Zf Friedrichshafen Award Write Up

2018 European Automotive Aftermarket
Company of the Year Award
2018

BEST PRACTICES RESEARCH
© Frost & Sullivan 2018 2 “We Accelerate Growth”
Contents
Background and Company Performance ........................................................................3
Industry Challenges..............................................................................................3
Visionary Innovation & Performance and Customer Impact........................................4
Conclusion...........................................................................................................8
Significance of Company of the Year.............................................................................9
Understanding Company of the Year.............................................................................9
Key Benchmarking Criteria ..................................................................................10
Best Practices Award Analysis....................................................................................10
Decision Support Scorecard .................................................................................10
Visionary Innovation & Performance .....................................................................11
Customer Impact ...............................................................................................11
Decision Support Matrix ......................................................................................12
Best Practices Recognition: 10 Steps to Researching, Identifying, and Recognizing Best
Practices .................................................................................................................13
The Intersection between 360-Degree Research and Best Practices Awards.....................14
Research Methodology ........................................................................................14
About Frost & Sullivan ..............................................................................................14

Background and Company Performance
Industry Challenges
European Automotive Aftermarket
Frost & Sullivan’s 2018 Global Automotive Aftermarket Outlook estimates that the
European passenger car aftermarket totaled $105.29 billion in 2017. This is one of the
largest and most contested aftermarkets in the world, mainly due to the nature of the
automotive landscape that has a very high density of established automotive original
equipment manufacturers (OEMs) and part suppliers. Most part manufacturers cater to the
requirements of both original equipment supplier (OES) and independent aftermarket
(IAM) channels, which makes the landscape incredibly competitive from the emphasis on
OE-specific part quality and superior services. At the same time, the European
aftermarket customer is accustomed to seeking out supplier parts that align with OE
accounts.
Strong Distributor Private Labels
Europe is home to some of the leading automotive distributors and buying groups.
Suppliers rely on these established automotive distributors and buying groups that have a
well-knit network of garages and retail chains among their associates in the IAM to gain
both Pan-European reach and domestic penetration. The emergence of strong distributor
private labels domestically and Pan-European for volume parts (commodity parts) has
pitted suppliers against associated distributors. Frost & Sullivan notes that this has
dampened sales and led to deteriorating margins for established suppliers. These
distributor private labels, which are relatively less expensive, prove to be efficient with the
competition by providing performance for a price that is positioned well below premium
established brand offerings.
Emergence of eCommerce and Catch-22 Situation with Distributors/Buying
Groups
eCommerce and its eventual foray into the automotive diaspora is an emerging digitization
trend globally; most of the leading suppliers have bolstered their logistics and supply
chain capabilities by associating with eCommerce platforms. Yet Frost & Sullivan points
out that this has not been the case with European suppliers. Association with eCommerce
platforms translates into transparent pricing and lower retail prices for the end consumer,
but buying power of large distributor associations and their influence in the domestic
supply chain dictates that European suppliers do not associate with these eCommerce
platforms. This creates stress on domestic suppliers to stay engaged in associations that
dampen margins either by promoting their distributor private labels or fear foregoing
market relevance. Disassociation usually reflects in foregoing market dominance in a
heavily contested market that has a high density of global suppliers — clearly a catch-22
situation.

Impact of Megatrends
Amid the strains on margins from eCommerce and the ever-growing power of buying
groups and distributors in the aftermarket, the automotive landscape is also facing the
need to confront megatrends and their implications on the general demand for parts.
There has been a global appreciation for and acceptance of shared mobility concepts such
as car sharing and urban mobility platforms, the rise of eMobility, and autonomous
vehicles with respect to cutting down on fuel consumption and decreasing human driving
interaction, as well as improving environmental quotients. However, this also means that
OEMs will sell fewer vehicles in the future and eventually diminish opportunities for
aftermarket part suppliers.
Justifying Premium Pricing
Frost & Sullivan research shows that another key industry challenge faced by aftermarket
suppliers is the constant need to emphasize their ability to maintain premium branding by
justifying a higher price range and ensuring service quality in a market flooded with lower
priced mid-range parts. Maintaining consistent customer satisfaction indices for a premium
supplier is all the more challenging, as the part needs to withstand wear and tear due to
environmental vagaries and driving patterns, conditions not associated with the supplier.
Visionary Innovation & Performance and Customer Impact
Blue Ocean Strategy
ZF Friedrichshafen AG, also known as ZF Group or ZF, is the global leader in driveline and
chassis technology as well as active and passive safety technology. The company’s
Aftermarket Division also has an admirable presence in providing services and solutions
for the global automotive aftermarket. ZF Aftermarket positions itself as a brand with
robust OE capabilities that will grow stronger in the aftermarket on the back of its proven
OEM-business-to-business (B2B) associations. The company has been able to leverage the
325.6 million (passenger cars) European parc and position stronger labels under the ZF
brand. In particular, ZF Aftermarket supplies solutions and component expertise under
brands including LEMFÖRDER, SACHS, TRW (acquired recently), BOGE, and OPENMATICS.
It has also established a niche market across a wide range of parts in steering and
suspension, brakes, and occupant’s safety systems (TRW) that remains unparalleled in the
European aftermarket.
In addition, Frost & Sullivan recognizes how the company is properly aligning its
associated distributor partners in the aftermarket value chain to adapt to the changing
market trends by preempting them to accommodate parts in small capacities that are
meant for hybrid cars (long before doing so becomes the status quo). This strategy will
likely help ZF Aftermarket gain key market intelligence in the supply chain for the future
of automotive parts retail.

