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IBM Global Business Services

IBM Institute for Business Value

Automotive

Automotive 2020
Clarity beyond the chaos
IBM Institute for Business Value
IBM Global Business Services, through the IBM Institute for Business Value,
develops fact-based strategic insights for senior executives around critical public
and private sector issues. This executive brief is based on an in-depth study by
the Institute’s research team. It is part of an ongoing commitment by IBM Global
Business Services to provide analysis and viewpoints that help companies realize
business value. You may contact the authors or send an e-mail to iibv@us.ibm.com
for more information.
Automotive 2020
Clarity beyond the chaos
By Sanjay Rishi, Benjamin Stanley and Kalman Gyimesi

The automotive ecosystem is in the midst of significant change, with increasing


challenges in consumer demands, technology development, globalization,
integration and collaboration. A new era is rapidly approaching in which the very
definition of personal mobility will change. Multi-modal transportation will become
increasingly common, and intelligent vehicles will cater to diverse consumer needs
for information, environmental responsibility and safety. Automotive companies are
racing to develop new business models to help them maintain responsible growth.
In this dynamic new age, we believe, a focus on the development of compelling
personal mobility solutions, retail transformation, global execution and extensive
partnering will be the keys to success in 2020.

Introduction increasing demands for environmental


Rarely has an industry confronted the accountability and use the technology at its
magnitude of multi-dimensional change the disposal to transform the way it develops prod-
automotive industry faces today. Credited for ucts and goes to market.
providing the foundation for economic trans-
Indeed, the underlying and surrounding
formation of the developed world a century
ecosystem of the industry is in a state of flux.
ago, and well under way to bringing mobility
Automakers, along with their partners, must
and prosperity to the developing world today,
respond to the changing dynamics of how
the industry finds itself simultaneously coveted
automobiles will be manufactured, purchased,
for the employment and investment it attracts
distributed and serviced. Consumers are
and disparaged for its perceived lack of envi-
becoming more empowered and sophisti-
ronmental responsibility.
cated. Their wants and needs are evolving
As it races toward 2020, the industry must at an exponential pace. Basic transportation
learn to effectively manage the global will no longer suffice, as consumers look to a
resources it has put in place, respond to comprehensive mobility experience.

1 Automotive 2020
Enlightened consumers will expect their among various industry segments threaten
vehicles to provide information, entertainment, critical collaborative factors such as adoption
safety and convenience. They will demand of common standards, information manage-
economy, environmental responsibility and ment and data ownership. These differences
sustainability. To meet these demands, vehicles provide a threat and will, if not addressed,
will become more intelligent, offer “greener” retard progress.
operation and be customizable to greater “self
expression” by buyers. As worldwide oil prices The impact of external forces on the industry
continue to surge, alternative powertrains will will continue to be significant, but the leading
dominate new production. influencers will be radically different from those
that affect the industry today. Technology
Even the notion of “buying” as we know it will continue to develop at breakneck speed
today is expected to change. The concept of and will accelerate innovation in the vehicle,
personal mobility will prompt consumers to touching everything from performance to
purchase “transportation services” in place of enhancements in safety and convenience.
personal vehicles for multiple uses. Sustainability, already an issue, will migrate
to near the top of the list for the automotive
The worldwide labor force will change and, value net. Unparalleled investments will make
by 2020, become radically different in terms tremendous inroads for fuel efficiency, but
of age, location and the way people work. unbridled and oft-impractical consumer and
Cultural awareness, diversity and adapta- regulatory expectations will stay ahead of
tion will be the norm. This global workforce, possible achievement, which may lead to disil-
with a geographically dispersed footprint for lusionment.
manufacturing and product development,
will sustain and support the industry in 2020. Consumers will also become increasingly
The current investments in globalization will watchful and wary about how companies
be established and a global infrastructure will perform outside the manufacturing and
essentially be in place. Evolving economies distribution processes. Corporate social
and markets will fuel new products, services responsibility will become markedly more
and business models. The challenge faced important to the consumer and will become
by automakers will no longer be to globalize an imperative by which automotive enterprises
the industry, but will instead center on effective will be evaluated.
global integration and execution.
Ultimately, executives we interviewed felt that
Collaboration throughout the automotive value to be well positioned for the market of 2020,
net will be a necessity for those intent upon automotive companies must anticipate beyond
succeeding. Automakers will need to develop the expected: a new competitive landscape,
alliances and partnerships aggressively, both rapidly evolving technologies, a departure
within and beyond the traditional boundaries from the traditional ecosystem, fresh attitudes
of the industry. Today, divergent viewpoints about mobility and, above all, a very different
consumer.

22 IBM
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Automotive 2020
Clarity beyond the chaos

Change abounds entrants and long-time leaders, troublesome


The automotive industry is no stranger to for the sheer magnitude of this change and
change. New product ideas, avant garde the necessary organizational responses.
styling and innovative solutions to increase
Fascinating discoveries unravel as we identify
performance have defined the industry.
how industry priorities shift and new dimen-
Regulatory mandates, including those for
sions of differentiation emerge.
safety, fuel efficiency and emission standards,
continue to pose challenges. But little of its Industry priorities shift
past has prepared the industry for the whole- Technological progress – the development of
sale changes that will sweep through its ranks products and services that perform better, last
in the next 10 to 12 years. longer, offer more convenience, safety, enter-
tainment and economy – will continue to lead
“In the next 10 years, we will expe- the list of industry priorities in 2020.
rience more change than in the 50
Beyond that, however, industry leaders see
years before.” a major shift (see Figure 1). Sustainability is
– European automotive OEM executive already an issue of importance and is likely
to remain so for an indefinite time. It will drive
This is both exhilarating and troublesome investments, product categories, and perfor-
news for many executives we interviewed. mance and convenience packaging decisions
It is exhilarating for the opportunity that the well into the next decades.
changing dynamics will present to new market

The IBM Automotive 2020 Global Study methodology


To determine the needs and anticipated industry response to this changing ecosystem, IBM recently conducted
interviews with 125 executives in 15 countries from a broad representation of automotive OEMs, suppliers and
influential third parties:
• Our interviews were global and comprehensive, covering 85 percent of the top auto companies worldwide
based on revenue, including all of the top 10.
• 69 percent of the interviews were with traditional participants in the industry (OEMs and suppliers).
• Other interviews were completed with:
- Industry associations
- Government economic development groups
- Specialty companies outside the traditional industry
- Academic institutions
- Other organizations that provide a viewpoint on the future of the automotive industry.
Emerging nations, such as Brazil, Russia, India and China, accounted for 27 percent of the interviews. The
synthesis of this rich repository of individual views, consolidated in this paper, provides clarity beyond the
chaos dominant in the industry today.

