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GLOBAL CEO STUDY

AUTOMOTIVE INDUSTRY EDITION


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automotive industry edition

INTRODUCTION

What wi the Enterprise of the Future ook ike? To answer that

question, we spoke with more than , CEOs from around the

word as part of our biennia Goba CEO Study series. Across indus-

tries, geographies and organizations of different sizes, the view

was surprisingy simiar: the Enterprise of the Future is hungry for

change, innovative beyond customer imagination, gobay inte-

grated, disruptive by nature, and genuine, not just generous.

However, these aspirations hod specific opportunities and cha-

enges for automotive companies. Based on the responses of the 9

automotive CEOs who took part in our study, weve taken a coser

ook at the impications for this industry.

These findings draw on the rich insights from our CEOs through sta-

tistica and financia anayses as we as the voices of the CEOs them-seves. Each chapter concudes with thoughts about how automotive

organizations can move forward toward becoming an Enterprise of

the Future and a case study to iustrate a eading company.

GLOBALLYINTEGRATED

HUNGRYFORCHANGE

INNOvATIvEBEYONDCUSTOMERIMAGINATION

GENUINE,NOT JUSTGENEROUS

DISRUPTIvEBYNATURE


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CHAPTERONE

Automotive CEOs anticipate more change

over the next three years than most CEOs,

but they aso report ess past successmanaging it. Wi they be abe to shrink this

growing gap?

Automotive CEOs are wresting with change on many fronts: voatie

market demand, escaating taent shortages and a competitive and-

scape that is more goba than ever. Consequenty, neary nine out of

ten automotive CEOs expect substantia change for their organiza-

tions over the next three years.

Yet ony haf say their companies have managed such change suc-

cessfuy in the past (see Figure ), eaving a change gap of 4

percent. Automotive companies abiity to change is simpy not

keeping pace with the eve of change theyre confronting. In fact,

automotive has one of the argest gaps of a the industries we stud-

ied second ony to the media and entertainment industry.

HUNGRYFOR

CHANGE

Our company has movedrom a traditional light automaker to a comprehen-sive manuacturer o both

commercial and passengervehicles, rom domesticmarkets to internationalmarkets, and rom sel-reliance to cooperation withoreign companies.

CEO, Chinese OEM


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FIGURE 1 AUtOmOtIvE COmpANIEs FACE stEEp CHANGE HURdlE

Not only does Automotive anticipate more change than other industries, it is also less successul atmanaging it.

All Industries

Automotive

83%

61%

88%

54%34%CHANGEGAp

22%CHANGEGApExpECt sUbstANtIAl CHANGE

CHANGEd sUCCEssFUllY IN tHE pAst

ExpECt sUbstANtIAl CHANGE

CHANGEd sUCCEssFUllY IN tHE pAst

When we ook at the financia underperformers across our automo-

tive sampe, the gap ooms even arger (see Figure ). Forty-six per-

cent of those companies ack the change management expertise

necessary to respond to the turbuence they see on the horizon.

Automotive outperformers abiity to change successfuy mirrors that

of financia eaders across industries (6 percent versus 66 percent).

But even these automotive standouts seem inadequatey prepared

for the staggering amount of change expected over the next three

years.


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the enterprise of the future4

AUTOMOTIVE ENTERPRISES AS CHANGE MASTERS

Change management is ceary a strategic capabiity for automotive

enterprises of the future. In an environment as voatie as our survey

participants anticipate, change capabiities are just as critica to

business success as engineering or manufacturing.

FIGURE 2 EvEN OUtpERFORmERs FACE A sUbstANtIAl CHANGE GAp

Although automotive outperormers have stronger change management track records than under-perormers, they still are conronting more change than peers in other industries.

Underperformers

Underperformers

All industries

Automotive

Outperformers

Outperformers

83%

54%

CHANGE NEEdEd

pAst CHANGE sUCCEss

85%

66%

CHANGE NEEdEd

pAst CHANGE sUCCEss 19%CHANGEGAp

29%CHANGEGAp

92%

46%

CHANGE NEEdEd

pAst CHANGE sUCCEss

94%

65%

CHANGE NEEdEd

pAst CHANGE sUCCEss

29

%CHANGEGAp

46%CHANGEGAp


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Automotive companies have a sizabe gap to cose. To do so, they

need to become change masters experts at panning and execut-

ing enterprise-wide change. Each change initiative shoud have a

documented strategy that outines the reasons for change as we as

the specifics about what wi change and how. Roes and responsi-

biities shoud be cear and combined with measurements to pro-

duce accountabiity for making change happen.

Once we understand thatwe need to change, weregood at making it happen.But we struggle with defning that picture o success.

