Abstract: In this article, we explore the concept of high-performance software organizations and their significance in the context of traditional automotive OEMs. By relying on our industry insights, analyzing benchmarks from various sources, and drawing insights from high-tech leaders, we present our three-fold Kearney approach to enable traditional OEMs to thrive in the software-driven era. We delve into the essential aspects of setting up such organizations, from strategic alignment to talent acquisition and end-to-end responsibilities. With a focus on four key performance drivers (cost, time, quality, and culture), we provide a comprehensive guide to help companies establish high-performance software organizations that drive innovation, efficiency, and competitiveness.
As the automotive industry evolves, traditional original equipment manufacturers (OEMs) are realizing the growing importance of software in their products and services. To keep pace with the competition, these OEMs must embrace a paradigm shift and transform into high-performance software organizations. This article outlines a proven approach based on benchmarks and insights, equipping traditional OEMs with the tools to succeed in a rapidly changing landscape.
Software organizations play a pivotal role in driving innovation, reducing time to market, ensuring product quality, and fostering a culture of collaboration and end-to-end responsibilities. To achieve high performance in the software domain, traditional OEMs must focus on four key performance drivers (see figure 1).
|Performance KPIs||Traditional||Challenger||Key performance driver|
|Cost: Platform development costs||$4–6 billion||$0.5–1 billion|
|Time: Feature time to market||6+ months||1–2 months|
|Quality: Ability full vehicle test||Monthly||Every 2nd day|
|Culture: Individual outcome responsibility||20–30%||80–100%|
Cost: Establishing a unified and stable platform.
Our case studies from challenger OEMs highlight the impact of a unified platform on cost reduction. By consolidating software development efforts, challenger OEMs can streamline software customization, and reduce redundant systems and efforts, leading to an overall platform cost reduction of up to 80 percent.
Time: Setting up a fully integrated end-to-end toolchain.
Insights from challenger OEMs demonstrate the strategic benefits of an integrated end-to-end toolchain that enables real-time interaction between development, testing, and in-field operations. As a result, the time to market was reduced by more than 80 percent, allowing challenger OEMs to launch new features faster than traditional OEMs.
Quality: Installing customized test stands with in-house integration.
Our case studies show that quality-focused testing and integration strongly impacts product reliability. Challenger OEMs significantly invested in in-house test stands that simulate real-world scenarios, resulting in almost daily full-vehicle tests, with almost zero post-release defects and significantly higher customer satisfaction.
Culture: Giving power to the people, empowering end-to-end responsibilities.
Challenger OEMs embrace an agile culture, empowering product teams with decision-making authority and owning features end to end, from ideation to maintenance. This cultural shift improved innovation and employee satisfaction, leading to a 60 percent+ increase in productivity.
Our three-fold approach to high-performance software organizations is based on Kearney insights, benchmarks of challenger OEMs, and lessons from high-tech leaders that successfully transitioned to software-driven business models (see figure 2).
Source: Kearney analysis
Unveiling the "why"
Prior to delving into the realm of software organizations, traditional OEMs must first gain clarity on the reasons for establishing a software organization and the extent to which it impacts their long-term business strategy. This requires cohesive alignment across the organization, encompassing its mission, strategic objectives, and the value it seeks to create, along with the essential success criteria. Challenger OEMs have software deeply ingrained in their DNA, leading them to adopt a software-first approach in their long-term strategies. This is evident in their long-term revenue expectations, with aspirations to derive more than 50 percent of their revenue from software-driven features. In comparison, high-tech companies shared a similar perspective to traditional OEMs. However, they recognized software as a strategic differentiator and have fully integrated software capabilities and revenue into their strategies. Notable examples have established dedicated high-performance software organizations to effectively deliver on this strategy.
Using software as a strategic differentiator needs a clear product and service strategy, supported by a well-defined long-term business case to outline revenue projections and enablement plans. A key part of this process is conducting a realistic should-cost estimate to ensure platform development costs are below $1 billion. To make informed decisions, should-costing entails a meticulous strategic assessment of which software components to make or to buy on the path toward a unified and stable platform. Most challenger OEMs fully rely on self-developed platform and integration layers, allowing them to incorporate selective applications from various partners. As a result, traditional OEMs must excel in end-to-end (E2E) and real–time integration—the key core competencies that define their future.
Embracing high-performing talent
Effectively realizing the anticipated changes requires the establishment of a dedicated and separate software entity. Breaking the anticipated change down into a clear, long-term product and architecture road map, with distinct responsibilities from the existing R&D organization, is paramount for seamless execution.
To accomplish this, the high-performance software organization must have E2E responsibilities, ensuring swiftness in strategic objective delivery. Adopting a proven matrix structure with separated software and hardware resource pooling, with the role of the integration engineer, is pivotal for success. To bring this organization to life, careful consideration must be given to the location strategy. Choosing the right strategic premises and allowing sufficient ramp-up time to develop a pool of talented professionals is critical.
The role of the "integration engineer" in the future
Once the groundwork has been laid, the next step is to execute and deliver on the defined strategy. This requires a clear ramp-up plan and a target size for the organization. Optimal efficiency is achieved with a lean organization that is centered around the best talent available and that places integration as its core capability. Additional parameters, such as scope and culture, play a significant role in determining the target size and ramp-up of the organization, which must be aligned with the product road map. Therefore, it is essential to employ a robust HR and culture strategy. This entails attracting, retaining, and upskilling the best talent available, through fostering a culture that promotes excellence, growth, and financial attractiveness.
To lay the foundation for an effective E2E software operating model, traditional OEMs must design high-level operations and integration within their organization. This entails defining and implementing processes, methods, tools, roles, responsibilities, and quality standards. Empowering the software workforce with end-to-end responsibilities will ensure that the organization thrives.
Furthermore, creating an overarching governance and steering model is crucial to streamline decision-making, funding, and budgeting. Key governance bodies, such as product boards, monitoring boards, technology boards, and advisory boards, are integral to ensuring effective and efficient governance.
High-performance software organizations are essential for traditional automotive OEMs seeking to thrive in the software-driven era. Our three-fold Kearney approach, emphasizing strategic alignment, talent acquisition, and effective governance, offers a road map to success. By embracing change and optimizing the four key performance drivers, traditional OEMs can unlock the potential of software and maintain a competitive edge in a rapidly evolving automotive industry.
To talk more about your ambitions and how we can help, please contact the authors below.
The authors would also like to thank Anna Hensel and Tim Haltiner for their support and contribution.
Forward-thinking automakers can thrive in the SDV market by not only learning from the past but also setting their sights on the future.
Although automotive OEMs are using customer data, there is much more they can do.
How to build a cybersecurity strategy that will both reduce risk and yield a return on investment