3 Automotive 2020
Corporate social FIGURE 1.
responsibility is Anticipated change in external forces impacting the industry, 2008-2020.
expected to become 61%
a top priority for the Technology progress 56%
60%
automotive industry. Globalization 55%

Economies and markets 48%

New consumer 35% 33%


Governmental influences 34% 32%
Sustainability concerns 33% 31%

26%

25%
Corporate social responsibility 14% 22%
Global labor force 13% 13%
Personal mobility 12%

Source: IBM Automotive 2020 Global Study. 2008 2020

Overall, the anticipated shift in priorities Five dimensions of differentiation


reflects a move away from historic factors that In response to this shift in industry priorities
have preoccupied the industry, globalization by 2020, differentiation and, therefore, success
and governmental influences amongst them. will manifest itself through five key dimensions
Corporate social responsibility will take on (see Figure 2).
additional importance and impact organiza-
tional strategy in as yet unforeseen ways.
1. Sophisticated consumer
Automotive consumers of 2020 will be highly
Globalization, among the industry’s significant
informed, demanding, impatient and environ-
issues today, drops down significantly in priorities. mentally conscious. They will compel a new,
Markets will indeed continue to emerge, but the radically different ownership experience.
strategy, processes, operational roadmaps and
With more information at their disposal,
experience necessary to serve them will be largely
enhanced traceability and transparency
established. Far from today’s reality of learning,
throughout the value chain, consumers will
experimentation, and creation, the automotive
have more comparative shopping power than
enterprise of 2020 will apply this knowledge
ever before.
effectively and rapidly.

4 IBM Global Business Services


FIGURE 2. fined personal mobility. Vehicles today are
The five dimensions of differentiation. purchased based on financial constraints or
Interdependent ecosystem
to satisfy “maximum” needs (i.e., buying a
Integrated enterprise pick-up truck to fulfill an occasional need to
transport loads).

Intelligent
The new definition of mobility will be represented
vehicle
with an innovative ownership profile – one in
Sophisticated which the purchase or lease of a vehicle provides
consumer
access to a diverse “garage” of vehicles.
Dynamic
operations
The consumer of 2020 is more likely to be
interested in flexible access to different types
of transportation. Primary ownership profiles
Source: IBM Global Business Services. are likely to shift to the small luxury segment
in line with “median needs” (primary daily
needs). Bundled in the price would be scal-
These new, sophisticated consumers will able access to additional vehicles. Lifestyle
prompt the automotive ecosystem to respond changes will allow access to luxury or larger
to their needs and demands by: vehicles during weekends, as an example,
• Redefining mobility as we now know it while a small, efficient vehicle will suffice for
daily commuting needs. This model would
• Developing new and alternative finance
impact the aggregate production profile for
mechanisms with the potential to generate
vehicle segments.
innovative business models
• Creating new methods to connect with and The other part of this equation is the integra-
retain consumers. tion of multiple modes of transportation. The
emergence of “mega cities” and the growth in
“The industry has become more public and alternative transportation options
will be a key influencer to changing lifestyles.
consumer driven . . . The consumer
This will necessitate the creation of a seam-
will be dictating the terms.” less mobility experience between automobiles
– Indian automotive OEM executive and these alternatives. The industry will need
to respond with ownership models and tech-
Mobility redefined nology to integrate these options.
As consumers become even more selective
and demanding in their quest for satisfac-
tion, they are changing the way they move
about. By 2020, consumers will have rede-

5 Automotive 2020
New finance mechanisms In some geographies, there is an alarming change Usable battery (lithium-ion) life for automo-
in the century-long love affair with the automobile. tive applications is estimated at about 10
will be required to
years. Interestingly, this battery will have an
make battery-powered Passion for automobiles is on the decline,
even longer life for non-automotive applica-
powertrains affordable somewhat driven by environmental concerns,
tions, such as its energy storage potential for
for consumers. but also due to changing lifestyles. While
power grids. The average vehicle in the devel-
newly affluent populations in emerging
oped world is financed for 3-5 years and the
markets aspire for their first experiences with
emerging world is expected to follow suit. The
the automobile, established customer bases
opportunity to split the vehicle from the battery
may weaken.
for purchase/lease/finance purposes is a real
option. Discreet amortization schedules for the
“Personal mobility is attitude two would make battery technology afford-
flexibility.” able and help increase proliferation of hybrid
– European automotive association executive and electric powertrains by neutralizing the
premium that is currently charged.
Financing evolved
It is evident that the “garage” approach will Retention transformed
impact vehicle financing models. Offerings Perhaps the most significant change facing
will include predefined access to a broader the industry will be a shift in consumer buying
selection of vehicles included in the monthly criteria that goes beyond – and, in fact, is unre-
payments. Enhanced services (dealer or third- lated to – vehicle performance (see Figure 3).
party based) would make it a more attractive The increased emphasis on environmental,
cost and convenience alternative to the safety, personalization, traffic congestion and
current rental model. alternative transportation will have a major
impact on how and what people choose for
The advent of alternative powertrains – in their mobility needs. Traditional criteria such as
particular the anticipated growth of battery price, reliability and brand will have much less
technology – will also require new finance an impact in the decision process of the future
mechanisms. The cost of batteries, unless consumer.
compensated via these innovative mecha-
nisms, will be a significant barrier to rapid Automotive dealerships may have the most to
penetration across all segments. Executives gain or lose by how they communicate their
we interviewed estimate battery cost to be value. New retail models will emerge. Vehicles,
as high as 10-15 percent of the total cost of conceivably, could be sold directly to the
vehicles in certain segments, significantly consumer, outside today’s brick-and-mortar
higher than current internal combustion engine outlets. In certain markets, like the United
configurations. States, dealers enjoy regulatory protection.
Emerging markets are not likely to adopt these
While this need will likely spawn a multi- restrictive practices.
tude of innovative solutions, our interviews
revealed one particular scenario of promise:

6 IBM Global Business Services


FIGURE 3. 2. The intelligent vehicle
Change in vehicle buying criteria 2008-2020. Innovation drives the automotive industry
Fuel efficiency today, prompting automakers to differentiate
Eco-friendly products and services by increasing perfor-
Traffic congestion mance, reliability, economy and options. The
Personalization
vehicles of the near future will be “intelligent.”
Electronics will bring new capabilities to
Safety
every part of the vehicle. New technologies
Alternative transportation modes
will provide for greater assistance in naviga-
Lifetime cost of ownership
tion, enhanced driver information about the
Reliability
vehicle, its environment and vehicle connec-
Brand
tivity. Consumers, with a plethora of electronic
Other Substantial
Moderate
devices that inform them, entertain them and
Price
Limited keep them safe, will find themselves enjoying
Values of company
the overall experience of their vehicles.
Taxation
Connectivity and lifestyle trends will change
0 1 2 the way cars are used. This “experience” will
Unchanged Moderate Significant
be a key differentiator in attracting consumers,
Source: IBM Automotive 2020 Global Study. especially in the areas of driver assistance,
safety and service.

Regardless of the regulatory environments, the Glimpses of technologies that will shape the
traditional value definition for dealerships is vehicle of 2020 are becoming visible today.
expected to decline significantly. Erosion of long- Telematics is coming of age. Active safety
established regulatory protections over time is a technologies that sense and respond to
likely reality, as consumers become intolerant of driving behaviors and road conditions are
inflexibility. becoming common in mid- to upper-tier
vehicles in the developed world. Entertainment
Dealerships, especially large dealer groups, choices and navigation have seen rapid
have begun to recognize this threat. Prosperity adoption in recent years. And powertrain
will be reserved for those that focus on innovations are making their way out of engi-
customer intimacy and robust relation- neering workstations and into vehicles around
ship management supported by intense the world.
information management, a wide range of
personalization offerings and new heights of The extension of this vision for the vehicle of
service. Technologies, including telematics and the not-so-distant future reveals an autono-
remote prognostics, will allow dealerships to mous vehicle smart enough to sense its
provide a “sense and respond” approach to surroundings and navigate through traffic
building customer loyalty. safely and efficiently, all the while allowing its
occupants the luxury of personalized comfort
Irrespective of which scenario eventually and convenience. Ultimately, this vehicle would
plays out, it is clear that dealers are now at a represent a seamless transition from life within
crossroads. They should look to develop and the vehicle to life outside it.
implement programs and services that will
re-establish and maintain their value to the
consumer.

7 Automotive 2020
Some degree of Can we expect significant progress by 2020 Battery technology will be ubiquitous.
towards this vision? Absolutely! Is this vision Lithium-ion technology holds the most promise
hybridization will
achievable in its entirety by 2020? Probably and will see considerable investment and
be evident in all
not. growth.
vehicles produced in
2020 and beyond. The vehicle of 2020 will be characterized by Micro, mild and full hybridization is undergoing
several significant developments that, although extensive development today. All new vehicles
implemented in incremental steps over the in 2020 will have some level of hybridization.
next 12 years, will make it remarkably different • Micro hybrids with stop-start capability and
from today. A fierce focus on innovation across regenerative braking hold the potential
the broad automotive landscape will be to make sizeable contributions to carbon
concentrated on software, electrical systems, emission reduction and lower fossil fuel
electronics, engine and auxiliary systems, and consumption. Current projections include
powertrain (see Figure 4). estimates of up to 10 percent reduction in
carbon emissions and fuel savings of up
to 13 percent under certain driving condi-
FIGURE 4. 1
tions.
Level of innovation in various aspects of the
vehicle by 2020. • Mild hybrids, designed to provide extra
Software power as needed but incapable of propel-
How can we assist
Electrical systems the occupants? ling the vehicle alone, are gaining attention,
Engine and auxiliary systems with several OEMs announcing agreements
How will the vehicle
Powertrain be powered? to collaborate and develop this technology.
Body structure (frame) • Full hybrids, not unlike some vehicles avail-
Interior What is de-
able today (powered exclusively by the
Chasis emphasized? electric motor under certain operating
Body exterior (skin) conditions) will continue to see extensive
development. Alternative financing models
1 2 3 4 5
Low High will fuel the affordability of this technology
for consumers.
Source: IBM Automotive 2020 Global Study.
Hydrogen fuel-cell vehicles will remain a viable
alternative, but even optimistic projections
The resulting vehicles will be characterized by put only a small fraction of vehicle produc-
the following: tion migrating to this technology (less than
1 percent of vehicles in the United States,
The green vehicle according to a study by the U.S. National
Executives we interviewed project an unam- Research Council).
2

biguous picture of the vehicle powertrain by


2020. Alternative power will see continued “Energy storage is in the heart of
innovation for years beyond 2020.
the next generation of efforts for
fuel economy.”
– U.S. specialty company executive

8 IBM Global Business Services


Our respondents were uniformly skeptical on It is evident that the substantial investments
this front. But success for this still-emerging made will start to pay dividends. The global
technology will depend on generating, trans- portfolio of new vehicle production will show
porting, storing and distributing fuel efficiently. noteworthy advancement. Our study reveals
This will be no small task for an element with that traditional fossil fuel-based vehicles are
the properties of hydrogen. The added chal- anticipated to make up 65 percent of new
lenge of building an entirely new infrastructure vehicle production, average levels of CO2
may be cost prohibitive, at least by 2020. emissions are expected to reach 97 g/km and
vehicle recyclability is estimated to be at 88
Ethanol must undergo rapid evolution for percent.
global application and proliferation. Food-
based ethanol is clearly not a viable alternative Overly optimistic expectations, regulatory
and there is already a chorus of vocal dissent pressures and often impractical hopes will not
across all population spectrums because of cease to affect the industry. These can lead to
the obvious conflict. Next generation ethanol, disappointment and undue government inter-
cellulosic and waste based, has the potential vention. Worse, these regulatory constraints could
to see widespread acceptance. Infrastructure become the new battleground between economies
readiness costs for higher ethanol content trying to attract the industry versus those
fuels remain a sizeable hurdle. Provision of perceived as penalizing growth. A careful balance
next generation low-ethanol content fuel must be achieved between the possible and
utilizing the current distribution infrastructure is probable across all geographies, both emerging
feasible and holds promise. and developed.

