In brief

In brief

  • For years, automotive OEMs relied on organization models where the responsibility for sales and revenue generation lay with local market entities.
  • This local autonomy had a cost: Many OEMs’ central orgs became “Ivory Towers” that lacked business ownership and performed redundant activities.
  • By applying a “clean slate” view of the business, OEMs can turn the COVID-19 crisis into an opportunity and fundamentally rethink their org structures.
  • Reallocating ownership and roles between the two can deliver substantial efficiencies and cost savings.


A time for fresh thinking and radical change

In the face of structural changes across the automotive industry and financial and commercial pressures, automotive OEMs should be looking to create leaner, more flexible and more efficient organizations.

A structural reinvention of the organizational model means being willing to rethink organizational boundaries, processes and roles as if there is no legacy business at all. It allows the organization to ask: if we could start afresh, how would we set up our business today? Which functions are necessary at the local market level and which can be centralized in the most efficient way to support the local market organizations? A zero-based approach helps the organization refocus on its future needs.

By putting the customer at the center of all considerations, a zero-based approach is far more than a traditional cost-cutting exercise. It helps shift attention onto the value-adding activities within an organization and refocus on the distinctive capabilities needed to fulfill the business purpose and serve the customer while helping OEMs manage through ongoing turbulence in the business environment by operating in a leaner and more profitable way.

It’s no longer about incremental savings, but rather reinventing the organization with a zero-based mindset that focuses on optimizing costs to fuel growth and increase resilience.

To start from zero, OEMs should ask three critical questions:

1

How do we shape the right kind of customer experience for today?

2

What’s the leanest feasible local market setup that can deliver on that promise?

3

What kind of support is then needed from the central organization?

There’s a lot at stake here. According to our research and experiences, a typical $100 billion OEM can capture between 15% to 25% cost savings in personnel expenses with significant impact on the EBIT-margin.

Our latest research testing financial flexibility and stress levels of 14 large global OEMs suggests few leading global companies are resilient enough to manage the challenges ahead—suffering from high fixed costs in the face of decreasing sales.

91%

of executives believe that CEOs view shared services as a critical success factor for reducing complexity.

89%

of executives believe that shared can be the foundation for a fundamental redesign of the company.

35%

of 70 automotive CFOs mentioned undertaking widespread rapid cost reduction as a top priority in responding to the 2020 crisis.

37%

highlighted ensuring liquidity and maintaining cash flow as their highest priority.

Create a full view for baseline transparency

A consistent 360-degree view of local market organizations as they are today is an essential prerequisite of a zero-basing exercise.

Instill leadership and a transformation team

Ideally, an OEM will have a central transformation team of central and local leaders to coordinate, support, monitor and measure the transformation.

Balance investment versus savings

A well-designed transformation to a zero-based market organization can be a self-funding machine across all functions.

Pace for greater business continuity

OEMs should avoid the temptation to run too many transformation tasks at once or in parallel, and risk overburdening the organization.

Have clear communication and a unified culture

OEMs should infuse the transformation deeply into the corporate DNA, conveying a clear case for change and creating a “one team” mindset.

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The path to a new possible

Starting afresh is rarely easy, of course. But the rewards of a zero-based approach are such that the journey is worth undertaking.

By developing a zero-based mindset that views the business with a fresh pair of eyes, a clean slate and a customer-first approach, automotive OEMs can revitalize and reshape their organizations. That will be essential in enabling them to better manage today’s turbulence, operate in leaner ways, increase profitability and secure their future growth and prosperity.

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