Abstract
For decades, the German automotive industry has benefitted from a process of IT-enabled transformation with the ongoing deployment of state-of-the-art IT. Despite the high relevance of IT for innovation and process efficiency, the industry has outsourced up to 80% of the IT budget to external IT providers as IT has generally not been seen as a core competence. In recent years, the phenomenon of digital transformation has emerged, along with the consequent disruptive impacts associated with digital technology deployment. One area of significance in the corporate environment is the current and potential impact of digital transformation on future IT sourcing strategies. Through an analysis of existing literature and a series of in-depth interviews with industry experts, the chapter examines how and why the German automotive industry is reviewing IT sourcing strategies in response to the anticipated implications of digital transformation. A change in the ratio between outsourcing and insourcing has a significant impact on in-house employment and third-party business operations.
TopBackground On The German Automotive Industry
The German automotive industry consists of original equipment manufacturers (OEMs) and a three-tier supplier network. The term “OEM” is used synonymously with vehicle manufacturer in the automotive industry. The activities of automotive suppliers vary between the production of complete vehicle modules and systems (Tier 1), the production of individual components (Tier 2) and the production of standard parts and raw materials (Tier 3). The entire supplier network for the German automotive industry consists of around 3000 suppliers, of which around 500 are German automotive suppliers (Verband der Automobilindustrie [VDA], 2020). In Germany, suppliers generate the majority of the automotive industry's value added (production costs / added value created in the production process) - around 70 percent. The close integration of OEMs with suppliers from various industrial and service sectors, as well as the global network of production and distribution facilities, is considered unique worldwide (Bundeswirtschaftsministerium für Wirtschaft und Energie [BMWi], 2020).
As for many other industry sectors, the economic situation of the automotive industry in 2020 was seriously affected by the coronavirus pandemic. In spring 2020, the pandemic hit the industry hard. Global supply chains were disrupted, and by April manufacturing in Germany was largely at a standstill. Nearly 60 percent of the auto industry's workforce was on short-time work. Compared to 2019, total turnover in 2020 decreased by 13% to €378.2 billion. At €296.4 billion, more than three quarters of the total turnover is accounted for by OEMs. At €242.8 billion, around two-thirds of turnover is generated with foreign customers, demonstrating the industry's high dependence on exports (Table 1).
Key Terms in this Chapter
Electrical Architecture: Refers to the technical design of an electrically powered vehicle. It includes the specifications for the voltage level of the battery and the electronic parts as well as for the software for operating the components.
Autonomous Driving: Refers to the fully automated driving of a vehicle without a driver. Automated driving is seen as a step towards this, whereby various assistance functions gradually control the engine (acceleration), brakes and steering, or intervene in these systems.
Digital Entrepreneurship: The strategic use of a company’s’ digital assets to achieve business goals. This can be dealt with both organizationally and at an individual level. It is often carried out by those responsible for overseeing the digital assets.
Embedded Software: Embedded software is embedded in a product and interacts with it. The software usually performs monitoring, control, or regulation functions, but is often also responsible for some form of data or signal processing.
Industrial Internet of Things (IIoT): The result of extensive networking and interaction between digital systems. This encompasses not only IT hardware such as computers and smartphones, but all imaginable devices and so-called cyber-physical systems, regardless of whether they are industrial plants, machines, vehicles, traffic control systems, entire buildings, etc.
Cloud Sourcing: Cloud sourcing or cloud computing is a form of on-demand and flexible use of IT services. These are provided in real time as a service via the Internet and charged according to use.
Connected Car: A car that can connect to other services and devices via a network. These include back-end systems, other connected cars, one's own home, office, or parts of the infrastructure such as traffic guiding systems.
Core Competencies: A core competence is an enduring ability of a company to gain advantages in the market of its service exploitation. Core competencies are based on special resources, technologies, and skills that other companies do not have or do not have in this form or combination.
Car Operating System: Describes a software platform with a small number of computers for the digital cockpit, the driver assistance systems and entertainment services that are equipped with high computing power and a uniform programming language to enable autonomous driving.