Why German engineering is no longer enough
New international competitors, shorter innovation cycles and the digital revolution lead to ever faster product development. At the same time, German car manufacturers are becoming less and less important internationally. The global market share of German premium manufacturers has fallen by 12% to 17.3% since 2019. Automotive suppliers are also feeling the effects of this slump. Significant investments in new technologies and new products are needed to become marketable and competitive again. This poses several challenges for product development.
Shorter time-to-market requirements
Today, products have to be developed faster in order to keep pace with technological progress. This requires rapid adaptation of new methods and tools and the integration of interdisciplinary teams - all with a view to keeping decision-making processes as short as possible. Through the use of new instruments, Tier 1s such as Continental shortens development times by up to 30 percent.
Complexity of modern technologies
Modern vehicles are integrating more and more smart or networked systems to increase passenger safety and comfort for customers. The coordination and validation of such mechatronic systems places considerable demands on functional safety and reliability and is therefore extremely complex and time-consuming. According to the Chinese manufacturer BYD, 111,000 engineers are working on new technologies to cope with this complexity. This amounts to significantly more R&D employees than at VW (63,000) and BMW (32,000) combined.
Increasing investment in research and development
In order to remain competitive, automotive companies must invest considerable resources in research and development (R&D). This poses a particular challenge if margins come under pressure simultaneously. Companies such as BMW and Mercedes-Benz Group have significantly increased their R&D budgets in the areas of electromobility and autonomous driving in to remain at the forefront of technology.
New demands on processes and organization
The integration of new digital technologies such as big data analytics, neural networks, artificial intelligence and machine learning poses disruptive challenges to the structures of established industries. Young automobile manufacturers such as Tesla or BYD, for example, have adopted structures and processes from the development of short-cycle electronics or software development.
Focus on core competencies
The increasing shortage of skilled workers, competitive and margin pressure require a targeted use of resources on the characteristics or competencies perceived by the customer as brand-specific features. Strategic and project-specific development partnerships are therefore playing an increasingly important role in holistic product development. A well-known example of this is the cooperation between the Mercedes-Benz Group and NVIDIA for the original MBUX system as a new type of human-machine interface.
High labor and operating costs
High labor and operating costs are a large component of development costs. In high-wage countries, this inevitably leads to price disadvantages in international competition, especially with automotive OEMs from Asia, which have a wage advantage of 33% in the engineering sector.
A new systematic approach to product development
Many managers are therefore asking themselves how they can position their company for the future in product development. How do we manage to meet deadlines with limited resources? What role does the integration of Best Cost Country (BCC) locations or partnerships with start-ups play? How will we systematically use the possibilities of digitalization and artificial intelligence in the future?
Typical questions from managers in product development
One thing is certain: the brand promise of "German engineering" is no longer enough to survive in global competition in the long term. A realignment is inevitable.
A one-sided reduction in capacity to cut costs is just as ineffective in the long term as half-hearted process optimization. The organization must be completely realigned. This begins with a clear corporate strategy and the product and development strategy derived from it, which includes footprint optimization and the integration of new partners and Competencies. Efficiency-focused methods and processes that enable collaborative work across departmental boundaries and across the company. Promoting business units is necessary to unleash the full product creation potential of a company.
Three systems must be considered in a holistic approach:
- The technical system describes processes, key figures and the organizational structure. It forms the framework for how a company functions.
- The management system describes governance, objectives, performance review, problem solving and leadership.
This explains why even well-positioned companies with innovative products can run into difficulties if the management system and leadership are not optimally developed. - The social system describes the process organization and type of cooperation.
Resistance can arise, especially in the case of major changes, slowing down transformation or even causing it to fail. It is therefore important to design all three levels equally, ensuring sustainable changes.
The solution: transforming product creation end-to-end
In contrast to a continuous improvement process with an incremental character, a transformation focuses on fundamental changes. One needs courage, creativity and the necessary stamina to start and implement this journey.
The core element of this journey is consistent, customer-centric process thinking (end-to-end) and the corresponding seamless organization ("seamless enterprise"). This approach identifies, quantifies and eliminates inefficiencies and waste in structures and workflows. This includes
- Redesigning and streamlining processes (end-to-end) with a consistent focus on customer benefits and fast throughput times
- Identification of opportunities for digitalization and automation of process steps
- Adaptation of the organizational structure to provide the best possible support for the new processes and reduce unnecessary interfaces
- Alignment of skills and resources with future requirements
- Integration of BCC locations to strengthen competencies, generate market proximity and utilize cost advantages
- Establishing networks with start-ups and fostering cooperation in product development with other companies
- Developing the organization into a self-learning system which permanently recognizes and optimally adapts to new requirements on its own
Impressive results are possible
Once the journey has reached its destination, significant improvements in time-to-market, the on-time delivery of projects and the achievement of target budgets can be seen.
There is no second wake-up call. In the future, only those who recognize challenges early on, react to them consistently, implement changes courageously and proceed systematically will be competitive.