CEO, North American


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CONTINENTAl: RIDING ON A STRATEGY OFCHANGE

During its first one hundred years, German automotive suppier

Continenta AG has been known as a tire company. But over the past

decade, it has become much more than that thanks to the com-

panys abiity to change.

Aready one of the words argest tire makers, Continenta reaized

in the mid 99s that it woud need to move beyond its mainine

business to continue to grow. As it watched the eectronics content

of the typica vehice cimb by amost percent in five years, the

company decided to focus its expansion in that area. However,

Continenta did not eap headfirst into ines of business in which it

had no experience. Instead, it foowed a progressive change strat-

egy, steadiy expanding from one adjacent area to the next from

tires to brakes to the eectronics that controed the brakes and

eventuay to eectronics used throughout the vehice.

Through a series of acquisitions over the past decade incuding

ITT Automotive in 998, foowed by Temic, then Motoroas automo-

tive eectronics business and Siemens VDO Continenta has trans-

formed itsef from tire manufacturer to strategic automotive

suppier.4 Its future is no onger riding soey on the success of its tire

business; its capabiities extend throughout the vehice from brake

contros to teematics to infotainment.

Continenta is now the fourth argest auto suppier wordwide.

Between 998 and 8, its automotive saes grew more than

fod, from US$ miion to US$4 biion.6

Cae uy


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7

INNOvAtIvEbEYONd

CUstOmERImAGINAtION

The automotive industrys investment

in rising consumer purchasing power is

extremey high and sti growing. Coudthis intense focus on new markets cause

companies to negect the needs of

increasingy informed consumers?

Automotive CEOs are extremey upbeat about rising purchasing

power around the word especiay among the growing midde

cass in deveoping economies. Nine out of ten beieve this rising

prosperity trend wi have a positive impact on their businesses.

For automakers, deveoping economies are key target markets. Some

experts contend that China wi surpass Japan as the second argest

automotive market in terms of saes by and wi riva the top

market, the United States, by .

Innovations such as the Tata Nano (priced at approximatey

US$,) are prompting Indian consumers to trade their two-

wheeers for their first automobies. Some forecasts suggest thatvehice saes wi tripe by , pushing India into the top ten auto-

motive markets.8


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Vehice saes in Russia arguaby the fastest-growing new car mar-

ket increased by percent in and are on course to exceed

that rate in 8. By , Russias car market is expected to be the

third argest in the word, behind ony the United States and China.9

AUtOmOtIvE CEOs lEss ENtHUsEd AbOUt mORE INFORmEd

CUstOmERs

As consumers around the word become more prosperous, theyreaso becoming more demanding and better informed, thanks to the

Internet, with higher expectations and more discriminating tastes.

As one North American OEM CEO noted, We cant se od genera-

tion products in emerging markets anymore.

Automotive CEOs are a bit more hesitant about this second trend

ony 6 percent view it as positive (as compared to 89 percent for

rising consumer prosperity). Across industries, companies are strug-

ging to find new ways to serve this information omnivore, the con-sumer who has unprecedented access to information and an

increasing interest in coaboration across socia and business

networks.

Consumers reentess appetite for information is about far more than

just products. Through the Internet, biions can now pass judgment

on the actions and decisions of automotive companies and the

industry as a whoe. Virtuay every aspect of an enterprises business

We cant copy what othershave done and expect to beviewed as a leader.

CEO, North American OEM


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is on dispay how it deveops, manufactures and distributes its

products; treats empoyees, suppiers, sharehoders and activists;

manages its finances; addresses societa issues and more.

INvEstmENt mONOpOlIZEd bY NEW mARKEts

In terms of spending reated to these two trends rising prosperity

and increasingy informed customers automotive CEOs are decid-

edy more focused on the opportunities associated with greater

consumer purchasing power (see Figure ). Over the past three

years, they have devoted neary one-third of their tota investments

to capturing this opportunity and are panning a percent

increase over the next three years.

FIGURE 3 AUtOmOtIvE INvEstmENt Is FOCUsEd ON RIsING CONsUmER pROspERItY

Meanwhile, automotive CEOs are planning only a marginal increase in investment targeting todaysmore inormed consumer.

Automotivenvestment in rising

purchasing power

31%

41%30%INvEstmENtINCREAsE

INvEstmENt pAst 3 YEARs

INvEstmENt NExt 3 YEARs

Automotiveinvestment in the

informed andcollaborative

customer

21%

22%

2%INvEstmENtINCREAsEINvEstmENt pAst 3 YEARs



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In contrast, investment growth associated with serving the increas-

ingy informed and coaborative customer is essentiay fat. In fact,

its the owest rate of increase across a the industries we studied.

Indeed, the automotive industrys investment pattern differs sharpy

from the norm (see Figure 4).

