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RE S E AR C H   B R IEF ING

HOW IT DRIVES DIGITAL INNOVATIONS AT AUDI
This brie�ng takes a look at how German car manufacturer AUDI AG has expanded its
portfolio of digital innovations.

N O.   X V I-7

P U BL I S H E D :   J UL  2 1, 2 016

Topic:  Innovation and Strategy

BY  NI L S   O.   F O NS TAD AND  MARTIN M OCKER

    

ABST R AC T

The new digital imperative is to compete with more types of digital innovations—and IT units
will have to become good at several approaches to producing di�erent types of digital
innovations. Based on an in-depth case study, this brie�ng takes a look at how German car
manufacturer AUDI AG has expanded its portfolio of digital innovations.

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Recent MIT CIR reearch found that an oeive focu on innova�on i a characteri�c
of CIO of top-performing �rm.[ 1 ] There are now more wa than ever that a �rm can
e dirupted  and dirup�ve with digital innova�on. Indeed, a growing numer of
�rm and individual are uing increaingl powerful digital technologie and �guring
out wa to develop e�er product and ervice, e�er cutomer and emploee
experience, and new uine model. The new digital impera�ve i to compete with
more tpe of digital innova�on—and IT unit mut re�ne approache to producing
them. aed on an in-depth cae tud,[ 2 ] thi rie�ng take a look at how German car
manufacturer AUDI AG ha expanded it por�olio of digital innova�on.

Digital Innovations at AUDI AG

Product and proce innova�on have een core to the ucce of AUDI AG.[ 3 ] In 2011,
with it “mart Factor” program, Audi emploed digital technologie motl to
improve the e�cienc and qualit of it manufacturing procee. ut digi�za�on had
extended the cope of compe�tor from tradi�onal automoile manufacturer to
leader in the haring econom (e.g., Uer) and autonomou and electric vehicle
produc�on (e.g., Google, Apple, Tela).

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To compete, in the pat �ve ear Audi ha igni�cantl expanded it por�olio
of digital innova�on and IT ha een ke.

Audi took the o�enive with a igni�cantl expanded por�olio of digital innova�on. 
2016, the compan wa working on at leat four new tpe of digital innova�on: (1)
digi�za�on of cutomer touchpoint, (2) the driving experience, (3) new uine
model, and (4) emploee experience. Thee innova�on di�ered not onl in their
ojec�ve ut alo in the approache to implementa�on. And IT ha een ke to
realizing each of thee tpe of digital innova�on.

DIGITAL INNOVATION FOR CUSTOMER TOUCHPOINTS: AUDI CITY

In parallel with opera�onal innova�on uch a mart Factor, Audi emarked on

realizing three tpe of cutomer-facing innova�on. The �rt tpe, cutomer
touchpoint, conit of innova�on focued on making it eaier for cutomer to
con�gure, u, and maintain automoile. An ex- ample i “Audi Cit”: digital
howroom where cutomer can experience their peronal dream car virtuall in a
lounge-tle atmophere. Uing large, touch-eni�ve tale, cutomer can con�gure a
car, then explore it a it i diplaed life- ize and in detail on �oor-to-ceiling creen.
Audi reported that ince the opening of the �rt Audi Cit howroom in London, vehicle
ale there increaed  70%, with 60% of cutomer eing new cutomer for the Audi
rand.

Marke�ng & ale had originall launched the Audi Cit ini�a�ve a a hadow IT project
ecaue the tradi�onal innova�on approach wa conidered too low.

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The prolem of hadow IT i once ou ring uch a tem to life, ou need to connect it to all the
ackend tem—otherwie ou have thee tandalone olu�on.
ven chuwirth, Head of rand and ale Development

In repone, Audi IT introduced a fater approach to producing cutomer-facing

innova�on that do not a�ect automoile. It ue an itera�ve, agile methodolog that
follow crum and involve end uer to enure that innova�on are compelling to
cutomer. Project are ini�ated  Marke�ng & ale, which then team with IT to
deliver them. While memer of team are co-located for the dura�on of a project, and
thoe from each func�on have di�nct reponiili�e, from afar the are
indi�nguihale. A ke role of IT i to facilitate ver�cal integra�on of innova�on
—enuring, for example, that the innova�on have acce to product and inventor
data and ackend tem.

DIGITAL INNOVATION FOR THE DRIVING EXPERIENCE: AUDI CONNECT

Digi�za�on alo enale Audi to engage con�nuoul with owner of automoile a

the drive. ince 2011, Audi ha een developing a econd tpe of cutomer-facing
digital innova�on: a et of ervice called “Audi connect,” aimed at providing a e�er
driving experience.  2015, Audi had developed twent-ix digital ervice that Audi
car owner could acce for a ucrip�on fee. Thee ervice tranform the car into an
internet-connected moile device cutomized for driving need and allow ome of the
car’ func�on to e acceed via a moile app. For example, the driver can have email
read aloud, or ue a moile app to lock the car’ door remotel.

