Business Agenda podcast 5

Business Agenda podcast 5: transcript

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Hello and welcome to Ashurst Business Agenda. This episode is a conversation between Ruth Nic Aoidh, executive director at McLaren Automotive, who is joined by Tara Waters, partner and head of Ashurst Advance Digital. Alongside Tara is Thomas Sacher who is the corporate partner from Ashurst's Munich office and has a focus on the automotive industry and is head of the German Corporate Transactions Team. Ashurst is proud to be the official legal services partner of McLaren group, and in today's episode, we explore the role technologies play in the advancement of new innovations within the automotive industry, what the future digital innovation roadmap looks like in the McLaren and its potential to be adopted by other sectors. And lastly, what skill sets should be adopted by lawyers in a future business landscape dominated by technology and data. You're listening to Ashurst Business Agenda.

I'm going to jump straight in - over the decades we've seen technology play an increasing role in driving new innovations in the automotive industry. In fact, some compare the car of tomorrow to a computer on wheels. Ruth, what's your view on this and what technologies have or will have the most significant impact when it comes to McLaren and its performance?

Ruth Nic Aoidh:
Well the automotive industry is constantly evolving. And I think if we just look back on the changes that have happened to cars in the last 20 years, it tells its own stories. Think about the car key. It used to be a key that it was a button and now we have keyless entry into cars. Think about parking, it used to be a rear view mirror and a skilled driver, then we got cameras and sensors, and now we're moving into auto parking where cars will actually park themselves. So we've always had this evolution and innovation and flow of technologies within the automotive industry and now is no different to the way it has been. And the industry is probably about to embark on one of its most significant periods of change with the challenges around net zero emissions, which will lead us down a route of either electrification or alternative fuel sources for vehicles.

And from McLaren's position, that's probably one of the biggest challenges that we will see in the future. This move from the internal combustion engine to electric vehicles and beyond. It's probably worth for the purpose of the audience just to set the scene a little in respect of McLaren's context within the auto industry though, because we do hold a very unique position. Nobody buys a McLaren not to drive a McLaren and the reality is nobody buys a McLaren just to drive to the shops or drops the kids at school. We don't provide a mode of transport, we provide a form of entertainment or a luxury product that people aspire to have. So our customers' expectations are slightly different to our larger OEM and high volume manufacturers customers' expectations. In saying that though the battery technology challenge and the electrification challenge that faces the industry is as a big challenge and probably an opportunity for us as it is for the larger manufacturers.

For McLaren, we could make a McLaren electric vehicle today. We could take out the internal combustion engine, we could put a battery in and run a car with the McLaren badge on it at fully electric. The reality is though is that it would not meet our customer attributes or the expectations of our customers, because batteries are really heavy and the battery technology available on the market at the moment does not work in the context of the type of cars that we produce. The reality is the battery technology available for a lot of the auto industry doesn't match the customer expectations or where the industry and the vehicles need to go. So the significant challenge for McLaren in the coming years but also for the industry is to really rapidly develop the battery technology so that we can deliver the cars for the future, but also meet our customer's expectations.

So, there's absolutely no doubting the huge amount of innovation that is happening and basically all around the customer in mind. Thomas, I want to bring you into the conversation and from a supplier point of view, this transforming landscape, it's allowing a digital transformation's happening, tech companies moving in to the automotive industry. What are you actually seeing in this space?

Thomas Sacher:
As mentioned the car of tomorrow will be a computer, some say a smartphone on wheels. In fact, software use in cars will play a more and more important role. Already today according to a recently published study of McKinsey ,30%, or as far as average mid luxury are concerned 40%, 47%, even more of the car buyers say that they are prepared to buy another model in exchange for getting a better digital offering. The operating system, corresponding software applications and the handling of all of this will become a crucial factor of the customer's decision of tomorrow. Even today, software plays a major role in cars. There are already some cars having a software, which consists of more software codes than the software of an airplane, such as a Boeing or an Airbus. So this will require significantly resources, software resources, process resources but also energy because it all will go back to the battery research.