These findings suggest some critica questions for automotive CEOs:

Coud the intense focus on rising prosperity cause automotive com-

panies to negect the needs of informed customers? Is the growth

from new markets sustainabe if the expectations of more sophisti-

cated customers are not met? How can automotive enterprises max-

imize the return on their substantia customer investments?

FIGURE 4 AUtOmOtIvE INvEstmENt IN CUstOmER tRENds dIFFERs FROm OtHER INdUstRIEs

Most CEOs are increasing investment in both areas; automotive CEOs are more single-minded.

Chemical &Petroleum

0%

100%

10% 20% 30% 40%

20%

40%

60%

80%

Automotive

ALLINDUSTRIES

Electronics

HealthCareProviders

HealthCarePayers

Energy &Utilities

Pharmaceutical

pERCENt INvEstmENt INCREAsE IN NExt tHREE YEARs tO AddREssINFORmEd CUstOmER

pERCENt pOsItIvEImpACt OF INFORmEdCUstOmERs


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AUTOMOTIVE COMPANIES AS CUSTOMERCOllABORATORS

Greater innovation across both deveoped and deveoping markets

for the newy affuent as we as the more informed depends on

the automotive industrys abiity to discover and appy customer

insights. Its a chaenge that wi invove every ink of the industry

vaue chain.

Automotive OEMs must rethink how customer information is gath-

ered and anayzed and have processes in pace to appy the

resuting insights. To drive greater innovation, OEMs wi aso need

to invove their suppiers in the process. Coaboration wi be criti-

ca, as the CEO from a Japanese automotive suppier expained.

Customers demand connectedness. In the past, automotive

OEMs drove technoogy into the vehice. Now, OEMs are asking for

our insights.

Deaers are the most direct ink to the consumer. But informed and

coaborative consumers are not interested in a traditiona transac-

tiona reationship. These buyers are more ikey to wak into a dea-

ership with purchasing decisions perhaps even the purchase

itsef aready made. To them, the opinions of friends and even

onine reviews by strangers matter more than a deaers saes pitch.

To infuence buying behavior, deaers and OEMs must earn to

engage these consumers in new ways, such as through onine socianetworks.

Customers needs arechanging and increasing.And so are the market op-portunities such as China

rural market and otheremerging niche markets.

CEO, Chinese OEM


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As custodian of virtuay a consumer data generated during the ini-

tia years of vehice ownership, deaers have an inherent advantage.

This competitive edge grows as consumer data is aggregated and

anayzed. To date, however, most deaers have been reuctant to

share this information with OEMs, fearfu of being cut out of the

oop. Successfu brands and deaer networks wi find ways to over-

come this issue and poo their coective consumer insights so that

both can benefit.


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BMW: SMAll CAR, BIG INSIGHTS

With its Mini Cooper, the BMW Group is piggybacking on the rising

trend of the informed and coaborative customer. The company rec-

ognized that consumers in other industries were tiring of passive

roes and were interested in becoming more active participants

and BMW bet big that the same woud be true for car buyers.

Its gambe seems to have paid off. The Mini Cooper has heped cre-

ate a new category of personaity cars buit to suit each buyers

unique tastes. Customers can participate directy in the design by

choosing from interior and 9 exterior options. The eve of

customization is so vast that a buyer has ony a in , chance

of ordering the exact same Mini as someone ese. Its an approach

that not ony offers buyers a highy personaized end product but

aso provides BMW with tremendous insights into its customers

needs and wants.

For BMW, this customer coaboration is not just a surface-eve gim-

mick. It aso impacts product panning and manufacturing. Instead of

runs of ,, Minis are buit one at a time. Each car coming down

the ine ooks different. Its parts are kitted in advance and deivered

to the ine just in time for assemby. Scheduing and shipping must

be precise.

So, are consumers interested in this eve of invovement? It appears

so. A remarkabe two-thirds of a Mini customers choose to person-

aize their car a cear sign that consumers are ready to coaborate,

if OEMs, suppiers and deaers are.

Cae uy


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CHAPTERONE

Automotive CEOs are we aware of the

impact of gobaization on their industry.

But what wi it take to become truygobay integrated?

Automotive CEOs ranked gobaization as the externa force that wi

have the greatest impact on their companies over the next three

years. And 86 percent are reconfiguring their businesses to take

advantage of goba opportunities. Their responses suggest that the

automotive industry intends to be one of the most goba in terms of

business design, traiing ony the eectronics industry.

Compared to our overa sampe, automotive CEOs are more focused

on optimizing operations gobay, gobaizing their products and

brands, and deepy changing their mix of capabiities, knowedge

and assets. Automotive outperformers are panning even more

aggressive moves in these three areas (see Figure ). In other words,

the companies that are doing better financiay are pursuing higher

degrees of goba integration.

