QUES - Why does Audi operate mobility services as a separate unit (ABI) and Audi Connect as a mixed team? What are the pros and cons of each? (400 words)

ANS THE QUESTION AS PER THE CASE ATTACHED - NAME OF THE CASE- DRIVING DIGITIZATION AT AUDI

Digital Innovation at Audi Digital Innovation at Audi Including people from IT - even though they were not from Audi IT - in the Audi City project from the From 2012 to 2013, to better control services available within a connected car, Audi IT developed the beginning helped to mitigate some of these problems. Based on this understanding, beginning in 2014 MBB (from Modularer Backend-Baukasten, which translates to "modular backend kit"). The MBB was marketing and IT colleagues were co-located for all projects on customer-facing digital services, sharing a infrastructural middleware-type software that enabled connected car services to link with a specific car. 22 single office and responsibility. Only services that were registered via the MBB could communicate with the Audi cloud and the internet. Although employees reportedly enjoyed working closely together, cross-functional teams needed to Every request to a service had to pass through the MBB; 23 this centralized structure facilitated the activation, deactivation, replacement, and exchange of services (such as the transfer in navigation service overcome certain challenges from Google Maps to HERE). In fact, one of the IT unit's major contributions was to introduce We had to work on better understanding each other. For example, it took us one-and-a-half architectural thinking by decoupling hardware from software to increase modularity and thereby years and a lot of discussions to get clarity on three simple words: portal, platform, profile. The flexibility and independence from specific parts vendors. departments had a different understanding. -Michael Faulbacher Where IT is better than automotive is separating hardware from software functionality, so we D. Innovating to Complement the Car With Digital Services are flexible. Today I get a control unit from Conti or Bosch, I have function functionalities on them. I get the same module one from another provider, say Magneti Marelli. If you just put the software Beyond improving existing customer services, Audi also used digital technologies to add previously we have in this new module, it will never run. You need to redesign and retest the entire unit. unavailable value-adding services to its vehicles. "Audi connect" services transformed the car into an And there come the IT guys with core services and a separation layer between HW and SW. nternet-connected mobile device customized for driving needs, and allowed some of the car's functions -Marcus Keith, Director Development Operating Systems, Audi connect and data to be accessed via a mobile app. Separating the hardware from the software was also important because a car's development cycle was In 2015, the company offered twenty-six Audi connect services that Audi owners could add to their car for about five years, while software's was much shorter. a subscription fee. The services were grouped into three categories: Mobility and Navigation, The process of introducing a new connected car service was quite different from other innovation projects Communication, and Infotainment. Communication enhancements, for example, enabled emails, tweets, that involved IT. Although the IT unit had been working with colleagues from Engineering and Marketing text messages, and news to be read aloud to the driver, and to be displayed while the vehicle was not in & Sales to develop new services since 2011, the collaboration wasn't without challenges. motion. The driver could use a mobile app to check the car's status-such as to ensure that the doors were closed, or to lock the doors from a remote location. Infotainment collected and listed events transpiring at It's still not perfect because the language used by a salesperson is not n is not directly transferable to an desired destinations, and provided navigation to those events. 21 Additionally, the car itself could serve as a engineer. They can meet five times and they still don't know what they're talking about. Wi-Fi hotspot for passengers mobile devices transforming the information from a salesperson to an If engineer and to an automotive engineer, this is the major point we have to right now put the focus on Innovation Governance and the Role of Audi IT: Building a Cloud-Based IT Architecture -Marcus Keith for Connected- Car Services and Adapting to the Vehicle Innovation Process IT tailored the innovation process to the situation. For the digitization of the car, IT couldn't follow its Audi had to make a number of IT-related decisions before adding internet-connected services to its cars. own software development approach, but had to adhere to a stricter product engineering process. How would the car connect to the internet? How would Audi ensure security? And how could it make sure When we support business processes with IT, we define together with the business department a that popular evolving online services, such as Twitter and Facebook, could be easily added in the future? timetable that supports the requirements of the project, and usually there is a certain time Traditionally, Audi assigned a unique ID to each vehicle; now the company also assigned a unique Audi ID buffer to introduce a new functionality. In product-IT you are fixed to the milestones of the car to each customer. A customer's data was aggregated under her Audi ID and enabled personalized project. So we have to adapt our processes to the product process. experience in her car and across Audi services. Audi elected to control the customer experience directly -Mattias Ulbrich, Chief Information Officer and be the sole owner of customer data. Not only did the IT unit have to learn to manage and operate within inflexible production deadlines, it When a driver used an Audi connect service, she accessed a private cloud running in Audi's Ingolstadt also had to change its mind-set to become a thought partner. data center. Each Audi connect service had a custom-built interface; service providers (such as Twitter) Before the introduction of the MBB, IT was really a service provider. We invited them, we told did not collect any proprietary data related to the driver or the car. Because Audi controlled all them what to do for us, like a new CAD system. They only fulfilled specifications. Now with in- connections from the connected car to the Internet, it could select what types of information could be car IT, we had to drill the IT people that they need to think with us about improving the displayed. Long Facebook messages, for example, were considered a distraction while driving and were customer journey rather than just fulfilling the specifications. For three years now Engineering therefore disabled. The Audi connect platform was an intentionally closed system, significantly different and IT have weekly meetings to write the specifications together. from the open architecture embraced by Apple's and Google's app stores. -Marcus Keith, Director Development Operating Systems, Audi connect Nonetheless, ensuring the integration of external parties' services was challenging. Quality was of heightened importance for car IT, and warranted a significant increase in the number of [With] in-car IT we go more and more in partnerships to make interfaces to other partners like quality gate checks when compared to process-related IT projects. HERE and other companies and so we have the integration of other backend systems. In term The requirements for safety and stability are very high-comparable to our IT architecture for of reliability, also the systems from our partners have to be involved in an overall end to end data security and data privacy. With a PC, nothing happens if software suddenly doesn't work chain. -Michael Faulbacher, Head of Vehicle IT you just reboot. But you can't do that in a car at 100 mph. -Mattias Ulbrich, CIO 21 In 2015, Audi featured Audi connect navigation services using mapping data from Google Maps and Google Earth. In August 2015, Audi, BMW, and Daimler announced the purchase from Nokia of the HERE mapping service for C2.8 22 See Appendix 2 for a graphical representation of the MBB and the MSI. billion. Friedrich Geiger, "BMW, Daimler and Audi Clinch Purchase of Nokia's Maps Business," The Wall Street 23 Despite this middleware between the car and the actual service, IT had to ensure service response times below two Journal, August 3, 2015. seconds. Thirty Eighth International Conference on Information Systems, South Korea 2017 9 Thirty Eighth International Conference on Information Systems, South Korea 2017 10Digital Innovation at Audi Digital Innovation at Audi Mastering these challenges was critical to forming the current working relationship between R&D and IT. the start of the rental period, and pick it up from any location at the end. The service was available via a We were on a crucial path four years ago to meet the timeline. We had to find a way to optimize mobile app, and only in San Francisco in early 2016.27 our process. Finally we did it and went through a remarkable learning curve. It was quite hard, "Audi at home" was yet another mobility service, launched in San Francisco and Miami in November but now we are in a very good collaboration mode. Now R&D knows that they can trust and can 2015.28 In these markets, Audi collaborated with select residences to offer a shared pool of Audi cars, totally count on us. The head of R&D for electronics is not only a partner anymore, but also a conveniently parked in the properties parking garages. Using a mobile website, residents could reserve friend. -Mathias Ulbrich cars for personal use. The IT unit had dedicated a group of around one around one hundred fifty people to in-car IT issues, led by someone previously from Engineering. Similarly, Audi had dedicated people in its Marketing & Sales and R&D Finally, "Audi shared fleet"-also launched at the end of 2014 and available in Germany-was a service departments to in-car IT. Audi presumed that collecting these people into a department created targeting corporate customers. Audi provided companies with a car fleet and charged them on a pay-per- exclusively for in-car IT might not work: the company had once tried unsuccessfully to organize a separate use basis. Customers' employees could use an Audi-operated website or mobile app to reserve a car from unit dedicated to electric cars. This effort failed as the unit was not accepted by the rest of the the corporate fleet. Cars were also available to employees for personal use and charged per use. 29 organization, particularly due to duplicated effort and blurred responsibilities. Based on this experience, those people dedicated to in-car IT from Marketing & Sales, R&D, and IT remained in their departments. The vehicles employed for all these mobility services were Audi connect-enabled cars. And like connected But they worked closely with each other, and networked with people who wer not a part of the group. car products, these new mobility services leveraged technology to create new revenue streams for Audi. However, there were few other similarities between mobility services and connected car products, for a Securing management support for connected-car-related services was an ongoing challenge. Managers number of reasons. First, and perhaps most importantly, mobility and connected car services targeted relied on traditional models of investment evaluation, but the short-term economic benefits of connected distinct sets of customers. Mobility service customers were car users, not car owners car services were often clouded It's not only getting the users registered, it's also always every day, every month animating the One of the biggest issues is that [senior and middle management] are important communicators people to use your service. Otherwise, you will not have the traffic or utilization. And utilization with regards to digitization and they are just not doing that. They're telling us in a meeting our is key for the business success of a service. business case is minus ten million and that we don't need digitization of the car. What is minu -Felix Breitstadt, Manager Cooperations & Long-term Strategy, Audi