毕博咨询报告－Driving Change in the dealer IT Enviorment.pdf

White Paper:AUTOMOTIVE AND TRANSPORTATIONDRIVINGCHANGE IN THEDEALERIT ENVIRONMENTWHITEPAPER1IN THIS WHITE PAPER:1.Executive Summary2.Seamless Integration:Linking Vehicle Manufacturers with Dealer Communities3.The Cost-Driven DSP Support Model Dealership Environment Dealership Installation Ongoing Support Economic Model Pricing Models4.Addressing the Challengesof DSPs:Six Strategies for Vehicle Manufacturers Strategy 1:Leverage the Internet Strategy 2:Drive the Change Strategy 3:Define and Execute a Road Map Strategy 4:Drive Standards Strategy 5:Reengineer DealerCommunication Systems Strategy 6:Focus on Revenue5.Conclusion:Establishing a Clear Path of ValueDRIVINGCHANGE IN THEDEALERIT ENVIRONMENTDRIVINGCHANGE IN THEDEALERIT ENVIRONMENT2BEARINGPOINTExecutive SummaryIn todays automotive industry,vehicle manufac-turers must continually identify new opportunities for efficiency improvement and cost takeout tomaintain their competitive advantages.Currently,some manufacturers seek to extend the makeup ofthe enterprise so that they can share informationand applications with dealers in real time as well as provide new products and services electronically.By making innovative connections with dealers,they expect to achieve more accurate planning,faster responses to market shifts,significant costsavings and increased sales.To realize these benefits,however,vehicle manufacturers first need to developstrategies for addressing the challenges posed by the dealer service/systems providers(DSPs)thatcontrol todays dealer information technology(IT)environment.In the following discussion,we provide vehiclemanufacturers with insights that they can leverageto begin addressing these challenges.We begin withan overview of the systems that dealers use foreveryday operations,describing both the need forintegration and the market dynamics that make thisintegration difficult to achieve.Next,we discuss theimportant role played by DSPs in todays dealer IT environment and offer specific informationabout the DSP business model.Finally,we outlinepotential strategies that vehicle manufacturers canuse to collaborate with or work around DSPs inleveraging new technologies and building moreproductive relationships with automotive dealers.Seamless Integration:Linking Vehicle Manufacturers with Dealer CommunitiesA few well-established DSPs currently supply themajority of automotive dealers with turnkey IT systemsalong with the associated services andsupportthat have become essential to effectiveday-to-day business operations.Known as dealermanagement systems,these systems enable the effi-cient performance of back-and front-office taskssuch as inventory management,sales and servicemanagement,financing,accounting and humanresources management.See Figure 1.In addition to purchasing dealer management systems,dealers must pay the cost of operating and maintaining dealer communication systems,which are the sophisticated applications that mostvehicle manufacturers have already developed anddeployed.These manufacturer-mandated systemssupport critical functions such as parts ordering andwarranty claims processing and form an integralpart of dealers day-to-day operations.INVENTORY MANAGEMENTSALES AND SERVICEFINANCINGACCOUNTINGHUMAN RESOURCE MANAGEMENTFIGURE 1.COMPONENTS OF A DEALER MANAGEMENT SYSTEMDRIVINGCHANGE IN THEDEALERIT ENVIRONMENTWHITEPAPER3Most vehicle manufacturers have developed,forspecific situations,strategies for coping with thislack of integration.However,continuous,seamlessintegration between dealer management systemsand dealer communication systems has yet to beachieved.This situation results in process inefficien-cies for dealers,DSPs and vehicle manufacturersalike and results in rising maintenance costs fordealers.It also leaves vehicle manufacturers withoutreal-time views into their sales channels.In addi-tion,dealers continue to struggle with the multipleentries required from dealer communication systems to dealer management systems.This chal-lenge is particularly troublesome for multi-branddealers that must enter the same information threeor four times to support the manufacturer,the dealerand,in some cases,the dealers parent business unit.Automated processes,rapid transactions and tightintegration between dealer communication andmanagement systems will be achieved only if manufacturers adapt to or create change within the preexisting IT systems currently being suppliedby DSPs.However,reforming todays dealer ITenvironment is a significant challenge.Althoughprofit potential exists in the development of customized extended applications and increasedcollaboration with vehicle manufacturers,DSPsbelieve that these advances could cannibalize exist-ing market share and open the door to greater manufacturer control and competition,thus under-mining the viability of the DSP business model.Nonetheless,there are several strategies,discussedlater,that vehicle manufacturers can pursue toaddress the challenges