As a consequence, the portion of the costs relating to electronic components will increase from 35% today to 50% by 2030. So your question now, what does it mean to suppliers? They are equally affected as the customers for sure. However, as far as digitalisation is concerned, they are affected even worse. And there are two main reasons for this. Firstly in the last 10 years, we've seen more and more tech companies entering the automotive market on the side of the suppliers. Among them are companies such as Google, Microsoft, Sony, LG, and Samsung. Thus suppliers are faced with a totally new group of competitors, many of them by far stronger than the suppliers themselves.

The second problem that suppliers are faced with relates to the customers, their OEMs. So far about 10% of the software used in today's cars comes from OEMs, whereas the remaining 90% have been bought from suppliers. This is going to change - all OEMs have decided to develop their software by themselves. Some have started to develop their own operating systems, some want to license it in but buy and develop their own software. So thus the OEMs will also become competitors of their suppliers at least as regards software.

Ruth Nic Aoidh:
I think what Thomas says there is a really strong point and something that we shouldn't lose sight of as we move into the world of electrification, we do have a complete change happening within the supply chain. Your traditional engine manufacturers no longer have customers. Fast forward five years and actually we won't have engines in vehicles. And the cell technology is coming from different areas of the world. So the traditional automotive supply chain bases are actually moving globally and geographically. But I think the biggest change that Thomas has highlighted is the nature of the engineering that now goes into a car and that will go into the cars of the future. It's not about hardware, it's actually about software and there will be a time in the very near future where it's noughts and ones that will control how a car operates, not the balance of the weight of the car or how are the engine's put together.

And that is a massive change not just in the context of the supply chain, but also in the context of the type of engineering skills that need to be introduced to support the automotive industry. It's a change in all of the capital expenditure that's required in order to build factories or actually not build factories, more likely just give people laptops and computer software to do their jobs. So we shouldn't underestimate the change that is going to happen. Cars potentially will still look the same. People will want to sit in them and we'll want to go from A to B but the way that the cars are made, the way the cars work and the way they're going to be used is going to be unrecognisable in 20 years' time versus where we are today.

Tara Waters:
Ruth I think those comments about supply chain are really interesting. In the automotive industry, do you anticipate that we'll see consolidation as among some of the traditional suppliers and new entrants, or do you think you might be moving more to a model of cooperation?

Ruth Nic Aoidh:
I think it's a little bit of both, and I don't think the industry has really landed on what it will be yet. And from my perspective, I believe that the pandemic has actually had an accelerant effect if that makes sense in the context of where the industry is going to go. Many businesses in the auto industry were absolutely decimated by the pandemic. I mean, from McLaren's perspective, we had a shut factory for three months and that wasn't uncommon, that was happening right across the industry. And it wasn't because the McLaren factory needed to close, it was because all of our supply chain globally was closed pretty much and we'd no parts. And that happened right the way around the world, which caused most businesses to re-look at their business plans, re-look at their product plans. We effectively all lost a good six months' chunk, optimistically speaking, of development activity and product planning and sales, so revenue generating activity as well.

So many of the players in the auto industry are looking at how they can still achieve what they planned to do, but do it in the context of a year of kind of very low sales and lots of challenges. And I think as we chase the new technology, what becomes apparent is that everybody is chasing this new technology and the obvious correct business decisions in the future will be for people to join forces.

So Tara, I'm interested hearing all that we've heard so far, whether you can draw some similarities between the automotive industry with all this agile and dynamic disruption occurring and that of the legal profession.

