In addition to using the findings from over five years of project work, Oliver Wyman interviewed 700 people in a series of surveys, analyzed more than 300 of the most significant innovations in the automotive industry, and studied 500 suppliers and 15 OEMs.
In 2005, the industry invested EUR 68 billion in R&D – that is 4.2 percent of sales, or EUR 783 per vehicle. The continuous cost pressure in the automotive industry created by legislation, competition, increasing risk and stagnating customer demands has a strong impact on innovation management. Traditional cost-cutting programs are not enough – our forecast shows an additional EUR 1,500 of cost reduction (or 11 percent of costs) must be implemented to make car production a profitable business in the future. OEMs and suppliers will have to significantly improve efficiency in all R&D processes to keep costs under control. Furthermore, the effectiveness of each innovation must be investigated. Cost-improvement measures, such as offshoring of engineering, complexity-reduction programs, standardization and modularization or the development of low-cost cars will help the industry control some of the cost increases produced by the growing number of functions.
This will be accompanied by structural changes in the auto industry’s R&D departments. OEMs will only slightly increase their R&D spending. While Western car manufacturers will cap their R&D investments, OEMs from China, India and South Korea will boost their spending on innovation. Overall, the supplier sector and engineering service companies will be the winners of this development with additional R&D spending of EUR 20 billion in 2015 (in 2005: EUR 46 billion). The concentration process in the supplier industry will improve innovative strength and networking opportunities with other partners – another way of cutting costs while increasing the quality of innovations.
Oliver Wyman has analyzed the innovation strategies of the industry’s most successful auto companies. The study “Car Innovation 2015” identifies the levers that car manufacturers and suppliers must pull to become state-of-the-art innovation leaders. Depending on the business design of the supplier and OEM, four dimensions must be brought into alignment: innovation proposition, competence focus and collaboration, innovation business case, and innovation organization and structure. The leading suppliers in innovation management generate a 16 percent higher EBIT margin than their peers – all by employing a clear innovation strategy and balance along those four dimensions. The Oliver Wyman study “Car Innovation 2015” concludes with five recommendations for innovation management in the automotive industry:
- Increase customer orientation and marketing focus on R&D
- Generate a diverse innovation product & services portfolio
- Improve R&D effectiveness and efficiency; reduce innovation risks
- Enhance the innovation culture and organization
- Align innovation strategy according to Oliver Wyman’s “Innovation Strategy Framework”