Powering digital disruption at BMW
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Powering digital disruption at BMW

Kenny MacIver — June 2016

CIO Klaus Straub explains why the luxury automaker is putting its IT teams in the driver’s seat for the connected car.

With digital transformation riding high on corporate agendas, many senior business executives have decided they need to take direct ownership of digitalization initiatives — often to the exclusion of their IT colleagues. But, in the automotive industry, the opposite is happening, according to Klaus Straub, CIO of luxury carmaker BMW.

Klaus Straub, CIO, BMW
“Every branch of the IT department has a strong role [to play] in the digitalization phase over the next 10 years,” he says. “At BMW — but also at VW, Audi, GM, Ford and Daimler — all my colleagues in automotive IT are addressing the same topic, with IT teams driving much of the change.”

That central role is all too evident in BMW’s newly crafted corporate vision for the next decade. Strategy NUMBER ONE > Next, as it’s known, was announced by the company’s CEO in March with the conviction that “digitalization is the main driver for the future.” And as a mark of that, for the first time in the company’s history BMW’s head of IT was invited to be part of the small team of engineers and business leaders tasked with defining the strategy.

That signals that the integration of “two worlds” is underway, says Straub. “In the past, we had the car world and the company world, and they were not connected. When our colleagues designed a car, the IT organization was simply not involved.” IT is now deeply involved.

“Now when we are designing and implementing an automotive IT system, we have to decide, for example, which functions should be embedded in the car itself and which we bring in from the back end; what level of connectivity we need to have [for the vehicle]; and which third-party services we need to integrate. As IT handles the implementation, it needs to be involved in the discussions from the start,” says Straub.
Catalysts of digitalization
According to Straub, three areas will influence the digitalization landscape in the automotive industry over the next decade:

1.Connected cars
“BMW already has the best car connectivity [record] of any company,” says Straub, with six million of its cars directly connected to the internet. That will lead to increasingly autonomous driving but it also inspires a growing number of services that will be provided from the cloud and back-end IT infrastructure, enhancing the driving experience through machine learning and big data analytics.

“In the automotive industry, alongside our normal competitors, we’re seeing competition coming from the IT industry, which thinks in a different way to us.”

This means BMW has to inject “more IT into the whole business model,” Straub argues, giving an existing service as a prime example. The company delivers real-time traffic information to drivers of its cars that draws on public information about traffic jams, roadworks, accidents, and so on. But, in parallel, the company is also constantly analysing the movement of data coming from its six million internet-connected cars and cross-checking it against the public service. “We push this knowledge back to our drivers so they know when a traffic situation is really something to avoid or if traffic is actually flowing.”

But in providing such connected-car services, BMW will increasingly find itself up against a group of new challengers with a different origin. “In the automotive industry, alongside our normal competitors such as GM, Ford and VW, we’re seeing competition coming from the IT industry, which thinks in a different way to us.” He identifies Tesla, Google and Apple as the biggest threats.

Digitalization is also being driven by an increased focus on the customer’s needs. “Customer experience has clearly been a big topic for the past 10 years but it will be strengthened further in coming years. And that has a lot to do with how technologies like BMW ConnectedDrive will bring the customer closer to the manufacturer.” Historically, BMW has served its customer largely at the wholesale level, with 90% of its retailers independent. “But with ConnectedDrive we have [direct] connectivity to the customer for the first time, and that means we have to synchronize activities between the customer, the retailer and the company, so the customer gets a 360-degree service.”

He highlights one project designed to serve both customers and retailers that makes use of a recently created cross-company “data lake.” According to Straub, verifying the mileage readings on used cars has become increasingly difficult, especially in countries such as China. However, by combining a mix of historical data within its data lake the company is now able to guarantee to the retailer and customer the number of miles any car has travelled.

3.Industry 4.0
The application of IoT, machine learning and big data in manufacturing will have a major impact in areas of the automotive industry such as product development, order-to-delivery and the after-sales processes, says Straub. And the company is already seeing several disruptions in this Industry 4.0 landscape.

