New social and ecological challenges demand fresh thinking, new approaches and, above all, the courage to forge new paths. With the aim of always offering customers the best solution, the BMW Group is relying on its innovative capabilities as a mobility tech company. Harald Krüger, Chairman of the Board of Management of BMW AG, talks about making bold decisions, how far the BMW Group has come and the role of IT firms and start-ups at the DLD Conference 2019.
Greg Williams: The theme of the conference is optimism, courage.Today, the BMW Group has a mission to reinvent mobility, but the challenge for automotive manufacturers to transform the business is significant. We have a turbulent geopolitical climate with many challenges. Are you feeling optimistic? Are you feeling courageous?
Krüger: I still feel very optimistic. This week, I was in China and when you come back from China you feel optimistic. As a CEO of a company, you need to be optimistic anyway. I never expected to see so much volatility in the political environment, but I'm still very optimistic and you need to be courageous, too.
Williams: If we look at you now and the conversation we’re having here today and we’ve been having yesterday at DLD – obviously we’re talking a lot about large technology platforms, but we’re also talking about start-ups. Do you think there’s a chance that these kinds of businesses are leaving OEMs behind? That they’re more innovative, faster and more agile? Is there a chance that large automotive companies could become tomorrow’s Nokia, tomorrow’s Kodak? How do you prevent that from happening?
Krüger: I mean, you need to take every one of those companies seriously. First of all, mobility services; automotive is a future business, otherwise they wouldn’t be coming into this business. So, everyone believes future mobility is something which will be used and can be a positive business. Secondly, if you look into this field, the markets vary a great deal. I’m in the United States, China and Europe very often. If we talk about autonomous driving, for example, every regulation in those regions is different. So, we as a company need to adjust to Chinese law, to US law, to comply with European law, and regulation will be different in the future, as well – whether it’s CO2 emissions or autonomous driving. The challenge for us is to cope with all three and use synergies to make the right adjustments for the right country. Take Europe as an example: In Norway, three out of four cars BMW sells are already electric today. It comes down to infrastructure and customers’ trust in technology. We need to cope with that uncertainty. It also shows that new players are definitely very important. And that is a clear message. Our industry is not just driven by software. Software will be much more important, and is already very important, but we also need the hardware, motion control and the semiconductors. Only the combination of hardware and software know-how makes the difference. You see this with some of our competitors who are having difficulties with industrialisation.
Williams: Let’s talk a bit about the way to move a large company like the BMW Group forward through this process of digital transformation. Here are hundred-year-old companies with enormous engineering expertise and history. How do you reach the real kind of superfans, the petrolheads? How do you make your internal stakeholders understand that these very fast-moving start-ups and this sort of social trend towards sustainability – which clearly is important for all of us – are more than disruptors? That they are kind of existential threats. How do you get people on board? How do you get people really excited about that vision?
Krüger: First of all, it requires clear leadership from the top. The top team, our senior executive team, our top management colleagues – they need to push it together. It’s not a one-person show. That will fail. But it needs a clear direction from the top. Secondly, you need to bring all the trends, what happens on the outside, into the company. You also need to have a very clear strategy, which you need to execute step-by-step. One of our strategies, for example, is “production follows the market”. We have a big footprint in the United States, a big footprint in China, a big footprint in Europe, to balance chances and risks. We are also clearly driven by what I will call technology leadership. That’s the nice thing about my job and my work with colleagues. We are building great cars and we’re providing innovative services. The next one is a big change for me, as well: transforming the BMW Group into a tech company and making it customer-centric – because, in the past, we were too product-driven. Bringing customer-centricity into the company is a huge challenge, but it also brings speed, which means we can respond to demands and fulfil them faster. To summarise: It’s top leadership, it’s a clear strategy, it’s execution and it’s changing the organisation and making sure that it always feels there is a need to change.
Williams: Just looking at the internal challenges you face: You talked about it a little bit with the changes in the marketplace. I’m really interested in the demographics. Let’s talk about young people. They have the opportunity to work in start-ups, the opportunity to work in large companies. Their priority isn’t necessarily a cradle-to-grave job; they may prioritise flexible working, working on things they’re passionate about or autonomy. How do you square that? How do you attract talents? We’re all in a war for talents these days. How do you get the talents to come to the BMW Group?
Krüger: A couple of things. First of all, a policy, an HR policy, which attracts the right people. If you’re a young engineer, what can be more fascinating than working on autonomous driving? So, we get good people, because it’s the technology game. What can also be motivating is making driving safer. A lot of people still die on the roads. With autonomous driving, there’s a huge opportunity. We can do something as a mobility company of the future for society. Look at what we do, for example, at our Autonomous Driving Campus near Munich, where we have a team of over 1,000 people, which will expand to 2,000. There, German is not required. That’s what we changed. There’s an international group working on the mobility of the future. At our headquarters in Munich, we have people from more than 100 countries working for us. The product, the brand, our people management, the HR policy, definitely the technology of the future and career development are all deciding factors. You also have to give opportunities to people who don’t want a management role, people who want to be technology experts. When we were again named number-one employer in China, I was very proud. That doesn’t come for free, but it shows that we still attract the right talents. My job is also to make sure that they have the right conditions to be successful.
