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Digital Innovation at Audi

Sloan School
of Management
Institute of
Expanding Digital Innovation at Audi
Nils O. Fonstad and Martin Mocker
October 2016
CISR WP No. 415a and MIT Sloan WP No. 5228-16
 2016 Massachusetts Institute of Technology. All rights reserved.
 Research Article: a completed research article drawing on one or
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Research Briefings: a collection of short executive summaries of key
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CISR Working Paper No. 415a
Expanding Digital Innovation at Audi
Nils O. Fonstad and Martin Mocker
October 2016
Abstract: In 2016, German car manufacturer the Audi Group (AUDI AG) was working on an
expanding array of digital innovations. The goals of these innovations varied, and
included strengthening customer- and employee-facing processes, digitally enhancing
existing products, and developing new, potentially disruptive business models. Audi’s
IT unit was critical to each of these efforts. This case examines the different ways in
which digitization can help to enhance and transform an organization’s processes,
products, and business models. The case also highlights the challenges that may arise
as organizations attempt to expand and diversify their portfolio of digital innovations.
Keywords: Digital innovation, digital transformation, architecture, platforms
17 Pages
Massachusetts Institute of Technology
Sloan School of Management
Center for Information Systems Research
Expanding Digital Innovation at Audi
As one of the three largest premium car manufacturers in the world in 2016, 1 AUDI AG’s top
management was keenly aware of digitization’s impact upon the automotive industry.
Never before in nearly one hundred thirty years of automotive history has our industry changed as
fast and as completely as now: How we engineer our cars, how we produce them, how we present
a new model, where we sell it, who we sell our cars to, and who we work with in the future.
—Prof. Rupert Stadler, CEO2
at the Consumer Electronics Show in Shanghai, May 20153
By 2016, Audi vehicles faced competition from new entrants like Tesla, as well as from technology
companies. Google had created and launched a self-driving car, and it was rumored that Apple was
trying to build an electric car.4 Additionally, popular ridesharing services such as Uber and Lyft were
leveraging a growing trend that prioritized mobility over car ownership. In response, Audi’s closest
direct competitors, Daimler and BMW, had created their own car sharing services.5
Andreas Cremer, “Audi, BMW sell fewer luxury cars than Mercedes,” Reuters, February 10, 2016, http://www.reuters.com/article/us-audivehicleregistrations-idUSKCN0VJ1AJ.
2 All executives quoted in this case study are from AUDI AG.
“Audi expects in-car electronics to become as valuable as horsepower,” Automotive News, May 26, 2015, http://www.autonews.com
4 Lewis Painter, “iCar release date rumours, features and images | Apple Car rumours: Apple's electric car shown off in new third-party
concept images,” Macworld, September 30, 2016, http://www.macworld.co.uk/news/apple/icar-release-date-rumours-evidence-conceptimages-project-titan-3425394/.
5 Shannon Bouton, Stefan M. Knupfer, Ivan Mihov, and Steven Swartz, “Urban mobility at a tipping point,” McKinsey & Company,
September 2015, http://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/urban-mobility-at-atipping-point.
This case study was prepared by Nils O. Fonstad and Martin Mocker of the MIT Sloan Center for Information Systems
Research. This case was written for the purposes of class discussion, rather than to illustrate either effective or ineffective
handling of a managerial situation. The authors would like to acknowledge and thank the executives at AUDI AG for their
participation in the case study.
© 2016 MIT Sloan Center for Information Systems Research. All rights reserved to the authors.
Audi was determined to “attack digitally.”6 The company set ambitious targets, stating that “by 2020,
50% of value creation will be based on mobile applications (apps), software, electronic systems, and
digital services.”7 Audi believed “this will totally change our industry and our offering.”8
Audi had commenced its “digital attack” years earlier by broadening the size and scope of its digital
innovation portfolio. For example, Audi had transformed its traditional production facility into a highly
automated “Smart Factory.” It had also introduced a cloud-based IT architecture that enabled digital
services for internet-connected cars. And while remaining focused on manufacturing and selling cars,
Audi was also exploring business models related to mobility services, including car sharing. Efforts
were underway to digitally enhance each stage of the sales cycle. And finally, to promote collaboration
among employees, Audi had introduced its own social media toolset.
Audi’s IT unit had been instrumental in the implementation of these innovations across the company.
However, it was becoming clear that each innovation required different capabilities to grow and succeed.
Would Audi’s approach to innovation—in terms of strategy, organization, and implementation—help to
secure and sustain the company’s success in this rapidly changing industry?
Background on AUDI AG, Audi, and Audi IT
In 2016 AUDI AG, whose brands included Audi, Ducati, and Lamborghini, was one of the most successful
manufacturers of premium automobiles and motorcycles worldwide. The company was headquartered in
Ingolstadt, Germany, and had a market presence in more than one hundred markets worldwide. In 2015,
AUDI AG sold approximately 1.8 million Audi vehicles, 3,245 Lamborghini vehicles, and 54,800 Ducati
motorcycles. The company employed roughly 85,000 people—60,000 of them in Germany—and reported
2015 revenues of €58.4 billion and an operating profit of €4.8 billion. Between 2005 and 2015, both
AUDI AG’s annual revenues and unit sales had increased by 8% per year, and its pre-tax profit had
grown by 18% per year to reach €5.3 billion in 2015 (see appendix 1).
In 2016, the Audi brand, with group headquarters in Ingolstadt, operated eleven production facilities
around the world. While Audi’s roots could be traced to the end of the 19th century, the 1932 merger of
four companies—Audi, DKW, Horch, and Wanderer—shaped the company’s more recent history and
brand; each of the linked circles in the company’s logo represents one of these founding entities. In
1964, Audi was acquired by Volkswagen (VW) Group, whose manufacturing brands in 2016 included
Bentley, Bugatti, Porsche, MAN, Scania, SEAT, and Škoda. In 2015, the Audi brand was the single
biggest contributor to the group’s operating profit.9
Some of Audi’s earlier models, such as the Audi 80, had developed a reputation for being “grandpa’s
car.” Even so, Audi was widely recognized as modern, cutting edge, and “being on par with BMW and
Daimler, or even better.”10 As its slogan Vorsprung durch Technik11 suggested, Audi’s continuous
Rupert Stadler, “Audi will digital angreifen,” Automobilwoche, February 29, 2016, http://www.automobilwoche.de/article/20160229
7 “Audi expects in-car electronics to become as valuable as horsepower,” Automotive News, May 26, 2015, http://www.autonews.com
8 Ibid.
9 Volkswagen Group 2015 Annual Report, “Moving People,” April 28, 2016, 23, from Volkswagen AG Investor Relations website,
10 Stefan Anker, “100 Jahre Audi – Vom Opa-Auto zum BMW-Rivalen,” Welt, March 10, 2015, http://www.welt.de/motor/article4127545/100Jahre-Audi-Vom-Opa-Auto-zum-BMW-Rivalen.html.