Growth and stabilization for ZF in the aftermarket over the last 10 years has been the
highest among top suppliers in the EU. It is the only supplier with a strong commercial
vehicle portfolio (compared to its counterparts) and also the only top supplier in the EU to
have a sizeable aftermarket presence in both commercial and passenger vehicle
applications.
The company’s exposure to different industries such as wind technology, rail with respect
to urban mobility, and construction, among others, helps it share and leverage technology
borrowed from different avenues for downstream business as well as implement best
practices across verticals. Frost & Sullivan appreciates that these far-reaching tactics
make the company stand out as a key supplier in the European aftermarket by offering
niche capabilities and investing in future technologies by strategically channeling its wide
business portfolio.
Visionary Scenarios through Mega Trends
Electric and Autonomous Vehicles
ZF is committed to incorporating long-range macro-level trends into its innovation
strategy. With respect to parts, the company clearly understands the quantum of impact
electric vehicles (EVs) and autonomous cars are expected to have on the general
aftermarket, so it is aligning its goals to prepare for the impact. The company is engaged
in eMobility and eDrivetrain platforms with a focus on improving its sensors and
monitoring system portfolio as well as drivetrain technology to best serve the high
percentage of complex electronics in both EVs and autonomous vehicles of the future. As a
result, the company is expanding its electro-mobility production capacity in Europe to
accommodate trends in electrification of fleets and buses; this will eventually translate
into developing parts precisely for the eMobility platform. In addition, it is also
simultaneously working with ZF TRW on understanding the impact of EVs on parts
maintenance, such as brakes and braking applications, as well as the impact of wear and
tear and eventual changing nature of replacement patterns in the advent of these
megatrends.
Artificial Intelligence
On the artificial intelligence (AI) platform, ZF is partnering with Nvidia and Baidu to power
Level 3 autonomous cars, which will ensure deep learning algorithms enabled by the
supercomputing power of the ZF ProAI that will be made available in mass manufactured
cars. This collaboration on the OE level will also trickle down to deliver AI-powered
services to the future aftermarket. Additional company partnerships include Hella,
doubleSlash, Ibeo Automotive Systems, e.GO Mover, Faurecia, IBM, UBS, Car eWallet, and
Astyx, in addition to the already mentioned AI partners, for its Vision Zero Ecosystem, a
zero-emission, zero-accidents initiative that accelerates development of EVs, autonomous
vehicles, and their associated parts.

