Innovation

Tech alone won't save the auto industry: Leadership must drive culture shift to compete

Auto companies want to become more like software companies, but this isn't a matter of hiring a few engineers.

American auto manufacturers are desperate to reinvent themselves as software companies, following the uber-popular "Software is eating the world" trope. As called out in a Wall Street Journal detailed analysis, "The giant industrial sector has to turn itself into a nimble provider of software and services," a feat "without precedent in business history." This is sort of true, but also sort of not. What is emphatically true is that the transformation will be brutal and, ultimately, unsuccessful for most of the current players.

There are, however, clues as to how to manage the transition successfully. For instance, Microsoft.

Change is hard

One thing that won't help: Hubris. In the Journal's article, Volkswagen board member Juergen Stackmann, for example, talks up the company's chances against software-driven competitors like Uber by touting, of all things, VW's hardware prowess: "They talk about scalability, but where is the added value from Uber? We have a technical foundation and will build connectivity into our vehicles to connect them and our customers to our ecosystem. In the long term, the question will be: Why do you need Uber?"

This fetish with hardware—even the ability to network that hardware together—risks blinding VW and its competitors to the much harder change associated with software: Culture. (In the case of Uber, it doesn't have to build cars to already be worth more than General Motors, Ford, and Fiat Chrysler...combined. The "added value" is connecting dumb cars through smart software.)

SEE: IT leader's guide to the future of autonomous vehicles (Tech Pro Research)

Others, like Navigant research analyst Sam Abuelsamid, think having the hardware is "an ace in the hole" compared to a Google or Uber or Apple. But, again, this fixation with hardware makes it doubly hard for these auto companies to change their cultures, which is harder than any hardware or software technology they may want to embrace. This isn't a matter of investing in a ridesharing company or setting up an engineering center in Silicon Valley, which the car companies have done. No, what is needed is the much more difficult task of changing culture.

For clues as to how to change that culture, they could look to the tech companies they want to beat.

Software shows the way

As tough as it will be for these companies to change their cultures, the very tech world Detroit hopes to emulate has a few notable examples. Apple, for example, has reinvented itself several times, shifting from a computer maker to a phone company and most recently into a services business (built atop that hardware business).

My own employer, Adobe, is one. The decision to shift from a packaged software products company to a subscription-based cloud services vendor required dramatic changes to the company's revenue model, and even more profound changes to company culture (and customer expectations). It has been written up as a case study within Harvard Business Review and likely gets studied by the very auto execs now trying to imagine how to become software savvy.

SEE: Special report: Tech and the future of transportation (free PDF) (TechRepublic)

But perhaps the most impressive cultural and product shift in decades is that of Microsoft. Detroit's need to figure out software is no more difficult than Microsoft's need to adapt to a cloud computing model, given how immensely profitable its traditional software business has been. To put billions in quarterly profits from Windows and Office at risk was a profoundly gutsy move, one that only now is evidencing a payback.

In each of these three examples—Apple, Adobe, and Microsoft—there was one primary driver of change, something that the auto industry has yet to display: Resolute executive leadership.

Microsoft, for example, saw mobile come and go, and saw its neighbor, Amazon, steal a march on cloud computing. Under then CEO Steve Ballmer's leadership, the company slowly meandered toward change, but it wasn't until current CEO Satya Nadella took the helm that the company found a leader it could follow into the cloud era. Given how difficult cultural change is, and how easy it is for the rank-and-file to continue to follow yesterday's game plan, having a CEO that demands change is imperative.

In each case listed above, that visionary, determined leader wasn't hired from without. As nice as it is that Detroit is investing in software startups and ride-sharing companies, and doing various other things to try to buy a clue, all of that comes secondary to elevating a chief executive who will make it ok for employees to feel they can embrace the future.

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About Matt Asay

Matt Asay is a veteran technology columnist who has written for CNET, ReadWrite, and other tech media. Asay has also held a variety of executive roles with leading mobile and big data software companies.

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