Radical Business Model Transformation

How Leading Organizations Have Successfully Adapted to Disruption

Carsten Linz, Günter Müller-Stewens, Alexander Zimmermann

• Publisher: Kogan Page
• Year: 2020
• ISBN:
  9781789661972
• Edition: 2
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

How can organizations complete a major business model transformation and how can leaders successfully guide their business through this radical shift? As markets are constantly transformed by new technologies and disruptor competitors, once successful business models designed to function in a different time now struggle as the mainstream changes. This book is the guide for organizations looking to turn downward trends into upward momentum and gain an edge on the competition.Now in its second edition, this book offers practical advice on how to understand the fit of an existing business model and reconstruct it with a forward-thinking approach. New illustrative case studies of global organizations which have boldly transformed offer examples for change, including SAP, Netflix and Daimler. Business transformation is presented as a leadership challenge and methods to realize and implement opportunities for innovation company-wide are discussed in detail. Radical Business Model Transformation is essential reading for business leaders, transformation experts and MBA students interested in ensuring that their business model is future-proof and can withstand the new proliferation of innovations set to transform the business landscape.

06

Case studies of companies radically shifting the level of inclusiveness

How Daimler is shaping the future of mobility: from car2go to moovel and beyond

Alexander Zimmermann and Günter Müller-Stewens

SAP: from pioneer of standard enterprise software to the experience company powered by the intelligent enterprise

Carsten Linz and Abdul Razack

Netflix: the master of business model transformation

Günter Müller-Stewens

Singapore Post: from a domestic postal service to a regional end-to-end e-commerce solution provider

Christine Scheef

Klöckner & Co SE: from steel and metal distributor to platform leader in business-to-business

Christian Pokropp and Fabian Mählen

How Daimler is shaping the future of mobility: from car2go to moovel and beyond

Alexander Zimmermann and Günter Müller-Stewens

Recent years have seen a fundamental shift in the business models of automotive companies. While in 2010 the main purpose of most firms in this industry was to develop, produce and sell vehicles, they are increasingly turning into integrated mobility providers. This transformation started for most automotive companies around 2014 when, for example, Dieter Zetsche, Daimler’s CEO, said: ‘We regard ourselves not only as a vehicle manufacturer, but also as a provider of mobility solutions’.¹ Norbert Reithofer, the BMW Group’s former chief executive, said in the same year that ‘our vision for the year 2020 is to be the leading provider of premium products and premium services for individual mobility. Even today, we are much more than just a manufacturer. We are clearly moving toward being a provider of attractive mobility and connectivity services’.² But how did this fundamental shift in purpose from selling cars towards selling mobility impact these companies’ business models and how will they be implemented in the long run? We take a close look at Daimler and its mobility services initiative in order to better understand the dynamics and evolution of this radical business model transformation.

Daimler has had a long history since its founders, Gottlieb Daimler and Carl Benz, invented the automobile in 1886. At the time, the value proposition was a self-propelled carriage (‘voiture automobile’). In the subsequent years, the carriage shape was replaced by new chassis forms, and production evolved from hand manufacturing to assembly belt production, which had been introduced by Henry Ford in 1913. Today, in its core vehicle business, Daimler is one of the key players in the premium passenger car segment and the world’s largest manufacturer of commercial vehicles. However, this leading position is at stake as new competitors, changing customer demands and disruptive technologies are reshaping the market landscape. In his 2019 letter to shareholders, CEO Dieter Zetsche prepared Daimler’s owners for a year of transformation that lay ahead:

2019 is a year of change for Daimler: With your approval, we will restructure our company. We are accelerating into the era of electric mobility. At the same time, we are entering new dimensions in connectivity, autonomous driving and mobility services. Each of these fields offers enormous opportunities for Daimler in the future. Our team has the will and the skills to use them. We will be delighted if you, our shareholders, continue accompanying us along this path.³

Despite the positive outlook, this statement also indicates that years of major challenges lie ahead including a lot of uncertainty and entrepreneurial risks regarding necessary resources, changing customer preferences or upcoming regulations.

Even though the speed of transformation has increased, business models and customer demands in the automotive industry have always been subject to changes. While, in the early days, customers bought cars like any other product, high cost prevented a large part of the population from owning a vehicle. To make cars more accessible, manufacturers joined forces with banks to offer customers financing solutions that allowed them to break down the substantial cost into monthly down-payments. Such financing solutions gained strong momentum and became an important competitive factor, as manufacturers began to strive for the best value-for-money offering. As a next step, leasing – originally developed for corporate clients – also became increasingly relevant to private customers. In this business model, the car is owned by the lease provider (either a bank or a manufacturer’s financial services division). The customer has access to the vehicle in return for a monthly fee. Insurance and maintenance costs are also covered by the leasing agreement. Technically, in this model, a customer only buys the right to use a car instead of buying the car itself, but still needs to choose a specific vehicle. As an alternative for those who require greater flexibility, car rental companies have long offered a broad range of vehicles that can be accessed at a daily rate.

