CONTACT INFO
  • Address: 410 Peachtree Parkway, Suite 4222 Cumming GA 30041
  • Phone: 770-751-1124

How Germany's Giants are Transforming into Tech Companies

How Germany's Giants are Transforming into Tech Companies

Daimler got lucky with Marcela Craciunescu. Five years ago, the Romanian software developer was at Alcatel-Lucent developing a fourth-generation mobile network for the U.S. telecommunications companies in Timisoara. Craciunescu's sister, who had moved to Stuttgart, Germany, from Romania, suggested she consider working for the city's best-known company, Daimler.

While Craciunescu didn't speak German, the programmer was looking for a change and found herself researching the question: What is Daimler?

When she learned that it was the parent of premium brand Mercedes-Benz, her curiosity was piqued. She decided to apply for a role as a systems developer at the group's captive financial services business.

"They were impressed that I was more interested in the position itself than simply working for Daimler," she recalled in September in Stockholm during the Me Convention, which was co-sponsored by Mercedes.

IT specialists such as Craciunescu are in high demand as German automakers battle to lure programmers, coders and developers for smartphone-enabled mobility services. Companies such as Volkswagen Group and Daimler are reinventing themselves to attract a new generation of tech- savvy employees.

VW Group premium brand Audi, for example, now describes itself as a "premium digital car company." BMW went further by purging any direct reference to its traditional product in the group's mission statement. Instead, the company with the word "motor" as its middle name aims to be seen as a "tech company for premium mobility."

Mercedes, meanwhile, opted to unveil its new CLA last month at CES in Las Vegas, where incoming Daimler CEO Ola Källenius said the automaker now operates "as a software company [that] builds trailblazing mobile devices." At the World Economic Forum in Davos, Switzerland, last month VW Group CEO Herbert Diess said he now leads a "software-driven car company."

Are these just superficial attempts to change investor perceptions and to appear trendy? To better understand where the car industry stood in relation to other industries, consultancy Bearing Point conducted a survey among automotive executives across Europe, the U.S. and Asia. It mapped their comments against those from counterparts in the telecommunications, banking and tech sectors.

‘Walled Garden'

Remarkably, more than half of the auto executives still believe they could win the "battle for the dashboard" against tech giants without the need for partners that can share investments, contribute IT assets and provide digital skills. Many others acknowledge they need alliances but only temporarily as a stopgap measure until the necessary expertise is acquired.

"Those auto manufacturers that prefer to sit in their own walled garden thinking they can bring these guys in, control them and then throw them out in two years, they are the ones most at risk," said Bearing Point analyst Angus Ward.

Contrast this with companies such as Google that join with rivals to co-innovate, which slashes capital requirements and time to market. "They [carmakers] have to beat the tech giants at the tech giants' own game," Ward said.

Craciunescu's story is symbolic of the problem facing automakers. Even if they have finally discovered the "ecosystem," not every software developer has discovered them.

One of the first priorities of Diess after taking over as VW Group CEO in April was to address the skills shortage at Europe's largest automaker. "There is no time to lose, especially when it comes to amassing digital know-how," Diess said in August, calling for a "massive expansion of our software expertise."

Roughly 90 percent of all future innovation in vehicles will take place in the electric/electronic area. The bulk of that will be in software, according to VW Group. This field will increasingly be a competitive differentiator as the number of lines of code in vehicles could grow to 300 million from the 50 million to 100 million they have today. This doesn't even include all the IT systems needed to provide connected services outside the car.

The problem in Wolfsburg is that VW Group has 10,000 engineers but only a few hundred programmers.

"You need people who can migrate to [database management system] SAP HANA, who can work in cloud computing and who are proficient with artificial intelligence," said VW Group Chief Information Officer Martin Hofmann. "The skills shortage is a problem that is growing exponentially."

This wasn't really an issue in the past because automakers tended to contract out software development to third parties. Now Hofmann is bringing some of this work in-house, in part to react faster to customer demands, for example for app-enabled services.

"Under a conventional tender, there are specific processes and compliance that need to be observed. By the time a contract can be awarded, six or seven months will have already expired before work could even begin," he said.

Källenius: New identity

In-house Expertise

From a vehicle IT perspective, an area for which the brands themselves are responsible for rather than the group, greater in-house expertise would also help to reduce procurement costs. The share of software in an electronic control unit, for example, makes up 25 percent of the cost, and that figure is expected to increase.

Further costs come from integrating ECUs and time is spent removing the inevitable bugs. VW aims to reduce that by developing the software and hardware separately. That way replacing one doesn't force VW to change the other. In Davos, Diess added that VW Group will separate software and hardware development at the board level to "really speed up the software focus" at the automaker.

To better control vehicle IT as automobiles become connected, VW Group recently spent about €110 million ($124 million) to buy a controlling 75 percent stake in truckmaker Volvo Group's WirelessCar unit.

Acquiring tech companies, however, can entail high execution risk. Valuations can soar, negotiations can break down, or other bidders can join the fray. For that reason, simply buying economic interests in several providers is not a viable strategy to master the transition. The core business needs to adapt too, and software expertise must be developed in-house if automakers are to remain competitive.

