This Quarter
Asutosh Padhi
The rise of electric, connected, autonomous vehicles is poised to transform transportation, business, and society. This pocket edition of McKinsey Quarterly describes how automotive OEMs, tech giants, and start-ups are currently jostling for position, and explains what leaders need to do to grasp the opportunities at hand. No company, government, or municipality will be able to ignore the impact of mobility’s second great inflection point.
Pocket edition / 2019 Number 1
In this edition . . .
Mapping the future of mobility
Reimagining mobility: A CEO’s guide
Touring the future of mobility
The road to seamless urban mobility
Snapshots of the global mobility revolution
Agility at the top
Want a more agile company? Become a more agile leader. To learn how you can become better prepared, read this edition of the Five Fifty, the Quarterly’s timely dose of smart, delivered to your phone.
Additional features
Leadership lessons from Africa’s trailblazers
Africa’s overlooked business revolution
None for me, thanks. I’m driving.”
When car becomes driver
Last laugh
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Cars, cities, and the “driving experience” are headed for an inflection point. What will it mean for you?
Reimagining mobility
“
Mobility’s second great inflection point
New ‘kids’ on the block
The trends transforming mobility’s future
Senior partner, Chicago office McKinsey & Company
View “Agility at the top”
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Andreas Tschiesner
Senior partner, Munich office McKinsey & Company
Bias busters: Resisting the allure of ‘glamour’ projects
One is the loneliest number
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Pocket Edition / 2019 Number 1
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Article Summary
by Rajat Dhawan, Russell Hensley, Asutosh Padhi, and Andreas Tschiesner
Radically new dynamics in the early 20th century transformed cars and, in turn, the world. Here’s why the next great inflection point is upon us, auguring changes no less profound.
Horses to cars
The birth of the “freedom machine” not only created a massive global auto industry. It sparked numerous social and economic second-order effects that have played out over the last 100 or more years, such as gasoline exploration and production, paved highways, motels, fast-food restaurants, and the growth of suburbia. The costs and adverse consequences of mass transportation have also been striking: fatal accidents, urban congestion, suboptimal infrastructure, and social division.
Cars to ‘computers’
How we think about mobility today is changing radically. Tech giants, start-ups, and OEMs mix and mingle in a new competitive landscape, with cars now turning into productive data centers and components of a larger mobility network. Radical improvements in cost-effectiveness, experience, convenience, and environmental impact will disrupt business models on an almost inconceivable scale.
The road ahead . . .
Currently viewing
Autonomous vehicles, better connectivity for drivers and passengers, improvements in battery technology, and new ridesharing models are all combining to improve and reinvent the notion of mobility. Social forces—the tendency for millennials and Generation Yers to be more open to different forms of car ownership and car use, for example—are adding to the market turmoil unleashed by digitization and electrification.
These disruptive forces are forcing us to step back and rethink our value chain, our business model, and our reason for being. Historically, we’ve started with the product, and our definition of product excellence has been grounded in traditional attributes like styling, vehicle dynamics, fun to drive, fuel efficiency, safety, reliability, and quality. Those things are now becoming the ticket to entry.”
Ford’s conception of what a car should be
Hau Thai-Tang
Head of product development and purchasing at Ford Motor Company
Read or listen to the full Hau Thai-Tang interview
100% = $ 7.7 trillion
For example, e-hailing, partially or fully automated vehicles, or algorithm-based insurance
of revenues will come from disrupted business areas
56%
Global automotive ecosystem revenues by 2030
Article summary
Share the road. Social considerations and public–private cooperation will take on outsize importance. Develop a perspective on present and future regulations (such as safety protocols or rules governing pooling and robo-shuttles) and think about how your success will benefit others.
4.
Merge ahead. Start by identifying the “white spaces,” the partners who will help you fill those gaps, and the “gives” and “gets” required. Think strategically about how to best position yourself—and with whom.
3.
Remember that objects are closer than they appear. Run pilots where you can gain knowledge in connected businesses (there’s no lesson better than firsthand experience), track your progress with actionable timelines, and acquire and develop people who are prepared for the coming changes.
2.
Adjust your sideview mirrors. Figure out where your core sources of value creation and key customer relationships fit into the new ecosystem and who else might be entering the game. Particularly encourage those close to the front lines to look at different scenarios, and give them incentives to adapt—but expect some internal resistance.
1.
Here are some priorities for everyone:
What to do about it
The new technologies and social changes will likely affect every business, shaping how and where people live and how they consume. Profit pools will shift, new business models emerge, and competition between OEMs and other mobility operators intensify.
