Ford Positions Business Segments To Tackle Digital Transformation

Looking across the past twenty years of technology, I can confidently say that 2008 brought the most monumental shift because of the rise of the smartphone—which changed everything we do, from work and play to communication and productivity. Looking ahead, there are two rising technologies that I believe will have an impact as dramatic as the smartphone. These changes are the rise of artificial intelligence in all our digital interactions and the rise of the digital automobile.

The iPhone is given the most credit for the rise of the smartphone, and rightly so. But remember that the iPhone came into an existing phone market that had mature players including Blackberry, Nokia and Microsoft. Yet iPhone changed the entire landscape for mobile devices and quickly became the market leader—leadership we still see today.

While many differences make the comparison far from perfect, we are seeing a similar story play out in real time with the rise of software-defined vehicles. The interest in electric vehicles as an efficient alternative to internal combustion engines (ICEs), along with the increasing capabilities of autonomous driving (AD) and advanced driver assistance system (ADAS) technologies, are accelerating the digital transformation of the automotive market.

The benefits of these technologies include better energy efficiency, better safety, better in-cabin experiences and new use cases that have not yet been realized, like using a car as a home sentry when it’s parked in a house’s driveway. While automotive companies are already focusing on energy efficiency, safety and in-cabin experiences, the true digital transformation of vehicles will shift their value away from their physical capabilities and toward their digital offerings.

For mature car and truck makers like Ford, the external verdict has been, as CEO Jim Farley said during Ford’s recent Capital Markets Day, “Too many legacy issues—Ford can’t win.” Sure, legacy carmakers like Ford are great at building solid, reliable vehicles, but they are totally lacking in answers when it comes to the digital side of things. Or at least that’s the widespread assumption.

Ford, then, has reached a fight-or-flight moment where it needs to either step out of the way so digitally transforming technologies can take center stage, or it needs to become digitally transformed through innovation beyond its own efforts. Looking back at the comparison to the rise of the smartphone, is Ford going to be a Blackberry or Nokia of the market, where it once held a mature position until the market was changed by the rise of new technology, then fizzled out? Or is Ford going to embrace new technologies and be the change in the market, like Apple was with the iPhone?

Based on my view of the market and what I saw at Ford’s investor day, I want to give my analysis of how Ford is embracing these digital changes in spite of industry doubt. Let’s dive in.

Ford+, embracing digital change

Two years ago Ford announced Ford+, its new strategy to segment its business into Ford Blue, Model e and Ford Pro. Ford Blue is its portfolio of traditional ICE and hybrid-electric vehicles plus manufacturing capability, Model e is its portfolio of electric vehicles and includes responsibility for advanced technical development and Ford Pro is its portfolio of commercial vehicles and services.

I like Ford’s strategy to differentiate its bread-and-butter vehicles like the Ford F-150, Ranger and Bronco from its next-generation electric vehicles. This segmentation gives Ford room to digitally transform its product portfolio without having to dramatically change its iconic gas-powered and hybrid lineup. Any successes that the company reaps from new technologies in the Model e segment can then be introduced and proved out in the Blue and Pro segments. Likewise, the decades of innovation, manufacturing and engineering that Ford has put into its traditional vehicles can be utilized in product development for Model e vehicles. It’s a smart strategy.

Positioning the Model e business segment is critical

As a tech industry analyst, I am most interested in the Model e segment and Ford’s strategy to strengthen its digital transformation and differentiation while maintaining its traditional installed base.

The Model e segment is positioned as a lean startup within Ford, developing next-generation electric vehicle innovations and autonomous and ADAS technologies. The next-generation technologies that start in the Model e camp can then become differentiators for Ford in all three segments.

As an example of this, the Ford F-150 Lightning electric pickup is, in my opinion, an optimal mix of new technologies like the BlueCruise hands-free highway driving system with a familiar Ford look and feel. I think this is exactly what Ford was looking for: a new model differentiated from other EV trucks on the market that also retains what people know and love about the iconic F-150.

Interestingly, I think Ford introduced another compelling differentiator with the Mustang Mach-E and Lightning: the front trunk or “frunk.” Without a gasoline engine under the hood, Ford was able to engineer a spacious front trunk—the largest one I have seen on the market. I hope Ford makes this a common feature for Ford EVs and includes it in the forthcoming all-electric Ford Explorer and other models.

Ford also mentioned Project T3, Ford’s next electric truck. The mystery behind Project T3 makes it seem as though it will be a complete redesign of the Ford Lightning. However, Ford has communicated that the project will combine “a century of truck know-how with world-class electric vehicle, software and aerodynamics talent.” The focus for Project T3 is not to make an electric truck that is completely unrecognizable for the Ford brand, but to initiate a platform shift toward a software-first design, even if it makes that aspect of the truck a big departure.

During its Capital Markets Day, Ford’s Chief Advanced Product Development & Technology Officer Doug Field – who moved over from Apple, and Tesla before that – spoke at length about how Ford is currently managing software development despite some limitations its facing and its ambitions for its next generation software platform.

According to Field, the current software platform is a challenge because it is “supplier-controlled’ based on a network of components that each need updating. This challenge means Ford engineers needs to work with suppliers to update their individual components in order to make wholesale changes to the vehicle. Despite that, this week, Ford announced it surpassed delivery of 13-million over-the-air software updates to both ICE and electric vehicles, noting about half of the updates enable customer facing improvements, such as improved BlueCruise capability.

Field also talked about the next-gen software platform, which will launch in 2025 starting with Ford’s second-gen EVs. On this platform, Ford will control the software – with a stated focus on developing customer features in the categories of autonomy, productivity, safety and security, and connectivity. And when that level of control happens, like Field stated in the keynote, “A new world of possibilities opens.”

I think a crucial part of executing this platform shift will be establishing a community of outside developers who create software for Ford vehicles. If Ford does not cultivate that to build on top of its software platform, I believe it could have a hard time following through with the digital transformation of its vehicles. In various areas of the tech world, I have seen many developer platforms succeed and many flop, and the difference is often in how well a company enables outsiders to build on its platform. Partnering with developers and building healthy relationships with outside software companies will be key if Ford wants to maximize software and services opportunities that will broaden sources of company revenue.

Here is where it is important to understand the difference between building the software-defined platform by itself and letting someone else build its software-defined vehicle platform for them. The benefits of Ford building its software defined vehicle platform is that Ford has total control over the platform. However, the benefits of partnering with companies that enable software-defined platforms is that it enables a wider range of developer integration. Nobody wants to develop for a platform that has a small reach. I have seen many platforms that have cultivated thriving developer ecosystems through developer enablement, and there have been many that I have seen flop.

Lastly, I think Ford Pro will continue to be an anchor for Ford. Commercial vehicles require reliability, functionality and practicality. In the Capital Markets Day presentation, Farley mentioned that great software and service experiences mean a lot to users, and that experience is a differentiating factor for customer loyalty.

Wrapping up

If we do make a direct comparison between the rise of the smartphone and the rise of the software-defined vehicle, I think many companies want to be the Apple in that story. However, I don’t want to see the Apple of the software-defined vehicle; I want to see the Ford of the software-defined vehicle.

The choices that Ford makes in the next couple of years are going to have a huge impact on its success for the next couple of decades. I believe Ford is heading in the right direction, but it cannot execute the digital transformation alone. The Ford+ plan puts Ford in a great position to embrace new technologies without compromising its breadwinners; in particular, the company has many exciting new offerings coming from its startup-like Model e team. I appreciate that Ford has recognized that software will be a defining factor in its future. It just can’t do it alone.

Note: Moor Insights & Strategy co-op Jacob Freyman contributed to this article.