German FAZ: The failure of the Cariad shows Germany’s weaknesses007235

Together with the decision to build a new chassis in cooperation with Xpeng, these decisions mean that VW is now taking a new path to realize the paradigm shift to a future industrial production method understood that the group only has a future if it builds up new software expertise and separates its further development from the hardware. You can formulate this a little further: Under Diess, VW has developed an inkling that they need to carry out a paradigm shift, a strategic reorientation that fundamentally changes their understanding of automobile construction. The inner core of this paradigm shift is the reversal of the relationship between hardware and software. The “software defined vehicle” is the expression and overarching goal of this new approach. VW – according to the strategic insight from the end of the last decade – must develop the ability to develop vehicles using software. This is the only way to build vehicles in the future that are suitable for new business models and can be integrated into intermodal mobility concepts. Cariad was set up incorrectly from the ground up. To cope with this paradigm shift, the CSO was founded, from which Cariad emerged. However, this organization was fundamentally set up incorrectly: a) Instead of giving it real primacy in software issues, it became a service provider for the brands and it was subjected to their chaotic requirements, b) instead of concentrating on managing the paradigm shift she is entrusted with a potpourri of contradictory tasks. From the perspective of the paradigm shift, it would have been right for Cariad to concentrate consistently on the development of the new software version 2.0, thus creating the new standard in software development in automotive engineering and, above all, developing a culture of work and an agile organization for it. But instead In addition to the new software, they were entrusted with the time-critical development of version 1.2, which was conceptually based on the old paradigm, and the maintenance of version 1.1. This meant that the contradiction between the old (1.1 and 1.2) and the new paradigm (2.0) was built into the organization. The fact that c) the personnel policy was turned into a marshalling yard for the brands instead of consistently hiring new management and a team with experience in building a new software stack was the culmination of the design error. Cariad’s DNA was dysfunctional to cope with the task of building the necessary software and software expertise to bring the group into a new industrial mode of production. Cooperation with Rivan corrects design errors With the decision to form a joint venture with Rivian to develop their software -Stack and having a team that knows how to do it, this design error could be corrected – if this collaboration doesn’t also crash into the VW Group structures and come to naught. In the future, VW could have an organization that is completely focused on building a suitable software stack for the software-defined vehicle. This JV can be sufficiently insulated from the brands’ access through the geographical and organizational separation. And as far as it can be judged from the outside: it has – even if it continues to make large losses on every vehicle it builds – sufficiently mature software technology and a team that is able to develop it further. This would lay an essential foundation for developing a sufficiently strong and conceptually “pure” innovation impulse towards a paradigm shift, which could then be driven into the group. If you follow Kuhn’s theory of paradigm shifts, the energy and momentum for a “tipping point” could be generated, at least on the software side. Strategic cooperation with Xpeng as a second pillar But that’s only half the battle. In addition, VW has taken a second, equally important strategic step in China with the strategic cooperation with Xpeng. Xpeng is building a new kit for small and medium-sized vehicles for the Chinese market in a new factory. So far, so inconspicuous. This kit should be built in 24 months of development instead of 48. So they want to radically undercut VW in terms of the usual development times. The PPE and SSP modules currently being developed in the VW Group have been in public conversation since the end of the last decade and have certainly been in development for some time. The PPE is currently causing a repeated postponement of the start of production of important models at Porsche and Audi. What is particularly important here is that this chassis lays the foundation for redesigning the software-defined vehicle from the hardware side conceive. Because the new paradigm not only means having a new software stack, but also being able to bring it together with a new concept of hardware. Preparing for de-coupling This is what the joint venture with Rivian and the strategic cooperation mean with Xpeng with a view to creating suitable tipping points for mastering the paradigm shift, a whole is created: While in the USA the skills are used to develop a new type of software in the innovation system of Silicon Valley, the skills of a Chinese start-up are used to bring hardware and software together in the new paradigm and to design the development process radically differently with a Chinese start-up. Cariad is considered a failure for the time being.dpaAnd last but not least, these activities are preparing for the foreseeable de-coupling of the global economy after Trump’s foreseeable victory. This initially has little to do with coping with the paradigm shift, but is fundamental in view of the foreseeable geopolitical constellation. With his new strategy, Oliver Blume is clearly preparing for the foreseeable split in the world economy.Three subsystems of the future groupThree viable subsystems of the group are emerging: An independently viable subsystem for the American market with a strong connection to the existing software expertise there and VW -own production capacities on the continent. One in the Chinese market with strategic partnerships with the largest Chinese car company SAIC and the emerging start-up Xpeng. And one in Europe with the strong centers in Wolfsburg and Ingolstadt and the control center in Salzburg. What does that mean for the German location and the Cariad? Even if it offends many here: This decision represents VW’s admission that A paradigm shift in the old structures is not possible – or not at the required speed. Innovation impulses are systematically counteracted here and do not reach the required energy level to create the tipping points towards the new paradigm. Even though Oliver Blume repeatedly emphasizes the continuity of these decisions in his announcements and continues to give an important