GlObAllYINtEGRAtEd

For Chinese automakers,market competition hasnot been the simple divi-sion between domestic andoverseas markets. The Chi-nese auto market has been

incorporated into the globalauto market knowingly orunknowingly

CEO, Chinese OEM


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AmbItIONs ARE HIGH, bUt tHE CHAllENGE Is GREAt

Despite automotive eaders strong goba integration intentions,

insufficient taent particuary management skis presents a sub-

stantia hurde for automotive companies. We need goba manag-

ers, the CEO of one North American automotive suppier expained.

Baby boomers do not have this ski and are earning the hard way

since they grew up in the regiona mode. The new generation is

aready thinking gobay, but they do not have the experience.

The percentage of automotive CEOs who pan to partner to capita-

ize on goba integration opportunities is roughy the same as the

overa percentage across industries around 9 percent. But a

much smaer group of automotive CEOs intend to partner exten-

sivey ( percent versus percent across industries).

deey change he i ofcaaiiie, knowege an ae

Goaize ran/rouc

Oiize oeraion goay

mainain curren i of caaiiie,

knowege an ae

locaize ran/rouc

Oiize oeraion ocay

Globally oriented Equally important Locally ocused

FIGURE 5 OUtpERFORmERs IN pURsUIt OF GREAtER INtEGRAtION

When comparing automotive outperormers and underperormers, we ound the most dramaticdierences in three areas o global integration.

59% 41%

45% 45% 10%

69% 25% 6%

50% 50%

69% 31%

50% 42% 8%

UNdERpERFORmERs

OUtpERFORmERs

UNdERpERFORmERs

OUtpERFORmERs

UNdERpERFORmERs

OUtpERFORmERs

Our management talenthas to be upgraded to leadin the new realities o theglobal automotive indus-tryGlobal integrationis the biggest opportunitybecause there is so muchvalue at stake.



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Among automotive suppiers, the extensive partnering group shrinks

even smaer. As the CEO of one North American suppier put it, We

invented not invented here. The automotive industrys moderate

pans for partnering seem particuary troubesome given the finan-

cia impications we see in our overa sampe. Across industries, out-

performers are percent more ikey to partner extensivey than

underperformers.

AUTOMOTIVE ENTERPRISES AS GlOBAlINTEGRATORS

The strategies of outperformers suggest that automotive companies

must work toward goba integration, not just gobaization. However,

three main hurdes stand in the way: a shortage of goba eadership

skis, insufficient coaboration and opposing standards.

Automotive companies need eaders who think gobay. To deveop

these capabiities, high potentia executives need stretch assign-

ments that test their abiity to work cross-cuturay managing

wordwide teams as we as understanding and serving goba mar-

kets. Because the regiona mindset is so pervasive and entrenched

in the automotive cuture, companies shoud aso consider incorpo-

rating eadership taent from outside the industry.


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To be better integrators, automotive companies must become bet-

ter coaborators. They wi need to deveop a common partnering

patform that incudes rues, inteectua property protection, risk and

reward sharing and the abiity to quicky engage and disengage. The

abiity to partner wi become even more critica as industries coide

and converge. And as automotive companies form aiances with

those outside their industry, the nature of the reationship wi be

different. OEMs and major automotive suppiers wi no onger be

abe to rey on industry cout and positioning to dominate reation-

ships. They must know how to work cooperativey as partners, not

just manage suppiers. Coaborative reationships wi be the nexus

of innovation.

Arguaby the most critica and perhaps the most costy obstace

to goba integration is having mutipe standards. Before R&D can

effectivey everage expertise from anywhere in the word, before

one region can adopt best practices from another, before manufac-

turing capacity can be used to meet both oca and goba demand,

before true goba integration can happen, the automotive industry

must unite its standards.


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GM: GlOBAl INTEGRATION STARTING WITHDESIGN

As the words argest automaker, Genera Motors (GM) has a tremen-

dous goba footprint. But the company aso understands goba

integration is just as important as goba reach.

The company is working to unify its regiona vehice architectures,

disparate components and disconnected processes. The 9 Ope

Insignia wi be the first vehice buit based on the companys new

midsize architecture known as Epsion II, or Goba Epsion. The five

previous patforms repaced by Epsion II had underbody geometries

and mounting points that were a within a few miimeters and yet

these sight differences meant the vehices coud not be buit on the

same assemby ines. With the new common goba patform, GM

expects to save approximatey US$ biion. As GM introduces new

goba architectures for each vehice famiy, it can transfer tooing

among goba fex pants and buid automobies anywhere.4

The deveopment of these new architectures aso aows GM to con-

nect its geographicay dispersed engineering teams. For exampe,

its Korean team took the architectura ead on one of GMs sma vehi-

ce patforms. As a resut, the Korean IT systems and deveopment

processes became better integrated with the whoe of GM.