Audi IT developed a private cloud, and a pla�orm called Modularer ackend-aukaten

(M)[ 4 ] that link and roker peci�c connected car ervice with each car. ver
requet from the car to a ervice ha to pa through the M. Thi wa, ervice can e
eail ac�vated, deac�vated, and exchanged. New Audi connect ervice can e caled
rapidl and integrated coherentl with other ervice. In fact, one of the IT unit’ major

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contriu�on wa to introduce architectural thinking, decoupling hardware from

o�ware to increae modularit and there �exiilit and independence from peci�c
part vendor; o�ware progree more quickl than a car’ development ccle, which
take aout �ve ear.

With the introduc�on of architectural thinking, IT ecame core to genera�ng

innova�on.

Two important wa that IT can tale the lead in increaing innova�on are (1)
introducing new approache to innova�ng and (2) architec�ng integra�on.

efore the introduc�on of the M, IT wa reall a ervice provider. We invited them, we told
them what to do for u. The onl ful�lled peci�ca�on. Now with in-car IT, we had to drill the IT
people that the need to think with u aout improving the cutomer journe rather than jut
ful�lling the peci�ca�on.
Marcu Keith, Director Development Opera�ng tem / Audi connect

Audi maintain dedicated Audi connect emploee in each of the three involved unit—
ngineering, IT, and Marke�ng & ale. Thee emploee ta in their repec�ve unit
ut work together cro func�onall.

Audi connect ervice that a�ect the deign, manufacturing, or driving performance of
an automoile (which in 2015 accounted for roughl 20% of new ervice) mut adhere
to the trict, lower, engineering-aed product innova�on proce. Thi required
learning on ehalf of IT, which tpicall ue a fat track approach.

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DIGITAL INNOVATION ON BUSINESS MODELS: MOBILITY SERVICES

In 2012, Audi launched a third tpe of cutomer-facing innova�on: a et of experimental

moilit ervice enaling tranport outide of car ownerhip and uage. An example i
“Audi at home,” which o�er elect reidence a hared pool of Audi car in the
proper�e’ parking garage.

ach of the moilit ervice innova�on repreented a completel new uine model
for the car manufacturer. Audi now had to manage ongoing rela�onhip with a new
tpe of cutomer: uer, rather than owner, of car.

It' not onl ge�ng the uer regitered, it' alo alwa ever da, ever month anima�ng the
people to ue our ervice. Otherwie, ou will not have the tra�c or u�liza�on. And u�liza�on i
ke for the uine ucce of a ervice.
Felix reittadt, Manager of Coopera�on & Long-Term trateg, Audi moilit

Originall, a team located within headquarter had worked on moilit ervice. ut
a�er eighteen month, Audi decided to develop thee ervice from a eparate ut
wholl-owned uidiar compan called Audi uine Innova�on GmH (AI), located
in Munich intead of in Audi’ home ae of Ingoltadt.

 earl 2016, AI emploed event-�ve people—man of them new to the overall
Audi rand—including it own IT people. Audi’ CIO, Ma�hia Ulrich, i a memer of
AI’ management oard.

For all it innova�on project, AI relie excluivel on deign thinking and an agile
approach. It e�mate innova�on ccle for moilit ervice to e le than two ear.
And ecaue moilit ervice are new for oth Audi and it cutomer, making

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requirement unclear and dnamic, AI’ IT people work ver cloel in an itera�ve
prototping mode with other AI emploee and with cutomer. The market for a
promiing ervice i teted with a minimum viale product (MVP) that include onl the
een�al feature. Then feature are re�ned, added, or removed aed on the leon
from thoe experience—a proce not een in tradi�onal car manufacturing.

At the core of all of AI’ digital moilit ervice i a ingle digi�zed pla�orm called the
Moilit ervice Infratructure (MI) that conit of a growing numer of hared
ervice on which mot of AI’ ervice rel, including the hand- ling of authen�ca�on
and pament and management of a �eet of individual car. The MI i alo connected
to the M pla�orm that upport the ecure connec�on to Internet-enaled Audi car.
Thi wa, AI ervice can acce car-related data like loca�on that i important for
diplaing the whereaout of all availale car within a �eet. The ue of the MI and
M pla�orm help give AI’ ervice a compe��ve advantage, epeciall in term of
peed to market, cale, and routne, and numer of integrated feature.

DIGITAL INNOVATION FOR EMPLOYEE EXPERIENCE: ENTERPRISE 2.0

Integral to ecoming more cutomer centric wa a fourth tpe of digital innova�on: a
et called “nterprie 2.0” focued on improving the experience of emploee and on
making Audi an even more a�rac�ve place to work.  2013, Audi IT had earned the
trut of Audi’ oard of director to lead the nterprie 2.0 ini�a�ve. Within two ear,
IT had introduced and integrated �ve ocial media tool to deliver team workpace,
wiki, ocial networking, document haring, and a landing portal.

Audi then ued the nterprie 2.0 tool to run contet for genera�ng idea for
innova�ng work, and to tap into emploee who alo own Audi vehicle in order to
involve them in the proce of innova�ng new ervice for cutomer.[ 5 ]

nterprie 2.0 ha helped tranform the culture at Audi from eing tradi�onall
hierarchical and automoile-centric to focued on improving the experience of oth

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cutomer and emploee. It encourage emploee to experiment and develop

olu�on—and have fun in the proce.