posed by DSPs.MANUFACTURERDEALER INFRASTRUCTUREBUSINESS APPLICATIONS AND SERVICESDealer CommunicationSystemsDealer Management SystemsFIGURE 2.INEFFICIENT BATCH METHOD OF DATA EXCHANGEAs a result of all these components,dealers incursubstantial costs in operating these systems.Forexample,dealer communication and managementsystems each require expensive in-dealer hardwareto power the various functions.The IT cost to manage both systems can average approximately0.6 percent of revenues for a typical dealer group oradd approximately$100 per vehicle.From the perspective of vehicle manufacturers,however,the greatest challenge posed by DSPs isthat an integration capability is not being built intothe dealer management systems they provide.Because DSPs retain and attract dealer clientschiefly through cost-driven strategies that fail toreward innovation,they have little incentive to create a common data model across applicationsand order-management systems.As a result,external integration between dealer managementand communication systems has become virtuallyimpossible to achieve at a low cost.This situation,inturn,prevents vehicle manufacturers from realizingthe full benefits of more effectively collaborating,exchanging information and sharing applicationswith their dealer communities.See Figure 2.The unique reporting and integration require-ments of each vehicle manufacturer franchisewith which the dealer is affiliated.Any multi-franchise business locations andreporting structures.Hosting as part of system architectures that canvary widely in age,capacity and load.Integration between each of the dealers ownbusiness units/locations.Potentially numerous integration points with vehicle manufacturer and third-partyapplications.Dealership InstallationThe introduction of new software and solutionsusually requires that DSP field-support staff visitthe dealership to perform the installation.Theinstallation can involve new hardware and a uniquecustom configuration required by the dealers IT architecture as well as testing of the new productfor compatibility and performance.In addition,varying amounts of training and instruction may be required.Also,due to the heavy demands of the dealer retail environment,new products oftenmust be installed after business hours.All of thesevariables serve to drive up support costs.Ongoing SupportThe mission-criticality of automotive dealer ITmeans that DSPs must offer highly available support services.The ratio of support resources tocustomers is much lower,however,than would bethe case with software support companies servingother industriesa situation that results in highercosts for both DSPs and their customers.The majorDSPs have each introduced ASP-based solutions,but these solutions have not been widely adopted,DRIVINGCHANGE IN THEDEALERIT ENVIRONMENT4BEARINGPOINTExternal integration between dealer manage-ment and communication systems hasbecome virtually impossible to achieve at a low cost.This situation,in turn,preventsvehicle manufacturers from realizing thefull benefits of more effectively collaborating,exchanging information and sharing applications with their dealer communities.The Cost-Driven DSP Support ModelUnlike organizations in most other industries,auto-motive dealers rely on very small internal IT staffsto run their businesses.Dealers require a differentlevel and type of support that generally exceeds ITsupport provided in other industries.This results in comparatively high support costs,so dealers rely heavily on DSPs for their IT assistance.Themajority of dealership IT support is centered onresponding to user errors rather than to technicalissues.Because dealer personnel typically are notsavvy computer users,they often require a level ofsupport higher than that required even by averagecomputer users.Dealership EnvironmentThe demanding nature of the automotive retailenvironment requires rock-solid performance fromsupporting IT systems.If these mission-critical systems fail,every department of the dealership canbe frozen in a profit-draining lockdown.Despitethe relatively limited options available to dealerschoosing a dealer management system,each dealersIT implementation will be unique.For example,the dealers IT system must be compatible with:largely because they fail to significantly lower user-error support demands.As in any modern IT support organization,thereare multiple layers of support in dealer systems,ranging from user manuals and online documenta-tion to phone staff and field staff.Increasingly,the major line of support for a dealer managementsystem comprises remote,phone-based supportprofessionals who can dial in to the dealers systemto diagnose and sometimes remotely fix softwareand configuration problems.Again,the majority ofthese calls typically concern user errors as opposedto technical ones.One of the major trends driving the convergence of dealer communication and management systemsis the use of Web-based applications to help reducethese on-site service fees.To this