The companys new organization for hybrids, extended-range eec-

tric vehices and advanced battery technoogy is another exampe

of its continuing march toward goba engineering. This wordwide

team wi be based in four ocations: two in the United States, one in

Germany and the fourth in China.6

Cae uy


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19

The majority of CEOs across industries are

impementing extensive business mode

innovations. Automotive CEOs, however,seem more entrenched in current modes.

Wi the next major transportation innova-

tion come from outside the industry?

Despite the externa forces that are unsetting the industry, ony haf

of the automotive CEOs are panning significant business mode

changes (see Figure 6). In fact, Automotive is one of the east active

industries in terms of business mode innovation at the back of the

pack with other capita-intensive sectors such as utiities, petroeum

and aerospace.

dIsRUptIvEbY

NAtURE

FIGURE 6 FAR FEWER AUtOmOtIvE CEOs WIll sIGNIFICANtlY AltER tHEIR CURRENt mOdEls

Across industries, more than two-thirds o CEOs are planning extensive innovations while, in theautomotive industry, less than hal are doing so.

Degree of business

model innovation

Extensive

Moderate

Limited/no

All Industries

69% 29% 2%

49% 45% 6%

20%FEWERAutomotive

We are only doingselective business model

innovation. It is too riskyto try to innovate with ourlargest customers and ourcore business.

CEO, North American Supplier


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Of the three types of business mode innovation discussed with

CEOs enterprise mode, revenue mode and industry mode the

one attracting the east attention is industry mode innovation. This is

not particuary surprising since it the most difficut to achieve. Ony

6 percent of automotive CEOs are contempating innovations that

redefine their existing industry, cross over into another industry or

estabish an entirey new industry.

Another percent of automotive business mode innovators are

reshaping their revenue modes with new approaches to pricing or

reconfigurations of their vaue mix. Athough the industry continues

to promote a pethora of financia incentives, major breakthroughs in

revenue mode innovation have been few and far between.

As a resut, some consumers are turning to other business modes

that better meet their transportation needs. Vehice sharing and

subscription-based mobiity services such as Zipcar in the UnitedStates provide drivers the fexibiity to choose the type of vehice

they need on a particuar occasion, and avoid the maintenance

burden of vehice ownership. And as budgets tighten and citizens

become more environmentay conscious, adoption is ikey to

acceerate. The rising popuarity of these services on coege cam-

puses is particuary critica; the next generation of automotive cus-

tomers may be predisposed to aternatives that eiminate the need

to buy a car.


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Enterprise mode innovation is the focus of the argest percentage

of automotive CEOs (6 percent). These innovators are attempting

to speciaize and deiver greater vaue by rethinking what is done in-

house and through partners.

AUtOmOtIvE CEOs FOCUsEd ON dIFFERENtIAtING ENtERpRIsE

mOdEls

Three-quarters of those pursuing enterprise mode innovations todus they intend to speciaize in areas that are truy differentiating.

One exampe of an automotive company that has successfuy fo-

owed this strategy is mirror maker Gentex. It speciaizes in high-

vaue mirrors with high-tech safety and convenience features. This

singe-minded focus has heped the company achieve superior

financia performance in what most woud consider a commodity

business.8

Among the enterprise mode innovators, two-thirds are panningmajor coaborations with externa partners over the next three years.

Historicay, the automotive approach to partnering has been rather

insuar with OEMs deveoping strategic reationships mainy with

traditiona automotive component suppiers. But some unconven-

tiona coaborations are beginning to appear, such as Fords tie-up

with Microsoft on Sync, its voice-activated in-car technoogy.9 We

expect to see even more cross-industry partnering as traditiona

boundaries bur.

We must ocus on apply-ing investments uniquelyto dierentiate ourselves,not inventing things weshouldnt be.



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AUTOMOTIVE COMPANIES AS DIFFERENTIATORSAND DISRUPTORS

Growing concerns about the economy and the environment are

significanty atering consumer expectations about transportation

and overturning some fundamenta tenets of the automotive indus-

try. These shifts are creating tremendous opportunity for automotive

eaders to differentiate and disrupt the competitive paying fied

through innovative revenue, enterprise and industry modes.

For exampe, consumers today often fee compeed to purchase

vehices based on their peak requirements. They buy a truck

because of an occasiona need to hau arge oads or a midsize sedan

for added comfort during famiy vacations. But new revenue modes

coud offer consumers access to a garage of vehices rather than just

one different vehices for a variety of uses, a transportation time-

share of sorts. Widespread adoption of aternative power trainsmay aso spark revenue mode innovation. For instance, the purchase,

ease or financing of a battery coud be separate from the vehice it

powers.

As personaization and driving experiences become more impor-

tant to consumers, automakers wi have greater incentive for enter-

prise mode innovation. Differentiation wi increasingy depend on

innovative partnerships and aiances particuary with those out-

side the industry.