The all-electric, plug-in battery-powered The concept of total carbon footprint is


vehicle will be a reality by 2020. A range of 100 increasingly the focus and will drive key deci-
miles is already within reach, enough to satisfy sions between now and 2020. Sustainability
needs of large population sections. OEMs are will be defined and broadly understood as
investing sizeable resources to making these a reflection of total carbon used in manu-
a reality. facturing and distributing across the entire
value chain. This will pose some challenging
An analysis of the anticipated progress
choices. Satisfying consumer demand for
towards green reveals interesting projections
electric power in certain geographies, as an
(see Figure 5). We looked at progress in fossil
example, is a high-carbon proposition (power
fuel, carbon emissions and recyclability.
generation based on coal).

9 Automotive 2020
The connected vehicle FIGURE 5.
Executive ratings of the global portfolio of new vehicle production in 2020 with regard to producing
will allow automated environmentally friendly vehicles.
response to developing Fuel (percent of total fuel is based on fossil fuels)
2008 2020
traffic situations and
will provide increased 95% 80% 60% 40% 20% 0%
safety, driver assistance 65%
Air (average level of CO2 emissions per vehicle in g/km)
and enhanced service.
2008 2020

160g 130g 100g 70g 40g 0g


97g/km
Recycleability (average percent of the vehicle is recyclable)
2008 2020

75% 80% 85% 90% 95% 100%


88%
Source: IBM Automotive 2020 Global Study.

The connected vehicle: vehicle will enhance the driving experience in


three specific areas: safety, driver assistance
The vehicle of 2020 will be a communications and service.
wonder. As another node on the Internet, it will
connect with other vehicles (V2V connectivity), the Safety – Creating safer driving conditions
transportation infrastructure (V2I) and to homes, will be the predominant contribution of the
businesses and other sources (V2x). connected vehicle. Connectivity will give the
driver access to extensive information about
Sensing capabilities, software and wire- congestion, accidents, road conditions, work
less communications will enable the vehicle zones, weather changes and hazards. It will
to detect road conditions, recognize other enable vehicles to communicate with others
vehicles and pedestrians near its space and in proximity, warning of such things as unsafe
sense environmental changes. The vehicle will lane encroachment or impending collision.
then have the capability to either self correct Connectivity will also allow sensors in the
or communicate information back to the driver. infrastructure to regulate traffic according
to conditions. Emergency vehicles may
Connectivity will allow vehicles to respond command the infrastructure to stop or move
to developing traffic situations, find alternate all traffic in its path; cars may be stopped
routes and anticipate impending collisions. or moved to avoid an intersection violation.
Telematics will enable the vehicle to diagnose Technologies, such as regenerative braking,
operating problems and self heal. Built-in will be leveraged beyond their core intent to
speech recognition capabilities will result in relay congestion patterns to other vehicles and
more voice commands by the driver and fewer enable active responses.
manual processes. Overall, the connected

10 IBM Global Business Services


Driver assistance – Personalization will be a Service – The connected vehicle will be
defining trait of the connected vehicle. It will able to use realtime remote diagnostics
provide age-focused assistance for drivers and prognostics to assess operating condi-
and will offer help according to personal tions and affect some degree of self-repair.
driving habits and driving maturity. Consumers Software and other service patches to elec-
can expect their vehicles to offer limited self- tronic systems will be automatically delivered
driving capabilities, such as autonomous to the vehicle, keeping it updated with little
parking, depending upon rate of adoption consumer involvement. Warranty information
and regional regulatory acceptance. The will be communicated as appropriate. OEMs
connected vehicle will be able to optimize and dealers will be able to offer more compre-
routes based on fuel economy, realtime hensive customer relations management by
changes in traffic conditions and minimal maintaining, with consumer agreement, vehicle
tolling. The vehicle will become an exten- usage data and consumer preference profiles.
sion of lifestyles, with entertainment solutions Service alerts, scheduling and notifications will
(streaming audio, video and communica- be offered based on operating behavior infor-
tions) that allow seamless transition between mation transmitted from the vehicle.
mobility, office and home. Consumers will
have drive-through convenience, with remote
ordering and payments. A multitude of service
offerings will grow from vehicle connectivity.

Applications well under development today and projected to be pervasive in all new vehicles
by 2020
Safety
• Intersection control violations
• Lane/road departure
• Road surface and pavement conditions
• 360/distance vision
• Active suspension and stability control.
Driver assistance
• Dynamic route guidance and navigation
• Motorist information on incidents, special events, weather and work zones
• Data downloads (entertainment, media, home network, personal preferences)
• Recovery of stolen vehicles
• Electronic payments including toll, drive-through, parking, road pricing.
Service
• Remote vehicle diagnostics
• Remote vehicle prognostics and self healing
• Transfer of vehicle data based on warranty
• Customer relations management including vehicle use profiles and dealer use data
• Driving-based behavior service/scheduling/alerts/notification.
Sources: Automotive 2020 Global Study; 2008 CAR Delphi Survey of the Telematics Industry.

11 Automotive 2020
Global standards By 2020, all new vehicles will have connectivity The final key will be the rate of consumer
will be essential in features. The extent to which these capabilities adoption. In an environment of steadily
making the connected will be both utilized and effective, however, will increasing prices, cost will be a significant
vehicle a reality. depend upon several issues, including adop- factor for the consumer in determining the
tion of industrywide standards, technology level of connectivity that will be accepted.
capability and consumer acceptance (see Drivers are likely to have reservations
Figure 6). about how much control they are willing to
turn over to the vehicle in crisis situations.
Executives interviewed agreed that the Privacy issues, such as the degree to which
greatest barrier is the creation of global stan- consumers are willing to share personal infor-
dards. Companies throughout the value net, mation, will also be a concern.
including external players such as government
and telecommunications companies, will need The benefits of full connectivity will not be
to work together to establish a common plat- realized until an advanced degree of conver-
form that enables vehicles and components sion is available for legacy vehicles or there
from different manufacturers and geographic is a greater turnover to post-2020 machines.
locations to communicate seamlessly. We anticipate aftermarket products will be
available to give older automobiles basic
Secondly, technology development, particu- connectivity capabilities.
larly in the area of sensors, must continue.
However, because relatively less collaboration The most significant differences in vehicle
is necessary in this arena, it is likely to be the connectivity by geographic region in 2020 are
easier capability to enable. likely to occur in areas that require government
investment. Developed nations, particularly
FIGURE 6. Japan, Germany and the United States are
Factors in adoption of connected vehicle. expected to be the leaders in both innovating
Adoption of standards and establishing the required infrastructure.
Technology capability Other countries actively engaged in promoting
Consumer acceptance connectivity include Korea, China and
Data management Sweden.
Auto company cooperation
3. Dynamic operations
Data ownership
Emerging as a winner in 2020 will require an
Government investment
innovation-led approach to multiple factors,
Enabling the vehicle base
including growth strategies, the workforce,
1 2 3 4 5 redefinition of “core” businesses and proactive
Low High
flexibility.
Source: IBM Automotive 2020 Global Study.

