Automakers Increasingly Driven By Data

by Susan J. Aluise | June 3, 2013 10:45 am

When General Motors (GM[1]) took the wraps off a new $130 million data center in a Detroit suburb earlier this month,  and unveiled plans to spend hundreds of millions more on another state-of-the art IT facility and cloud technology,  some observers wondered why the automaker seemed to be shifting its focus from brakes and bumpers to bits and bytes.

But GM’s decision illustrates a paradigm shift for automakers across the board: a strategic affirmation of the fact that today’s global vehicle manufacturing market is driven by data.

And the companies that do the best job of collecting, analyzing and leveraging mountains of that data strategically can gain a competitive edge in this global market.

The use of information technology in the automotive industry is not new; the Detroit 3 have been using machine-to-machine data exchange to streamline their complex supply chains for nearly 40 years. But today’s vehicles — not to mention automakers’ design, global manufacturing, sales and post-production dealer and warranty support — run as much on data as they do on conventional fuel.

Still, despite that reality, GM’s move to “insource” 90% of its IT capability — reversing an outsourcing decision made in the middle of the Great Recession — is about business, not technology.

By managing its own data and having that expertise in-house[2], GM can boost its operational efficiency, cut production costs, tap into sensor data to track performance, and leverage customer and dealership data to boost its ability to bring the right products to market at the right time.

GM CEO Dan Akerson knows this. That’s why he’s taking the $3 billion a year GM used to pay Hewlett Packard (HPQ[3]), Cisco (CSCO[4]) and others … and is instead investing in new high-tech data centers and leading-edge private cloud technology to bring all that data in house.

Plus, GM’s chief information officer (CIO) Randy Mott, a visionary who has led similar tech transformations at Walmart (WMT[5]) and HP, is building an in-house IT team that will total more than 9,000 in five years.

Big Data analytics also are the essential foundation for automakers’ dreams of the “intelligent vehicle” — using everything from sensor data to social media to create closer relationships with customers. That’s particularly important given declining vehicle ownership trends[6] among Millennials.

GM is not alone in seeing the potential gold in data mining: Ford (F[7]) and Fiat’s (FIATY[8]) Chrysler are embracing the game-changing potential of information technology too. Data analytics were at the core of Ford CEO Alan Mulally’s successful turnaround of the storied car maker, which stepped up its game by analyzing operational metrics and tightly tracking vehicle sensor information and product development data.

Ford is using the open-source Apache Hadoop framework to support many data-intensive applications. It also is integrating big data analytics into its design platforms and processes, an effort that is helping to bring new vehicles to market more quickly.

Chrysler, meanwhile, is working to make its vehicles more connected. The automaker penned a partnership with wireless provider Sprint Nextel (S[9]) last fall to jump-start its connected vehicle and machine-to-machine initiatives. Chrysler kicked off its Uconnect initiative by embedding a wireless chip in the Ram 1500 pickup and SRT Viper. The goal is to enable a wide range of integrated in-vehicle connectivity features for drivers and passengers.

All in all, IT is no longer an ancillary function for automakers; it is the core enabler for nearly every mission from design to manufacturing, marketing, productivity and consumer/dealer relations. As machine-to-machine communication technology matures, post-sale value adds like vehicle connectivity and sensor-based warranty support will continue to drive Big Data’s benefits to a whole new level.

GM’s approach to insource its expansive IT operations — and upgrade them dramatically with high-test data centers and sophisticated cloud applications and infrastructure — will give the company more bang for its IT buck and position it to win a competitive race that’s run where there are no roads.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.

Endnotes:
  1. GM: http://studio-5.financialcontent.com/investplace/quote?Symbol=GM
  2. having that expertise in-house: http://media.gm.com/content/media/us/en/gm/news.detail.html/content/Pages/news/us/en/2013/May/0513-data-center.html
  3. HPQ: http://studio-5.financialcontent.com/investplace/quote?Symbol=HPQ
  4. CSCO: http://studio-5.financialcontent.com/investplace/quote?Symbol=CSCO
  5. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  6. declining vehicle ownership trends: http://investorplace.com/2013/04/automakers-not-just-selling-but-sharing/
  7. F: http://studio-5.financialcontent.com/investplace/quote?Symbol=F
  8. FIATY: http://studio-5.financialcontent.com/investplace/quote?Symbol=FIATY
  9. S: http://studio-5.financialcontent.com/investplace/quote?Symbol=S

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