11 While Vorsprung durch Technik is commonly translated as Progress Through Technology, its literal translation would be A Head Start
Through Technology.
Fonstad and Mocker
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CISR Working Paper No. 415a
innovation—which included the introduction of aluminum construction and the permanent four-wheel
drive in its Audi Quattro—had been core to its success.12
In 2015, global brand agency Interbrand ranked Audi the 44th most valuable brand worldwide.13 Audi has
earned multiple awards for its innovativeness. In May 2016, in a competition that considered 1,400 innovations from twenty automobile manufacturers and fifty brands, Audi won the “Most Innovative Premium
Brand” main prize.14 Six months earlier, Audi was recognized for the third consecutive year as the most
successful brand in the Connected Car Award competition organized by Auto Bild and Computer Bild.15
Led by Mattias Ulbrich—who became Chief Information Officer (CIO) and Head of IT and
Organization at AUDI AG in 2012—Audi IT16 employed roughly nine hundred fifty full-time
employees in 2015. Audi IT supported all business functions within AUDI AG, its fully owned
subsidiaries, and its national sales companies worldwide. For a select number of capabilities (e.g., in-car
IT), Audi IT also serviced and supported other VW Group brands.
Digital Innovation at Audi
With its “digital attack” in mind, Audi embarked upon several digital initiatives designed to strengthen
its customer- and employee-facing processes, its core products, and its overall business model. These
included transforming the manufacturing process with “smart” technology, encouraging and facilitating
employee collaboration through social media, improving and personalizing the sales experience, and
incorporating digital enhancements to implement connectivity in Audi vehicles.
Though similar in their shared reliance on technology, these efforts presented distinct challenges—and
provided distinct benefits—to Audi IT. Key was that Audi IT took different approaches to delivering
each type of initiative: Rather than replicating one approach regardless of the situation, Audi IT tailored
digital innovation processes to respect the conditions of the innovation.
A. Innovating the Manufacturing Process
In 2016, Audi offered fifty different car models through its SUVs, station wagons, sedans, and coupes.
Each model had hundreds of customizable options, as well as regional adaptions. With so much variety,
Audi could produce truly customized cars. However, this variety also heightened production complexity—
especially when multiple models were produced on the same assembly line—and warranted improvements to the production process.
In the past, we used paper to list all the parts that had to be assembled for a specific car. But this
doesn't work any longer, because you now have more complexity.
—Dr. Siegfried Schmidtner, Head of Manufacturing A3/Q2
Traditionally, every car had a paper “vehicle tracking card” containing all the components that assembly
line workers had to incorporate into the specific car. At each stage in the assembly process, workers had
only eighty-six seconds to perform an action before the car progressed to the next step. Using a paperbased tracking card system contributed to mistakes: workers had to check long parts numbers from the
paper card against numbers on the actual components, for example, or they had to remember the parts
“About Audi,” Audi of America, https://www.audiusa.com/about.
Audi ranked after BMW (11) and Mercedes-Benz (12)—both in direct competition with Audi. It also ranked after Volkswagen or VW
(35), whose parent VW Group owns AUDI AG. But Audi outranked Nissan (49), Porsche (56), Kia (74), Chevrolet (85). “Rankings,”
Interbrand, http://interbrand.com/best-brands/best-global-brands/2015/ranking/.
14 “Audi is ‘Most Innovative Premium Brand’,” Audi USA, May 2, 2016, https://www.audiusa.com/newsroom/news/press-releases/2016/05/audiawarded-most-innovative-premium-brand.
15 “Audi takes home five wins in the ‘Connected Car 2015’ awards,” Audi USA, December 17, 2015, https://www.audiusa.com/newsroom
16 Audi’s IT unit, referred to within the company as “Audi IT,” indicates the IT unit for the Audi brand.
Fonstad and Mocker
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CISR Working Paper No. 415a
assembly sequence themselves. Mistakes discovered at later stages of assembly led to costly rework, or
worse, additional mistakes. For example, following incorrect assembly of a bumper, workers who
identified it as a US-specific bumper might assume that the car being produced was intended for the US
market and—bypassing the tracking card—continue to add US-specific parts.
Between 2011 and 2015, as part of its Smart Factory initiative, Audi developed an electronic vehicle
tracking card (EVTC) to replace the paper-based card. Every station along the assembly line now had a
set of monitors that visualized which item to pick next and where to place it. Unlike the paper-based
version, only information relevant to the current stage in the process was shown (the paper-based card
had displayed all parts needed for the vehicle being assembled). Electronic monitoring reduced the
number of mistakes and minimized human error. If a worker picked the wrong part, for example, an alert
was issued or the assembly line halted until the error was resolved. Even the automatic screwdrivers
were connected to the system and monitored to ensure the appropriate level of torque was applied.
In late 2013, the assembly lines for the A3 and A4 vehicles in Ingolstadt introduced the EVTC. The
improvement reduced incorrect installations and rework by 90 percent, and as a result, the cost per
vehicle. Audi’s employees considered the system industry-leading.
Innovation Governance and the Role of IT: Close Collaboration and Standardization
As production processes evolved, the IT group supporting manufacturing had grown from five people to
more than twenty. Importantly, the way IT and production people worked together changed significantly. In
the past, Audi IT was often involved late in the development process, perhaps just three months before
the start of production. Now, Audi IT was involved in the planning of the production system, from
beginning to end.
A few years ago, there was a new model every eight years. Now, the IT solutions in the car are
changing every two years. Therefore, you now have at least a daily telephone call with IT to talk
about problems, the next project, new things we have to collaborate on. If I look back four to five
years, I didn’t even know who was working in the IT department because I phoned them every
two years.