mobility ten million? We need to understand that [the digitization of the car] is not a question if it need to happen. It needs to happen fast, otherwise we will be like FoxConn or Pegatron. We will Second, development strategies for mobility services were more fluid than those for connected cars. produce, but we will not be the brain. Unlike connected car services, mobility customers were often exposed to new products and services before -Marcus Keith, Director Development Operating Systems / Audi connect development was completed. Using a minimum viable product (MVP), 30 Audi could gauge market interest with a baseline product containing only essential features. By tracking and monitoring customer use and E. Innovating Digitally to Create New Mobility Service Business Models experience, Audi could inform future product design and functionality. This flexible research approach was not possible in traditional car manufacturing, where innovation cycles took up to five years. For Beyond digitizing its core product-the car-and the driving experience of car owners, Audi was also mobility services, Audi was forecasting innovation cycles of just two years or less. experimenting with new sources of revenue based on the sharing economy. 24 These new sources of revenue relied on mobility services that helped people get from one place to another, whether they owned A third difference was that while car products adhered to global standards, local environments shaped a car or not. Yet the success of these mobility services was a potential threat to Audi's traditional business mobile services. model, as customers could potentially switch from becoming Audi owners to becoming Audi users. Mobility needs in different markets are quite individual. It is difficult to come up with one Audi's competitors Daimler and BMW had previously introduced mobility services with their car2Go and service that works in the US and China and France. So local adaptations at an operational level DriveNow free-floating car sharing programs in 2008 and 2011 respectively. However, Audi decided to are necessary. There is not one service operator you can rely on. So the way we work with each explore and pilot services that differed from those of its competitors. local company is different. -Felix Breitstadt At the end of 2014, Audi launched "Audi unite" in Stockholm, Sweden, allowing a group of up to five Audi relied upon external physical parts suppliers to supply components for its vehicles. But mobility people to share a car for two years. Each driver used a mobile app to check the shared car's location and to services depended upon a network of external partners (for example, Amazon Web Services, or AWS) not reserve it for future use. Data collected about each individual's use of the car enabled the group to split the just to supply a specific service, but also to collaborate with each other. Audi was dependent upon these partners to operate reliably and collaboratively for its own mobility services to function. monthly cost, which included maintenance and cleaning, based on actual use. 25 Also launched in 2014 was a program called "Audi select"-available in Berlin, Germany-that offered customers the opportunity to drive three different used Audi vehicles over the course of a year. 26 Through "Audi on Demand," a service launched in April 2015, customers could rent an Audi car for a daily ee. Unlike other car rental services, an Audi concierge would bring the car to the customer's location at 27 "Audi on demand," https://www.audiondemand.com/us/service/en_ondemand.html. 24 The sharing economy is enabled by digital technologies driving down the costs of coordinating the use of shared 28 "Audi at home, personalized vehicle-sharing, launches at luxury residences in San Francisco and Miami," Audi of resources amongst multiple stakeholders. America, November 9, 2015 25 Stephen Edelstein, "Audi Unite lets Swedes go splitsies on a brand new Audi with their friends," Digital Trends, 29 "The intelligent car fleet: 'Audi shared fleet' takes on the German capital," Audi MediaCenter, 10/31/14. December 9, 2014 30 A minimum viable product (MVP) is an early-stage product with only essential features released to early adopters. 26 Ryan Beene, "Audi tests car sharing for the wealthy," Automotive News, November 24, 2014; "Audi select. Mehr Customer feedback gleaned from MVPs helps businesses understand how customers use (or want to use) their Freiheit. Mehr Audi." Audi City Berlin, https://www.audi-city.com/berlin/audi-select-mehr-freiheit-mehr-audi/. product, and informs future product iterations. Thirty Eighth International Conference on Information Systems, South Korea 2017 11 Thirty Eighth International Conference on Information Systems, South Korea 2017 12Digital Innovation at Audi Digital Innovation at Audi Innovation Governance: Separated Yet Integrated front end, such as an app or website, but shared or reused back-end service components such as payments functionality. ABI benefited from the continued reuse of shared back-end services. 31 In contrast to other innovations, mobility service innovations were executed by a separate company: Audi Business Innovation GmbH (ABI), a wholly owned subsidiary of AUDI AG. Before ABI was founded in When we started 2.5 years ago, we decided we wanted] one back-end solution to give us 2012, mobility services projects had been managed within AUDI AG for about one-and-a-half years. Given scalability and synergies. Though reuse slowed us down a little bit and we have to defend this ABIs needs were very different from the rest of AUDI AG, ABI now managed its own profit and loss idea on the cost side, because it's an investment in the beginning, it will pay off in the next years. -Felix Breitstadt statement and, with headquarters in Munich, was geographically separated from AUDI AG as well. The idea was to install a disruptive topic within the organization. But you get all these The MSI was connected to the MBB platform, which handled the secure connection to internet-enabled limitations once you are in the [big] organization [of AUDI AG]: it limits you and slows you Audi cars. This way, MSI-based apps could