Automotive suppliers are desperately seeking ideas for the lucrative, digitally supported business of tomorrow. They are pinning their hopes on internal company incubators, and even sending startup scouts to Silicon Valley. A report.
Digital door locks, smart light switches and electric-powered wheelchairs – none of these products have much to do with cars, but they all originate from one of the titans of the auto industry, the supplier Continental. In the summer of 2017, Continental kicked off an unusual campaign. 30,000 of the Group’s employees worldwide were asked one question: “Who has ideas for the business of the future?” The feedback to this Group-wide brainstorming effort was huge, taking even the initiators by surprise. 420 concepts were submitted in just three months. “It was as if the people at Continental had been waiting for us to ask,” says Jürgen Bilo, CEO of
Co-Pace, a Continental subsidiary that incubates and drives the Group’s start-up initiatives.
Three ideas made it through a series of preselection rounds, and the intrapreneurs then embarked on Co-Pace’s three-month incubator program to develop prototypes and hammer out a workable business model – with financial backing and professional experts to champion the ideas and give advice. The program is delivering results fast, and Bilo is delighted to report that the first idea is going into practice: “The digital door lock team is establishing a spin-off.” Continental’s promise to the would-be innovators is this: get away from it all – in a quiet space that is a worlds apart from everyday company routine, and put your vision into practice. And if the idea fails to take off, you can go back to your old job. Guaranteed.
Disruptive innovations usually fare better in incubators.
Other auto suppliers are pursuing similar ideas. ZF Group, known for its transmissions, last year also staged an
ideas contest, and staff at Bosch can move to a dedicated floor at the Bosch R&D campus to incubate their ideas. The auto suppliers are not only looking for fresh ideas in their own ranks. They are extending the quest outwards, scouting around the digital economy hotspots for startups they can potentially cooperate with, and even founding their own venture subsidiaries to invest in or buy young companies. These moves all stem from the same insight: the road to a digital future is paved with fresh ideas and new alliances.
R&D reinvents itself
Time is short, because the automotive supply industry is heading for an unprecedented crisis. At least, that is the view of US expert
Paul Eichenberg, former top manager at leading automotive supplier Magna. Eichenberg estimates that by 2030 no fewer than 75 of the 100 largest suppliers could be obsolete, ousted by electrification. E-cars will need few of the parts that generate most of today’s revenues for German auto suppliers. Transmissions, exhausts, spark plugs: all soon to be superseded by new technology. The industry knows this – and is busy expanding its product portfolios in response. Yet traditional priorities still carry huge weight. According to Bosch CEO Volkmar Denner, 90,000 jobs at Bosch are still reliant on the combustion engine. At ZF, 22 percent of sales are down to the powertrain business, in other words transmissions.
It’s less about exclusivity than about speed.
To survive in this world, suppliers will have to do more than tweak existing technology and roll out the latest version of a part every few months or so. They need to pull off something big. But landing a major coup is exactly what classic R&D departments tend not do not do. “Disruptive innovations generally fare better in incubators than in the corporate environment,” explains Rainer Holve, Chief of Digital Innovation at Hella, Lippstadt. In addition, radical innovations can initially seem unimportant, and are dismissed as niche topics. Even large R&D departments can overlook huge opportunities. “One way out of this time-worn dilemma is to look elsewhere for innovation,” says Holve.
Looking for a match in Silicon Valley
Looking elsewhere means looking beyond the immediate locality. Idea hunters must cast their net far wider, from Berlin to Bangalore, Tel Aviv and Silicon Valley. But do the Americans, in particular, have suppliers from Germany on their radar? “They do, once we’ve explained who we are,” says Arwed Niestroj, Vice President at ZF and head of the ZF branch in Sunnyvale, California. His job is to scout out young companies. “Theoretically, I could spend twelve hours a day listening to startup pitches,” says Niestroj. “But what matters is identifying the right ones.”