Why it matters
The auto industry, which is responsible for about a quarter of the $8 trillion to $10 trillion spent each year on the transport of people and goods, has been largely siloed for 100 years. But now it’s rapidly blending into an interconnected, customer-centric mobility ecosystem comprising fuel, financial services, roads, maintenance, and other parts of the mobility landscape.
The problem
No industry or executive is immune to the profound implications of mobility’s second great inflection point. Here’s what you need to know now.
by Kersten Heineke, Asutosh Padhi, Dickon Pinner, and Andreas Tschiesner
Mobility as we know it is about to change. A handful of trends will largely determine the benefits—and costs—for business and society.
Autonomy
Global revenues associated with autonomous vehicles (AVs) in urban areas could reach $1.6 trillion a year in 2030—more than twice the combined 2017 revenues of Ford, General Motors, Toyota, and Volkswagen. But the effects on society could be more transformative, including the redevelopment of unnecessary parking spaces, more productive commuting, reduced environmental damage, and safer roads. Not all second-order effects will necessarily be rosy: disruption in the insurance industry, an increase in alcohol consumption, and falling revenues from vehicle taxes are among possible consequences.
Connectivity
Conventional vehicles are evolving into information-enveloped automobiles offering drivers and passengers a range of novel experiences enhanced by artificial intelligence and intuitive interfaces. By 2030, we believe 45 percent of new vehicles will be equipped with features that allow all occupants to enjoy personalized controls, have their own infotainment content, and receive targeted contextual advertising. We estimate that this value pool will be worth between $450 billion and $750 billion. The implications of this trend are particularly pertinent for insurers as they use driver and vehicle data to learn more about risk.
Electrification
Electric-vehicle (EV) sales could rise to three million vehicles in 2020, more than 20 percent of all potential buyers now say they would consider an EV for their next purchase, and McKinsey’s Electric Vehicle Index suggests electrification is becoming more sustainable. However, as governments seek to wind down subsidies, innovation and manufacturing gains are needed to close the cost gap with internal-combustion engines (ICEs). If today’s technology trends continue, battery costs will decline by 50 percent by 2025–30.
Many of the critical building blocks underpinning the current mobility revolution, and their potential, are becoming clear. They are most easily remembered by the acronym ACES: autonomous driving, connectivity, the electrification of vehicles, and shared mobility.
Ridesharing may still be niche—comprising about 1 percent of total miles traveled in the United States. But some $55 billion has already been invested in the industry globally, and the economics will shift if AVs replace cars with drivers. Data suggest that ridesharing is already increasing among high-income urban consumers, who own fewer cars. Additional use cases and design improvements will further fuel the market.
Shared mobility
2018
Source: US Federal Highway Administration; McKinsey analysis
Exhibit
In the United States alone, if autonomous vehicles were fully adopted, the benefit to the public would exceed $800 billion a year in 2030.
Estimated public benefits of autonomous vehicles (AVs), $ billion
200
400
600
800
0
2024
2030
AVs in most urban environments
AVs everywhere
Safety
Real estate
Congestion
1
Norway
Market EVI
On a scale of 0 to 5; market EVI measures electric-vehicle (EV) share in overall light vehicle market, government subsidies, and charging infrastructure; industry EVI includes assessment of OEM countries’ production share of EVs and major components such as batteries and e-motors.
Countries are making headway in the development of e-mobility, in terms of both consumer demand and production capabilities.
Trends in Electric Vehicle Index (EVI) scores,¹ selected countries
2
3
4
5
France
United States
China
Germany
Japan
Industry EVI
July 2014 EVI Score
Feb 2018 EVI Score
How will regional variations in China, Europe, Brazil, India, and the United States reshape cars, carmakers, and the automotive “user experience”?
Shared autonomous electric vehicles look set to transform China’s transportation system within the next 20 years. By 2025, the government’s goal is that one out of every five vehicles sold will be electric. In the late 2020s, our research suggests, the cost of operating a safe, autonomous robo-taxi should sink below the total cost of a traditional, shared-mobility vehicle. And 55 percent of all passenger miles could take place in connected electric, autonomous, and shared vehicles by 2040. China has to address some particular challenges, though: how to maintain accurate mapping software as new roads spring up, poor road signage, and the limitations on access to outside technology inherent in official restrictions on foreign companies.
