agency Model

Part 2 | Who Wants to Own a Car?

Part 3 | Are Cars the New Smartphones?

Part 5 | How to Thrive in the New Normal

Let’s connect 

Stay up-to-date with our OEMs at the Crossroads Series on LinkedIn.