Transforming ZF

The Tier 1 giant re-gears for the new-mobility zukunft by adopting a new way to drive technology innovation. It still makes transmissions, too.

Steering toward the AV future in a ZF driving simulator.

"We are looking for a new colleague in the Digitalization department,” announced the job opening posted online February 28, 2019. The position: Artificial Intelligence Engineer.

If hired, your responsibilities will include “designing and implementing AI algorithms in a big data environment, and developing new methods to improve production processes and products such as Hybrid Transmissions.” You’ll collaborate to develop competency for data analytics and coordinate an agile AI team.

Well-qualified candidates should be experienced in “development and application of data mining algorithms and artificial intelligence,” the posting said. They should have “good coding skills in the languages and toolkits of your choice for Machine Learning and data visualization.”

If hired, you’ll be working in a picturesque city alongside one of the world’s most beautiful bodies of water. A view of San Francisco Bay, perhaps? No — but Lake Constance is just as fetching. This opportunity is in Friedreichshafen, in southern Germany. Your new employer: ZF GmbH.

Zed Eff? Artificial intelligence and data mining? The company that’s been making transmissions of all sizes and types since Zeppelins roamed the sky has been deftly regearing itself in recent years. It has rapidly expanded its product portfolio beyond the traditional mechanical driveline, steering and chassis systems that underpin its brand globally.

Those profitable core businesses fund future-tech developments in what ZF executives dub “system houses” — electrification (e-mobility), vehicle motion control, integrated safety, and autonomous driving.

“In e-mobility and autonomy alone, we’re investing 12 billion euros over the next five years,” Aine Denari, ZF’s senior VP of advanced driver-assist systems, told Automotive Engineering at CES 2019 during a taping of the Autoline TV show. The major outlay, she noted, shows “the huge growth we see in this industry” as it transitions from combustion engines to electric power, and from personal vehicle ownership to various mobility alternatives.

The industry dynamics are “a tsunami,” observed Mamatha Chamarthi, ZF’s new chief digital officer, at CES. Software, and the data stream, are “the new treasure trove,” she says. And because tech companies, generally, are more optimally versed than most Tier 1s in these spaces, ZF made strategic decisions—“radical and controversial at the time,” says one top manager—to leverage that expertise in a swift, transformative way.

Filling key tech gaps

First came the $12.4 billion purchase of TRW Automotive Holdings, finalized in 2015. Integrating the U.S.-based safety systems giant, with virtually no business overlap, created a dynamo in occupant safety and driver-assistance tech. “The companies were a remarkably good fit in terms of talent, resources, and ZF’s vision,” noted Andy Whydell, a TRW veteran who is ZF’s VP of global systems product planning. TRW brought a strong foundation in electronics and controls know-how. Then came Zukunft Ventures.

Formed in 2016 as ZF’s private equity unit, Zukunft (German for “future”) Ventures is charged with identifying and investing primarily in start-up companies whose technologies could be profitable products, game-changers, or both.

“While you can find interesting technology start-ups in Europe, Israel and the U.S., and so on, what we’re aiming for with Zukunft Ventures is to accelerate ZF’s transformation from a transmission-based ‘big group’ into a company which addresses the main future challenges in mobility,” explained Torsten Gollewski, head of ZF’s advanced R&D group and general manager of Zukunft Ventures.

Internal VCs are not unique to ZF, nor is building advanced-tech muscle through industry partnerships. And it seems every automaker is calling itself “a software-driven mobility company” today. But as ZF contemplated the electrified and autonomous-driving trends, “we recognized early on that the speed of the market, and of technology adoption, is very high,” Gollewski noted. “And we had technology gaps that we had to fill—LiDAR, for example.

“We therefore needed a convention to connect small-to-medium-sized tech start-ups with the ‘ZF world’ in order to implement these products, quickly, into the marketplace.”

For a company or technology to be considered, the Zukunft team first considers if it fits ZF’s ‘system houses’ strategy. Then it looks at the company’s main markets—passenger-car, commercial vehicle and industrial/ off-highway—and decides if the new technology can be used in the product portfolio.