Europe
The “premium” segment plays a more central role in the economics of European carmakers than it does in other regions. Europeans will therefore help define the nature of the premium brand as the mobility experience goes more digital. Fresh approaches will likely include personalization, a more seamless blending of hardware and software, and the development of a design language that extends far beyond the vehicle’s look and feel. Building these capabilities is a priority for every carmaker.
Lower carbon emissions per capita than in other major countries— and a lower share of energy derived from nonrenewables—means electric cars are relatively less attractive in Brazil and India at the moment than elsewhere. Sugarcane ethanol, moreover, is an alternative power source in Brazil. Global tech trends nevertheless suggest electrification could reach 15 to 30 percent of the market in Brazil by 2030. In India, battery-electric-vehicle penetration could achieve a market share of between 25 and 30 percent in some segments by the end of the next decade.
Brazil and India
Mobility’s second great inflection point has inspired an outpouring of innovation in the United States, similar to the surge of entrepreneurial energy a century and more ago. Start-ups, big-tech titans, and forward-looking OEMs are all involved, but it’s neither clear who will profit most, nor to what extent consolidation will follow proliferation as last time. Partnerships are a feature of the emerging ecosystem structure, but disruption is also possible.
The United States
Physical and psychological stress in the workplace harms productivity, increases employee turnover, and adds to healthcare costs.
A few companies are adopting simple and cost-effective ways to improve employee health, thereby tangibly improving individual lives and making it easier to attract talent.
•
Demonstrating that you care about employees’ well-being
Encouraging individuals to care for one another
Using language to foster a spirit of community
Connecting people by sharing success and providing opportunities to volunteer
Second, provide employees with social support, rooting out practices that pit people against one another. Practices often overlooked include:
Return to overview
Will the coming mobility revolution make urban traffic better, or worse?
by Eric Hannon, Stefan Knupfer, Sebastian Stern, and Jan Tijs Nijssen
Improve sustainability by, for example, creating low- or zero-emissions zones, promoting the electrification of shared, fleet, and government vehicles, and requiring robo-taxis and autonomous electric shuttles to be charged by no-emissions sources.
Optimize demand by creating dedicated lanes for shared vehicles, encouraging the use of e-scooters and shared bicycles, using licensing and congestion pricing to change behavior, and shifting commercial deliveries to off-peak hours.
Optimize supply by paving the way for autonomous vehicles (AVs) through, for example, synchronizing insurance regulations, safety rules, data standards, and communication protocols; automating and tech-enabling trains (by, among other things, using data to introduce predictive maintenance); deploying intelligent traffic systems; and creating smart parking–technology networks.
Cities should aspire to what we call seamless mobility, blurring the boundaries between private, shared, and public transport and offering travelers a variety of clean, cheap, and flexible ways to get from A to B.
Ridesharing, increased connectivity, and electric and autonomous vehicles provide huge new opportunities to improve urban living and lifestyle standards. Radical action could create a cleaner environment, accommodate 30 percent more traffic, and reduce travel times by 10 percent.
Traffic congestion is getting worse in cities from London to Los Angeles, contributing to a higher number of accidents and declining air quality. Demographic trends and the growth of e-commerce will only exacerbate these trends.
To achieve seamless mobility, cities and other public-sector authorities must do three things well:
Executive director and CEO of the Canadian Urban Transit Research & Innovation Consortium
Josipa Petrunic
In some ways the problem is more fundamental and goes beyond regulation or policy—the structure of government itself has to change. . . . For example, when we launched our pan-Canadian electric-bus project, I thought the hardest part would be getting Siemens and ABB and New Flyer and Nova Bus to redesign their systems. That proved to be technologically the most logical and rational part; it proceeded with some good, hard work. But literally, the most challenging part was trying to get the Ministry of Transportation to sign a contract with a utility as a partner, because that was outside their silo. And in the end, we weren’t able to get there.”
View from a change agent
Baseline (2018)
Autonomous vehicle.
In the seamless-mobility scenario, private cars will be used less, and autonomous shuttles could account for a quarter of passenger-kilometers by 2030.
Passenger-kilometers traveled per year, index: current demand = 100
40
20
35
Business- as-usual urbanization
15
10
Unconstrained autonomy
25
Seamless mobility
Walk/bike
Train
Bus
Private car
AV¹ shuttle
Robo-taxi
100
115
125
130
Read the full Josipa Petrunic interview
Read or listen to the full article
Raj Kapoor, chief strategy officer of Lyft
“There will be $1 trillion at stake in the US alone [from the shift to transportation as a service], and I’m sure there are significant impacts globally that I can’t even begin to imagine. Some of the industries that will be impacted include insurance, automotive sales, automotive financing, automotive service centers, gas stations, and retail. “Real estate is another. How will we refactor all that underutilized parking space? Another example is the revenue that governments collect: gasoline taxes, traffic violations, speeding tickets, and so on. . . . We have to rethink how cities will charge for the infrastructure we all need. . . . “It even ranges to things like organ donation. If you have fewer accidents because AVs eliminate human error, where will hospitals get the supply of organs that now come from auto accidents?”
