“This digital transformation is in full swing at Mercedes-Benz. We are transitioning from car manufacturer to networked mobility provider, whereby the focus is always on the individual – as customer and employee. This is how we will continue to develop the company and thereby ensure our future competitiveness.” (Dieter Zetsche, CEO Daimler, 2015)
History of Daimler
In 1885, Carl Benz released the Benz Patent Motor Car, which is considered to be the world’s first roadworthy automotive. Around 130 years later, Daimler is today one of the largest and most successful car manufacturers. Over 280,000 employees built around 2.85mn vehicles in 2015, including cars, vans, buses and trucks .
While for years the focus of car manufacturers like Daimler was on selling the cars as a product itself, the market is shifting towards a service-oriented business that leverages todays’ digital possibilities.
From cars to software and services
Figure 1 shows the evolution of the Mercedes E-Class over the last 80 years. It changed a lot in terms of design, technology, and security features. For many years those product characteristics were the sole competitive advantage among the car manufacturers and the reason for customers to buy them.
In 1977, General Motors Oldsmobile released the Toronado, the first production car that incorporated embedded software. It had an electronic control unit (ECU) that managed electronic spark timing. Just 4 years later in 1981, GM had deployed about 50,000 lines of engine control software code across their entire domestic passenger car line. Other auto manufacturers followed the trend and developed similar software for their models. Also Daimler cars like the Mercedes-Benz S-class depend today on millions of lines of code running up to 100 networked ECUs throughout the body of the car which control and monitor everything from the powertrain to the airbag system . Even more advanced is the model applied by Tesla. After enabling autonomous driving as revolutionary feature via a software update, Elon Musk just announced that another update in December will improve the off-the-line acceleration of both the Model S and Model X .
After adding features and improving traditional car characteristics like acceleration through software, how does the future look in terms of car digitization?
Digitization initiatives at Daimler
Daimler is digitizing its operating model on two frontiers: internally (i.e. car production) and externally (i.e. towards the customer).
Especially for the design of cars, Daimler is leveraging digital tools. Long before a prototype of a car is built and tested in the wind tunnel, comprehensive Big Data models combined with computer aided design solutions are used to create and evaluate digital prototypes. Afterwards, augmented reality devices, such as the google glass, help employees in manufacturing to built the cars in a more effective and secure manner. Both examples show how the traditional production process at Daimler has been disrupted through digitization and will further change with future technologies.
A more visible change to the operating model and the value for the costumer happens to the cars themselves as figure 2 visualizes. The shown concept car combines autonomous driving and an electric engine. Furthermore, through networking technologies, future cars like the shown one will communicate with each other and make the driving experience more efficient and secure.
Also the business model of the car industry is affected by digitization. Mercedes introduced the concept of the digital showroom. Customers can either from home or at any local vendor use virtual reality glasses to drive different cars without actually sitting in one. This helps to experience specific configurations and encourage an actual purchase. Another idea is to equip every car with every possible feature, but use software to unlock only the ones the customer paid for. The business model could change completely if customers would only pay for a feature (e.g., seat heating) while they are using it .
While all those innovations seem to have a positive impact on operating and business models of car manufacturers, it is important to keep the customer behavior in mind. Many car drivers, particularly in Europe, value traditional features of a car (e.g., engine, chassis etc.). This especially applies to fans of motorsport. Therefore, the manufactures need to manage the pace of new innovations to ensure that customers can slowly adapt.
 Charette, R. N. (2009). This car runs on code. IEEE spectrum, 46(3), 3.