Cloud: A springboard for future competitiveness

Despite the initial hype, cloud adoption arguably got off to a slow start in the automotive sector, with a number of private cloud initiatives struggling to deliver promised benefits such as scalability and affordable quality of service. Now, however, the move to cloud – and particularly to public cloud – is rapidly gathering pace, for very good reasons. 

This article looks at why and how automotive companies are embracing cloud, and identifies some related trends to prepare for. It draws on both our work with automotive clients and recent Capgemini research. ¹

There are many reasons why cloud is attracting automotive companies today, but the biggest is the need to win the battle for the digital space. Provisioning of digital services and platforms is easier in the cloud, for everything from already well-established in-car connected services to innovative virtual showrooms. Another factor is the recent cloudification of production processes – something that nobody foresaw even just a few years ago.

A further important motivation for moving to the cloud is the need to modernize legacy platforms. Legacy systems are becoming hard to run because relevant in-house capabilities may no longer be available. Another factor is the ending of product support by technology suppliers. For example, SAP’s move to S/4HANA means that all SAP users and implementations will have to be moved across by 2025, when maintenance of the earlier versions will be discontinued. Unsurprisingly, two-thirds of automotive companies acknowledge migration to S/4HANA as one of their top three IT projects for the near future.

Lack of support, of course, is not the only motivation for moving away from legacy systems. Equally importantly, these systems simply cannot provide the level of interaction with suppliers and other partners that companies now need. Business today is going beyond just-in-time and just-in-sequence towards ever-closer integration between companies and their suppliers and partners. It’s crucial to make processes as flexible as possible, and to manage them accurately to ensure that the business runs like a well-oiled machine. 

Only with high reliability and tight coupling between elements of value/delivery chains can processes be fully optimized and reliably run. So one of the most compelling reasons for moving to the cloud is the opportunity to slash go-to-market time for new services by adopting software as a service (SaaS) offers, or by deploying to the stable, scalable, cross-regional infrastructure available from a “hyper-scaler.” The company no longer has to worry about ordering, configuring, and administering hardware and basic software components.

Further encouragement to move to the cloud arises from the drive to standardize IT solutions. Particularly for smaller automotive companies, this type of standardization is a major opportunity to access the best IT solutions in return for modest expenditure, minimal disruption, and optimal timescales. 

For companies of all sizes, greater standardization offers a chance to avoid the maintenance costs and difficulty in upgrading that are associated with highly customized solutions. Companies today need to be renewable enterprises, constantly transforming themselves to keep ahead of the market. As the innovation cycle gets faster and faster, it is critical to be able to benefit from the latest software releases. Cloud solutions make this possible, and also provide the opportunity to standardize business processes along with technology, which can bring further cost reductions. Unsurprisingly, 90% of companies are keen to standardize. 

Outsourcing is an additional factor in the move to cloud. As many as 63% of companies are aiming to increase the level of outsourcing in their organization. More and more, outsourcing means cloud – and our research shows that more than half of IT services are now deployed in the cloud. 

An increasingly important argument for cloud computing is the sustainability benefits that are available through closing down corporate data centers and instead obtaining computing capacity from cloud providers. With capacity shared across many organizations, less is needed in total, so that waste is reduced. Cloud operators can also manage the capacity in more energy-friendly ways, switching servers on and off dynamically in line with current usage. There is also the opportunity to site centers in, for example, Nordic countries where it is easier to achieve “green IT” thanks to factors such as availability of renewable energy and more efficient cooling because of the climate. Increasingly, cloud providers are competing with one another to provide the most sustainable offers.

For all these reasons, the automotive industry is now widely adopting cloud. What’s more, our research suggests that a third of automotive companies are planning to expand their cloud sourcing in the near future, from an already established base rather than from scratch. 