Carsten Breitfeld, CEO of Byton, a start-up automaker in China
“We need two types of infrastructure. One is a charging infrastructure for electric cars. A lot is being done in China in this area; many Chinese cities decide to build charging stations and just do it. . . . Home charging in China is a challenge, but any new construction now has an obligation to connect every parking space to the electric grid. . . . If you talk charging infrastructure in the United States, it’s mainly California. And it’s not so great right now in Europe. . . . “The second type of infrastructure is about being connected, which is a bit more difficult. . . . Here, too, I think China is leading in terms of implementing 5G technology.”
Corporate leaders of three relative newcomers—Byton, Lyft, and WiTricity— describe their companies’ ambitions in the emerging mobility ecosystem. Here are three excerpts from interviews conducted by McKinsey Quarterly.
“At first, wireless chargers will be sold to car buyers who can put them next to a parking spot of their own. In four or five years, you’ll start to see charging embedded in urban parking spots. This will be critical to the future of mobility, since robo-taxis will eventually dominate the passenger miles in the urban environment. And there’s no one to plug in those robo-taxis. These mobility-as-a-service companies are going to need broadly deployed wireless charging so the autonomous vehicles can extend their range and never leave their service area.”
Alex Gruzen, CEO of wireless-electricity pioneer WiTricity
Read the full Raj Kapoor interview
Read the full Carsten Breitfeld interview
Read the full Alex Gruzen interview
Corporate leaders of two relative newcomers—Byton and WiTricity— describe their companies’ ambitions in the emerging mobility ecosystem. Here are two excerpts from interviews conducted by McKinsey Quarterly.
Talent. Build vocational skills for frontline workers, create robust processes to grow talent from within, and harness the power of inclusion—particularly women’s advancement.
Operations. Find solutions to manage risk and boost resilience to Africa’s inevitable shocks, such as portfolio diversification and value-chain integration.
Business model. Create products and services that fulfill Africa’s unmet needs, and engage with customers. Get lean and harness technology to unleash the next wave of innovation.
Strategy. Set a clear aspiration for growth, prioritizing the markets that matter most. Define how you’ll achieve scale and relevance and build the ecosystem you’ll need to thrive.
Africa isn’t an easy place to do business—it’s complex and increasingly competitive. Winning there requires action on the following five fronts:
Africa’s 1.2 billion population is projected to double over the next 30 years, and more than 80 percent of that growth will take place in cities where income per capita is more than twice the continent’s average. A historic economic shift is under way thanks to rapid modernization and accelerating technology adoption.
Most executives underestimate the size of Africa’s market and overestimate the challenges of doing business there. Asked to guess how many companies have annual revenues in excess of $1 billion, for example, most people say fewer than 50, or 100 tops, when the right answer is 400. These businesses are on average growing more quickly and are more profitable than their global peers.
Global business leaders who misunderstand Africa run the risk of missing out on one of the 21st century’s great growth opportunities.
by Acha Leke, Mutsa Chironga, and Georges Desvaux
Societal issues. Do well by doing good, driving profitable, sustainable growth through helping solve Africa’s unmet needs.
5.
See also Africa’s Business Revolution: How to Succeed in the World’s Next Big Growth Market (Harvard Business Review Press, November 2018), from which the full McKinsey Quarterly article is adapted.
Africa is bigger than you think—it dwarfs China, Europe, India, and the United States.
India
How five leaders are seizing opportunities and overcoming challenges to build successful organizations in—and a brighter future for—the nations of Africa.
Nadia Fettah, CEO of Morocco-based Saham Finances
“Talent is an essential component of our success. I personally spend one-third of my time on talent management and development. One key component of our talent strategy is to make geographic mobility a requirement for career advancement at senior levels—a key step in building a pan-African business with shared values and practices. We have instituted a rule that, in any given African country, the deputy CEO of its local operation can never be the next country CEO. That pushes people toward greater mobility: you can grow in your own country, but if you want to have the number-one position one day, you need to travel.”