12 IBM Global Business Services


Strategies for growth areas where disparate opinions were clear.
Multiple avenues are available to achieve the OEMs consistently rated activities that required
growth expected for the industry. As current broader industry cooperation lower than
trends indicate, executives identified accel- suppliers. Figure 7 shows that OEMs have a
erating growth in emerging markets as the more independent orientation toward these
leading catalyst by 2020. development initiatives, while suppliers were
more inclined toward a partnership approach.
Our study, however, did show some regional
disparities. Those interviewed in emerging Suppliers are looking for greater leadership from
markets put a greater emphasis on new OEMs, especially around industrywide collab-
business models and the development of orative initiatives, in order to realize the industry’s
service-based offerings. growth potential. As software and electronics in the
vehicle grow rapidly, the industry, led by the OEMs,
We further compared various growth strate- must collaborate on the architecture and define
gies and the factors involved in the adoption clear expectations to suppliers of requirements,
of connected vehicles. While there are broad performance, interfaces, testing and functionality.
areas of alignment, there are also several

FIGURE 7.
Industry segment growth orientation.
Opportunities for growth by 2020 Alignment
Development in emerging markets
OEMs
Targeting new customer segments Suppliers
Developing new business models Others
Leveraging disruptive technology
Creation of services-based offerings
Creation of new product categories
Forming new JVs/partnerships
Collaborating with other industries

Factors in the adoption of a connected vehicle


Government investment
Technology capability
Auto company cooperation
Enabling the vehicle base
Consumer acceptance
Adoption of standards
Data management
Data ownership

Independent Partnership
Source: IBM Automotive 2020 Global Study. orientation orientation

13 Automotive 2020
Skills for the multiplex With the proliferation of electronics and soft- Traditional organizational models will be trans-
ware within the vehicle, OEMs will need to formed. Corporate functions currently housed
workforce will be
elevate current levels of integration and soft- in, or close to, company headquarters will see
heavily weighted
ware lifecycle management. geographic distribution. Leadership models will
toward creation of the become further matrixed.
intelligent vehicle. The multiplex workforce
By 2020, investments currently underway in The skills required for this new workforce tilt
globalization will be largely established. The heavily toward the intelligent vehicle of the
challenge will be to execute in this expan- future. As Figure 8 shows, the highest rated
sive environment, leading to the need for a skills for 2020 focus around engineering,
multiplex workforce. As with a “multiplexor” in management, product planning and software
electronics, the multiplex workforce enables development. The industry will need to bring
the diverse skills and culture that are a all of these skills into play. Skills in finance,
byproduct of globalization and unites them into procurement and production were underrated
common goals and direction. This new work- by executives, but will have important roles in
force will have important new attributes, such effective global execution.
as the ability to work across diverse cultures
and will likely be conversant in multiple
languages. The new global worker will also be
effective working virtually.

FIGURE 8.
Critical industry skills by region.
Engineering
Management
Product planning
Software development
Design
Marketing/selling
Service technician
Finance U.S./Canada
Western Europe
Procurement Japan/S. Korea
Production Emerging countries
Global average
0% 20% 40% 60% 80% 100%
Source: IBM Automotive 2020 Global Study.

14 IBM Global Business Services


“If you look at manufacturing, building up and global rotation of leader-
ship talent, with an emphasis on attracting
anybody who chases cheap labor quality executives from outside of the industry.
doesn’t win.” Building leadership talent was the highest
– U.S. automotive supplier executive rated capability challenge (see Figure 9).
Nearly 50 percent of those we interviewed
As this workforce will be more mobile and gave “building leadership talent” the highest
diverse, employees will have less interest in possible rating. As the workforce turns over,
tying themselves to a singular career and will put this new leadership must guard against
greater value on job flexibility and balance with allowing entrenched culture to become a
non-work activities. They will also make greater disabler. Priority skills that will need to be
demands on an inclusive and collaborative work recruited and developed will vary according to
environment. region, availability and market skills.

Those auto companies that are financial In addition to innovating growth strate-
outperformers consistently rated workplace gies and effectively managing the multiplex
capabilities, such as fostering a culture that workforce, market dynamics will prompt
supports learning, knowledge transfer to inex- automotive companies to redefine the core
perienced workers and attracting employees of their businesses. As new business models
to the industry, higher than the their underper- emerge among the various industries that will
forming peers. collaborate with auto companies, new defini-
tions of what is core will apply. For example,
An additional key to enabling the multiplex
requirements for increased product innova-
workforce to reach its potential will be the

FIGURE 9.
Primary capability challenges facing the industry between now and 2020.
Building leadership talent
Fostering a culture that supports learning/development
Knowledge transfer to inexperienced employees
Rotating leadership talent across business units/geos
Attracting employees to work in industry
Communication skills
Re-skilling the workforce
Rapidly getting new employees up to speed
Leveraging the diversity of the workforce
Developing basic skills across the employee base

1 2 3 4 5
Source: IBM Automotive 2020 Global Study. Limited Best

15 Automotive 2020
Proactive flexibility tion will spur suppliers to develop greater • Core product development will happen
core competencies in energy, materials and in both mature and emerging markets.
will be required
electronics. And the mandates of marketing, Industry executives believe that, in addition
to keep pace with
selling and after-sales innovation will lead to available talent, the unique combination
both the needs of OEMs to develop greater core competencies of excitement, entrepreneurship and inno-
the consumer and more tightly linked to product innovation and vative skills in developing economies will
with interdependent consumer strategy. OEMs will also need to be allow for homogeneous distribution of these
ecosystems. resource integrators across the automotive activities.
value net. • Application development will also be
distributed and not limited to today’s model
“By 2020, the traditional OEM will that splits core development to developed
be the vehicle integrators, product markets and application development to
innovators, customization centers emerging markets.