For example, in the sales & marketing arena, leading OEMs are moving large segments of their sales and after-sales platforms to the cloud, or replacing them with cloud-based solutions such as Salesforce. The focus here is usually on packaged solutions whose vendors provide their own cloud platforms. Some OEMs, too, are implementing their own innovative digital/direct sales solutions on cloud platforms, while also establishing unified customer data management. At the same time, a move to custom SaaS solutions is evident; for example, we have worked with an automotive client to build a solution of this type for customer messaging. These various initiatives can be combined into “sales clouds” – hybrid platforms often including business ERP software.

Large companies’ production and logistics processes, often spanning more than 100 production plants globally with a range of heterogeneous legacy systems, are being replaced with unified business platforms. These platforms often have a cloud-based ERP system such as S/4HANA at the core, and a range of specialist and sometimes custom applications integrated with it. With RISE, SAP is rolling out its next generation of ERP software, which is rightly being called its “business technology platform.”

Small and medium companies, meanwhile, are embracing a range of standardized, industry-specific offerings. It all adds up to a diverse picture of cloud demand. On the one hand, products such as ERP and CRM solutions from major providers are increasingly only available in the cloud. On the other hand, the industry is generating a whole range of demands for SaaS and other cloud-based solutions. These solutions are expected to address all kinds of business processes and to facilitate business innovation “out of the box.” 

Most of these solutions are being deployed on public cloud platforms hosted either by the SaaS providers themselves or by infrastructure providers such as AWS, Google Cloud, and Microsoft Azure. These options appeal to automotive companies following disappointing private cloud experiences in the past. Public cloud has the ability to scale up and down flexibly while maintaining quality of service at affordable cost, in a way that is very difficult with private cloud. Doing so is, after all, part of a cloud provider’s core business, but not that of an automotive company.

The fact that major public cloud platforms are operated from outside Europe is not an issue for the automotive companies. In fact, there appears to be less interest in European cloud initiatives than there was a few years ago, which may reflect the fact that automotive companies tend to see themselves as global rather than European. It remains to be seen whether auto-specific cloud initiatives such as Catena-X will offer enough to attract interest back to European cloud-based services.

Willingness to use public cloud does not, of course, imply a lack of interest in issues such as data sovereignty, security, and privacy. OEMs and other automotive companies are increasingly conscious of these needs, particularly as the growth of public cloud coincides with an increasing awareness of the value of data, especially customer data.

This awareness of, and demand for, data sovereignty, security, and privacy can be expected to grow rapidly in future. Another major cloud-related trend is the increasing tendency to develop ecosystems to facilitate data exchange between OEMs, suppliers, and others; the cloud provides the most suitable platform for doing this. 

This trend is linked to automotive companies’ ambitions to monetize data – something that is made possible by increased use of digital services (which generate prolific customer data) plus the growing accessibility of data from partner ecosystems. There are a variety of ways to monetize data, including selling it to others and, crucially, using it to realize internal cost efficiencies, offer more attractive and lucrative digital services, and achieve more effective cross-selling.

Yet another cloud-related trend is the growing use of advanced development techniques such as BizDevOps, where business, developers, and operations work closely together. Another example is continuous integration and continuous delivery (CI/CD), which results in frequent releases of new functionality to the live environment. Companies will need to learn and utilize best practices, adopting new organizational structures, roles, tools, and methods. In matters like this, automotive companies will look to emulate the likes of Facebook, Amazon, Apple, Netflix, Alphabet (formerly Google), and Spotify – the digital frontrunners collectively known as FAANGS. Companies should also learn from recent entrants to the automotive industry. 

There are certainly a lot of decisions to be taken when moving to cloud, but it makes no sense to delay that move any longer. Cost, scalability, and quality of service are all important arguments for moving now. But the most important of all is that, by using an established cloud-based IT infrastructure and leveraging cloud-based ERP and other software, it becomes possible to focus on differentiating the business through innovative digital processes and services. And that’s the way to embrace intelligent industry and win the battle for the digital space.

^{1  This research was conducted for the Capgemini IT Trends Study 2021. Statistics quoted in this article are from that study unless otherwise stated.}