Williams: Looking at the customer side of that, talking about the kind of millennial customer. I know teenagers that live in a city and don’t show any ambition to own a car. Is there a generational shift going on, or is there an attitude of just wanting access to a larger mobility platform? Do you maybe see a loss of appetite for purchasing vehicles?
Krüger: I see development in all directions. There are people who would like to have more mobility services and don’t want to own a car in their city. That’s why we have a joint venture with Daimler to create one company for all these mobility services for the future. Secondly, there are still people who love to drive a car. And if you’re driving under a blue sky in the evening to the mountains in Bavaria on country roads with an electric car or a combustion engine – is there any better feeling? BMW is about emotions. We’re selling emotions, we’re selling cars, we’re selling mobility. This also applies to motorcycles. And, believe me, pushing our future electric vehicle in less than four seconds from 0 to 100 kilometres – that is the mobility of the future and it is pure emotional fun, too.
Williams: I think you touched on what I’d like to ask you next which is the BMW brand promise “Freude am Fahren”, or “Sheer Driving Pleasure”. With autonomous vehicles, drivers are going to become passengers. So, without consumers having their hands on the steering wheel, how do you build on what you’re promising? Does that to some degree diminish the brand identity, the brand promise of BMW?
Krüger: No, not at all, in my view. We showed it in 2016 with our vision car, the VISION NEXT 100, when we talked about the “Boost” and “Ease” modes. “Ease” mode is when you relax, when the car is driving autonomously, when the driving systems are working for you and you can do your emails, watch a movie or just relax. But when I talk about Italian mountain roads or the guys who go to Lake Garda, they enjoy driving themselves and we as a brand will still offer that. If there’s a traffic jam, you might want to go autonomous ("Ease" mode) and, afterwards, you can drive on your own ("Boost" mode). That way, you will have the best of both worlds in the future.
Williams: Let’s talk a bit about revenue and how that’s going to be impacted by autonomous vehicles. At the moment, around 90 percent of the value of all cars comes from hardware, but a recent report from Morgan Stanley claimed that autonomous vehicles mean this will drop to around 40 percent. The other 40 percent is going to come from software, with 20 percent from content or some kind of services. How can BMW adapt to this new marketplace where hardware is diminished in value?
Krüger: My first message is that hardware will still be important in the future, because the combination of hardware and software is important. This gives you synergy and a competitive advantage. Secondly, we are already recruiting more software engineers than mechanical engineers at the BMW Group today. That was completely different when I started working for BMW Group: when it was maybe five percent software engineers and 95 percent mechanical engineers. We are already working on a lot of software issues and software value will be much more important in the future. But it gives us new value chains as well. You can update the car during its lifecycle, which you normally used to do every seven years. You can put out a new software over-the-air overnight and, in the morning, you have a welcome message. You’re welcomed by the car, saying “I have new software, I can recommend a new restaurant, I can book a new theatre for you tonight”. These recommendations open up all these opportunities for us. Software will be incorporated into our future success. It is already today. But value creation will be much higher in the future. Nevertheless, a BMW still must feel emotional and handle like a BMW, or a MINI must drive around the corner like a go-kart. That feeling will never go away.
Williams: We see other software companies entering the marketplace. Companies like Tesla that effectively consider themselves to be technology companies. How do you view the competitive landscape, and do you see them as real competitors?
Krüger: Our competitors are the existing ones, as well as new ones like Tesla or Byton. They are clearly our competition and we are fighting very hard against them. At the same time, I’m also optimistic we will be leading the game, because it’s not just software. You also need to make sure you can produce a car 1,000 times a day. The BMW Group has a competitive advantage for the future in this regard with our supply management process and the most flexible production system. If I have a flexible production system, I can build a fully electric car, a plug-in hybrid or a combustion engine all on one line. My answer is clearly flexibility.
Williams: There’s been so much change, so much transformation happening in the marketplace, let’s say, over the last 10 years. When you look forward over the next decade, what do you think BMW will look like?
Krüger: In my view, the next 10 years will be unpredictable. Technology is changing so fast that looking 10 years into the future is difficult. I would focus on what happens in the next five years. In the next five years, you will see autonomous cars, you will see pure electric vehicles on a much larger scale, and you will see customers loving their BMWs and MINIs and the BMW Group still being number one.
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