and vehicle brand owners” • Innovation will be distributed among multiple


global R&D centers to leverage expertise.
– Executive, automotive OEM
Manufacturing footprint
Proactive flexibility
Finally, proactive flexibility in operations and
The fear of automotive manufacturing moving
processes will be necessary to keep up
exclusively to emerging economies is vastly
with rapidly evolving consumer needs and overstated.
the demands of working with interdepen-
dent ecosystems. This flexibility will require We believe this model is not sustainable, and
the ability to anticipate market changes executives interviewed provided strong corrob-
and continually adjust critical “footprints” to oration on this point.
respond.
The complexion of “domestic” (in developed
Product development footprint countries) manufacturing will undergo change;
ownership profiles will not be a carryover of
With engineering skills continuing to be available those from the past. Non-domestic OEMs
in abundance within countries such as China and will continue to invest in plants in developed
India, the redefinition of the product development economies. Leading global OEMs will have
footprint is a foregone conclusion. established their near-optimum presence in
emerging geographies. Readily visible signs
However, to assume that all product develop- of a new 2020 manufacturing footprint will
ment will happen in these emerging markets include:
is an overstatement. Consumer proximity and • Automated, flex manufacturing plants that
development needs in a “follow the sun” model will allow for greater flexibility in building
will provide continuity of product engineering vehicles based on local and global
in development markets. Transformation will be demand.
evident through the following:

16 IBM Global Business Services


• Broader footprints that will be established concerns will increasingly drive consumer
as new markets emerge. expectations and have the potential for far-
• Manufacturing plants that will not be reaching impact:
constrained by the quantity of labor, but will • Brand image – Enterprises no longer explic-
be heavily reliant on the quality of skills. itly own their brands. In addition to its own
efforts, a company’s brand is defined by
Skill-based footprint others, including, consumers, competitors
and special interest groups. The Internet
The available skill base will not only include those has enabled more than 100,000 new citizen
of the enterprise, but also those that are sharable groups around social and political issues
among collaborating companies and industries. since 1990.
3

• Industry attractiveness –The need to


Optimizing the distribution of the workforce will
attract employees to work in the automo-
be an ongoing focus of OEMs and suppliers
tive industry received mixed ratings in our
alike.
interviews, implying an under appreciation
• Emerging markets will continue to produce for this challenge. New global locations lack
highly skilled workers that auto companies the history that traditional automotive cities
will leverage. have enjoyed to enable automatic talent
• Lack of attraction to the industry in recruitment.
developed markets and work requirements • Company culture – Executives in all
of next generation workers will cause developed geographies are concerned
greater turnover and a skills shortage. about the difficulty of changing long-estab-
lished culture. Employees that are favorable
4. The integrated enterprise about their company’s CSR are also more
The pursuit of the sophisticated consumer, positive about senior management integrity,
development of intelligent vehicles and the the company’s sense of direction and its
transformation to dynamic operations will be marketplace competitiveness.
wrapped in a new integrated enterprise that
breaks from the past and is appealing to
“When we compare 2020 with the
new talent the industry is seeking to attract.
Auto companies will forge a new identity. The present, we cannot think about the
image of the industry, enterprise and individual growth of the automobile enterprise
brands will be defined in a widely critical,
without also paying attention to
global marketplace.
the safeguarding of the world envi-
Automotive companies must strive to build
and extend social responsibility initiatives that
ronment.”
transform the image of the industry. These – Japanese academic institution representative

17 Automotive 2020
Collaboration must Interdependent ecosystem • Partnerships with the telecommunications
industry for connected vehicle communica-
extend past individual
Consumers, regulatory and environmental require- tion technology
companies and ments compel the auto industry to extend outside
• Cooperation with the financial services
embrace every element the borders of its own ecosystem to tap into the
industry to develop new financing models
of the ecosystem. innovation and resources of others.
and automated payment of parking, tolls
and other services
Winning in the marketplace starts with the
ability to work with other industry ecosys- • Association with government for infrastruc-
tems to identify innovative solutions quickly ture improvements to enable the connected
(see Figure 10). The relentless push to work vehicle and regulatory requirements for fuel
with other industries will bring differentiating economy, environmental issues and incen-
mobility solutions to consumers. Some of tives to drive the conversion to cleaner
these innovations will include: technologies.

• Collaboration with the consumer electronics This collaborative effort must also extend past
industry for in-vehicle electronics and just the individual companies and institutions
software, as well as development of the to their consumers, communities and geogra-
battery phies in order to tap into ideas for innovation
and identify marketplace wants and needs.
• Collaboration with the energy/ utilities
industry for alternative fuel and energy
sources

FIGURE 10.
Interdependent ecosystems.

Global consumers

Other
ecosystems
Government/ Consumer
Transportation electronics

Social networks Geographies


Automotive

Other industries
Telco Energy
Software
Financial services
Biotechnology
Communities

Source: IBM Global Business Services.