—Dr. Siegfried Schmidtner,
Head of Manufacturing A3/Q2
Audi recognized that tighter integration between IT and production, as well as faster-paced IT
development cycles, warranted changes to both process and organization.
It is simultaneous engineering. We handle the problems and things we need in our factory
together. We must handle them together. We cannot divide the IT solutions from the car solutions
in our factory.
—Dr. Siegfried Schmidtner
Audi identified two key “speed bumps” that were impeding efficient implementation of new, digital
innovations (such as the EVTC) and resolved to fix them. The first of these was communications
inefficiency, specifically between the production group and Audi IT. Christian Gloger, Director of IT
Production, recalled how in years past most projects followed a linear and waterfall (or step-by-step)
approach to development.
In the past, Dr. Schmidtner came up with requirements that were summarized in a proper
document on which IT started the development of the new system. This process was quite time
consuming and didn’t include checkpoints for actual requirement reviews. —Christian Gloger,
Director IT Production
Fonstad and Mocker
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CISR Working Paper No. 415a
To expedite the development process and reduce misunderstandings, Audi IT started moving projects to
Scrum, an agile software development process that provided an iterative way to build IT solutions and
increased the frequency of communication between the IT and production departments. 17
The second speed bump was related to the multitude of distinct IT systems and processes in place across
For example, take the process of “incoming goods”: Why do we need different processes at each
factory? If you talk to each local responsible team, you might end up in endless discussions and
each team will prove the need for its own individual process.
—Christian Gloger,
Director IT Production
The lack of process standards across production sites was inhibiting innovation and escalating costs. If
Audi IT wanted to introduce a new IT system in multiple factories, for example, it had to invest significant
resources to modify the technology for each factory’s system.
We should agree on the best standard process, and then develop a standard IT system. If
someone from production then comes up with a better solution, he should prove it in a business
case including total cost of ownership of changing the IT system.
—Christian Gloger
To streamline systems and processes, Audi focused on standardizing production processes and related IT
systems across different factories. A “shop floor integration circle” was established in early 2015; this
group met every three weeks and included representatives from production planning, logistics, the
assembly line, and Audi IT. Together, these factions discussed production challenges, considered
solutions, and prioritized requirements for new IT systems. Since group constituents represented
production functions and not site locations, the team’s recommended improvements applied to each and
every factory.
B. Innovating How Employees Collaborate Digitally
Though Audi had developed an image as a leader of technological innovation through the cars it produced,
the company’s internal adoption of new technologies lagged. Internal systems did not reflect the company’s
slogan, Progress through Technology. Most electronic communication was limited to email, to t he
frustration of many employees. As a result, employees sometimes spent hours simply trying to figure out
how to perform tasks such as sending large digital files to external partners.
Beyond inhibiting workplace efficiency, this dated approach to collaboration hurt Audi’s appeal as an
When we make someone an offer to work at Audi, that person is going to be enthusiastic. This
enthusiasm should not be impaired by any restrictions or unfulfilled expectations concerning
working tools. We adapt our requirements for our employees to keep up with new technologies
and the working conditions of our competitors.
—Dr. Michael Wadosch,
Project Manager Enterprise 2.0
Audi recognized the need for improved internal and external collaboration. Social media technologies—
also known as Enterprise 2.0 when applied within companies18—were seen as a prime way to address
these issues.
to Scrum.org, Scrum—an agile software development methodology—is “a management and control process that cuts through
complexity to focus on building software that meets business needs.” See “What Is Scrum?” https://www.scrum.org/Resources/What-isScrum. Also see “Manifesto for Agile Software Development,” http://agilemanifesto.org.
18 The term Enterprise 2.0 was coined by Andrew McAfee in his article, “Enterprise 2.0: The Dawn of Emergent Collaboration,” MIT
Sloan Management Review, Spring 2006.
17 According
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CISR Working Paper No. 415a
In 2013 Audi’s board agreed to start a new initiative, “Audi Enterprise 2.0,” with the goal of increasing
efficiency, innovation, and workplace attractiveness.
Over the course of two years, the initiative introduced five social media tools. Each addressed a different
 “Audi dox” allowed colleagues to easily share documents and other files (akin to Dropbox)
 “Audi contacts” provided an internal social network (like LinkedIn), facilitating access to subject
matter experts within Audi
 “Audi team” enabled teams to create collaborative workspaces (or “communities”)
 “Audi wiki” was Audi’s internal online encyclopedia to preserve and share knowledge
 “Audi mynet” was a portal for navigating the above services and communicating corporate and
departmental news and information
The introduction of these voluntary tools was considered a huge success. Audi’s employees spanned a
wide range of generations, yet 73 percent of all employees were using the new tools within two weeks.
(Reports by third-party analysts had indicated that companies should not expect to reach more than 50
percent of employees with internal social media efforts.) In early 2016, other members of the VW Group
asked the Audi Enterprise 2.0 team to share its experience, and then decided to apply the same approach
across brands. Audi’s efforts were also recognized externally: in 2015, Audi won a Digital Transformation
Award for its “pioneering” and rapidly-implemented social media effort.19
The project manager for the Audi Enterprise 2.0 initiative, Dr. Michael Wadosch, highlighted a critical
success factor: during the first six weeks, employees were prohibited from using the tools for workrelated issues. Instead, the initiative focused solely on amusements. One of the first five communities—
Audi is cooking—encouraged employees to share recipes; the best one would be made available in
Audi’s corporate canteen. To the surprise of many, one employee submitted a step-by-step recipe for the
perfect Butterbrot, a traditional German open-faced sandwich. The submission generated thousands of
clicks per day and won the competition.
The fact that a traditional company like Audi would engage in such lighthearted activities prompted
discussion within the firm, which in turn fueled greater exposure for Enterprise 2.0:
People were completely astonished that Audi would allow something like this. People either
loved us for the party and game and fun or they rejected our initiative. [Critics posted comments
such as] “We knew all the time that Enterprise 2.0 is just a waste of time.” To prove their point,
they shared the butter-bread post and spread the word.
—Dr. Michael Wadosch,
Project Manager Enterprise 2.0
After the launch phase focused on fun, Audi’s employees started using the Enterprise 2.0 tools—often in
unforeseen ways—to become more efficient in their work. For example, the R&D department revamped
the previously tedious task of writing, distributing, and accepting meeting minutes over email. Audi team
enabled meeting participants to compose minutes by adding content to a shared page, and to accept
minutes simply by clicking the “like” button. A task that may have previously dragged on for three
weeks was now completed within hours. This approach was shared as a best practice throughout Audi.