Tara Waters:
Yeah. And that was the genesis of my question for Ruth in fact, because I think in the legal industry, like the automotive industry and other industries where we're seeing digital transformation and digitalisation become a major driver of what's happening. We are seeing within these industries, what we often refer to as ecosystems start to develop, where the participants are coming in and they're actually spurring each other on in fact, in terms of the innovation and transformation. And it's not simply taking defensive positions and trying to protect themselves and protect existing market share, but recognition that by working together and learning from each other, because a lot of these new innovations are genuinely new, it's new technologies, no one has the game plan or the roadmap of exactly what to do next, to really get to the next level. It means that we all have to actually work together and have shared goals in terms of pushing the entire industry forward together.

There can't just be one winner, we all have to be winners in this new world, which means that for us in the legal industry, we are very much looking at collaborations across the industry, as well as intra industry and bringing in in particular big technology vendors and suppliers into our industry, help them understand our problems in legal and find out ways to utilise their technology to improve the industry as a whole. And so in fact, we often refer to it as "coopetition" because law firms traditionally are very competitive and we remain very competitive, but we are now very friendly with one another, particularly in the innovation and transformation space, because we recognise that the value of working together is really to benefit the industry as a whole.

And Tara, with your crystal ball out, do you see that continuing over the immediate future, what's that technology and digital roadmap look like within the legal industry?

Tara Waters:
I definitely see this cooperative and collaborative environment extending on. And in particular, as we work very closely with our clients like McLaren, we see an increased focus again on sharing knowledge about how to adapt to this new normal that we're living in, where we're focusing on what's referred to now as legal operations, how do we use technology to the best of our ability to be digitally enabled and to allow our workforces to work better, more seamlessly across borders and in remote environments. And that's really about them onward, empowering their own business clients, as well as their customers which is really, really important.

Ruth Nic Aoidh:
I think something that applies across the auto industry and legal industry and probably more in the context of collaboration is each business working out what its unique selling point is. And the industry's aligning around what our role as the foundations that you grow those USPs from. And I think technology, both in the context of the legal world but also the automotive world, an element of that would just be kind of the foundations. Ultimately I would imagine, I may not be right about this, but I'd imagine that batteries are going to just become a thing, they're not going to be the next best special thing. It will be the software that controls that batteries, it will be as I said, the structures that go round the batteries that would differentiate one car from another and the auto industry and the companies within the auto industry need to decide whether they invest in competing against each other on batteries or are aligned that that is the base factor that's going to be the same everywhere and focus on what differentiates each company and each business from one another.

So moving to data, and it's been one of a huge development for a number of industries, but Ruth I'm particularly sort of interested to hear your views on how McLaren is using data throughout its innovation roadmap.

Ruth Nic Aoidh:
Data and it's use has a huge part to play in what McLaren does, both in the context of a Formula 1 team and in the context of what we do from an automotive perspective and has a massively positive impact on innovation. We use a significant amount of digital engineering and virtual product development, on both our racing and automotive side. And that allows us to simulate parts, simulate operating modes and actually simulate the driver experience and the car performance,through a technology basis, through computers, before we need to move into creating hardware and making newer models and prototype models. That ultimately allows us to develop parts and develop cars faster and it also has a very positive impact in terms of the cost of doing so, because we don't have to move into making hardware until much later in our development cycles. So in the context of the automotive industry, we as a business are able to move relatively significantly faster than larger OEMs because of this use of simulation and virtual product development.

It allows us to have a very speedy development process, but also as I said, to be able to do it in a much more cost-effective way. I think what's very interesting around data though as well and its use, it's a little bit like what we just spoke about in the context of industries collaborating or businesses collaborating with one another, I think the use of data is not unique to the automotive industry. And one of the things that we have found within McLaren as an organisation is our ability to process data, not necessarily to find the answers but to help make the decisions, to find the answers, especially in the context of the Formula 1 world where everything happens very quickly and we get huge amounts of data off the car. That ability to process the data in real time and very quickly is relevant across a huge amount of sectors. And one of the big changes that I see in the automotive industry, but also other industries in the context of data, but also the context of moving into new technology eras, is this need to recognise technology in the context of how it can help right the way across the board, rather than it just be industry-specific.