Telematics-based Prognostics and Predictive Maintenance
Telematics-based prognostics and predictive maintenance is another megatrend emerging
in the aftermarket. OPENMATICS as ZF Aftermarket brand offers an in-house telematics
platform with cloud-based capabilities that helps manage conventional fleets. The platform
empowers operators to track and evaluate a vehicle’s geographic and physical attributes
in real time. In addition, cloud-based analysis tools power the predictive maintenance
feature that helps record wear and tear of individual vehicle components, schedule
maintenance appointments, and reduce downtime costs.
ZF’s initiative to focus on predictive maintenance will allow it to streamline its
understanding of demand for vehicle parts and help connect its distributors to the nearest
store where demand is expected to increase. OPENMATICS positions the company to
provide in-depth data analysis of driving patterns as well as distribution of unstructured
data on cloud. It also empowers fleets through asset management and tracking
capabilities for logistical purposes. Along with the real-time updates, ZF has integrated
with the networking specialist Excelfore, a system in the cloud that provides timely
updates for the electronic control units (ECUs) in fleets to eliminate unforeseen ECU
errors, garage halts, and, subsequently, downtime.
Price-Performance Value
Frost & Sullivan stresses that the European aftermarket is becoming highly price-sensitive,
as distributors are improving the quality of their relatively lower priced private labels.
Though this has created stress on margins for mid-range and entry level brands, ZF
Aftermarket continues to stay relevant in the highly competitive landscape. As eCommerce
acceptance slowly gains traction in the market, suppliers with relatively lesser distribution
capabilities have aligned with this platform. Yet with its strong B2B associations in the
OES as well as IAM channels among distributors and garages, ZF Aftermarket remains
quite successful in providing parts at a price that is accepted for the performance they
offer.
As a premium part supplier, ZF Aftermarket offers an extended warranty and promises
smooth warranty processes with reduced turnaround time. It constantly improves part
quality by understanding wear and tear and user driving patterns, focusing on reducing
failures through informed maintenance and issue redressal that creates a strong buying
case for the customer and a well-rounded purchase experience.
ZF is currently gauging eBusiness activity across multiple digital channels globally as well
as laying foundations with associated eBusiness Platforms to deliver best-in-class digital
experience that brings together distributors, platform enablers, suppliers, garages, and
end consumers in the value chain.

Customer Purchase, Ownership, and Service Experience
ZF Aftermarket is heavily invested in training auto shops, distributors, and technicians in
maintenance parts, electric parts, and eDrivetrains with the foresight to enable service
providers to deliver a well-rounded experience for customers. The company is incredibly
particular about providing a high-quality experience to its customers, so much so that it
has its own service organizations with 650 partner within the global service network and
workshop concepts that take measures to control the service provided for its transmission,
steering, and suspension parts in the aftermarket (among other parts). For instance,
technicians are empowered with training modules, through the ZF [pro]Tech program, a
platform through which trainees are provided online videos, classroom interaction,
workshops, and personnel training, part assembly help, and a direct hotline to mitigate
failures brought on by human error and lack of part knowledge.
The company is also invested in virtual reality (VR), artificial intelligence (AI), and
augmented reality (AR) platforms that will soon enable it to provide training, efficient part
failure detection, complaint registrations, and faster turnaround time of getting vehicles
out of garages and back to customers. This investment will also ensure reduced costs to
impart technical know-how and improve customer satisfaction.
Financial Performance and Brand Equity
ZF’s strong presence in the automotive landscape involves commanding a wide network of
established B2B accounts and channel expertise from its century-old establishment on a
global scale. It is currently positioned 263rd
on the Fortune 500 list and reported overall
global revenue of $38.88 billion in 2017, recording a year-over-year (YOY) growth of
20.2% with profits over 2% that fiscal year. ZF’s global aftermarket makes up 5 to 10% of
that amount and has a strong asset base of over $30 billion. ZF also reported the growth
on the back of strong 2017 sales revenue, despite the increase in its research and
development (R&D) expenditure.
In 2017, ZF’s aftermarket division registered a YOY increase of 7% in comparison to 2016.
Much of its revenue is attributed to active and passive safety technology. In 2017, the
company spent $2.71 billion on R&D, an increase of almost 15% compared to 2016. And
in 2018, significantly more than $2.47 billion is set to be channeled into development
work in AI, VR, AR, eMobility, and Vision Zero initiatives around the world.
Frost & Sullivan applauds ZF for positioning itself for growth by acquiring TRW to leverage
its capabilities, while investments in advanced electric drives and hybridization of
transmission technology, vehicle safety systems, and automated driving will remain its
focus areas in parallel with its stronghold in drivetrain, brakes, and suspension portfolios.

Conclusion
ZF Aftermarket, a Division of the ZF Friedrichshafen AG has established itself as a
premium aftermarket parts supplier in a segment that is both highly competitive and price
sensitive. With its acquisition of TRW and a clear aftermarket vision, the company has
been able to combine strong portfolios and leverage distributor partnerships that add new
dimensions to its existing capabilities. ZF creates value for its customers by providing
services through strategic investments in the value chain, and the company fully
understands the disrupting technologies and megatrends that will have a lasting impact on
the aftermarket landscape. It has, therefore, effectively channeled its strength in
developing capabilities that will position it as an apex supplier in the new wave of
eMobility and autonomous technology.
With its strong overall performance, ZF Aftermarket has earned the 2018 Frost & Sullivan
Company of the Year Award.