In a later example, Audi used the Enterprise 2.0 tools to run a contest for generating ideas for innovative
mobile applications for customers. Many Audi employees owned and drove Audi vehicles, and as a result
they were a valuable resource for insight into customers and their values. For two weeks, Audi employees
A Digital Transformation Award in the Corporate Culture category was presented to by WirtschaftsWoche, a leading German business
magazine, and neuland, a strategy consulting company. “Audi Wins Digital Transformation Award,” Audi MediaCenter, October 2, 2015,
Fonstad and Mocker
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CISR Working Paper No. 415a
could submit ideas for mobile applications, or comment on proposed ideas. At the end, employees had
generated two hundred fifty ideas. The idea that garnered the most “likes” by other employees won the
contest. The board of management selected the top ten ideas and financed feasibility studies for several
of them. Two were immediately funded for full development.
Although comprehensive adoption of Audi Enterprise 2.0 was projected to take five years, Audi was proud
of its early accomplishments and successes.
Innovation Governance and the Role of Audi IT: Leadership and Integration
When the Audi Enterprise 2.0 initiative was launched, Audi already had social media projects underway
in various departments. However, because these existing projects addressed diverse needs, Audi’s board
decided—even without a formal business case analysis—to cease development on the projects and start
fresh with the Audi Enterprise 2.0 initiative.
Because no department was a natural owner for the initiative, Audi’s IT unit was asked by the other
departments to take the lead. Assuming leadership for this type of business project was a first for Audi IT.
One of the key goals of Audi Enterprise 2.0 was to improve how employees collaborated at Audi. Dr.
Michael Wadosch and his team studied an earlier analysis comprising six years of the IT unit’s user help
desk data. (Previously, Dr. Wadosch had led the restructuring of the help desk.) With an average of four
thousand calls per day, the data was a rich source for examples of workplace inefficiencies. Recurring
issues and challenges influenced the goals of and requirements for the new Enterprise 2.0 tools.
To support its social media efforts technologically, Audi IT elected to rely upon multiple platforms
instead of a single full-service provider. The team implemented five platforms, each considered the best
for a specific set of social media activities such as wikis (Confluence), social networking (Jive SBS),
and document sharing (Microsoft SharePoint).
When you look outside to social media, there is not only one single platform: you have
Facebook, YouTube, Dropbox. All address completely different needs of your collaboration. We
translated this into a business context for Audi.
—Dr. Michael Wadosch,
Project Manager Enterprise 2.0
The seamless integration of the new tools—not only with each other, but also with the existing set of
tools—was a critical success factor. In an example of such seamlessness, Audi contacts replaced rather
than duplicated the previous corporate and employee profile directory.
Perhaps more important than the technical integration was the cultural change that Audi Enterprise 2.0
triggered with the help of roughly seven hundred tech-savvy evangelists who experimented with the
technologies and provided vital feedback.
We spent a great deal of time stressing to employees that Enterprise 2.0 is not something you can
implement as a technology; you have to grow with this topic; it is a cultural topic. This has been
our approach from the start. We as IT can only give you the features and the functionalities, but
you—each and every one of you—has to learn to cope with this.
—Dr. Michael Wadosch
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CISR Working Paper No. 415a
C. Innovating to Digitally Improve Customer Touchpoints
In addition to improving employee collaboration, Audi leveraged digital technology to improve key
customer-facing processes. Customers had several points of contact with Audi during the sales process
and after the purchase of a car. Audi aimed to improve its customers’ experiences at each stage of the
sales cycle by enhancing interactivity and communication.
Pre-sales touchpoints: Before a car purchase, most customers—nearly 95 percent, according to Audi—
visited the company’s website to research models and features before entering a dealer showroom.
However, dealers could rarely offer customers a tangible demonstration of the exact vehicle they desired
due to the sheer volume of customization options. With so many combinations possible from Audi’s
roughly fifty models and hundreds of options, it was physically (and financially) impossible for any dealer
to display all available models; display options were even more limited for dealers in flagship location
cities such as Berlin, Beijing, Istanbul, and Moscow, where showroom space was spare and expensive.
The average European showroom has capacity for twelve models, so whenever you enter a
showroom you will never see YOUR car. And [even if your model is there], if you want to have
brown leather seats and twenty-inch rims, you never see it.
—Hans Thurner,
Head of Digital Retail
To address the display constraints, Audi rolled out a digital sales concept termed “Audi City” in showrooms
in London, Beijing, Berlin, Istanbul, Paris, and Moscow. Audi City enabled customers to experience
their personal dream car virtually, in a lounge-style atmosphere with floor-to-ceiling display screens.
Large, touch-sensitive tables enabled customers to configure and explore models and options life-size
and in detail on the surrounding screens.
Audi quickly realized significant benefits from Audi City. The company reported that since the opening
of the first Audi City showroom in London, vehicle sales there increased by 70 percent, with 60 percent
of customers being new to the Audi brand. By 2015, parts of Audi City had been replicated at thirty-five
dealerships, and in 2016 Audi planned to extend the program to an additional two hundred dealerships.
Post-sale touchpoints: Digitization also significantly improved how Audi engaged with customers after
they purchased a vehicle. Audi provided a number of free digital services under the “myAudi” name.
Customers could, for example, watch video tutorials (e.g., showing how to connect a Bluetooth device
with the car), manage financial services accounts, schedule service work, or request roadside assistance.
Many of these services were available both on the web and via smartphone applications.
Digitally improving some services, such as service appointment reservations, required a radical shift in
perspective from Audi.
You need to start thinking from the customer perspective. But for over one hundred years,
automotive companies traditionally started from the [perspective of the] car. So that shift in
thinking has a potential for conflict.
—Sven Schuwirth,
Head of Brand and Sales Development
Accomplishing this challenging shift took persistence and many presentations to all levels of management.
Two years, telling the same story and trying to convince everyone. It’s difficult. Everyone here is
in love with the car, so showing pictures where the car isn’t in the center is like an earthquake
for an automotive company.