James Mwangi, CEO of Kenya-based Equity Bank
“We are already looking ahead at future innovations. We . . . are also looking beyond financial services and building a new business in the healthcare space—a network of medical centers called Equity Afia. . . . We looked at our graduates and found that 600 of them had been to medical school. We already knew that 40 percent of the defaults on our bank loans were due to ill health in the family, so we empowered our medical graduates as entrepreneur doctors, helping them start clinics and supporting them with systems to manage their clinics. At the same time, we are providing our banking customers with medical insurance.”
Aliko Dangote, president and CEO, Dangote Industries
“For us, an essential strategy to build a resilient manufacturing business is to diversify as much as possible. There’s no sector that’s permanently healthy—if, today, cement is excellent in Nigeria, it might not be in the next five years—so we’re fully diversified across different products, as well as downstream, midstream, and upstream. For example, our push for backward integration involves producing our own raw materials on a massive scale. We are investing close to $5 billion over the next three years in sugar, rice, and dairy production alone. . . . [Our continent has] land, we have water, we have the climate. We shouldn’t be a massive importer of food.”
“Companies that succeed in Africa need to look beyond the rough edges that they might see in a young African that they interview— someone who hasn’t necessarily been to a fancy university and doesn’t speak English the way they might expect. They need to really invest in that talent; that investment will reap significant rewards for them as they grow. You also have to take a strategic role in developing your own talent—to look at talent development as part of your value chain, not as something that is outsourced to the national university system.”
Fred Swaniker, founder, African Leadership University
“Part of the change required is a set of very clear policies and strategies to bring more women into top leadership. Business leaders in particular should make women’s advancement part and parcel of their strategy of growth and sustainability for the next five, ten, 15, 20 years. Human-resources departments and CEOs need to make upward mobility for female staff part of HR strategy and succession planning and ask themselves, ‘How can we get more qualified women into the C-suite? How are we nurturing our female talent? How do we ensure more capable women are sitting at the highest levels of decision making?’ You need to value diversity as an element of strength and make it part of a cultural and institutional transformation.”
Graça Machel, an international human-rights and development advocate
Discrimination is more likely when women find themselves alone in a group of men. Women in this situation are also likely to feel anxious and stressed, and are disproportionately more inclined to contemplate leaving.
McKinsey research suggests 20 percent of women commonly find themselves the only female in their immediate workplace—or at least one of very few. The figure is far higher in tech and engineering, and for women of color.
Put an end to the costly isolation experienced by many women by clustering them on teams and improving the promotion process.
by Kevin Sneader and Lareina Yee
Recognize that one is not enough. Two is the bare minimum; better still, many more.
A few simple steps can diminish some of the barriers that hold women back:
Build critical mass rather than spreading women too thinly. It’s preferable to assemble project teams or agile squads with several women rather than trying to place one in each, even if that means some teams initially have no women at all.
Review processes for promotion—find the experienced women in the pipeline and help them advance.
Use a CEO transition period. New chief executives often replace half their top team on taking office: that’s a great opportunity to address the “only” challenge.
Women
Source: 2018 LeanIn.Org and McKinsey Women in the Workplace study
Women are more likely to experience discrimination in the workplace than men, but being the only woman is an even worse experience.
Employees who have experienced microaggressions during the normal course of business, %
Men
Only woman or only man in office
Needing to provide more evidence of your competence than others do
Having your judgment questioned in your area of expertise
Being addressed in a less-than-professional way
Being mistaken for someone more junior
Hearing demeaning remarks about you or people like you
51
49
30
19
12
24
13
Don’t starve maintenance projects of funds.
Both types of projects create significant value, and business results can suffer if leaders overinvest in shiny, new “hero” projects at the expense of the more mundane.
Many companies struggle to strike a balance between investment in projects designed to grow the business, versus investment in less glamorous ones that keep the business running. For both personal and professional reasons, managers typically jump at the chance to lead an exciting new launch or innovation, shunning what they see as mundane challenges that appear to have more downside risk than upside potential.
by Iskandar Aminov, Aaron De Smet, and Dan Lovallo
Create overlap between the normally separate funding committees that consider hero and run-of-the-mill projects; on their own these committees lack the detailed knowledge to balance investments in the old and the new. One oil-and-gas company, for example, assigned two executives who were sitting on its extraction committee to serve on the maintenance committee, too. By interacting directly with the head of the entire field of production, they helped ensure maintenance projects received the share of resources and attention they deserved. An overlapping approach, giving voting rights to members from different parts of the organization, works best in capital-intensive industries such as chemicals, consumer goods, power, and telecommunications. It breaks down siloes and can reduce unnecessary overhead.