Significance of Company of the Year
To receive the Frost & Sullivan Company of the Year Award requires a market participant
to demonstrate excellence in growth, innovation, and leadership. This kind of excellence
typically translates into superior performance in three key areas: demand generation,
brand development, and competitive positioning. These areas serve as the foundation of a
company’s future success and prepare it to deliver on the two criteria that define the
Company of the Year Award (Visionary Innovation & Performance and Customer Impact).
Understanding Company of the Year
Demand, brand strength, and competitive differentiation all play a critical role in delivering
unique value to customers. This three-fold focus, however, must ideally be complemented
by an equally rigorous focus on Visionary Innovation & Performance to enhance Customer
Impact.

Key Benchmarking Criteria
For the Company of the Year Award, Frost & Sullivan analysts independently evaluated
two key factors—Visionary Innovation & Performance and Customer Impact—according to
the criteria identified below.
Visionary Innovation & Performance
Criterion 1: Addressing Unmet Needs
Criterion 2: Visionary Scenarios through Mega Trends
Criterion 3: Implementation Best Practices
Criterion 4: Blue Ocean Strategy
Criterion 5: Financial Performance
Customer Impact
Criterion 1: Price/Performance Value
Criterion 2: Customer Purchase Experience
Criterion 3: Customer Ownership Experience
Criterion 4: Customer Service Experience
Criterion 5: Brand Equity
Best Practices Award Analysis for ZF Friedrichshafen AG
Decision Support Scorecard
To support its evaluation of best practices across multiple business performance
categories, Frost & Sullivan employs a customized Decision Support Scorecard. This tool
allows our research and consulting teams to objectively analyze performance, according to
the key benchmarking criteria listed in the previous section, and to assign ratings on that
basis. The tool follows a 10-point scale that allows for nuances in performance evaluation.
Ratings guidelines are illustrated below.
RATINGS GUIDELINES
The Decision Support Scorecard is organized by Visionary Innovation & Performance and
Customer Impact (i.e., these are the overarching categories for all 10 benchmarking
criteria; the definitions for each criterion are provided beneath the scorecard.). The
research team confirms the veracity of this weighted scorecard through sensitivity
analysis, which confirms that small changes to the ratings for a specific criterion do not
lead to a significant change in the overall relative rankings of the companies.

The results of this analysis are shown below. To remain unbiased and to protect the
interests of all organizations reviewed, we have chosen to refer to the other key
participants as Competitor 2 and Competitor 3.
Measurement of 1–10 (1 = poor; 10 = excellent)
Company of the Year
Visionary
Innovation &
Performance
Customer
Impact Average Rating
ZF Friedrichshafen AG 9.0 9.0 9.0
Competitor 2 7.5 8.5 8.0
Competitor 3 7.0 7.0 7.0
Criterion 1: Addressing Unmet Needs
Requirement: Implementing a robust process to continuously unearth customers’ unmet
or under-served needs, and creating the products or solutions to address them effectively
Criterion 2: Visionary Scenarios through Mega Trends
Requirement: Incorporating long-range, macro-level scenarios into the innovation
strategy, thereby enabling “first-to-market” growth opportunity solutions
Criterion 3: Implementation of Best Practices
Requirement: Best-in-class strategy implementation characterized by processes, tools, or
activities that generate a consistent and repeatable level of success.
Criterion 4: Blue Ocean Strategy
Requirement: Strategic focus on creating a leadership position in a potentially
“uncontested” market space, manifested by stiff barriers to entry for competitors
Criterion 5: Financial Performance
Requirement: Strong overall business performance in terms of revenues, revenue growth,
operating margin, and other key financial metrics
Customer Impact
Criterion 1: Price/Performance Value
Requirement: Products or services offer the best value for the price, compared to similar
offerings in the market.
Criterion 2: Customer Purchase Experience
Requirement: Customers feel they are buying the most optimal solution that addresses
both their unique needs and their unique constraints.
Criterion 3: Customer Ownership Experience
Requirement: Customers are proud to own the company’s product or service and have a
positive experience throughout the life of the product or service.

