IBM Study Finds Business Model Flexibility Is The Key To Success In Automotive Industry
Componentize, Specialize, Simplify, Standardize, and Sense are the winning factors
ARMONK, NY - 13 Jul 2006: A new study released today by the IBM Institute for Business Value (IBV) reveals business model flexibility to be vital to success in today’s automotive industry. Using profitability as the gauge for success, IBM researched 100 of the top automotive companies and found that significantly more were financially successful in 2005 than in 2001. Those companies that have flexibility at the core of their business model continue to grow profitability and market share.
The global automotive industry is changing more rapidly than ever before. Lower than expected product sales, high material costs and increased competition are just some of the roadblocks that have led several large companies into bankruptcy, while pushing others close to it. However, other automotive companies are demonstrating flexibility as they enhance their products and services to take advantage of changing markets and new technologies, and many are increasing market share and profits along the way.
The results from “Changing Lanes for Success: Flexible Automotive Business Models in Times of Accelerated Change” were part of extensive research which included a financial analysis of 100 of the top global automotive manufacturers and suppliers. The team also used primary research from two of IBM’s earlier studies, “Global Innovation Outlook 2.0” and “IBM’s Expanding the Innovation Horizon: the Global CEO Study 2006,” based on interviews with 765 CEOs worldwide. The entire study is available at IBM Institute for Business Value’s web site (www.ibm.com/automotive/changinglanes) for download.
“Like innovation, a flexible business model is achievable but not easily done. The kind of company-wide flexibility we are talking about can’t be achieved by just flipping on the turn signal,” says Linda Ban, Global Industrial Sector Leader, IBM Institute for Business Value. “Cost cutting alone will not bring success. Companies need to have flexibility at the core of their business model to enable them to take advantage of situations that in the past were disruptive.”
Surprisingly, the study found that many more automotive companies are doing better in 2005 than they were in 2001. According to IBV analysis, only seven companies were making 5 percent or greater profit in 2001, but by 2005 that number had increased to 30 companies. And, the number of underperforming companies across all revenue ranges was significantly reduced during this period.
The study found four key aspects of business model flexibility to include:
1. Responsiveness: anticipating and responding to customer needs as well as market and industry changes;
2. Differentiation: translating customer needs into innovative products and services that the customer will desire and competitors imitate;
3. Efficiency: common, lean processes and operations for producing products and services at a cost that generates profits and supports growth; and
4. Impact: determining the magnitude of desired change in products, services and operations.
Business model flexibility needs to be developed under strong discipline and leadership. IBM Global Business Services identified a set of guiding principles to use when a company makes a change to create a more flexible and successful automotive company:
1. Componentize your company so it works as an aggregation of smaller, more nimble businesses. Componentization allows you to evaluate your company in the context of its ecosystem to better understand its strengths and weaknesses.
2. Specialize your company by focusing on its core strengths, and depend on partners to fill in gaps and exploit opportunity areas.
3. Simplify by looking for opportunities to make business easier and straightforward.
4. Standardize the interactions of people, processes and technology in your business. Standardization and rules create an environment where decisions can be made at the point of interaction (not up the chain of command) and become the “glue of collaboration.”
5. Sense shifts within the industry and beyond that require responses or present opportunity. The availability of new technologies, for example, can accelerate the sensing and predicting of potential product quality issues before they become warranty problems and potentially allow manufacturers and suppliers to save millions of dollars in warranty costs.(*1)
For more information on IBM, visit www.ibm.com.
(*1) Koppinger, Penny. “Component business modeling: A new lens for examining warranty administration,” July, 2004 www-1.ibm.com/services/us/index.wss/ibvstudy/imc/a1002879?cntxt =a1000404
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