Six transformation secrets for auto industry leaders

Munich, December 2022

Six transformation secrets for auto industry leaders

Munich, December 2022
L

eaders must not be afraid of the transformation and the far-reaching measures that will be required in order to succeed

The car industry is going through a period of enormous change. Increasing demands from customers and regulators for more sustainable cars and a series of global crises have combined to create huge complexities for companies. These require radical re-thinking of decades-old business models and consistent, decisive action by leaders.

We believe carmakers need to announce a “general state of transformation”. Transformation involves questioning the familiar at the same time as learning new competencies and skills. It means processing and managing multiple new states of being at once. Automakers must break away from their traditional organizational structures and ways of working, supported by temporary structures focused on ensuring the transformation succeeds.

Managing this process exponentially increases the demands placed on management teams. It is the responsibility of leaders to steer the company quickly from its old organizational and operational structure to the new, transformed state (see Exhibit 1).

Authors
Peter Eltze

Partner

Laura Kronen

Partner

Theresa Stütz

Project Manager

Exhibit 1

Source: Malik, Berylls

Managers need to identify the future state they are aiming for and not be afraid of the transformation and far-reaching measures that will be required in order to get there.  The future success of the company should be based on the understanding that change fixes the past, transformation creates the future.

In our experience working with some of the world’s biggest automotive OEMs, six secrets help management teams to lead their organization successfully through the state of transformation:

Secret 1

Take on board the transformation’s purpose and pursue it consistently

Secret 2

Show humility and respect toward the company’s history and values

Secret 3

Convergence of strategy and organizational development are essential

Secret 4

Set and follow your transformation plan consistently and purposefully

Secret 5

Create the transformation team from a balanced mix of experienced and younger managers

Secret 6

Make sure that every staff member recognizes their contribution to the transformation

Secret 1

Take on board the transformation’s purpose and pursue it consistently

Transformational power should always come from an organization’s top management. They have to be prepared to consistently make transformation their top priority – and to make the required changes in their own ways of working too. Leaders must exude a genuine enthusiasm for transformation. The whole system can only be successfully implemented when a strong will and desire for transformational change is displayed at top management level – and when the management team acts as if the path to be followed has already become reality.

Successful transformation is often initiated by “top down” messages that put the whole system under pressure. These messages act as amplifiers that propel the company into action: it can no longer break away from the path it must follow.

The transformation’s purpose should be defined and shaped by a small group, otherwise there is a danger that it could remain under discussion for too long. However, leaders should also create a big enough coalition of supporters in advance of the transformation work starting, to help them convey the purpose in detail. Individuals whose support for the purpose seems to be wavering should be closely observed and reassigned if there is any doubt.

Secret 2

Show humility and respect toward the company’s history and values

Successful transformations actively engage with the past and uncover how the company’s ability to change has shaped it to date. The lead questions to be kept in mind are: where have we come from? Why is it like that? Which patterns can be broken and which ones not? Leaders should keep in mind that there are almost always good reasons why company structures are as they are and why people behave like they do.

By recognizing current structures and cultural patterns, and treating them with respect, leaders can evaluate where there is a need for action and where radical changes cannot be initiated overnight.

Secret 3

Convergence of strategy and organizational development are essential

Integrated strategy and organizational development involves combining the conceptual perspective of strategic thinking and acting with the organizational perspective and continuously harmonizing them. This is where we talk about ensuring convergence: the elements of strategy, structure and culture have to be continually examined for consistency and coherence, and the effects of change have to be monitored so that the whole system is optimized rather than only individual elements of it.

When it comes to transformation, the translation of strategy into organizational development such as organizational structure, monitoring systems, IT infrastructure and Human Resources should be examined and adapted just as leadership and culture should. This should be carried out very quickly after the finalization of the strategic target picture, so that a transformation concept for changing the relevant elements can be directly developed and implemented.