—Sven Schuwirth
Educating managers on the negative effects of product-centric (rather than customer-centric) thinking
was critical. For example, at one point Audi customers had to use two different apps to control the
services of connected cars. One was built by Marketing & Sales and the other by Engineering.
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CISR Working Paper No. 415a
So I asked the board members: take out your smartphone and look at it. You have two myAudi
apps—one is white, one is black. That’s ridiculous, right? That clicked.
—Sven Schuwirth,
Head of Brand and Sales Development
Car-centric thinking in an increasingly digital world could not only hamper innovation but also
detrimentally affect Audi’s bottom line. Grasping this helped Audi’s adoption of customer-centric thinking.
We’re wasting so much money developing the same digital services on the one side dedicated to
the car and on the other side to the smartphone.
—Sven Schuwirth
The move to a customer-centric viewpoint on innovation had significant implications for how the
company viewed its core product: the car. In addition to being a transportation device, an Audi vehicle
was now also a communication channel.
Now we start thinking [about] the customer journey to find relevant services that customers
might expect, then we determine whether they make business sense and only in the last step do
we ask on which devices we need to deploy the service. The car becomes one of several devices.
That’s 180 degrees different from how we did it before.
—Sven Schuwirth
Innovation Governance and the Role of IT: Fast-Tracking, and Handling “Submarine” Projects
Many of the ideas for customer-facing innovations originated in the Marketing & Sales department.
Together with colleagues from Audi IT, Marketing & Sales described “user stories”—a description from
the perspective of the user on how she would interact with the new service—and then conducted a
feasibility study. The Controlling department was later involved for the financial aspects. The team
would then seek approval from a digital steering committee to add a new customer-facing service to the
portfolio of services.
Traditionally, Audi had put all projects providing customer-facing digital services through the same
development process that was applied to vehicle innovations.
We tried to put everything through the traditional development process, which takes five years.
That’s much too slow.
—Sven Schuwirth
More recently, services that did not affect the car itself were developed using a “fast track” system that
was derived from agile methodology. Only services that affected the car directly (such as in-car internetconnected services) followed the traditional, slower process. By 2015, 80 percent of all services
qualified for the fast track system and Audi was working to release six new or updated software services
per year. Members of Marketing & Sales and Audi IT composed these teams.
But there was still no fast track when the Audi City initiative was launched. Those hoping to enhance
the digital showroom experience for customers feared that the innovation process would take too long.
As a result, the development approach for the Audi City initiative was different.
I just did it on my own. I got a room in a secret location next to Ingolstadt. I hid it. It was a
“submarine” project. No one had any idea about the project. […] I’m not a big fan of standard
processes when it comes to innovation. Sometimes you just have to have the guts and do it on
your own. If you’re convinced about a great idea, just do it. But you have to be ready to take
responsibility if you fail. But that’s your job as a manager.
—Sven Schuwirth
The project took twelve months to complete.
Otherwise it would have taken years. In traditional companies when you have an idea, the first
question is always “what’s the business case.” In the digital world, you need to test and try and
test and try. And then maybe one out of ten ideas becomes also economically viable.
—Sven Schuwirth
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CISR Working Paper No. 415a
While “submarine” (shadow IT) projects were not endorsed as a general model for innovation, Audi
understood that giving more responsibility to teams was crucial to advancing digital innovations.
What we have to learn at AUDI AG is to organize the people and teams based on the
competencies required and let them work. They know what to do. They're old enough. You don’t
need to guide them every single day. They need [a] budget, they need a good environment to
work, and then go for it. We’re still not fully there, but I feel the change right now.
—Hans Thurner,
Head of Digital Retail
Running shadow IT projects such as Audi City didn’t come without risk, of course. One of the greatest
challenges was related to IT integration. In the case of Audi City, the IT architects were from the
marketing department, not from Audi IT.
The problem of shadow IT is once you bring such a system to life, you need to connect it to all
the backend systems; otherwise, you have these standalone solutions.
—Sven Schuwirth,
Head of Brand and Sales Development
Including people from IT—even if not from Audi IT—in the Audi City project from the beginning
helped to mitigate some these problems. Based on this understanding, beginning in 2014 marketing and
IT colleagues were co-located for all projects on customer-facing digital services, sharing a single office
and responsibility.
In digital business, the responsibilities of marketing and IT are intimately connected. We work as
one team that’s cross-cultural and cross-skilled.
—Michael Faulbacher,
Head of Vehicle IT
Although employees reportedly enjoyed working closely together, cross-functional teams needed to
overcome certain challenges.
We had to work on better understanding each other. For example, it took us one-and-a-half
years and a lot of discussions to get clarity on three simple words: portal, platform, profile. The
departments had a different understanding.
—Michael Faulbacher
D. Innovating to Complement the Car With Digital Services
Beyond improving existing customer services, Audi also used digital technologies to add previously
unavailable value-adding services to its vehicles. “Audi connect” services transformed the car into an
internet-connected mobile device customized for driving needs, and allowed some of the car’s functions
and data to be accessed via a mobile app.
In 2015, the company offered twenty-six Audi connect services that Audi owners could add to their car
for a subscription fee. The services were grouped into three categories: Mobility and Navigation,
Communication, and Infotainment. Communication enhancements, for example, enabled emails, tweets,
text messages, and news to be read aloud to the driver, and to be displayed while the vehicle was not in
motion. The driver could use a mobile app to check the car’s status—such as to ensure that the doors
were closed, or to lock the doors from a remote location. Infotainment collected and listed events
transpiring at desired destinations, and provided navigation to those events.20 Additionally, the car itself
could serve as a Wi-Fi hotspot for passengers’ mobile devices.
In 2015, Audi featured Audi connect navigation services using mapping data from Google Maps and Google Earth. In August 2015, Audi,
BMW, and Daimler announced the purchase from Nokia of the HERE mapping service for €2.8 billion. Friedrich Geiger, “BMW, Daimler and
Audi Clinch Purchase of Nokia’s Maps Business,” The Wall Street Journal, August 3, 2015, http://www.wsj.com/articles/bmw-daimler-audiagree-to-buy-nokias-here-maps-business-1438580698.
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Innovation Governance and the Role of Audi IT: Building a Cloud-Based IT Architecture
for Connected- Car Services and Adapting to the Vehicle Innovation Process
Audi had to make a number of IT-related decisions before adding internet-connected services to its cars.