“We need to have flexibility in the use of the technology, like with NVIDIA or Baidu or Faurecia we go into the ‘collaboration mode’ where everyone keeps their own product portfolio,” he noted. “But in the case of Ibeo or Astyx [sidebar], this can be integrated into the ZF product portfolio at a later stage. This is one of the main drivers when we go into an M&A—it must fit into one of the three markets.”

Accelerating product to market

The new dynamic created through Zukunft engagements is already visible within the industry. Engineers working at three U.S. locations tell AE that their impression of ZF, once seen as monolithic and overly conservative in its business processes, is changing. “Nimble and proactive” and “technologically advanced” are terms they used to describe their organizations.

“ZF is a very big ship, so to speak, and we wanted to connect it with the ‘speed boats,’” Gollewski said. “We needed to find a solution for how to keep the keys to success of the smaller companies — their speed, simplified processes, and so on — and connect them to the broad product portfolio of the large company. Our idea is not to take a majority stake when we invest in start-ups. In the Electromobility race, you have to speed up. And we need the smaller companies to speed us up.”

Finding the right balance is challenging, he admits—to ensure “we don’t tie in these companies too tightly to the ZF group by acquiring a greater stake and by doing that reduce their speed. Legally, as soon as one company takes 100% of another you have to adapt your internal processes to them. That would slow them down.”

He said ZF might have call options for a greater stake in some new partners. But it doesn’t exercise them, in order to “to keep their success factors intact,” he said. Accepting this new mindset—part of the cultures of much smaller, faster moving organizations—“is daily work for us to manage, let me say!” Gollewski admitted. “The process doesn’t run itself and is not usual for large organizations. And it required us to set up specific processes — including a special team within Zukunft Ventures who are working on our collaborations.”

Whydell noted that the working interfaces with ZF’s small partners are typically handled by the advanced-engineering groups, who “tend to be our more creative, free-thinking engineers, so they’re generally like-minded people.” The point is to get the start-ups who are involved with Zukunft Ventures “engaged with our automotive, truck, and industrial divisions to first establish the pre-development project — to be an accelerator,” he added. “Then get accepted into projects and help those businesses grow.”

ZF veteran engineer-execs Andy Whydell (left) and Aine Denari are working to drive speed and agility into their organizations.

The pace within Zukunft can be intense, Gollewski said. One question the team regularly asks internally is, “How far away are we from entry into the market?”

“Staying at the forefront with the traditional-side investment, while allocating capital for the new technology directions, is definitely a challenge, even for a big Tier 1 like ZF,” observed Dave Andrea, a principal in Strategy Practice at consultants PlanteMoran. “There’s a long transformational path here. How do you not starve the cash cow that’s feeding your start-up partners?”

ZF’s expertise in the hardware and software sides, and in systems integration, “should enable it to keep a competitive advantage,” Andrea offered.

What about fostering a “start-up culture” within the mothership ZF? Gollewski notes the example of Sound.AI, which was created in 2017 by two ZF non-engineers — Florian Ade and Julian Fieres — kicking around how they might include sound recognition within a vehicle’s exterior sensor array, basically giving it capability to “hear” as well as “see.”

ZF had recently launched a Pitch Night activity, where internal teams and external start-up companies “sell” their ideas in a few minutes’ time to ZF product development leaders. Success at Pitch Night takes your team to the annual Innovation Challenge, an internal competition aimed at bringing those ideas into further development and, potentially, to market.

Remarkably, Ade and Fieres were able to transform their idea into a minimum viable product (MVP) in under one year, with encouragement from ZF engineers and a bit of assistance from an Aachen-based research institute.

Sound.AI detects approaching sirens on first-responder vehicles and alerts the driver via display screen about the emergency vehicle’s direction, and suggests a course of action.

“Those two guys are currently working with a major OEM on a big pre-development project and they received an RFQ for a serious contract,” Gollewski explained. “It was 12 months from the Pitch Night to receiving the RFQ! This is a good example of transferring processes from the start-up world to, potentially, the market.”