Technology & Autonomous Driving: The Buy vs. Build Dilemma

What are the technical opportunities and challenges for vehicle automation? What do organizations need to consider today? These questions are at the center of Tech.AD, the award-winning global business event for OEMs and Tier 1 organizations.

As autonomous vehicles and autonomous driving races ahead, stakeholders, industry experts, and key suppliers gathered in Dearborn, Michigan, to discuss the future of the automotive industry, including deep driving, cognitive vehicles, operational safe systems, software architecture, and more.

What should companies buy? And what should companies build?

Across technological innovation, companies must have a strategy on which components, features, or capabilities they buy – via third-partner vendors and suppliers – or build – leveraging their in-house teams. There are examples throughout the industry of both strategies and a mix. Some companies rely heavily on their internal teams for new software requirements to support their innovation, while others lean on partners and suppliers. And in the middle, where most organizations fall, there is a hybrid approach where critical elements remain in-house, augmented by an ecosystem of best-of-breed technologies to support their innovation.

The company behind Mender, Northern.tech CTO Eystein Stenberg addressed this topic in his Challenge Your Peers roundtable discussion. Here are the top takeaways from leaders in the auto industry as organizations determine their internal buy or build strategy.

Top Business Considerations for In-house Builds: Liability and Risk Management

Liability and risk management are the top business considerations for OEMs to build in-house technology teams. Regulatory requirements – specifically around the United Nations Economic Commission for Europe Regulation Number 155 (UN/UNECE R155) on cybersecurity – emerged as a critical business driver. Organizations recognize the need to ensure compliance with cybersecurity regulations. Many opt to retain control of their software as an approach to managing their cyber risks.

Overall control and risk management appeared throughout business considerations. The increasing complexity within OEM and Tier 1 suppliers leads many to opt for in-house technology teams to ensure greater control in managing the complexity. For example, middleware is one area organizations retain in-house to avoid vendor lock-in and enable greater flexibility. Limiting the number of cooks in the kitchen allows some organizations to lower the degree of their internal complexities as they innovate and integrate new technologies.

Similarly, core competencies, key features, and differentiating capabilities also lead organizations to leverage internal versus external resources. Using in-house teams for core competencies increases efficiency and return on investments already spent while also retaining control and managing risks. Critical safety features, for example, are one of the top areas companies keep in-house. Product differentiating features and use cases, like mobile apps and human-machine interfaces (HMIs), are also logically being held within the core organization’s team.

Takeaway #1: Managing liability and risk – and the mission-critical elements under those, including regulatory compliance, product differentiation, and overall control – drive organizations to use in-house technology teams.

Most Likely Built In-House: Automated driving, HMIs, middleware.

Top Business Considerations for Buys: Infrastructure and Open Source

On the flip side, organizations favored buying or partnering with third-party suppliers and vendors for primarily infrastructure (not core competence) and open-source components. Commodity components like sensors were overwhelmingly third-party. OEMs are also future-proofing vehicles to be able to easily change these commodity-type products as needed. For example, if every OEM manufactured its own in-house cameras, the costs would increase exponentially with little return to the organization or the buyers. Leveraging a third-party specializing in cameras reduces the OEMs' costs while increasing returns and efficiencies across the automotive industry. This design strategy enables organizations and suppliers to increase efficiency, reduce costs, and earn better returns for radar, lidar, cameras, and similar components.

Similarly, organizations preferred to source infrastructure components via third parties like validation and verification toolchains. Applying to hardware and software, routine processes (compiler, verification, quality assurance) are not product differentiating or a core competence of the organization.

Lastly, open-source and the integration of applications are at the top of the list for outsourced solutions. Integrating applications like Spotify into the operating system and stack are table stakes across the industry, and few will leverage internal resources for the task. The preference for open source components, similar to avoiding vendor lock-in, is also a trend towards ensuring companies focus on value-added efforts within their internal technology teams.

Takeaway #2: Leveraging external resources for infrastructure, commodity, and open-source components enable organizations to use in-house technology teams for only value-added projects.

Least Likely Built In-House: OS integrations, commoditized products, infrastructure processes.

Buying vs. Building Software: It All Comes Down to Opportunity cost

Generally, software infrastructure was a top item to outsource. Companies outsource software building, OTA infrastructure, remote tech support, and commoditized components. In determining whether to buy or build, start with the following questions:

• Is it a core competence of the organization?
• Will it be commoditized?
• Does the company have in-house skills to develop the component?

ABS braking was the classic example used. Tier 1s developed ABS brakes which kept the costs down for OEMs and allowed for the reuse of the technology across the industry. In these situations, there are safety and security implications as well; one or a few ABS brake suppliers specialize in ensuring their product is safe and secure versus each OEM undergoing the same. The penchant for open source follows a similar philosophy; relying on an open community increases innovation, security, and safety, with a magnitude more individuals contributing than a handful.

For many organizations, whether to buy or build technology components comes down to the opportunity cost. What is the loss value of the potential gain from other alternatives when one path is chosen?