18 IBM Global Business Services


Today’s “collision” of industries, in which propri- • Current difficulties in managing increased
etary technology is the norm, will need to be software requirements and information
replaced by a new approach, much remains technology needs of the vehicle must be
to be accomplished to make this a reality. The corrected.
ability for the auto companies to work with • Processes must be in place to seamlessly
a broader set of ecosystems was identified engage and disengage with companies
in our study as the largest shortcoming. As from other industries without putting all the
Figure 11 shows, there is will be a significant risk on them. Working within itself, the auto-
increase in importance by 2020 in the need to motive industry traditionally takes its time
collaborate among ecosystems. in creating new partnerships and work out
The collision (as opposed to collaboration) of collaboration requirements. This may not be
industries within and surrounding the automo- suited for faster-paced partners from other
tive ecosystem today is highlighted by a variety industries
of issues that must be addressed: Examples of collaboration
• Relationships with governmental agencies Enhancing safety, service and navigation
are often adversarial. capabilities requires greater integration of
standards and technologies. Standards allow
• Other industries have varying product life-
technologies to be developed that can be reused
cycles, different rates of innovation and may
by multiple auto manufacturers and regions. This
have competing priorities
requires cooperation among government (road
• The automotive industry must have both the infrastructure for intelligent traffic systems),
ability and capability to tap into ideas and telecommunications (wireless communication
innovation from consumers of other related channels) for vehicle connectivity and auto makers
industries. (vehicle intelligence) for technology that can
be developed by suppliers and shared among
different vehicles and geographies.
FIGURE 11.
Reducing the reliance on natural resources
The need to reach across ecosystems.
drives greater collaboration between competing
Critical 5
industries. Green concerns are prompting the
development of alternative power sources for
4 vehicles, such as batteries and the increasing
+ 48% prevalence of diesel fuel. As a result, the
3 automotive industry must collaborate with
competing segments – consumer electronics
2 for battery innovation, utilities for power and the
energy industry for alternatives to fossil fuels –
Not 1 because the answer is unclear as to the power of
important
2008 2020 choice for the future.
Source: IBM Automotive 2020 Global Study.

19 Automotive 2020
Changes in the The intersection between ecosystems that have The changes in the ecosystem outlined are not
varying product lifecycles, different rates of visions of a distant future. Most are well under
automotive ecosystem
innovation and competing priorities will be fertile way today and hold the promise of maturity.
are underway today ground for new sub-industries to emerge and fill
and are accelerating. the gaps between industries by providing new, Based on our interviews and other research,
white-space services and solutions. we have defined five imperatives we believe
likely to separate the outperformers from the
Examples of types of companies that may rest in the automotive world of 2020 (see
emerge include: Figure 12).

• Aggregation and synchronization of the


personal “cyberself” to deliver personalized FIGURE 12.
information, entertainment and preferences Five imperatives.
to the consumers regardless of what vehicle Interdependent ecosystem
they’re using Integrated enterprise

• Energy storage and brokerage to manage Simplify Advance


total energy usage between home and complexity Intelligent mobility
vehicle and provide metering services and vehicle
credits for contributions to the energy grid
Sophisticated
Partner Transform
• Data analysis, disbursement and storage consumer
extensively retail
for the connected vehicle, including privacy Dynamic
rules and data security. operations

“The era when all work would Execute


globally
be completed within the industry
is over. Now we need to interface Source: IBM Global Business Services.
with several external entities to get
work done.” Advance mobility
– Japanese automotive OEM executive The marketplace and macro-economic trends
are aligning to transform the consumer’s view
With change storming across the breadth and of mobility. Fueled by the continued escala-
depth of the industry, bringing clarity from the tion of oil prices, a global shift to smaller
current chaos will require companies aspiring vehicles is underway. Consumers also desire
to take sweeping and speedy action. more mobility options than the limited finance
models currently allow. The shift of the global
Five imperatives will guide population to “mega cities”, increased traffic
Automotive executives must accurately, congestion and increased awareness of pollu-
effectively and quickly assess the level of tion are prompting consumers to demand
commitment required by their respective more options.
companies to succeed. With the pace of
change accelerating, time could be running out.

20 IBM Global Business Services


As a result, auto companies must embrace Transform retail
new mobility models and use them as profit The automotive industry should transform its
generators. They should: retail model to adapt to the more sophisticated
consumer. The consumer of 2020 is highly
• Stake a claim in new ownership and usage
informed, aware, concerned and actively
models – Major players are beginning to
will tune in or out messages. The informed
enter the market to establish subscription
consumer will enter the sales cycle with more
mobility. Automakers should look to explore
decisions predetermined and will be less
partnership deals with them. They should
reliant upon the dealer. Auto companies and
examine their product profiles and assess
dealers will need to:
which segments are more conducive to
ownership and which are appropriate for a • Find new ways to connect with sophisti-
public fleet. cated consumers – Dealers should work
with OEMs to rethink and reestablish the
• Develop cost of transportation options –
basis of their relationship with consumers
Consumers will need to understand the
through integrated consumer analytics.
total cost of transportation, and automotive
They should harness the power of social
companies need to respond with innova-
networks to influence consumer buying
tive pricing models. Alternative financing
behavior, work to personalize vehicles to
strategies must be established, as well as
establish service loyalty, brand affinity and
methods for financing components of alter-
the image of social responsibility.
natively powered vehicles, such as batteries.
Finally, automotive enterprises will need to • Develop a new value propositions for deal-
engage with governments to find ways to erships – Dealers should work to provide
incent consumers to switch to hybrid and/or consumer knowledge beyond the OEM,
alternatively powered vehicles. such as educating consumers about safety
and vehicle features. Innovations in the
• Integrate other modes of transportation –
vehicle will allow dealers to develop new
As vehicles are increasingly connected to
services and skill sets, such as dealer-
navigation, automotive companies should
installed and maintained personalization
establish a blueprint for integrated multi-
features.
modal mobility information and develop
solutions such as a single search/optimiza- Simplify complexity
tion model of travel regardless of mode(s). The complexity of the vehicle will grow expo-
Solutions such as developing a single nentially as future innovations enable it to
search/optimization model of travel regard- become more intelligent and connected.
less of mode(s). Dynamic customization Executives we interviewed estimate that 90
of transportation mode choices based on percent of future innovation will be based on
traffic, time of day, congestion patterns, etc., electronics, most of which will be embedded
will need to be enabled by 2020.