place to the organizations in Germany and also the Cariad: The decision represents a radical change in strategy compared to the strategy initiated by Herbert Diess. While he wanted to achieve the “Software Enabled Car Company” by bringing the necessary innovation impulses into the group in Germany with the Cariad, Oliver Blume is now giving up this attempt and is getting the necessary skills, technologies and innovation impulses from outside .The Cariad has failed The Cariad has not fulfilled its originally intended task in the group and has failed for the time being. The fact that this is an inevitable consequence of a chain of design errors and incorrect subsequent decisions inherent in the company’s DNA may be a relief for those involved, but it does not change the findings. The Cariad has failed. It may be possible to keep it alive for a while as security until the new structure is established. After all, VW wants to increase its commitment to Rivian in steps, depending on the achievement of certain interim goals. Cariad will probably also be used to maintain and develop versions 1.1 and 1.2 so that the Rivian community can concentrate on the new software stack. But the division of labor between Cariad and Rivian that the group has so far communicated, that Cariad is responsible for the cloud connection and autonomous driving, cannot be maintained. So far: VW only develops 10 percent of the software itself. The cloud connection and autonomous driving cannot be removed from the new stack . The new software is consistently developed in relation to the cloud, and AD Level 4 must be a fundamental performance component of the new technology. What remains for Cariad is the function of translating the innovation impulses from the other two innovation centers back into the German and European corporate structures and supplier networks. This could be an opportunity to secure employment. In terms of innovation policy, however, this role carries the risk that Cariad will face the same fate of gradual gutting as the group has already experienced in the past with regard to software competence. When the Car Software Org was launched, the then first CEO was shocked to discover that VW only developed 10 percent of its software in-house and essentially just pieced together the software supplied by companies in the value chain. This organizational model, compared to other German manufacturers, contributed significantly to VW being so far behind in terms of software expertise. Let’s take a step back. What does this mean for the future of Germany as an industrial location? German innovation system unsuitable for paradigm shifts With a view to the future of Germany as an employment location, we are faced with a new situation: If the example of VW sets a precedent, we have to admit that the innovation system of German industry is not suitable for them Coping with the paradigm shift is suitable. This innovation model, characterized by the old industrial production method, was unable to create a fundamental reorientation. This has consequences for the entire system of industrial value creation. Because this industrial location can only be maintained if the paradigm shift to a new industrial production method is successfully achieved. The otherwise threatening downward spiral can already be seen in industrial cores everywhere. If development continues unchecked without a credible future strategy, it harbors the potential for a “perfect storm” with all the economic and social consequences. In addition, our employment in automobile manufacturing depends to a large extent on the argument that this is where the innovation centers are. The large number of employees still in production is often justified by this. As a result of the changes mentioned, the “brains” of the new production method will be removed from Germany and located in the USA and China. This will undermine the substance of the location if no countermeasures are taken. What does this mean for a future strategy? It must be mercilessly admitted: we missed the time window within which the course could be set for successfully mastering the paradigm shift. My prediction from 2020 was that we have ten years to create the paradigm shift in the automotive industry and a maximum of five years to set the course for it. From VW’s point of view, this time until a promising course is set has obviously passed. The window of opportunity to be at the forefront of the movement to transform industrial production has closed – at least for VW. This means: We have to admit that in order to master the historical paradigm shift towards a new industrial production method are a “developing country”. Others have learned something that we haven’t even fully understood as a challenge yet. Instead, we bask in the successes of the past and fail to recognize the challenges of the future. Our advantages from the first phase of industrialization have now become an obstacle to the second.More on the topicThe sooner we admit that it now depends on others – especially from Silicon Valley for software and from China for the new industrial production method – the faster we can realign ourselves. And vice versa. A forward strategy can only consist of not putting any obstacles in the way of new collaborations if the companies set up a complementary, credible learning strategy so that the German locations can adapt the ability for the paradigm shift as quickly as possible. Learn from the pioneers instead of continuing the illusion To admit that we are at the forefront, we must now put ourselves in a position to learn from pioneers. China is a good example here. The country has encouraged companies that wanted to sell goods there to set up production facilities in the country. And then use these to build up development capacities and enter into joint ventures with Chinese companies. That’s why they have such a steep learning curve. We will now have to do the same thing by using strategic cooperation with companies in the USA and China to obtain the necessary innovation impulses for a paradigm shift in the industry.

Prof. Dr. Andreas Boes

Andreas Boes is an adjunct professor at the Technical University of Darmstadt and senior researcher at the Institute for Social Science Research (ISF Munich). As one of the pioneers of German digitalization research, he has been concerned with the informatization of society and the future of work for more than thirty years. With his team at the ISF Munich, he is currently researching the challenges of the transition to the information economy and the conditions for success in shaping this development in a humane way. This forms the basis for advising numerous companies and ministries in the paradigm shift.
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