All too often, organizations are adapted after too much time has elapsed, and momentum for supporting the transformation cannot be used. Even if the idea of convergence is not new, in practice it is very challenging to implement because it requires a lot of cooperation and alignment between the relevant functions in the organization. There are usually no identifiable organizational tick boxes for elements such as culture and leadership. Setting organizational requirements such as re-interpreting the role of organizational development and investing strategic and organizational functions with creative and joint responsibility has proven to be helpful. This central function oversees convergence during the transformation and works closely with individual functions.

Secret 4

Set and follow your transformation plan consistently and purposefully

The planning component of a transformation is designed to deliver consistent implementation. From the outset, it is essential to convey the transformation plan in a clear and structured way and to set up a firm performance framework which is closely monitored by strict milestone tracking and impact assessment.

Of course, even with the best planning in the world, there is no protection against unfavourable and unforeseen outside conditions, as the events of the past three years have made clear. Leaders must therefore remain extremely alert to changes in the environment. Jim Collins even speaks of a “planning paranoia”, which can be converted into productive action.

The secret is to stick to planned objectives, not underperforming but at the same time not striving for even further-reaching results that go beyond the scope of the current transformation. This is because even if it seems tempting to overdo the speed, scope, and other elements, organizations cannot usually keep this up over the long run and the positive momentum behind the transformation is lost. For the same reason, it is important during the planning phase to scrutinize transformation plans closely and examine their feasibility for the organization.

Secret 5

Create the transformation team from a balanced mix of experienced and younger managers

The core transformation team plays a key role in the success of the overall initiative, and it is essential for top management to choose the members very carefully. In our experience, the ideal team is a mix of experienced managers and younger managers who are keen for change. Experienced managers are usually adept at assessing feasibility, practicability and potential risks. At the same time, there is also a need for adventurous and courageous input from those who see the situation with fresh eyes.

Whereas experienced people in the final stages of their career have little to lose and are in a good position to hand over the new course of action to the next generation, the most dangerous group for the success of the transformation is those who have achieved a degree of seniority and stand to lose it through the changes.

The importance of communicating in an empathic way therefore cannot be underestimated. Conceptual skills are in themselves not sufficient for a successful implementation of a transformation; rather managers are needed who lead staff with empathy and who radiate stability and security in uncertainty.

Secret 6

Make sure that every staff member recognizes their contribution to the transformation

Management needs to not only fully understand and steer the transformation with all its interdependencies; they also have to ensure that all members of staff can make a contribution. Leaders should ensure from the start that people can understand what the transformation purpose means for their role, discover how they can contribute to the purpose, and take ownership of it. Staff should understand why the transformation is the right thing to do, what contribution they are making, and what every individual needs to do to help the transformation take place successfully. If these elements are in place, the chances of a successful transformation will be considerably greater.

Conclusion

The automotive industry is confronting changes that exponentially increase the demands placed on management teams. This unique challenge requires leaders who have the vision and the stamina to transform their organisations’ core, organisation and value chain all at the same time.

They must lead top-down and build a coalition of the willing around a shared purpose at the same time as acknowledging and honouring their organisations’ past successes. They must ensure that strategy and organisational development are in full lockstep by ensuring that transformation-critical functions remain closely aligned without straying from the transformation roadmap they have committed themselves and their organisations to.

 

The most successful transformation managers rely on mixed teams that represent the best of the old and the new while ensuring that employees understand how their roles are impacted by the transformation and how they themselves can contribute to its success.

Too many transformation initiatives flounder because leaders fail to fully integrate the demands of the transformation in their every action. In so doing they risk arresting their organisations in permanent firefighting and thereby compromise their organisations’ ability to adapt and its members’ trust in the transformation effort itself.