Thomas Sacher:
You can sometimes read data is the oil of tomorrow. And as regard to automotive industry and I think this applies to most of all other industries as well, that might really be the case and how important data is, can also be seen. Then when looking at our clients some years ago, one of our suppliers, the big department of suppliers decided to go to California for two to three weeks. And in order to have a couple of meetings with Apple, with Google, with some universities, professors, all kinds of different people in order to somehow get a new view of how the future will look like tomorrow. And when the team had come back to Germany, I asked one of the team members, what the main outcome or the main takeaway of this trip had been. And he said, "Well, the main takeaway was twofold. Number one already at the moment, we produce all kinds of, or manufacturer all kinds of products that generate data.

None of our products does not generate data. So we need to have in mind how important our data are already today and will become tomorrow. Number two, he said that given the importance of data, we need to make sure that each of our legal team members needs to have a general understanding of how the legal framework around data looks like in order to make sure that we as a supplier keep control of our data. I think that's definitely one of the important takeaway, we internally have already decided that each of our lawyers should get at least a base training regarding legal framework around data.

Tara, what are some of the legal implications, especially when we're talking across industries,across jurisdictions? What are some of the things we need to consider?

Tara Waters:
There are always a handful of really basic questions you have to answer, and you need to think about these as early as possible because they have significant implications on what you're going to ultimately be able to do in terms of collection and use of data. So firstly, very basic, what data are you planning to collect? Whose data does it belong to? Where is it coming from? Is it moving across boundaries from a jurisdictional perspective? Where is it going to? And those four basic questions are going to give rise, to a huge plethora of potentially very complex legal analysis that needs to be done. Because as soon as you start moving data between entities, between borders, you're going to start to develop a very complex web of legal regulation that will apply to how that data gets collected. The protections you are going to need to afford the data owners and what you can ultimately do with that data.

Now, if you're looking to use that data purely internally, you're going to be really focused of course, on security aspects and ensuring that data integrity is maintained and the data is protected. You're also going to be thinking of course, about, can we monetize this? And then that's likely taking that data, sharing it or making it available and, or transforming it and using it in other ways. And again, in all of those cases that traceability and transparency about what you're doing, how you're doing it? How data is linking to other pieces of data and actions and activities becomes very important. And I think we've all seen within the EU and in other jurisdictions a growing call from regulators around protection of data holders rights and what you can and can't do. And the risks here for businesses are significant. There can be significant fines, loss of trust and brand dilution. And in fact, those last two are really the more important necessarily than the financial implications, because these are risks that will be splashed across headlines will be on the front page of the FT and for a company to lose that trust can be significant in terms of what it can do next.

Ruth Nic Aoidh:
I think there's, there's two really interesting, I guess, bits of the jigsaw around data that don't necessarily form part of a discussion either within the auto industry, I think within the legal analysis of use of data and they are the regulators and how they are actually driving change, certainly within the automotive industry at the moment, a lot of change is being driven by the regulators, or you could say is being defined and shaped by regulators rather than driven. And then secondly is the customer expectation and what they expect to get out of the auto industry or out of their car and the data in their car is just part of their their expectation about what goes on in the rest of the world.

So while big data and autonomous driving is really important, it means nothing unless you have a strong culture. Thomas, I want to throw it to you and get your position. Maybe you could share some ways that your teams function.

Thomas Sacher:
At companies such as McLaren and Ashurst, culture drives our organisations. For us, culture means why and how things get done. Our key goal is for Ashurst to become the most innovative law firm in the world. And we are convinced that this goal can be achieved if. we align our behaviours and norms with the goals of our firm, the expectations of our customers and the priorities of our employees. If we can combine all these elements, then we are convinced that we can provide the best services to our customers, achieve the best results, which is important to get the best and retain the best people and achieve other benefits such as retaining and engaging the best employees. So for us, it's absolutely important that our culture works and we have always been known for having a really great culture.