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In fact, the intersections between industries are fertie ground for

industry mode innovation. In coming years, overap among the auto-

motive, teecom, eectronics, media and entertainment, and energy

industries is ikey to yied entirey new types of businesses.

Athough major industry upheava is unikey in the short term, auto-

motive eaders are aready preparing for significant business mode

innovation. They are making their businesses more fexibe and

adaptabe, experimenting with new modes and buiding reation-

ships and aiances with an eye toward a very different future.


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BUYING MIlES lIKE MINUTES: A NEW INDUSTRYMODEl FOR ElECTRIC CARS

A joint venture (JV) between the Renaut-Nissan Aiance and

Caifornia-based Project Better Pace is pioting a new business

mode for eectric cars, which is simiar to that of mobie phones.

Consumers buy subsidized hardware, in this case a car, and pay a

monthy fee based on mies driven.

As part of this agreement, Project Better Pace provides the batteries

and recharging infrastructure pugs on city streets and service

stations aong highways to repace spent batteries with fresh ones.

Renaut and Nissan provide the cars. And governments Israe,

Denmark and Portuga so far provide incentives, such as tax breaks,

that make it cheaper to buy eectric-powered vehices than gasoine-

engine aternatives.

In Israe, the JV estimates the cost of operating an eectric car to be

haf that of a traditiona automobie. In 9, the partners expect to

be serving a few thousand Israei consumers, growing to , by

.4

In Juy 8, the Renaut-Nissan Aiance announced another part-

nership that invoves the State of Tennessee and the TennesseeVaey Authority (the argest pubic power provider in the United

States). These partners wi conduct an eectric vehice feasibiity

study, which wi incude a oca eectricity-charging network. As

negotiations with other entities across North America, Europe and

Asia continue, the Renaut-Nissan Aiance is adapting both its prod-

ucts and its business mode to suit each markets specific needs.

Cae uy


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25

Automotive CEOs are working hard to

reduce the carbon footprint of their

products, with more hybrid, eectric andfue-efficient modes avaiabe than ever

before. But is the industry ready to take on a

much broader set of socia responsibiities?

Its no surprise that automotive CEOs are more concerned than CEOs

in other industries about environmenta issues. However, the degree

of difference is dramatic percent of automotive CEOs see this

as a major change driver versus 8 percent across the fu sampe.

Whats even more intriguing is that 8 percent of automotive CEOs

as compared to the 69 percent cross-industry average beieve

customers rising corporate socia responsibiity (CSR) expectations

wi have a positive impact on their businesses. And automotive

CEOs are panning a percent increase in investment over the next

three years to capitaize on this opportunity (see Figure ). Much of

this investment is focused on new markets and segments. As the

CEO of one automotive suppier based in Austraia tod us,Environmenta issues are driving entry into new market segments

as avenues of growth.

GENUINE,NOt jUst

GENEROUs

One percent o our proftater tax goes to addressCSR, health, education and

environmental issues.

CEO, Indian OEM


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Through ongoing product innovation, automotive companies are

paying an important roe in reducing our panets dependence on

fossi fues and heping cear the air of poution and noise. The num-

ber of hybrid and eectric vehices in use is growing rapidy; athough

sti a sma percentage of the market, goba saes are expected to

tripe between and .6

However, green cannot be the ony coor in automotive CEOs pa-

ettes. As the CEO of one Chinese OEM warns, companies must aso

pay cose attention to socioeconomic factors. An emerging genera-

tion of sociay minded consumers, workers and investors has grow-

ing expectations for ethica corporate behavior and increased

transparency across a broad spectrum of issues. Consumers are

driving OEMs to do more, expained the CEO of a Japanese auto-

motive suppier. OEMs are taking a more active roe for instance,

ensuring no chid abor is used anywhere across the extended vaue

chain.

FIGURE 7 CsR INvEstmENt CONtINUEs tO RIsE

Automotive CEOs have already invested heavily in CSR, and their spending shows no signs o slowing.

All Industries

11%

13%

25%INvEstmENtINCREAsEINvEstmENt pAst 3 YEARs


Automotive

13%

17% 35%INvEstmENtINCREAsE

INvEstmENt pAst 3 YEARs



29/38


AUTOMOTIVE ENTERPRISES AS CSR lEADERS

With the average passenger vehice emitting somewhere between

and tons of carbon over its ten-year ifecyce, automotive com-

panies have justifiaby focused their CSR efforts on making their

products more environmentay friendy. However, this is ony the

tai end of the chaenge. Factoring in component sourcing, inbound

and outbound ogistics and vehice manufacturing, the typica auto-

mobies carbon footprint grows by another 9 tons.

To attack the environmenta probem hoisticay, automotive compa-

nies must examine their operations end to end. A host of decisions

come into pay the type of energy consumed in manufacturing and

distribution, the materias used for packaging, inventory poicies,

ogistics options and more.