21 Automotive 2020
Integration software, and a sizeable portion from compa- Partner extensively
nies outside the traditional automotive industry. The increasing cost of innovation is unsus-
management will
A lack of common standards causes integra- tainable for individual companies. We believe
become increasingly
tion issues with external industry components, the successful company of 2020 will extend
complex as technology and integration management promises to outside the industry for innovation and will
advances. multiply in complexity with growth in tech- work with others to solve common issues. To
nology. To overcome these challenges, do so will require the industry to:
automakers should simplify the increased • Extend the ecosystem – Automotive
complexity in the vehicle to enable rapid companies should reevaluate what is core,
technology adoption. The foundation to this both in the business and in the vehicle, and
simplification is common processes. The prolif- then find business partners that comple-
eration of processes within each company and ment them. They will need to develop a
across companies is crippling and will worsen common partnering platform to enable
in light of the exponential growth of electronics cross industry collaboration that includes
and software in the vehicle. Our recommenda- rules, IP protection, risk and reward sharing
tion is to: and the ability to quickly engage/disengage.
• Standardize and integrate – OEMs must own Further, they should look to leverage
the integration management process and other industry forums, communities and
architecture. Standardization is an impera- consumers to widen their enterprise innova-
tive to allow for incorporation of traditional tion networks. Together, the industry can be
and non-traditional supplier innovation. much larger than the sum of its individual
Common specifications should be estab- parts.
lished for the intelligence being served • Engage in collective partnering –
to the vehicle – instead of the intelligence Automakers should consider extending
being resident in the vehicle. This should the partnering concept to bring together
allow for both easier upgrades and simplify a diverse group of companies (OEMs,
repair. Standardization and integration must suppliers, other industries) to focus on
go beyond the vehicle. solving critical problems, such as vehicle
• Modularize to modernize – “Plug and play” energy consumption. The development of
capability will allow consumers to customize value sharing models can enable all partici-
the vehicle based on their personal require- pants to leverage innovations, while sharing
ments. Modular design will provide greater in cost and risk.
flexibility to “swap out” energy and power
components to allow for upgrades and tech-
nology improvements without having to buy
a new vehicle. The rate of adoption for future
V2x capabilities will be improved through
the ability to install safety, service and driver
assist modules in the existing vehicle popu-
lation.

22 IBM Global Business Services


Execute globally • Harmonizing with local economies –
Effective global execution requires harnessing Automakers should go beyond development
the power of a workforce, throughout its of products and services that reflect
geographically dispersed footprint, to bring the desires and needs of local markets.
innovation in products and services faster than Initiatives that contribute to the long-term
ever before. Automotive companies that do social well-being of populations in all
this will improve both top and bottom lines, markets, and close cooperation with local
while effectively changing the image of the governments and communities to enable
industry. The key drivers include: prosperity, will be a key demonstration of
• Adapting to the multiplex workforce – corporate social responsibility.
Automotive enterprises must have a
The time is now
comprehensive understanding of personnel,
In just a dozen years, the automotive industry
leadership and skill needs. The proper
will be remarkably different from today –
mix and depth of skills can be planned
perhaps, even, unrecognizably so. Time is of
through wide-ranging workforce analytics.
the essence.
Information technology must be harnessed
to simplify and enable both structured and Global enterprises must build on strategies
unstructured workforce collaboration, manu- that:
facturing and product development.
• Respond to the redefined reality of personal
• Balancing and flexing operations – mobility
Companies should optimize their
• Connect with the sophisticated consumer of
manufacturing footprints globally to strike
the next decade
a balance between cost and proximity.
Optimization will be more complex with the • Harness the strength in standardization and
inclusion of parameters such as reducing commonality.
the carbon footprint and taxation, re-exam- • Build new cohesive enterprise ecosystems
ining mounting logistics costs through the
• Architect an optimal global presence and a
value chain, volatile raw materials costs and
unique socially responsible culture.
the right skill mix. Core development innova-
tion from emerging markets will need to be Organizations must act – aggressively,
tapped into and workloads optimized by actively and with immediacy – to create
leveraging global skills and resources. clarity beyond the chaos within their
respective worlds.

23 Automotive 2020
About the authors Contributors
Sanjay Rishi is Vice President and Global Rishi M Agarwal, Senior Consultant, Strategy &
Automotive Industry Leader for IBM. He has Change Global Delivery, IBM Global Business
over 20 years of progressive consulting and Services, India.
industry experience leading large, global,
multifunctional transformation programs in the Prasun Ray, Consultant, Strategy & Change
automotive industry. Mr. Rishi has worked with Global Delivery, IBM Global Business Services,
numerous automotive OEMs and suppliers India.
across the globe. His industry experience Acknowledgements
includes leadership of product engineering We would like to thank all of our clients and
and manufacturing organizations. Prior to executives that were so giving of their time
joining IBM, Mr. Rishi was a Partner with during the interviews for this study, as well as
PricewaterhouseCoopers. He can be reached our IBM Automotive Team, which conducted
at sanjay.rishi@us.ibm.com. all the interviews worldwide. Everyone’s enthu-
Benjamin Stanley is Global Automotive siasm made this study possible and provided
Industry Strategy Lead for IBM. He has over countless learnings.
30 years of consulting and industry experi- Also, we would like to extend a special thanks
ence in the automotive industry, including to The Economist Intelligence Unit for its assis-
strategy, product engineering, supply chain tance in conducting interviews.
and international logistics. Mr. Stanley uses
his background and experience to develop
About IBM Global Business Services
insights and direction for the IBM global auto-
With business experts in more than 160
motive practice. Prior to joining IBM, Mr. Stanley
countries, IBM Global Business Services
was an Account Executive for EDS and Senior provides clients with deep business process
Product Designer for Delphi Automotive. He and industry expertise across 17 industries,
can be reached at bstanley@us.ibm.com. using innovation to identify, create and deliver
Kalman Gyimesi is an Associate Partner with value faster. We draw on the full breadth of IBM
IBM Global Services and is the Industrial capabilities, standing behind our advice to
Practice Leader within the Institute for help clients innovate and implement solutions
Business Value. He has over 20 years of designed to deliver business outcomes with
experience in industry and consulting, where far-reaching impact and sustainable results.
he has led the implementation of business
solutions to difficult problems. He has worked
on diagnostic and re-engineering projects
with both automotive OEMs and suppliers.
Mr. Gyimesi’s expertise ranges from business
strategy and supply chain management to
RFID technology and intellectual property
assets. He can be contacted at gyimesi@
us.ibm.com.

24 IBM Global Business Services


References
1
Rendell, Julian. “Car firms speed towards a
greener future.” guardian.co.uk. November
26, 2007. http://business.guardian.co.uk/
windofchange/story/0,,2217320,00.html
2
Ibid.
3
Bonini, Sheila M.J., Lenny T. Mendonca
and Jeremy M. Oppenheim. “When social
issues become strategic.” Boston College
Carroll School of Management. Center for
Corporate Citizenship. October 2006.http://
www.bcccc.net/index.cfm/fuseaction/Page.
viewPage/pageId/1420.

25 Automotive 2020
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