Ruth Nic Aoidh:
Similar to what Thomas has said, the key in McLaren's view to having a high performing team and high-performing culture, is aligning everyone around a common goal and in Formula 1 one it's quite easy to align around the goal. The goal is to win and you do what you need to in order to have the fastest car with the best driver on the track to win every weekend. So it's easy to describe that goal. In the context of the automotive company, we actually do a lot of work in making sure that we do have alignment within the organisation on that common goal. So we have a business plan that is openly published internally to all of our employees. So everyone understands where we're going long term. On an annual basis, we publish a set of company imperatives. So things that the overall company has to achieve in order for the year to be successful.

And then each department, each team, and each individual within the team then has their own set of objectives and targets and goals for the year, which feed into those company imperatives, which ultimately feed into the delivery of the long term business plan. So everyone is very clear on what we're working towards. The magic bit of it, though, for me, in terms of how we approach things at McLaren is that we define that our values, we define how we're going to work, which talks about how we behave with one another, our expectations around how we work together. But that's where the direction from the company stops. I am so lucky to work with some of the most gifted, intelligent, talented people in the auto industry. I can honestly say that I work with people who are truly geniuses. I can't tell them what to do.

I just need, and the company needs to give them direction, explain to them where we need to go. And then frankly, get out of the way and let the experts, let those geniuses do what needs to be done within the context of the values, within the context of our imperatives to deliver what's needed. And giving people the empowerment and the freedom to work towards the goals in the way that they can define and that they know works best in the context of their area of expertise, is what really, I think drives that high performance culture, but also retains people and keeps them very engaged and committed to what we're trying to achieve as an organisation.

I'm interested to know what role does corporate social responsibility play in that culture piece. Do you have that as part of the culture piece or does it sit separate within your sustainability strategy?

Ruth Nic Aoidh:
Corporate and social responsibility needs to sit at the heart of your organisation. And I think having it as a standalone policy or process that sits outside of your normal business operation, turns it into a tick the box exercise that ultimately satisfies the auditors but doesn't necessarily make a difference in terms of what a business is trying to achieve. From McLaren's perspective, we've actually gone through a very interesting exercise over the last 12 months or so when looking to actually draw that policy of what does the CSR mean in the context of McLaren? And what we found was we were already doing all the things that needed to be done, we just didn't have a label on them. From our perspective,CSR and I guess our sustainability agenda is about much more than just the very obvious environmental targets, which the majority of the auto industry kind of veer towards.

And I think the majority of the outside world's looking into the auto industry, think it's all about emissions and it's all about greenhouse gases, et cetera, et cetera. It's that, but it's also about sustainability within business. I think we touched on it earlier, about how the auto industry is constantly evolving in terms of innovation, the impact that that has then on creating new supply chains, new players enter into the industry depending on where the innovation and technology moves. And actually that forms a huge part of the sustainability agenda of McLaren. It is about building a sustainable business structure, not just for us as an organisation, but actually creating that ecosystem of innovation, supporting and allowing the supply chains come with us to invent new things that will either revolutionise the auto industry or revolutionise other industries as we share information with one another in terms of technology development.

So sustainability in the context of McLaren forms part of what we do every day, it doesn't stay outside on its own in a little pocket somewhere, but also it's part of our survival and part of our growth agenda. Building new things, evolving and being innovative are what makes our organisation special. But also in the context of our industry, if you stand still, you're not going to move forward and really moving forward is what the auto industry is all about

Thomas, are there any similarities between Ashurst's corporate social responsibility agenda to what you've just heard?

Thomas Sacher:
I think apart from the fact that we do something totally different, I think our objectives are pretty much the same. For us corporate social responsibility and sustainability have always played a major role. Part of the strategic plan right from the beginning has been sustainability for us, in environmental protection sustainability are really crucial. We've appointed the global sustainability partner, Anna-Marie Slot, based in London. She's supported by sustainability advocates in all of our 29 offices around the world to drive sustainable initiatives, both with our clients and within the markets we operate.