Jürgen Bilo’s Co-Pace team controls Start-ups at Continental (Photo: Continental)
Both ZF and Hella are supported by the company
Plug and Play, a startup accelerator. Every year it examines 5,000 business plans, selects 160 founder teams and provides them with an ecosystem of everything they need to grow: office space, capital and pitching sessions, where they can introduce themselves to potential partners from industry. Many corporates work with Plug and Play because it is easier and cheaper than mounting a worldwide idea search themselves.
What German suppliers are looking to achieve in Silicon Valley is to get into business as fast as possible with interesting startups. “It’s less about exclusivity than about speed,” says Niestroj, who previously headed Mercedes R&D in North America. What the startups are after are partners who can help them with their proof of concept to demonstrate their idea can work and can be taken into practice in industry. The German suppliers are ideal: they can contribute technology, data from millions of technical systems and the knowledge of how to make technology suitable for cars.
You can’t just tell a Berlin startup: ‘you’re moving to Lippstadt!’
Innovation expert Bilo from Continental summarizes the key question: “Can something work in series production, and can it be scaled up?” The suppliers’ proposition to external innovators is this: the supplier has the right to use the innovation and, in return, they help to turn the concept into a business. If the startup takes the supplier up on its offer, the partners get down to business: confidentiality and declarations of intent are signed, and four to six months are spent crafting the joint product and negotiating with patent lawyers to hammer out intellectual property agreements. Ultimately, a deal can take many forms: the corporate can license the startup’s product, become a shareholder, or even buy it in full. In most cases, though, a cooperation is the preferred format.
The suppliers are keeping quiet on how much money is flowing to the new innovation channels. Investment in incubators, cooperations and startups are not reported separately in the accounts, so true figures can only be estimated. Hella, for example, currently puts the value of its investments in joint ventures and associated companies at 15 million euros, including financial commitments in startups. To give this figure some context, R&D spending was 42 times higher, at 636 million euros.
Convergence of old hands and young trailblazers
A striking number of deals are being struck between the old and new auto worlds: Continental last year acquired a minority stake in the French company
EasyMile, which makes self-driving electric shuttles. In 2016, ZF acquired a stake in Ibeo, a Hamburg-based manufacturer of laser scanners, a key technology in self-driving cars. And Hella’s incubator in Berlin last November unveiled its first spin-off, Brighter AI. The new company’s product is a self-learning computer program for enriching visual data: for instance, video filmed at night can be made to look as if it were filmed in daylight.
Yet scouting out a high potential innovator overseas is only half the battle. The company at home has to be open to what the revolutionaries beyond the factory gates have to say. Here lies the true challenge of co-innovation or
co-creation. “You have to keep the channels of communication with business departments open, and get them interested,” explains ZF digital expert Niestroj. And this takes a lot of discussion, perseverance and the ability to cite successful cases from practice: “It is not an easy task.”
Since this year, the ZF test car has been driving with the aid of autonomous functions (Photo: ZF)
What really ramps up the challenge is making outside innovations part of the corporate group. “You can’t just tell a Berlin startup: ‘you’re moving to Lippstadt – here is your company badge’,” emphasizes Hella’s Chief Digital Officer Holve. The structures of a big corporate, its way of doing things, can have an unsettling effect on young innovators. To prevent them heading for the hills, there has to be a soft transition. “We are working on a kind of acceleration lane,” explains Holve. Hella is now looking for space in Lippstadt to accommodate these “spin-ins”. With a dedicated space, young companies that have sprung up in Berlin, for example, can be eased into the corporate ecosystem more effectively. In the acceleration lane, the young companies will find the usual startup spirit, with few rules and the scope to take courageous decisions.
It is not yet certain whether the auto suppliers can genuinely achieve the disruptive change they are seeking. Open innovation is basically a scattergun approach: some shots hit the mark, but there are plenty of misses. There is little appetite to talk about the ideas that bomb, but it is an open secret that ideas competitions often lead to way-out – and worthless – concepts.
Lead image & sidebar: ZF