But perhaps even more critica, automotive companies need to thinkbeyond their ecoogica impact and consider the overa footprint

they eave on the communities in which they operate and from which

they source. For many consumers purchasing vehices, investors

managing portfoios and empoyees choosing where to work, deci-

sions are no onger made based soey on a companys products, but

aso its demonstrated concern for society. In an industry in which

product innovation and new service offerings are rapidy emuated

by competitors, true differentiation may very we come from a com-

panys approach to corporate socia responsibiity.

CSR in this industry bydeault will be the dominandriver.

CEO, North American Supplier


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TOYOTA: MOVING TOWARD SUSTAINABlETRANSPORTATION

Toyota Motor Corporation one of the words most respected auto-

motive brands is tacking environmenta issues head on in one of

its argest markets: North America. Its approaching the chaenge

ike any other business pan, by setting aggressive targets and mea-

suring its progress. The companys comprehensive environmenta

action pan attacks the probem aong a number of fronts: energy

and cimate change, recycing and reduced use of resources, sub-

stances of concern, atmospheric quaity, environmenta risk man-

agement and cooperation with society.8

Its goas are specific and measurabe. For exampe, between to

, the company aims to reduce tota energy use in North American

manufacturing and operations by percent per vehice

produced.9

Toyotas vision for sustainabe transportation has made it a eader in

hybrid vehice technoogy. More than one miion Toyota hybrids

have been sod wordwide. The companys proactive position on

an issue of critica importance to society at arge has not ony ee-

vated the perception of its brand, but aso boosted its bottom ine.

From to , Toyotas net income has increased at a com-

pound annua growth rate of more than percent.

Cae uy


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BUIlDING YOUR ENTERPRISE OF THE FUTURE

Automotive CEOs fundamentay agree with the CEOs in our overa

survey sampe about the characteristics that wi distinguish success-

fu businesses in the future. Their responses suggest that the

Enterprise of the Future as we have caed it wi be hungry for

change, innovative beyond customer imagination, gobay inte-

grated, disruptive by nature and genuine, not just generous.

However, the chaenges automotive CEOs face differ from those of

other CEOs in various respects. They anticipate more change but fee

ess confident about managing it successfuy. The asset-intensive

nature of their industry makes business mode innovation more diffi-

cut. Theyre a bit more uncertain about how to respond to todays

increasingy informed and coaborative consumer. And theyre under

tremendous pressure to hep sove the words environmenta

chaenges.

The critica question is: are automotive companies adequatey pre-

pared? Do they have the adaptabe processes and infrastructure

they need to manage more change at a faster pace, and capitaize

on the new opportunities that gobaization, increasing affuence

and greater connectivity are creating? The partners they need to

innovate? The fexibiity they need to adapt business modes?

Integrated goba execution to seize opportunities wherever they

appear?


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We ook forward to earning more about where you think the auto-

motive industry is heading and working with you, as you buid your

Enterprise of the Future.

HUNGRY FORCHANGE

INNOvAtIONbEYONd

CUstOmERImAGINAtION

GlObAllYINtEGRAtEd

dIsRUptIvEbY NAtURE

GENUINE,NOt jUstGENEROUs

Ad hoc andreactivechange

Customerinteigence

Exporinggobaopportunities

ExporingBusiness ModeInnovationopportunities

Reguatorycompiance

Project drivenchange

Customerinformationtransparency

Drivingspecific gobainitiatives

Experimentingwith BMI

Strategicphianthropy

Changeportfoio andprogram

Two-waycustomerinteraction

Buiding gobacapabiitiessystematicay

ImpementingBMI initiatives

Vaues basedsef-reguation

Anticipatingand proactivechange

Customercoaborativedeveopment

Goba centersof exceence

Mutipe BMIstrategies

Efficiencythrough CSR

Changebecomes thestrategy

Expandingcustomeraspirations

Gobaenterpriseinnovation

Radica andpervasive BMI

CSR as growthpatform

AUtOmOtIvE

AUtOmOtIvE

AUtOmOtIvE

AUtOmOtIvE

AUtOmOtIvE

buiing he Enerrie of he Fuure

FIGURE 8 ARE YOU REAdY?

Weve plotted the industrys overall progress toward the Enterprise o the Future below. Where would youplace your organization?