How would the car connect to the internet? How would Audi ensure system security? And how could it
make sure that popular evolving online services, such as Twitter and Facebook, could be easily added in
the future?
Traditionally, Audi assigned a unique ID to each vehicle; now the company also assigned a unique Audi
ID to each customer. A customer’s data was aggregated under her Audi ID and enabled personalized
experience in her car and across Audi services. Audi elected to control the customer experience directly
and be the sole owner of customer data.
When a driver used an Audi connect service, she accessed a private cloud running in Audi’s Ingolstadt
data center. Each Audi connect service had a custom-built interface; service providers (such as Twitter)
did not collect any proprietary data related to the driver or the car. Because Audi controlled all
connections from the connected car to the Internet, it could select what types of information could be
displayed. Long Facebook messages, for example, were considered a distraction while driving and were
therefore disabled. The Audi connect platform was an intentionally closed system, significantly different
from the open architecture embraced by Apple’s and Google’s app stores.
Nonetheless, ensuring the integration of external parties’ services was challenging.
[With] in-car IT we go more and more in partnerships to make interfaces to other partners like
HERE and other companies and so we have the integration of other backend systems. In terms of
reliability, also the systems from our partners have to be involved in an overall end-to-end chain.
—Michael Faulbacher,
Head of Vehicle IT
From 2012 to 2013, to better control services available within a connected car, Audi IT developed the
MBB (from Modularer Backend-Baukasten, which translates to “modular backend kit”). The MBB was
infrastructural middleware-type software that enabled connected car services to link with a specific car.
Only services that were registered via the MBB could communicate with the Audi cloud and the
internet. Every request to a service had to pass through the MBB;21 this centralized structure facilitated
the activation, deactivation, replacement, and exchange of services (such as the transfer in navigation
service from Google Maps to HERE). In fact, one of the IT unit’s major contributions was to introduce
architectural thinking by decoupling hardware from software to increase modularity and thereby
flexibility and independence from specific parts vendors.
Where IT is better than automotive is separating the hardware from the software functionality,
so that we are flexible. Today I get a control unit from Conti or from Bosch, I have
functionalities on them. I get the same module one from another provider, say Magneti Marelli.
If you just put the software we have in this new module, it will never run. You need to redesign
and retest the entire unit. And there come the IT guys with core services and a separation layer
between hardware and software.
—Marcus Keith,
Director Development Operating Systems, Audi connect
Separating the hardware from the software was also important because a car’s development cycle was
about five years, while software’s was much shorter.
The process of introducing a new connected car service was quite different from other innovation
projects that involved IT. Although the IT unit had been working with colleagues from Engineering and
Marketing & Sales to develop new services since 2011, the collaboration wasn’t without challenges.
Despite this middleware between the car and the actual service, IT had to ensure service response times below two seconds.
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It’s still not perfect because the language used by a salesperson is not directly transferable to an
engineer. They can meet five times and they still don't know what they're talking about.
Transforming the information from a salesperson to an IT engineer and to an automotive
engineer, this is the major point we have to right now put the focus on.
—Marcus Keith,
Director Development Operating Systems, Audi connect
IT tailored the innovation process to the situation. For the digitization of the car, IT couldn’t follow its own
approach to software development any more, but had to adhere to a stricter product engineering process.
When we support business processes with IT, we define together with the business department a
timetable that supports the requirements of the project, and usually there is a certain time buffer
to introduce a new functionality. In product-IT you are fixed to the milestones of the car project.
So we have to adapt our processes to the product process.
—Mattias Ulbrich,
Chief Information Officer
Not only did the IT unit have to learn to manage and operate within inflexible production deadlines, it
also had to change its mind-set to become a thought partner.
Before the introduction of the MBB, IT was really a service provider. We invited them, we told
them what to do for us, like a new CAD system. They only fulfilled specifications. Now with incar IT, we had to drill the IT people that they need to think with us about improving the customer
journey rather than just fulfilling the specifications. For three years now Engineering and IT
have weekly meetings to write the specifications together.
—Marcus Keith
Quality was of heightened importance for car IT, and warranted a significant increase in the number of
quality gate checks when compared to process-related IT projects.
The requirements for safety and stability are very high—comparable to our IT architecture for
data security and data privacy. With a PC, nothing happens if software suddenly doesn’t work:
you just reboot. But you can’t do that in a car at 100 mph.
—Mattias Ulbrich
Mastering these challenges was critical to forming the current working relationship between R&D and IT.
We were on a crucial path four years ago to meet the timeline. We had to find a way to optimize our
process. Finally we did it and went through a remarkable learning curve. It was quite hard, but now
we are in a very good collaboration mode. Now R&D knows that they can trust and can totally count
on us. The head of R&D for electronics is not only a partner anymore, but also a friend.
—Mattias Ulbrich
The IT unit had dedicated a group of around one hundred fifty people to in-car IT issues, led by
someone previously from Engineering. Similarly, Audi had dedicated people in its Marketing & Sales
and R&D departments to in-car IT. Audi presumed that collecting these people into a department created
exclusively for in-car IT might not work: the company had once tried unsuccessfully to organize a separate
unit dedicated to electric cars. This effort failed as the unit was not accepted by the rest of the organization, particularly due to duplicated effort and blurred responsibilities. Based on this experience, those
people dedicated to in-car IT from Marketing & Sales, R&D, and IT remained in their departments. But
they worked closely with each other, and networked with people who were not a part of the group.
Securing management support for connected-car-related services was an ongoing challenge. Managers
relied on traditional models of investment evaluation, but the short-term economic benefits of connected
car services were often clouded.
One of the biggest issues is that [senior and middle management] are important communicators
with regards to digitization and they are just not doing that. They’re telling us in a meeting our
business case is minus ten million and that we don’t need digitization of the car. What is minus
ten million? We need to understand that [the digitization of the car] is not a question if it needs
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to happen. It needs to happen fast, otherwise we will be like FoxConn or Pegatron. We will
produce, but we will not be the brain.
—Marcus Keith,
Director Development Operating Systems / Audi connect
E. Innovating Digitally to Create New Mobility Service Business Models
Beyond digitizing its core product—the car—and the driving experience of car owners, Audi was also
experimenting with new sources of revenue based on the sharing economy.22 These new sources of revenue
relied on mobility services that helped people get from one place to another, whether they owned a car
or not. Yet the success of these mobility services was a potential threat to Audi’s traditional business
model, as customers could potentially switch from becoming Audi owners to becoming Audi users.