leverage car-related data required to deliver mobility services. down. It was clear for the board that we needed to find a new way to approach that [ disruptive For example, MSI could request the locations of all nearby available cars within a fleet for display in ABI's topic] and separate it from the [rest of the] organization. Because there are so many new things mobility service apps. Just like the MBB, the MSI was quickly becoming the VW Group's standard for to experiment with that within [AUDI AG] it would be really difficult. The requirements we building mobility services. have, the knowledge we need are in a lot of ways different. And as we started from scratch, we For all innovation projects, ABI relied exclusively on the agile Scrum methodology. Because mobility didn't need a transformation. -Felix Breitstadt services were new for Audi and technical requirements often unclear, ABI's IT group worked very closely, In early 2016, ABI employed seventy-five people, many of them new to the overall Audi brand. The ABI IT prototyping iteratively, with ABI employees from other areas. group included roughly eight IT project leaders and twenty-five software engineers. Often relying on design thinking approaches, ABI's employees were technically savvy and worked in multiple roles such as The Challenge Ahead sales, service design, and managing partnerships with other service providers. In 2016, Audi was employing digital technologies to improve how its employees collaborated, cars were For example, we have our own car technology guys. It really helps us when we get in contact produced, and customers interacted with the company-and also to add new functionality to the car itself with [AUDI AG's] tech G's] technical [engineering] department. Normally when you are in the Sales department, people know a little bit about technology, but not that deep. But we have guys who and to create new mobility service business models. As a result of these innovations, Audi was no longer come e.g., from Zipcar and have worked on onboard communication units. They really know just a manufacturer of cars; it was also a developer of digitally connected car products and a provider of how car sharing technology works. So we talk on the same level with [the technical mobility services. Given all these digital innovations, Audi understood the importance of digitization. department]. It's also a very crucial point for our positioning internally. -Felix Breitstadt Digitization is an essential key to our success story. -Axel Strotbek, Chief Financial Officer32 ABI's shorter innovation cycles, flat organizational structure, and start-up culture enabled faster decision Externally, Audi needed to determine how to position itself in an increasingly digitized environment making. And while some of the service features developed by ABI could in the future be leveraged by AUDI AG's traditional business model (e.g., usage tracking capabilities), doing so was not yet the focus. 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? -Marcus Keith The rule [at ABI] is "don't wait, just do it." -Michael Faulbacher, Head of Vehicle IT Internally, it became evident that digitization meant different things for different parts of the business. ABI was highly involved with AUDI AG despite its legal designation and geographic separation. All For someone in Production, digitization means something totally different than for us in innovations on which ABI was working had been conceived and presented as a business case by AUDI Engineering. We need to learn service thinking. He needs to learn "how can I do my existing AG's sales strategy team. Once business cases were approved, the innovations were transferred to ABI for business better with machine learning, with that algorithm?" -Marcus Keith lesign, implementation, and piloting. Due to these differences, Audi was not pursuing a uniform approach to digital innovation. Rather, Audi IT The business case demand from AUDI AG does not fit the normal startup world. So it's a evaluated and matched innovations with complementary implementation methods. challenge. Sometimes we would love to have more flexibility and not focus on the business case right from the beginning, because it is somehow limiting innovation. But I think it's still good, We have multiple modes of how we operate. So we need to identify now what are the fields because it helps us learn to see where's the money in mobility services. -Felix Breitstadt where we have to focus more on speed and hence [ be] more agile? Where do we have to be very Audi's CIO, Matthias Ulbrich, was a member of ABI's management board, as was Audi's head of mobility, focused on quality? And-depending on what task needs to be fulfilled-how do we remain lexible to switch from one mode to the other as an organization? -Mattias Ulbrich, CIO Bettina Bernhardt, who was ABI's managing director. ABI viewed its connections with Audi as a potential source of competitive advantage. Yet, only time would tell whether Audi's approach to managing innovations was sufficient and would contribute to its future success. The USP [Unique Selling Pr e 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 Acknowledgements have this [trusting relationship] with AUDI AG. -Felix Breitstadt The Role of IT: Building a Public Cloud-Based Platform for Mobility Services The authors would like to acknowledge and thank the executives at AUDI AG for their participation in the case study. At the core of all of ABI's digital mobility services was a single platform called the Mobility Service Please contact the first author to obtain a teaching note for this case study. nfrastructure (MSI). Utilizing Amazon Web Services as its foundation, MSI provided a growing number of shared services upon which most of Audi's mobility apps relied, including user authentication, payments, and the management of a fleet of individual cars. Each mobility service exhibited a unique 31 See Appendix 2 for a graphical representation of the MBB and the MSI. 32 "Audi Annual Report 2015: 'tomorrow.now!" AUDI AG Press Release for the 2015 Annual Report, March 3, 2016. 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