Criterion 4: Customer Service Experience
Requirement: Customer service is accessible, fast, stress-free, and of high quality.
Criterion 5: Brand Equity
Requirement: Customers have a positive view of the brand and exhibit high brand loyalty.
Decision Support Matrix
Once all companies have been evaluated according to the Decision Support Scorecard,
analysts then position the candidates on the matrix shown below, enabling them to
visualize which companies are truly breakthrough and which ones are not yet operating at
best-in-class levels.
High
Low
Low High
CustomerImpact
ZF Friedrichshafen AG
Competitor 2
Competitor 3

Best Practices Recognition: 10 Steps to Researching,
Identifying, and Recognizing Best Practices
Frost & Sullivan analysts follow a 10-step process to evaluate Award candidates and
assess their fit with select best practice criteria. The reputation and integrity of the
Awards are based on close adherence to this process.
STEP OBJECTIVE KEY ACTIVITIES OUTPUT
1
Monitor,
target, and
screen
Identify Award recipient
candidates from around the
globe
• Conduct in-depth industry
research
• Identify emerging sectors
• Scan multiple geographies
Pipeline of candidates who
potentially meet all best-
practice criteria
2
Perform
360-degree
research
Perform comprehensive,
360-degree research on all
candidates in the pipeline
• Interview thought leaders
and industry practitioners
• Assess candidates’ fit with
best-practice criteria
• Rank all candidates
Matrix positioning of all
candidates’ performance
relative to one another
3
Invite
thought
leadership in
best
practices
Perform in-depth
examination of all candidates
• Confirm best-practice criteria
• Examine eligibility of all
candidates
• Identify any information gaps
Detailed profiles of all
ranked candidates
4
Initiate
research
director
review
Conduct an unbiased
evaluation of all candidate
profiles
• Brainstorm ranking options
• Invite multiple perspectives
on candidates’ performance
• Update candidate profiles
Final prioritization of all
eligible candidates and
companion best-practice
positioning paper
5
Assemble
panel of
industry
experts
Present findings to an expert
panel of industry thought
leaders
• Share findings
• Strengthen cases for
candidate eligibility
• Prioritize candidates
Refined list of prioritized
Award candidates
6
Conduct
global
industry
review
Build consensus on Award
candidates’ eligibility
• Hold global team meeting to
review all candidates
• Pressure-test fit with criteria
• Confirm inclusion of all
eligible candidates
Final list of eligible Award
candidates, representing
success stories worldwide
7
Perform
quality check
Develop official Award
consideration materials
• Perform final performance
benchmarking activities
• Write nominations
• Perform quality review
High-quality, accurate, and
creative presentation of
nominees’ successes
8
Reconnect
with panel of
industry
experts
Finalize the selection of the
best-practice Award recipient
• Review analysis with panel
• Build consensus
• Select winner
Decision on which company
performs best against all
best-practice criteria
9
Communicate
recognition
Inform Award recipient of
Award recognition
• Present Award to the CEO
• Inspire the organization for
continued success
• Celebrate the recipient’s
performance
Announcement of Award
and plan for how recipient
can use the Award to
enhance the brand
10
Take
strategic
action
Upon licensing, company
able to share Award news
with stakeholders and
customers
• Coordinate media outreach
• Design a marketing plan
• Assess Award’s role in future
strategic planning
Widespread awareness of
recipient’s Award status
among investors, media
personnel, and employees

The Intersection between 360-Degree Research and Best
Practices Awards
Research Methodology
Frost & Sullivan’s 360-degree research
methodology represents the analytical
rigor of our research process. It offers a
360-degree view of industry challenges,
trends, and issues by integrating all 7 of
Frost & Sullivan's research methodologies.
Too often companies make important
growth decisions based on a narrow
understanding of their environment,
leading to errors of both omission and
commission. Successful growth strategies
are founded on a thorough understanding
of market, technical, economic, financial,
customer, best practices, and demographic
analyses. The integration of these research
disciplines into the 360-degree research
methodology provides an evaluation
platform for benchmarking industry
participants and for identifying those performing at best-in-class levels.
About Frost & Sullivan
Frost & Sullivan, the Growth Partnership Company, enables clients to accelerate growth
and achieve best-in-class positions in growth, innovation, and leadership. The company's
Growth Partnership Service provides the CEO and the CEO's Growth Team with disciplined
research and best practice models to drive the generation, evaluation, and implementation
of powerful growth strategies. Frost & Sullivan leverages more than 50 years of
experience in partnering with Global 1000 companies, emerging businesses, and the
investment community from 45 offices on six continents. To join our Growth Partnership,
please visit http://www.frost.com.
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