33/38


FOR MORE INFORMATION

For additiona information about the IBM Goba CEO Study, pease

visit ibm.com/enterpriseofthefuture

To discuss these industry impications further, we invite you to e-mai

one of the foowing contacts:

Global Sanjay Rishi [email protected]

Americas Mahesh Lunani [email protected]

Karen Newman [email protected]

Asia Pacific (excluding Japan) Seong Yol Kim [email protected]

Japan Tomoaki Takemoto [email protected]

Northeast Europe Alexander Scheidt [email protected]

Southwest Europe Oliier Payraud [email protected]

IBM Institute for Business value Kalman Gyimesi [email protected]

ACKNOWlEDGMENTSWe woud ike to thank the Automotive CEOs from around the word

who generousy shared their time and insights with us. Wed aso ike

to acknowedge the contributions of Goria lara and Kaman Gyimesi

who ed the deveopment of this Automotive Industry Edition of the

IBM Goba CEO Study.


34/38


ABOUT IBM GlOBAl BUSINESS SERVICES

With business experts in more than 170 countries, IBM Goba Business

Services provides cients with deep business process and industry exper-

tise across 17 industries, using innovation to identify, create and deiver

vaue faster. It offers one of the argest Strategy & Change practices in the

word, with over 3,250 strategy professionas. The IBM Institute for Business

Vaue, part of IBM Goba Business Services, deveops fact-based strategic

insights for senior business executives around critica industry-specific and

cross-industry issues.

NOTES AND SOURCES

The Enterprise of the Future: The IBM Goba CEO Study. IBM Institute

for Business Vaue. May 8.

For companies with pubicy avaiabe financia information, we compared

revenue and profit track records with the averages for those in the same

industry across our sampe. Companies that performed above average on

a particuar financia benchmark were tagged as outperformers, and those

beow the average were abeed as underperformers. Throughout our

anayses, we ooked for insights based on these top- and bottom-haf

groupings.

Kozyra, Wiiam. Presentation at the Automotive News Word Congress.

January , 8; Kranz, Rick. Continenta CEO: Our diversification

worked. Automotive News. January 8, 8.

4 Kozyra, Wiiam. Presentation at the Automotive News Word Congress.

January , 8.

Top Goba Suppiers. Automotive News supplement. June , 8.

6

Kranz, Rick. Continenta CEO: Our diversification worked. AutomotiveNews. January 8, 8.

Ban, linda, Bruce M. Bezowski, Stefan Gumbrich and Jimin Zhao. Inside

China: The Chinese view their automotive future. IBM Institute for

Business Vaue. November .


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8 Bezowski, Bruce M., Aan Henderson and Penny Koppinger. Inside India:

Indians view their automotive future. IBM Institute for Business Vaue.

June .

9 Bush, Jason. Russian Auto Market Now Europes largest. BusinessWeek,

Juy , 8.

Maynard, Micheine. BMW Has Maxi Expectations for Its Next, Sighty

larger Mini Cooper. The New York Times. October , 6.

Individuaity. Your wish, our command. http://www.mini.com/com/en/manufacturing/index.jsp

Maynard, Micheine. BMW Has Maxi Expectations for Its Next, Sighty

larger Mini Cooper. The New York Times. October , 6.

Ibid.

4 Brooke, lindsay. Pushing the enveope. Automotive Engineering

International. May 8.

Ibid.

6 GM Forms New Vehice Engineering Organization For Hybrids, Extended-

Range Eectric Vehices And Batteries. Genera Motors Press Reease.

January 4, 8.

Fower, Bree. Zipcars taking off in urban areas, as popuarity of car-shar-

ing grows amid higher gas prices. Associated Press Market Spotight.

http://biz.yahoo.com/ap/89/zipcar_market_spotight.htm?.v=

8 IBM Institute for Business Vaue anayses based on Thomson ONE Banker

financia data.

9 Sync Web site. http://www.syncmyride.com

Rishi, Sanjay, Benjamin Staney and Kaman Gyimesi. Automotive :

Carity beyond the chaos. IBM Institute for Business Vaue. September

8. Eranger, Steven. Israe Is Set to Promote the Use of Eectric Cars. The

New York Times. January , 8.

Ibid.


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Wortham, Apri. Nissan aunches zero-emission partnership. Automotive

News. Juy , 8.

4Eranger, Steven. Israe Is Set to Promote the Use of Eectric Cars. The

New York Times. January , 8.

The Renaut-Nissan Aiance & Tennessee Form Zero-Emission Vehice

Partnership. Renaut-Nissan Aiance Press Reease. Juy , 8;

Wortham, Apri. Nissan aunches zero-emission partnership. Automotive

News. Juy , 8.6 Outook for hybrid and eectric vehices. Internationa Energy Agency

Hybrid & Eectric Vehice Impementing Agreement. June 8.

IBM anaysis.

8 Environmenta vision and action. Toyota. . http://www.toyota.com/

about/our_commitment/environment/index.htm

9 Ibid.

Toyota Motor Corporation Surpasses Miion Goba Hybrid Saes.

Toyota press reease. June , . http://www.toyota.com/about/news/

product//6/--hybridsaes.htm

IBM anaysis of Thomson Financia data.


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