Strategic Consolidation: How the Automotive Industry achieves more with fewer IT service providers

The German automotive market remains under pressure. The transformation to e-mobility and growing competition from new market players are posing challenges for car manufacturers. This is one of the reasons why they are reorganizing their supplier structures in the IT sector. What is key here:

Using service providers more efficiently, optimizing costs and reducing shadow IT: A survey conducted by the CIO community CIO Tech Talk in 2023 QUELLE showed that a clear majority of IT managers surveyed expect benefits from consolidating the IT service provider landscape. As the market research company Gartner QUELLE found out, such consolidation in the IT service provider landscape could save around 20 percent in terms of costs. And according to Capgemini’s own data, the savings potential ranges from five to 40 percent, depending on the measure, which can be achieved through new pricing models, by adapting the application and supplier landscape and with the help of an optimized strategy for sourcing services (shoring). For example, in collaboration with Capgemini, an automotive group was not only able to reduce the number of its IT service providers in the area of Application Management & Development from over 600 to less than 100 within one and a half years, it now relied exclusively on suppliers from Europe, unlike before, and at the same time expanded its own resources.

Creating synergies, recognizing potential

It is a bundle of measures that leads to success through the consolidation of IT service providers. Ultimately, the aim is to find out where there is potential for optimization. Do different IT service providers offer the same services, can employees be deployed more efficiently and can applications be standardized? One example: car manufacturers that produce several vehicle models benefit from a standardized platform for their development and production systems. Instead of using separate software solutions for each model, an integrated system solution could increase efficiency. A centralized platform would not only reduce costs, but also improve collaboration between different departments and locations.

With shared administration and standardized systems, this is possible. Creating synergies can mean not only limiting yourself to essential applications, but also to a small number of specialized service providers offering the relevant expertise. If companies opt for comprehensive software packages, they should check whether they really need all the functionalities they contain. Transparency is needed to identify which services and IT service providers are essential for a company.

Three steps to transparency

To achieve greater transparency, it is first necessary to ask three questions:

1. Which services are provided and at what cost?
   Transparency is needed regarding all externally provided IT services in the company as well as the sums that service providers charge.
2. Which IT services are used in the company and which applications are in use?
   Only with this overview can a company compare and evaluate services and applications and, if necessary, bundle services.
3. Which IT service providers are important for the company?
   With Gen AI and innovative tools, such as the Clear Sight IT Decision Maker from Capgemini, service providers can be efficiently evaluated and analyzed.
   
   Companies need to answer the question of who should be included on the list of strategic and critical service providers. Cloud technologies, for example, offer the potential to reduce IT complexity through standardization and thus ultimately also through lower administrative costs.

Incorporating geopolitical risks into the IT service provider model

The decision on which services to work with in the future depends not the least on geopolitical factors. The pandemic phase has already shown how volatile global supply chains are. One consequence of this is that many automotive companies are once again focusing more and more on regional “proximity” in their shoring models – keyword nearshoring.

The goal of intrinsic IT service provider consolidation

The extent to which CIOs can successfully implement the consolidation of the IT service provider landscape depends on each individual company. Different approaches coexist in the automotive industry in particular: The spectrum ranges from companies that incorporate innovative developments into their overall picture and constantly adapt their IT service provider landscape – one can speak of “intrinsic” supplier consolidation – to companies that continue to build on established relationships and optimize them. CIOs should therefore regularly review their IT service provider landscape and react flexibly to new developments to ensure that their consolidation strategy always meets the company’s current and future requirements.

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