Conclusion

The impera�ve to compete with a roader variet of digital innova�on i an

opportunit for IT. The Audi example demontrate there are two lever at IT’ dipoal
to take advantage of thi.

1. Introduce and adapt new approache to innova�on. Audi IT introduced procee

for innova�ng that are cro func�onal, itera�ve, and evidence aed, and that
involve end uer. The compan ha adapted procee for each tpe of digital
innova�on, enaling team to develop innova�on that enhance product and
ervice and the experience of cutomer. Audi IT ha had to learn to appl di�erent
approache for producing di�erent innova�on (ee tale), from the tricter product
development proce to a fat-paced agile approach; and from integrated, co-located
team to the eparated AI tart-up.

2. Architect integra�on to oot compe��vene. A cri�cal role of IT acro all the

tpe of digital innova�on wa to introduce architectural thinking—enuring that
innova�on connect with exi�ng pla�orm, and when necear, uilding new
pla�orm to facilitate integra�on acro innova�on within each tpe (e.g., the
ervice that comprie Audi connect). In contrat to tandalone e�ort, integrated
innova�on have proven eaier to cale and more di�cult for compe�tor to imitate.

Table 1: Audi Takes Distinct Approaches to Producing Di�erent Types of Digital
Innovations

MOBILIT Y EMPLOYEE
DIGITAL CUSTOMER DRIVING
SERVICES: AUDI EXPERIENCE:
INNOVATION TOUCHPOINTS: EXPERIENCE:
BUSINESS AUDI’S
CLUSTER AUDI CIT Y AUDI CONNECT
INNOVATION ENTERPRISE 2.0

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MOBILIT Y EMPLOYEE
DIGITAL CUSTOMER DRIVING
SERVICES: AUDI EXPERIENCE:
INNOVATION TOUCHPOINTS: EXPERIENCE:
BUSINESS AUDI’S
CLUSTER AUDI CIT Y AUDI CONNECT
INNOVATION ENTERPRISE 2.0

... to earn revenue from

... to make it eaier for ... to implif the da-to-
Ojec�ve: Ue ... to enhance car owner’ moilit ervice for
more people to u and da collaora�on of
Digi�za�on ... driving experience tranport outide car
maintain a car emploee in all area
ownerhip and uage

More revenue per New revenue from new mploee (not jut
uine Value More revenue per product
cutomer cutomer proce) produc�vit

Mul�-func�onal team;
Co-located team of Unit eparate from HQ
Team tructure worker dedicated, not Communi�e of emploee
Marke�ng & ale and IT with it own IT people
co-located

Full agile, itera�ve

Mul�ple track: ervice approach with earl
Fat-tracked, itera�ve that are automoile involvement of Innova�on contet, ocial
Dominant Approach
approach, tar�ng with the impac�ng follow tricter, cutomer uing technolog-facilitated
to Innova�on
cutomer journe lower proce; other minimum viale product, collaora�on
follow fat-track experimenta�on, fat
failure

Innova�on are aed on a

Innova�on are aed on
Innova�on are aed on ingle hared pla�orm
Unique cutomer ID in a newl developed digital
a newl developed digital pieced together from �ve
addi�on to unique vehicle “product” pla�orm (M)
“ervice” pla�orm (MI) ocial media tool to
Architecture ID Ue of exi�ng to enure a conitent and
that conit in part of enure a conitent and
pla�orm, e.g., to acce coherent experience
reued ervice and coherent experience acro
product data acro all ervice within a
component from M mul�ple emploee-led
et
ini�a�ve

FOOT N OT E S

[ 1 ] P. Weill and S.L. Woerner, “Top-Performing CIOs in the Digital Era,” MIT Sloan CISR Research Brie�ng, Vol. XVI, No. 5,
May 2016.

[ 2 ] N. Fonstad and M. Mocker, “Expanding Digital Innovation at Audi,” MIT Sloan CISR Working Paper No. 415, October 2016.

[ 3 ] In 2015, Audi Group sold 1.8 million Audi-branded vehicles, and generated revenues in excess of €58 billion and operating
pro�t close to €5 billion. Among all brands owned by its parent the Volkswagen Group, Audi contributed by far the largest

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share of operating pro�ts.
[ 4 ] Modularer Backend Baukasten translates to “modular backend kit.”

[ 5 ] In 2015, Audi won a German Digital Transformation Award for how much it had accomplished in less than eighteen months
with its Enterprise 2.0 initiative.

© 2016 MIT loan CIR, Fontad and Mocker. CIR Reearch rie�ng are pulih ed
monthl to update MIT CIR patron  and ponor on current reearch project.

About the Authors

Nils O. Fonstad, Research Scientist, MIT Center for Information Systems Research

 E94-15th �oor  [email protected]  (617) 253-2348

VIEW PROFILE

Martin Mocker, Research A�liate, MIT Center for Information Systems Research

VIEW PROFILE

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© 2016 MIT loan CIR, Font ad and Mock er. CIR Reearch rie�ng are pulihed
monthl to update MIT CIR patron and ponor on current reearch project.

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