Impact of new technologies in the automotive industry - Measuring the profit impact of digitalisation

Publication Type:

Conference Paper


Heike Proff


Gerpisa colloquium, Paris (2019)


For automotive companies, digitalisation offers technological opportunities and cost reduction
through algorithms and programs. They have to adopt and process the digital technologies and
change their business activity (digital transformation) to remain competitive and create new
growth potentials (cf. Stief et. al 2016, p. 1833). This makes digitalisation the most important and
far-reaching trend of the 2000s, networking “our […] lives” (Köhler, Wollschläger 2014, p. 66).
In times of digitalisation, the issue is not so much technologies, but rather strategies and new
ways of thinking (cf. Rogers 2016). Digitalisation enables and drives changes in processes (e.g.
through the digital factory or Industry 4.0) and products and/or services, and through new business models (cf. Kane et. al. 2016) it enables and drives the digital transformation in companies.
With the transition of the global economy into more difficult waters as a result of the Brexit discussion, bilateral trade conflicts and the weakening Chinese economy, many companies are asking what the impact of digitalisation on profit actually is (cf. New Vantage Partners 2017).
Theoretical foundations
As a result of the standardisation of interfaces between individual business activities along the
value chain, digitalisation enables a reduction in the restrictive mutual interdependencies of the
primary activities of manufacturing, logistics and distribution and the sequential interdependencies with the supporting activities, in particular procurement and R&D (cf. Cyert, March 1963, p.
117). These activities can therefore be uncoupled and the decision-making units can take “partial
decisions separately from one another to a certain extent” (cf. Frese 2000, p. 54). This offers 
time advantages and reduces the (transaction) costs in internal coordination (cf. Hagiu, Wright
2015), which has a positive effect on profitability.
Because IT works more closely with the traditional business, digitalisation simultaneously also
creates technical platforms as interfaces between companies, across which more than two market players can interact stably, and increases their interaction (cf. Gawer 2014). Collaboration
among several companies can lead to smart customer solutions and innovative business models
which in many cases one market player alone cannot provide. This has a positive effect on profitability.
A positive impact of digitalisation on profit can therefore be assumed.
Measuring the Profit Impact of Digitalisation - Methodology
Technologies and processes that are changed by digitalisation (“digital activities”) and the capabilities behind them (“digital capabilities”), but also changed products and services and business
models (“digital strategies”) and the dynamic capabilities required for this can be captured by a
Digital Maturity Assessment (DMA). This breadth of the factors needed to operationalise the concept of digitalisation is the reason for the small number of studies to date which examine the
influence of digitalisation on profits (cf. Joensuu-Salo, et. al. 2018, New Vantage Partners 2017).
For this purpose, an index made up of four individual indices was developed. The Digital Business Index captures the company’s digital orientation in the products and services offered and
the business model. The Dynamic Capability Index was developed to capture companies’ dynamic capabilities as a prerequisite for any digital transformation. The Digital Activity Index captures the capability of a digital strategy to optimise the process in (direct) value adding structures,
incorporating available resources, and the enablers required for this purpose. Finally, the Digital
Capability Index to estimate the implementability of digitalisation.
The constructs were operationalised using a total of 43 questions; profit was measured by the
EBIT impact. Just as digitalisation targets may vary between industries and also between individual managers, we used a description of four different levels of digital maturity to give respondents guidance for the assessment of them in parallel (Digital Novice, Digital Learner, Digital Performer and Digitally Fluent).
A survey was carried out in Germany using an online questionnaire which was ultimately completed in full by 110 companies. 28% of the responses were completed by top managers (CxO)
and 72% by middle managers. To create the indices, the individual questions were evaluated per
index for four types of digital maturity. For the four digital types the rank correlation analysis
(Spearman) shows a high correlation coefficient of 0.75 with the profit and thus a strong support
of the assumption.
Practical Implications
It proved possible to demonstrate empirically that the frequent attempt to digitalise within individual processes in isolated operational pilots, for example in production, only taps the potential of
digitalisation to a small extent. Companies in the automotive sector have to address digitalisation
on the level of products and services and the business model as well as in dynamic capabilities
and enabling factors such as functional IT systems, otherwise they will be faced with new or
established competitors with significantly higher profitability.
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Vol. 10 (6), pp. 1833- 1842. 

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