end,dealer-drivenportals can remove expensive server hardware in thedealership.The dealer needs minimal hardware,such as personal PCs and a high-speed Internetconnection,and all software can be centrally hostedand supported,which can greatly simplify mainte-nance and upgrade processes.Economic ModelGiven the shrinking population of the current baseof 22,000 new-car dealers in the United States,theopportunity to spread out support costs is dimin-ishing.Assuming that dealers mainly purchaseadditional applications from their DSPs,and factoring out smaller dealers,the expected marketfor a very successful dealer IT product is only about5,000 unitsa relatively small customer base acrosswhich to share research/development and supportcosts.Given the lengthy sales cycles for most products,DSPs often do not project returns untilthree to five years after introduction.DSPs allocate support resources based on therequirements they project for each product as it isintroduced/upgraded.When support resources arestretched thin,customer satisfaction typically dropsprecipitously.To keep customers happy,DSPs mayneed to allocate large support resources to newproducts,thus driving early customer acceptanceand satisfaction.As the product matures,supportresources can ebb with demand to the point ofdiminishing returns(i.e.,when additional resourceinvestment would generate only minimal customer-satisfaction returns).Of course,due to the multi-tasking responsibilities of the support organization,this shift can be more of an accounting formalitythan an actual resource allocation;however,largesupport campaigns,such as new-product introduc-tions,must be clearly tracked and accounted for.The price point for support is based on the projectedutilization of the support resource.A profit marginis built into the price,and expenses are factored intothe business model of each DSP product set.As a rule,effective product strategy means keepingsupport costs to a minimum.The need for low support costs,however,can result in increasedresearch and development resources being expended,which can drive up overall product costs.For example,extensive testing of unique dealer management system configurations will drive upDRIVINGCHANGE IN THEDEALERIT ENVIRONMENTWHITEPAPER5Dealer-driven portals can remove expensiveserver hardware in the dealership.The dealerneeds minimal hardware,such as personalPCs and a high-speed Internet connection,and all software can be centrally hosted and supported,which can greatly simplifymaintenance and upgrade processes.DRIVINGCHANGE IN THEDEALERIT ENVIRONMENT6BEARINGPOINTPricing ModelsPricing models are fairly consistent across DSPs,with fees divided between hardware and software.DSPs typically include fees in the following categories:One-time,up-front fees.Monthly software licensing fees(often catego-rized as“support fees”in other IT models).Monthly support fees.Some products also include transaction-based pricing.In addition,there are other classes of fees tied to hardware and the number of users andlocations.While the use of monthly software licensing feesrepresents a break with IT industry norms,these feesdo include,among other things,the research anddevelopment costs that result from the need to regu-larly update systems to meet vehicle manufacturer-specified reporting requirements.Figure 3 showstwo examples of DSP product pricing structures.FIGURE 3.EXAMPLES OF DSP PRODUCT PRICING STRUCTURESUP-FRONTMONTHLYSOFTWARETOTALSUPPORT-SUPPORT ANDCOSTSSOFTWARE SUPPORTANNUALSPECIFICLICENSINGLICENSING(PER LOCATION)COSTPERCENTAGEPERCENTAGEAccounting$2,500$200$35$5,3207.89%53%(General Ledger)Parts Inventory$1,875$150$26$3,9907.89%53%the research and development costs of the newproduct but ultimately lower support costs.Thechallenge for DSPs is to correctly project the pointof diminishing returns.Although support can constitute a manageable revenue center for DSPs,support-intensive prod-ucts tend to create dissatisfied dealer customers.Consequently,a critical question for DSPs is this:How much are dealers willing to pay to avoid support-intensive products?The apparent answer,however,usually is“not enough to cover the even-tual cost of support.”This situation,in turn,motivates DSPs to price support fees and softwarelicensing separately.Because dealers understand that software updatesare needed to keep their systems compatible withvehicle manufacturer requirements,they perceivevalue in paying for software licensing,while seeingthe need for support as a failure on the part of theDSP.Consequently,support fees tend to be low andlicensing fees tend to be high.It is logical to assumethat fees collected for software licensing oftenunderwrite actual support costsespecially at thebeginning of a products life cycle,when supportexpenses are at their peak.DRIVINGCHANGE IN THEDEALERIT ENVIRONMENTWHITEPAPER7Because other costs are small when compared withsoftware licensing fees,the true cost of support canbe estimated only when the licensing and supportfees are aggregated and look