I wanted to bring Tara back and just ask listening to all the themes that we've discussed in this episode, where do these skill sets lie do you think in terms of the future of the legal profession?

Tara Waters:
I think we've definitely seen as various industries have started to transform, including the legal industry, a transformation of the lawyer's role, whether that be within private practice or whether that be in-house. And certainly from an in-house perspective, our experience has been that there's been a sharp move away from a in-house lawyer being solely focused on risk and risk mitigation. And in some cases being seen as the hurdle to get through in order to actually execute on the strategy and the lawyer is now absolutely part of the business drivers and create our value within the business. And they're sitting at the table with the C-suites thinking about strategy, thinking about creative solutions for how the business can achieve its next set of goals and how it can innovate and transform. And what that ultimately means is of course, that you need to be strong in terms of commercial understanding of the business and the business needs, but also that you do need some new skill sets in relation to tech and digital.

And that doesn't mean you need to be a technician that doesn't mean you need to know how to programme or really understand some of those very complex technical aspects of what the business might be doing and technology might be employing, but you do need to understand conceptually how things work and ultimately what that means in terms of those tough legal questions. You do have to ask yourself when you're trying to launch a new offering or implement something new within the business. And so we're seeing a lot of people in the legal roles starting to look more about design, how do you design and solutionise, which brings in a new skill set in terms of letting go of that adverseness to risk that is somewhat innate in a lot of lawyers and actually saying, let's go blue sky. What could we achieve? What are we looking to achieve?

Tara Waters:
And then working backwards from there. And that's always very much about as Ruth has emphasised, starting with your customer expectations, what do they want? What are they expecting? What do they need? And then thinking about how can we meet that needs and then thinking about, okay, well what's preventing us from meeting those needs. And if some of those hurdles are legal, then it's up to the legal person sitting at that table to come up with solutions and not to simply identify why you can or can't do something. And that does require a slight shift in your mindset of how you're approaching some of these conversations and problems.

And also thinking a little bit more in a technological sense as a product developer, as opposed to a project executor. And you're looking at innovating quite quickly, being able to try new things and experiment, which is again, not something that is innate in a legal role in a legal education and how you practice, particularly in a private context, but being able to enable the business to actually be flight of foot and adaptable, to try new things, to take those learnings, to bring them into the next project or product that they're looking to do, and really how you think of not failure and risk, but actually learning and being able to add upon all of those learnings to actually come up with that solution and be a part of that solution sitting at that top table and being that person that's adding value to the conversation, which is really important.

Ruth Nic Aoidh:
I think one of the amazing skills that lawyers completely underestimate in themselves, but becomes really relevant outside of law firms and in the broader business world is the ability of lawyers to really define, I guess, where you are at the moment. So define point A, define the starting point. And then also to define point B, where do you want to get to, what are the goals and have those two clear bookends very clearly defined. And then the scale is that as a lawyer, I think of what lawyers need to develop is it's not really your job then to get to figure out how to get from A to B, it's your job to guide and direct everybody from A to B. already having set out that map of those two kind of bookends. So I agree wholeheartedly with what Tara has just described.

Lawyers skills are not no longer about risk mitigation or risk avoidance. It is actually about being really solution driven, understanding the goal. And as I talked about earlier within a high-performing team, everybody has to align around the goal and then everyone's area of expertise needs to be given the space, but also collaborate with one another to feed in to jointly achieving that goal and learners have a huge role to play in frankly, seeing the wood for the trees and be able to analyze really broad sections of data to define very clearly the risks, but also define the opportunities on the journey from A to B.

Some really wonderful and valuable insights there. Ruth, Tara, and Thomas. I want to thank you very much for being part of Business Agenda.

Thomas Sacher:
Thank you.

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