Examples:

Example Mercedes-Benz: A consistent premium strategy
  • Mercedes-Benz has set itself the goal of pursuing a consistent premium strategy and defining sustainable and modern luxury of tomorrow.
  • The strategic direction was clearly communicated and the purpose was specified top down: profitable growth instead of volume focus, no mainstream expansion but dedicated focus on the growing and attractive luxury segment, at the same time reduction of complexity in other segments. With this, Mercedes-Benz sends clear message to develop to a premium/luxury manufacturer and to take away the focus from the volume segment.
  • This is accompanied by tremendous changes for the organization and the people who work on the affected products. To exit a complete segment means to free oneself along the entire value chain - from development to production to marketing.
  • The clear and confident announcement of this major change led to the organization being moved to action, with a clear focus on implementing the vision rather than questioning taking up space and time. The organization is thus left with the strength and positive momentum to concentrate on intensive transformation support, which must be carefully considered in order to be successful.
Example Porsche: Porsche’s early electrification strategy
  • In terms of new vehicles, Porsche has set itself the goal of already achieving 50% of sales with fully electric vehicles by 2025 and increasing this rate to 80% by 2030. To this end, the entire portfolio will be fully electrified, with the exception of the iconic 911.
  • This means that - despite a target group with a historical high affinity to combustion engines - the transformation from an absolute position of strength with high market success in the combustion performance segment was initiated early on and pursued consistently.
  • The example of the Taycan clearly illustrates this: the strategic product decision was made almost 10 years ago. The Taycan is the full concentration on its own platform & architecture, including its own 800 volt system. Making this decision at that time shows how clearly Porsche strategically initiated the transformation at an early stage and believed in it. Moreover, Porsche has made investments in an own production of high-performance battery cells, consistently expanded services such as premium charging parks or wall boxes.
Example ZF: Transformation ZF E-Mobility: Electrified Powertrain Technology
  • ZF Friedrichshafen’s Electrified Powertrain Technology division, in which ZF bundles all its technologies related to electric vehicle drives since January 1st, 2021, has successfully launched the largest “Capability Building” initiative in the company's history. More than 12,700 managers and employees worldwide are learning, networking, and developing themselves, and their teams to master the transformation from combustion engine to e-mobility.
  • Within months, participants build-up comprehensive knowledge and skills in all aspects of e-mobility. This gives them the opportunity to upskill or even reskill professionally, to onboard successfully to the new division or to recommend themselves for new job profiles.
  • The ZF E-Cademy is intended to establish a new, strong learning culture that focuses on collective and individual learning experiences via a modular, platform-based blended learning offer. It impacts all areas of business, from strategy, innovation, employee engagement, employee retention, and many other elements of the organization. This is a major step towards creating a strongly positive transformation momentum and ensuring that employees recognize their personal contribution to transformation.
Theresa Stütz

Theresa Stütz (1991) joined Berylls Strategy Advisors in December 2017. Meanwhile she is associate partner and automotive downstream expert.

She has been advising automotive manufacturers in a global context both in the luxury and premium segment. She has in-depth expert knowledge in the areas of sales and marketing, particularly in the context of customer experience strategies. Other areas of expertise include strategy development processes, Go-to-market strategies and transformation management.

Theresa received both Bachelor and Master of Science in Management and Technology (Mechanical Engineering) at Technical University of Munich.

Peter Eltze

Peter Eltze (1964) joined Berylls Strategy Advisors as a Partner in November 2015. He began his career in the medical technology division of an integrated technology corporation, and became a project manager at Malik Management Zentrum St. Gallen in 1996 before being appointed Partner in 2001. From 2003, in his role as member of the executive board, he was in charge of Management Education & Development. Since the end of the 1990s, Peter Eltze has advised companies in the automotive and mechanical engineering industries. At Berylls, his consulting activities focus on integrated organizational development (strategy, structure, culture), transformation management, and executive development.
Education in wholesale and international trade; administrative sciences at the University of Constance, Germany.

Laura Kronen

Laura Kronen (1980) is a partner at Berylls Group with a focus on transformation. She is passionate about moving people and organizations forward. With over 18 years of industry and consulting experience, her focus is on transformative challenges in the operations context – from executives to individual employees, at manufacturers and suppliers. She helps her clients align strategy, structure, and culture in their respective market environments to build resilience.

Prior to joining Berylls, Laura Kronen worked at PwC Strategy&, Volkswagen AG and Audi. She holds a diploma degree in industrial engineering from the Karlsruhe Institute of Technology (KIT).