Reference no: EM133292508

Assignment:

Questions:

1. Analyze the Audi's drivers of the digital transformation (Please refer to the D. Rogers framework and stick to the information provided in the text). (Session 1)

2. How did Audi get a competitive advantage(Pick one and explain: Enhance customer intimacy, Operational excellence, New Business model)? (Session 2)

3. What is the strategy approach of Audi? (please explain) (Session 3)

4. How did the company ensure its digital growth? How did Audi achieve it (Pick one and explain: Integration, Separation, Ecosystem)?

5. Analyze how did Audi manage the risk of the sharing mobility platforms (Pick one and explain: Strengthen business as usual, Invest learn-act, Step-out and partner, Hybrid , Expand-and-compete)? (Session 4)

6. Analyze the differentiation strategy of AUDI

7. Explain how this differentiation strategy enables AUDI to get a competitive advantage compared to the competitors

Case:

Increasing digitization has brought massive changes for car manufacturers. As the CEO of AUDI AG, Rupert Stadler, put it: "Never before in nearly 130 years of automotive history has our industry changed as fast and as completely as now: How we engineer our cars, how we produce them, how we present a new model, where we sell it, who we sell our cars to and who we work with in the future."

As part of this industry transformation, car manufacturers face competition from multiple types of companies. On the one hand, new entrants like Tesla and technology companies like Google and Apple are working on digitally enhanced, electric or self-driving cars. On the other hand, popular ride-sharing services such as BlaBlaCar, Lyft and Uber are leveraging the "sharing economy," a growing trend that prioritizes mobility over car ownership.

While the first type of competitors attack incumbent car manufacturers on their home turf by providing new types of cars for people to buy, the second type threaten the foundation of the car manufacturing industry by providing customers with a substitute to owning a car in the first place. In response to this threat, premium car manufacturers like Daimler, BMW and AUDI are going beyond using digital technologies to create "smart, connected" cars; they are also starting to develop IT-enabled mobility services, built around car sharing.

AUDI had to find ways to differentiate itself strategically both from the car-sharing services offered by its direct competitors Daimler and BMW, and from sharing economy "pure-players" (i.e., companies that generate most of their revenue from the sharing economy). While many leading players in the sharing economy (Uber, Airbnb, etc.) follow an asset-light approach, AUDI's approach had to turn owning the cars it produced into an advantage.

Sharing economy business models are very different from AUDI's traditional and dominant business model (i.e., manufacturing and selling vehicles), so the company also had to make transformational changes in its organizational structure, processes and architectural approach to digitization.

By 2016, AUDI was exploring new sources of revenue based on the sharing economy. These new sources derive from mobility services that help people get from one place to another, whether they own a car or not. However, if these mobility services became successful they would potentially threaten AUDI's traditional business model, as customers might switch from owning Audi vehicles to becoming subscribers of AUDI mobility services. Within AUDI, Audi Business Innovation GmbH (ABI) was exploring and piloting a variety of mobility services.

Offering mobility services presented AUDI with a fundamental strategic challenge: the company had to differentiate its mobility services from those of its direct competitors (specifically Daimler and BMW), as well as from native sharing economy companies (such as Uber and Zipcar).

Daimler and BMW had introduced their car2go and DriveNow car sharing programs in 2008 and 2011, respectively, several years before AUDI began to launch its own mobility services. Given car2go's dominance, offering a similar service would likely lead AUDI into either an "arms race" for coverage with number of available vehicles or a price war, both of which were undesirable. Moreover, by mid-2017, Daimler and BMW were reported to be in advanced talks about merging car2go and DriveNow. Hence, being late to the market of mobility services, AUDI needed to determine how to position itself strategically to differentiate itself from these offerings. While both BMW and Daimler are positioned in the premium car manufacturing segment, they used their respective entry models (mostly Minis and 1 Series BMWs, and Smart and Mercedes And B-class cars, respectively) to offer mobility services to a relatively unsegmented target audience.