In recent years, another business model has been added to this list of ever-evolving offerings. Car manufacturers such as Daimler and BMW, but also independent providers such as Mobility in Switzerland, Flinkster in Germany (owned by Deutsche Bahn) and ZipCar in the United States began to offer car-sharing services. In this model, customers enjoy even greater flexibility than with car rentals, since they may pick up vehicles at a wide variety of locations and only pay for their exact driving time. This service offering had its breakthrough as car manufacturers and start-ups began joining forces with the major car rental companies, which possessed both the operational and service competence to efficiently and effectively operate large fleets of vehicles and manage contractual relationships with continuously changing drivers. Car-sharing’s relevance is expected to grow substantially in the coming years, as it not only has benefits for individuals (such as a significant reduction of transportation cost for commuters, no need for parking spaces and included insurance cover) but also allows governments to complement or replace poor transportation infrastructure. Accordingly, Global Market Insights expects the car-sharing market to exceed US $12 billion by 2024, growing at around 20 per cent annually.⁴

In sum, from a customer perspective, using a car is evolving from a substantial long-term investment to a minute-by-minute service (ie pay-per-use). These new business models are accommodated by broader social changes, as the car is losing its role as a status symbol. Instead, peoples’ expectations and needs regarding cars and mobility have changed as well, as flexibility and environmental sustainability become increasingly important. As a result – but not just in the automotive industry – ownership is losing its attraction and is increasingly being replaced by the desire to use cars or other goods flexibly, when needed (ie sharing economy).

In parallel to these new models of customer interaction, the competitive landscape in the industry is also changing dramatically. For a long time, the car business was largely predictable, with established players competing for a relatively stable market. As customer demand is shifting from owning a car towards mobility as a service, there are suddenly new or formerly unrelated players that have entered the arena. For instance, for a long time, public transportation did not directly compete against the car business. Car owners were locked in by investments in their vehicles, which often made it financially less attractive to choose other means of transportation. Since car-sharing now charges customers for vehicle use on a minute-by-minute basis, the costs of getting from A to B are becoming more transparent and directly comparable to alternatives such as trains, buses and taxis. Early on, customers had the either-or decision to have a car and use it for most mobility needs or to rely on public transport and taxis. Today, thanks to increasing transparency, customers are able to flexibly combine multiple mobility services and means of transportation and to pay for each use individually. In the future, we can expect that online platforms will serve as digital mobility assistants, making proactive suggestions concerning customers’ needs. Vehicles of all kinds will potentially drive autonomously and will auto­matically communicate with each other, and customers will pay mobility flat rates to use these services. The more flexible mobility solutions also require novel technologies and data management capacities.

Besides manufacturers and transportation providers, pure platform players such as Uber, Lyft, MyTaxi or Didi Chuxing have gained major relevance in the mobility market. They do not engage in vehicle development, but rather connect people who own a car to those seeking a means of transportation. Based on a two-sided platform, they allow individuals to act as individual mobility service providers. As a result, you no longer have to produce or own cars to sell individual mobility. Compared to the traditional ‘bricks-and-mortar’ companies these ‘asset-poor’ companies have a radically different conception of where and how value is created. It is like Facebook, the world’s most popular media owner, which creates no content; or Airbnb, the world’s largest hotelier, which owns no real estate; or Alibaba, the most valuable retailer, which has no inventory. A primary advantage of these platform business models is convenience. As Uber drivers pick you up and drive you wherever you want, customers no longer have to look for a pick-up station. These consumer platforms are direct competitors of taxi operators, which has already resulted in protests and even legal action to prevent, for instance, Uber from operating. Despite these efforts to defend the status quo, changes in the business models and competition cannot be prevented.

Currently, fast-moving start-ups, but also established firms, are working hard to take this business model to the next level through autonomous driving. Uber, for example, has launched a collaboration with the University of Arizona to develop advanced maps and optical sensors, as well as a partnership with the Robotic Lab at Carnegie Mellon University, a forerunner in autonomous driving. Uber first announced its intentions to amass a fleet of automatic cars in February 2015, which happened to be the same week that Google announced its own interest in autonomous car technology. In the years that followed, Uber tested autonomous vehicles on the streets of Pittsburgh, San Francisco and Tempe, Arizona, but also had to face various drawbacks as a result of several accidents. Nonetheless, CEO Dara Khosrowshahi said in early 2018 that he expects Uber self-driving cars will be available to the public in as little as 18 months.⁵

But autonomous driving is not only pursued by the newly established platform players. General Motors, for example, bought Cruise Automation for US $1 billion in 2016 and thereby entered the race for putting fully driverless cars on the street. In October of the same year they announced a partnership with Honda to design a purpose-built self-driving car. The Japanese automaker agreed to devote US $2 billion...