One area with huge potential, he says, is 3D printing. BMW plans to start printing specialist parts and use 3D printers in prototyping for greater efficiency and speed.

Another radical development is underway in assembly lines. He highlights how the machinery involved in production and the products they are making will increasingly talk to each other throughout the process. “This will give us new possibilities of quality,” he says.

Moreover, after-sales service and product development will both be enhanced as parts will have the ability to constantly provide information on their status, longevity and how they are being used.
Rethinking the IT department

This kind of company-wide digital disruption is having a big impact on the shape of the 4,000-strong IT organization at BMW.

Straub cites several key areas: “In the past, software engineering was very process-orientated (it operates 90 to 100 instances of SAP worldwide). But now, with digitalization we have to also [deliver] at speed, which means we have increasingly moved to agile software engineering processes. So the new capability that we have developed in the past year has one major goal: speed. But it still needs to be capable of operating in a hybrid or bimodal fashion.”

“In the past, we had the car world and the company world, and they were not connected.”

A second significant shift underway involves bringing IT closer to the business. For the past few decades, a large part of IT has been driven by the need to reduce the cost of business operations, Straub outlines. In many cases, that meant outsourcing parts of the IT department to third parties, and saw the job of senior IT move to managing a matrix of external partners. “That is changing,” says Straub, “in that once again we are doing more and more for ourselves, especially in the agile area.”

At BMW, becoming more agile has involved a major re-allocation of resources. Straub has recently redeployed 600 employees out of day-to-day business operations to new areas such as cyber-security, big data and SAP HANA.

Some of the results are truly astonishing. Despite the complexity of running around 500 IT projects in 2015, BMW’s IT teams are certified to ISO-9001 quality. And that translates into real customer benefit. “We were extremely stable [in 2015],” says Straub. “The company produced 2.24 million cars and we only had failure due of IT in about 1,200 cars in the whole year.”
Data lake construction

A key to future success though, Straub believes, will be the ability to exploit big data. For him, that area spans not just the analytics areas of business intelligence and data warehousing, but also the emerging field of machine learning.

But before it could fully exploit big data, BMW took the decision last year to build a data lake based on Teradata. “This is a big cultural change for the company because, in data terms we have been organized around functional lines: development, production, procurement and so on, all historically kept their own data to themselves. Now we are integrating this into a big data lake that will involve the whole organization.”

“In the next 5 to 10 years we will have the potential to use machine learning to optimize the quality of our processes or we can get more efficient.”

This kind of integration is such a key focus for the IT organization that Straub says he sometimes feels that the CIO title would be better reflected as chief integration officer, rather than chief information offer.

Integration is also a geographical imperative. For example, from 2017 the company is aiming to offer customers many of the same technology capabilities around the world. “When we launch a new car, such as the 7 Series with ConnectedDrive in 10 countries, it means we also need to implement car connectivity in all those regions over a three- or four-month period.”

Looking to the future, Straub sees the next big revolution coming with machine learning. Within the context of the car, that will make self-driving vehicles a reality, but it will also have a major impact on normal business administration with processes such as procurement and accounting being enhanced significantly by increasingly autonomous machines.

“In the next 5 to 10 years we will have the potential to use machine learning to optimize the quality of our processes or we can get more efficient,” he says. “I think machine learning will be the next big wave. And that means data becomes the gold nuggets of the future, helping us to optimize our products, get better customer views and optimize our business models.”

It will also accelerate the change in the role of the IT department, he argues. “In the past, we were a service provider and little more. Then we migrated to become a business enabler. But in the next stage, when machine learning is involved, we will be taking over business responsibilities.” And that ability to determine strategic success should not be underestimated. “If we don’t deliver in the IT organization, the whole company will have a problem. The next 10 years are a revolution for the car industry — and for IT.”

• Klaus Straub was a keynote speaker at Teradata Universe in Hamburg.

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