AUDI decided to offer services that differed from those of its competitors by seeking to transfer its positioning in the premium car segment into the mobility services space. As Marcus Keith, Director Development Operating Systems, Audi connect, put it: "The question is, what is the definition of premium in [a more digitized world]? Is it time? Is it features in the car?

Is it convenience?"

AUDI sought to answer these kinds of questions by experimenting with different mobility services. All of the experiments involved combining mobility services with up-market Audi models. Audi at home collaborated with developers, property managers and residents of luxury residences to develop mobility services (e.g., the residential community LUMINA advertises the "exclusive" service as a benefit of being a resident). Audi on demand offers a concierge service that brings the car to the user instead of the user having to collect the car. Audi unite makes driving a premium car available to a broader audience. Indeed, many Audi select customers choose three high-end models for different seasons, such as a convertible for the summer, a four wheel drive SUV in the winter and a luxury limousine for the remaining time.

Finding ways to stand out against other premium car manufacturers would not be enough, though. AUDI's mobility services also compete with other sharing economy companies, such as Uber and Zipcar, although, as of yet, none of these competitors focuses on the premium segment.

But AUDI identified another source of differentiation. Unlike pure mobility services companies, all of AUDI's mobility services use cars equipped with Audi connect, and these cars are manufactured and owned by AUDI. Although sharing economy companies like Uber and Airbnb are often envied for their asset-light business models (Uber does not own cars, Airbnb does not own residences), AUDI was convinced that the connection between mobility services and a car manufacturer presented a potential source of competitive advantage against non-integrated providers of mobility services.

"The USP [unique selling proposition] will be at the connection between the car and the [connected car] IT platform. We can use data from the car no one else is able to get, because we have this [trusting relationship] with AUDI AG." Felix Breitstadt, Manager Cooperations and Long-term Strategy, Audi Mobility.

For example, one crucial requirement of AUDI's mobility services was to find a secure way to open and start luxury cars with a "digital key" on a smartphone without requiring a physical key to be left in the car. Audi developed a digital key solution for ABI that met this requirement-a feat that companies like Zipcar would find difficult to replicate, given the many different car brands it uses.

"When we talk about the digital key, there's no safer way than ... the standard 100% integrated solution. We can share an A8 or R8 because we don't run the risk of losing the car to theft. [A car sharing competitor] did some testing with premium cars, but the cars were stolen right away. So they stopped that. [Our intimate relation with Audi] will allow us to [use] luxury cars and [follow a] premium approach." Felix Breitstadt, Manager Cooperations and Long-term.

Strategy, Audi Mobility

Developing the digital key was a prerequisite to moving car sharing services into the premium segment. However, it was questionable whether this alone would be sufficient to enable AUDI to compete successfully with mobility services in the long run. Hence, AUDI also explored services that target different segments than its competitors.

Another way AUDI sought to differentiate itself was through segmenting the users who would share an asset. The different mobility services AUDI experimented with addressed different groups or segments of car sharing users: With Audi unite, a closed group of family members, friends or neighbors was able to share a car; with Audi at home, all tenants of a specific building share cars; and with Audi shared fleet, the employees of one company share cars. The question AUDI was trying to answer was "what are appropriate groups of people willing to share and able to benefit from sharing a car?" Although AUDI hasn't yet found a definitive answer to this question, experimenting with different groups has helped the company to get a better understanding of car sharing market segments.

So far, popular car sharing services have mostly addressed an unsegmented market or segments based on service/price (Uber Black vs. Uber X; different types of cars to rent via Zipcar). They have not addressed subgroups, such as people in the same residence, people from the same company or groups of friends and family.

Mobility service innovations are now executed by a separate company: Audi Business Innovation GmbH (ABI), which was founded in 2012 and is wholly owned by AUDI. Prior to that, mobility services projects had been managed within Audi for about 18 months. ABI manages its own profit and loss statement and, with headquarters in Munich, is geographically separated from AUDI headquarters. AUDI had learned that mobility services require approaches that are very different from what the rest of AUDI does.