Audi’s competitors Daimler and BMW had previously introduced mobility services with their car2Go
and DriveNow free-floating car sharing programs in 2008 and 2011 respectively. However, Audi
decided to explore and pilot services that differed from those of its competitors.
At the end of 2014, Audi launched “Audi unite” in Stockholm, Sweden, allowing a group of up to five
people to share a car for two years. Each driver used a mobile app to check the shared car’s location and
to reserve it for future use. Data collected about each individual’s use of the car enabled the group to
split the monthly cost, which included maintenance and cleaning, based on actual use.23 Also launched
in 2014 was a program called “Audi select”—available in Berlin, Germany—that offered customers the
opportunity to drive three different used Audi vehicles over the course of a year.24
Through “Audi on Demand,” a service launched in April 2015, customers could rent an Audi car for a
daily fee. Unlike other car rental services, an Audi concierge would bring the car to the customer’s
location at the start of the rental period, and pick it up from any location at the end. The service was
available via a mobile app, and only in San Francisco in early 2016.25
“Audi at home” was yet another mobility service, launched in San Francisco and Miami in November
2015.26 In these markets, Audi collaborated with select residences to offer a shared pool of Audi cars,
conveniently parked in the properties’ parking garages. Using a mobile website, residents could reserve
cars for personal use.
Finally, “Audi shared fleet”—also launched at the end of 2014 and available in Germany—was a service
targeting corporate customers. Audi provided companies with a car fleet and charged them on a pay-peruse basis. Customers’ employees could use an Audi-operated website or mobile app to reserve a car
from the corporate fleet. Cars were also available to employees for personal use and charged per use.27
The vehicles employed for all these mobility services were Audi connect-enabled cars. And like connected
car products, these new mobility services leveraged technology to create new revenue streams for Audi.
However, there were few other similarities between mobility services and connected car products, for a
The sharing economy is enabled by digital technologies driving down the costs of coordinating the use of shared resources amongst
multiple stakeholders.
23 Stephen Edelstein, “Audi Unite lets Swedes go splitsies on a brand new Audi with their friends,” Digital Trends, December 9, 2014,
24 Ryan Beene, “Audi tests car sharing for the wealthy,” Automotive News, November 24, 2014, http://www.autonews.com/article
/20141124/RETAIL03/141129940/audi-tests-car-sharing-for-the-wealthy; “Audi select. Mehr Freiheit. Mehr Audi.” Audi City Berlin,
25 “Audi on demand,” https://www.audiondemand.com/us/service/en_ondemand.html.
26 “Audi at home, personalized vehicle-sharing, launches at luxury residences in San Francisco and Miami,” Audi of America, November 9,
2015, https://www.audiusa.com/newsroom/news/press-releases/2015/11/audi-at-home-launches-in-san-francisco-miami.
27 “The intelligent car fleet: ‘Audi shared fleet’ takes on the German capital,” Audi MediaCenter, 10/31/14, https://www.audimediacenter.com/en/press-releases/the-intelligent-car-fleet-audi-shared-fleet-takes-on-the-german-capital-454.
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number of reasons. First, and perhaps most importantly, mobility and connected car services targeted
distinct sets of customers. Mobility service customers were car users, not car owners.
It's not only getting the users registered, it's also always every day, every month animating the
people to use your service. Otherwise, you will not have the traffic or utilization. And utilization
is key for the business success of a service.
—Felix Breitstadt,
Manager Cooperations & Long-term Strategy, Audi mobility
Second, development strategies for mobility services were more fluid than those for connected cars.
Unlike connected car services, mobility customers were often exposed to new products and services
before development was completed. Using a minimum viable product (MVP),28 Audi could gauge
market interest with a baseline product containing only essential features. By tracking and monitoring
customer use and experience, Audi could inform future product design and functionality. This flexible
research approach was not possible in traditional car manufacturing, where innovation cycles took up to
five years. For mobility services, Audi was forecasting innovation cycles of just two years or less.
A third difference was that while car products adhered to global standards, local environments shaped
mobile services.
Mobility needs in different markets are quite individual. It is difficult to come up with one service
that works in the US and China and France. So local adaptations at an operational level are
necessary. There is not one service operator you can rely on. So the way we work with each local
company is different.
—Felix Breitstadt
Audi relied upon external physical parts suppliers to supply components for its vehicles. But mobility
services depended upon a network of external partners (for example, Amazon Web Services, or AWS)
not just to supply a specific service, but also to collaborate with each other. Audi was dependent upon
these partners to operate reliably and collaboratively for its own mobility services to function.
Innovation Governance: Separated Yet Integrated
In contrast to other innovations, mobility service innovations were executed by a separate company:
Audi Business Innovation GmbH (ABI), a wholly owned subsidiary of AUDI AG. Before ABI was
founded in 2012, mobility services projects had been managed within AUDI AG for about one-and-ahalf years. Now ABI managed its own profit and loss statement and, with headquarters in Munich, was
geographically separated from AUDI AG as well.
The idea was to install a disruptive topic within the organization. But you get all these
limitations once you are in the [big] organization [of AUDI AG]: it limits you and slows you
down. It was clear for the board that we needed to find a new way to approach that [disruptive
topic] and separate it from the [rest of the] organization. Because there are so many new things
to experiment with that within [AUDI AG] it would be really difficult. The requirements we have,
the knowledge we need are in a lot of ways different. And as we started from scratch, we didn’t
need a transformation.
—Felix Breitstadt
In early 2016, ABI employed seventy-five people, many of them new to the overall Audi brand. The
ABI IT group included roughly eight IT project leaders and twenty-five software engineers. Often
relying on design thinking approaches, ABI’s employees were technically savvy and worked in multiple
roles such as sales, service design, and managing partnerships with other service providers.
For example, we have our own car technology guys. It really helps us when we get in contact
with [AUDI AG’s] technical [engineering] department. Normally when you are in the Sales
A minimum viable product (MVP) is an early-stage product with only essential features released to early adopters. Customer feedback
gleaned from MVPs helps businesses understand how customers use (or want to use) their product, and informs future product iterations.