To ensure that their employees think more like workers at tech companies, the entire mindset has to change.

That's where people such as Ludwig Maul enter. Formerly an engineer at Porsche, this digital evangelist joined a Daimler subsidiary created to marshal the combined ingenuity of the company's entire work force to help with the tech transformation.

"At Porsche, I built up a small virtual community of 200 employees where we discussed technical issues, and I loved the idea of encouraging others throughout Daimler to get involved and spur technical innovation," said Maul, who worked at DigitalLife@Daimler until late 2018. He is now with toy maker Lego.

DigitalLife aims to link employees with entrepreneurial ideas to coaches at the company's startup incubator, Lab1886, to help bring their concept to fruition. DigitalLife also performs outreach in the programming community, sponsoring 24-hour hackathons. One promising team wanted to help advise customers configuring a new Mercedes X-class pickup. Using a popular program called C-Sharp, they created an online chatbot, a digital assistant capable of teaching itself how to better answer customer queries.

Volkswagen has taken a somewhat different approach, founding late last year Faculty 73 to teach employees who have completed vocational training at VW how to develop software if they exhibit an affinity for IT.

The best programmers, after all, share a key trait with automotive engineers and mechanics: They have the mind of a tinkerer, said Pablos Holman, a futurist invited to speak at the Me Convention in Stockholm. Given a device, whether it's a smartphone or engine block, they don't ask what it does but instead pick it apart to find out what problems they can solve with it.

"No one ever invented anything by following the instructions," Holman said.

Hofmann: “Go to the people”

‘Ghost in the Machine'

Talent cannot always emerge from within, and automakers know better than to expect developers to come and work in a city such as Wolfsburg. Rather, they must put their vanity aside, leave their comfort zones and actively recruit developers who hadn't seen them as potential employers, setting up displays at key industry events such as the popular Web Summit in Lisbon, Portugal.

Participants wear conference IDs that include a scannable QR code and designation such as Investor. While there are lounges for meetings with prospective startups, some entrepreneurs looking to gain a wealthy backer simply walk up and introduce themselves to funders.

Among them was Nick James, an Alpha according to his badge, who is chief marketing officer for U.K. startup Tomorrow's Journey. His firm was looking for seed capital to realize its plans of linking logistics supply with demand using a customer's own platforms, rather than theirs, like Uber does.

"We don't want to be famous," James said. "We want to be the ghost in the machine."

A few halls away, Daimler came up with a unique way to meet the fresh talent it needed to fill at least 16 positions at The Jungle, its Lisbon software center that has more than 1,000 potted plants. At Daimler's booth, front-end developers, digital analytics experts, cloud operations engineers and enterprise software architects could jump into a vintage 1960s Mercedes taxi, start the meter and spend three minutes speed dating with one of the local recruiters.

"The brand is very strong in Portugal. Everybody knows us," said Goncalo Sequeira, a human resources specialist at Mercedes-Benz.io, an IT services company wholly owned by Daimler. "But nobody thinks about us when it comes to software. With our support here, they are starting to."

Sequeira will have even more competition. To provide content for its upcoming ecosystem, VW just opened its largest software development center worldwide in the historic Rato district in central Lisbon, practically next door to The Jungle. The 300 jobs that need to be filled are more than the combined total that VW has at German software centers in Berlin, Wolfsburg, Dresden and in Pune, India. Even Portugal's head of state attended the opening of the new VW site.

"The traditional thinking among carmakers in the past years was that people should go to work where we have the assembly plants," Hofmann said. "In the digital economy, however, you have to go to the people."

Extreme Programming

Despite the skills shortage, VW won't take just any developers. Candidates are tested on social integration to ensure they possess highly interactive communication skills.

Lone hackers working out of their basement need not apply. That's because VW's developers spend their days working in tandem to avoid errors — one codes while the other constantly checks the work, and after three hours they switch roles, a method called "extreme programming" taught to VW by California-based tech firm Pivotal. This means there is no home office and no flexible working hours. Employees are expected to arrive at 8 a.m. and punch out punctually at 5 p.m. since efficiency drops off when working longer.

Distractions that might impede productivity are eliminated. There is no email access, phone calls are discouraged and web browsers can call up only a limited number of sites.

"This isn't North Korea," Hofmann said. "It's a software factory."

In total, Hofmann aims to have 2,000 VW developers around the world designing software for app-based digital services.

The day before Craciunescu attended the Me Convention, Daimler CEO Dieter Zetsche revealed one interesting reason about why he chose the Swedish capital to reveal the EQC, the first in a line of full-electric Mercedes cars.

"Stockholm is second only to Silicon Valley when it comes to the number of unicorns [billion-dollar startups] per capita," Zetsche said. "And with less than 1 million inhabitants in the inner city, the most common job is programming."

Daimler, after all, knows it cannot rely just on recruiting developers via relocated family members living in Stuttgart as it did with Craciunescu. And while many experts believe the industry isn't moving fast enough to keep pace with their tech rivals, Tom George, director of VW's new Lisbon programming center, believes it's just a matter of time before others come around.

"Every company is a software company," George said. "Some just haven't realized it yet."

 

-Previously printed in Automotive News by Christiaan Hetzner on February 17th, 2019.