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department, people know a little bit about technology, but not that deep. But we have guys who
come e.g., from Zipcar and have worked on onboard communication units. They really know how
car sharing technology works. So we talk on the same level with [the technical department]. It's
also a very crucial point for our positioning internally.
—Felix Breitstadt,
Manager Cooperations and Long-term Strategy, Audi mobility
ABI’s shorter innovation cycles, flat organizational structure, and start-up culture enabled faster decision
making. And while some of the service features developed by ABI could in the future be leveraged by
AUDI AG’s traditional business model (e.g., integrating usage tracking capabilities), doing so was not
yet the focus.
The rule [at ABI] is “don’t wait, just do it.”
—Michael Faulbacher,
Head of Vehicle IT
ABI was highly involved with AUDI AG despite its legal designation and geographic separation. All
innovations on which ABI was working had been conceived and presented as a business case by AUDI
AG’s sales strategy team. Once business cases were approved, the innovations were transferred to ABI
for design, implementation, and piloting.
The business case demand from AUDI AG does not fit the normal startup world. So it's a
challenge. Sometimes we would love to have more flexibility and not focus on the business case
right from the beginning, because it is somehow limiting innovation. But I think it's still good,
because it helps us learn to see where’s the money in mobility services.
—Felix Breitstadt
Audi’s CIO, Matthias Ulbrich, was a member of ABI’s management board, as was Audi’s head of
mobility, Bettina Bernhardt, who was ABI’s managing director. ABI viewed its connections with Audi
as a source of competitive advantage.
The USP [or Unique Selling Proposition] will be at the connection between the car and the
[connected car] IT platform. We can use data from the car no one else is able to get. Because we
have this [trusting relationship] with AUDI AG.
—Felix Breitstadt
The Role of IT: Building a Public Cloud-Based Platform for Mobility Services
At the core of all of ABI’s digital mobility services was a single digitized platform called the Mobility
Service Infrastructure (MSI). Utilizing Amazon Web Services as its foundation, the MSI provided a
growing number of shared services upon which most of Audi’s mobility applications relied. These
services included user authentication, payments, and the management of a fleet of individual cars. Each
mobility service exhibited a unique front end, such as an app or website, but shared or reused back-end
service components such as payments functionality. ABI benefited from the continued reuse of shared
back-end services.
When we started two-and-a-half years ago, we decided we want[ed] to have one back-end
solution to give us scalability and synergies. Though reuse slowed us down a little bit and we
have to defend this idea on the cost side, because it's an investment in the beginning, it will pay
off in the next years.
—Felix Breitstadt
Reuse is also a question of quality. […] It's proven. You don't have to test it again.
—Michael Faulbacher
The MSI was connected to the MBB platform, which handled the secure connection to internet-enabled
Audi cars. This way, MSI-based apps could leverage car-related data required to deliver mobility
services. For example, MSI could request the locations of all nearby available cars within a fleet for
display in ABI’s mobility service apps.
Just like the MBB, the MSI was quickly becoming the VW Group’s standard for building mobility services.
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For all innovation projects, ABI relied exclusively on the agile Scrum methodology. Because mobility
services were new for Audi and technical requirements often unclear, ABI’s IT group worked very
closely, prototyping iteratively, with ABI employees from other areas.
The Challenge Ahead
In 2016, Audi was employing digital technologies to improve how its employees collaborated, cars were
produced, and customers interacted with the company—and also to add new functionality to the car
itself and to create new mobility service business models. As a result of these innovations, Audi was no
longer just a manufacturer of cars; it was also a developer of digitally connected car products and a
provider of mobility services. Given all these digital innovations, it was clear that Audi understood the
importance of digitization for the whole company.
Digitization is an essential key to our success story.
—Axel Strotbek,
Chief Financial Officer29
From a marketing perspective, Audi needed to determine how to position itself in a changing,
increasingly digitized environment.
The question is, what is the definition of premium in [a more digitized world]? Is it time? Is it
features in the car? Is it convenience?
—Marcus Keith,
Director Development Operating Systems, Audi connect
Internally, it became evident that digitization meant different things for different parts of the business.
For someone in Production, digitization means something totally different than for us in
Engineering. We need to learn service thinking. He needs to learn “how can I do my existing
business better with machine learning, with that algorithm?”
—Marcus Keith
Due to these differences, Audi was not pursuing a uniform approach to digital innovation. Rather, Audi
IT was developing a systematic process to evaluate and match innovations with complementary
implementation methods.
We have multiple modes of how we operate. So we need to identify now what are the fields where
we have to focus more on speed and hence [be] more agile? Where do we have to be very
focused on quality? And—depending on what task needs to be fulfilled—how do we remain
flexible to switch from one mode to the other as an organization?
—Mattias Ulbrich,
Chief Information Officer
Eventually, the question of whether Audi’s approach to managing innovations would contribute to future
success would be answered. Audi’s numerous recent awards were an indication to many that the
company was poised for continued success.30
“Audi Annual Report 2015: ‘tomorrow.now!’” AUDI AG Press Release for the 2015 Annual Report, March 3, 2016, https://www.audimediacenter.com/en/press-releases/audi-annual-report-2015-tomorrownow-5732/download.
30 In 2015, in addition to Audi being awarded a Digital Transformation Award (“Audi Wins Digital Transformation Award,” see page 6),
Audi’s Mattias Ulbrich won CIONET’s European CIO of the Year Award, (“Audi CIO wins European award,” automotiveIT, June 5, 2015,
http://www.automotiveit.com/audi-cio-wins-european-award/news/id-0010471), and Audi won five of nine awards presented in the
Connected Car Award competition organized by Auto Bild and Computer Bild (“Audi takes home five wins in the ‘Connected Car 2015’
awards, Audi MediaCenter, December 17, 2015, https://www.audi-mediacenter.com/en/press-releases/audi-takes-home-five-wins-in-theconnected-car-2015-awards-5289).
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Appendix 1
Audi Firm Performance
Audi cars
(€ billion)
before tax
(€ billion)
after tax
(€ billion)
Cars sold (million)—
Audi, BMW,
and Mercedes-Benz
brands only
Group sales (€ billion)
Profit after tax
(€ billion)
Employees (thousand)
Return on Sales
(after tax)
2015 CAGR
Source: Annual reports AUDI AG 2006–2015; annual reports Daimler AG 2014 and BMW AG 2014
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