Growth by business model innovation, a lecture at Leuphana University

Managing Growth by Business Model Innovation
1st Session, Dr. oec. (HSG) Patrick Stähler

March 13, 2009

Agenda

Introduction of the course

How do you think about innovation? Homework and survey!

The Bosch Case: How to grow in a mature and highly
competitive market

A bit of theory: What is a business model innovation?

Sustaining vs. disruptive innovations

1
Dr. Patrick Stähler. Leuphana University Lüneburg

And now let’s have
some fun! 2

Let’s sneak into your heads
Homework and Survey

3

What insights did you
gain from your
homework? 4

And the winner are……

5

IT, internet, consumer electronic product companies are seen
as more innovative than service, retail or banking, but…..
--- -- -+ ++ +++
Apple

*
*
Amazon
Toyota

You think that there are more
Audi
Nokia
innovative industries like
Smart

consumer electronics or IT
BMW
Mercedes
Zara, Aldi, Dell, ING-DiBa
Siemens
SONY
redefined their “dull” industries
Ryanair

* through business model
* Dell

innovations
IBM

* Zara
even in “dull” industries
Samsung
AirBerlin
business model innovation
Otto Versand
can change the competitive
Lufthansa

* Aldi
landscape
HP

Apple was a business model
EasyJet
Lidl
innovation for the music
Thalia

* industry
ING-DiBa
Dacia
Deutsche Bank
Haspa
Kaufhof

*busi
0% 20% 40% 60% 80% 100%
ness innovators 6

Sustaining innovations are rated high

--- -- -+ ++ +++

first to market

value-add
sustaining innovations are
rated highly
bundle of products
disruptive innovations are
rated low
new customer
answers show typical
behavior of current
brand/image
customers that have
difficulties to see advantage
more features

self service

cheaper

0% 20% 40% 60% 80% 100%
7

•Die Ausgangsituation

At the beginning of the 1990s the world in the power tool industry was in
perfect order

Established brands in a growing,European market
Competition was well defined and Bosch was the uncontested market leader

9


And then the Chinese came along…..

Over 200 new competitors in a short period of time

10


…and the market stagnated at the same time.

11


Dire consequences:
A steep decline in the average price per sold tool and….

5,9
Sales(Mio. units)

307
3,8
Sales (Mio. Euro)
329

88 Ø – price in Euro
78
69 64 67 62
65 58 52
56

Source: GfK
93 94 95 96 97 98 99 00 01 02

Do-it-yourself chains in Germany: 1993 bis 2002

12

… and declining market share for the established brands and exponential
growth for the no-names and trade brands

Market Share Powertools
(Germany)

100%
6 27
29 33

No Names &
Trade Brands
Established
95 Brands
71
73 67

0%
1991 2000 2001 2002 Source: GfK, Do-it-yourself shops

Strong increase of market share for no-names and trade brands
Bosch Power Tools DIY 2002 with a market share of 33% but loss making

13

Simple task from your board:
Defend market leadership
Improve profitability

Which directions
should we take? 15

How about this crazy idea?

“How about making a power tool which is
much weaker than the last generation but
we make it also very handy and nicely
designed. For that we charge a premium
and market it to people who are not really
into DIY.

Great idea, isn’t it?”

16

The solution: Tools for
the IKEA Generation 17

Here is the solution for Bosch: the IXO, the first power tool for the IKEA
generation

Bosch introduces the IXO to the
market
Instead of following the traditional
mantra of “better, stronger, faster”
Bosch used a new battery
technology to make tools smaller
and more user friendly
Instead of going for the traditional
market of MMS (men, muscles and
sweat) the IXO addresses the soft
DIYs that assembles its IKEA
furniture but not more
Thereby, it addresses a new,
previously unserved market of non-
customers
The IXO is a typical value
innovation that opened up new,
uncontested markets

18

Shift from technology to user orientation

since 2002 …
… prior 2002

Technologie User and usage
orientation orientation

Building/repair, planning
Building and
and home decoration
repairing

reliable, very powerful and reliable, easy to use
long-living products products and services

unemotional inspiring people
technology orientation

19

The traditional market:
MMS or Men, Muscles and
Sweat
20

New market:
Addressing previously
non-customers like soft
DIYlers and particularly
Dr.
woman Patrick
Stähler |
21

Changed consumer behavior
The first power tool for the
kitchen drawer
22

Bosch IXO is the world record holder in units sales

IXO was first power tool with Li-Ionen technology
IXO is the best selling power tool in the world

23

Growing market share and highly profitable

Market share in power tools
(DIY Shops Germany)

27 29 33 34
35 38 38

No Name /
Trade Brands
40 38 29
34 31 25
26 Other Brands

Bosch
37 37
36
34
33 33 33

'00 '01 '02 '03 '04 '05 '06 Source: GfK

24

OK, let’s do some analytics
and theory
25

Bosch used the new battery technology for a disruptive value innovation

Sustaining innovation = Serving today’s
customers
Extend performance in direction of what
today’s customers like
Advantages of Li-Ion
Use the Li-Ion technology for stronger
can be formed into a variety of shapes
and more heavy duty tools
and sizes so as to efficiently fill available
space in the devices
lighter than other—often much lighter.
do not suffer from the memory effect
low self-discharge rate of approximately
Disruptive innovation = Finding new
5% per month, compared with over 30%
customers with different needs
per month in nickel metal hydride
Use for a new market segments that
batteries (Source Wikipedia)
values different performance parameters
like usability, handiness than traditional
customers
Performance of tool will be worse in
parameters current customers value

26

Technology does not create value per se.
A sustainable business model is needed

X
technology value

enables creates

business model

27

Let’s take a look at the innovation process at Bosch

The idea of the IXO was born in the strategic planning process after the
board order a strategic review of the Bosch Power Tool division
It was clear for top management that they wanted to break the rules of the
industry with a business model innovation
The approach to the IXO was very analytical starting with a market analysis
that showed that there was a market for smaller, weaker power tools
Particularly women expressed their need for smaller power tools since they
wanted to do some home decoration
Top Management came finally up with the idea to create the IXO to serve the
market
Market research firms later calculated that Bosch will sell more of IXO than
any competitor had done before.
And then they lived forever happily…….

28

The real story: Driven by chance, luck, professionalism and the right
people
A young product manager (female) fresh out of university had the idea to
make tools for her generation
The head of product development (engineer) is open to experiments
The development costs for a prototype of a power tool is not very high so
that market test could be conducted with “real” products
The president of Bosch Grün has no engineering background but gained his
professional experiences in the fast-moving-consumer-goods industry

The crisis and later the success of the IXO change the whole strategy of
Bosch Grün towards a user driven company
Processes were changed to support the new mantra of consumer-orientation
What was once a disruptive move for the company is today’s business.

29

Creating Business model innovations is
a creative and analytical process at
the same time. There is a reason why
god gave us two brain hemispheres

30

The definition of a
business model Value Proposition
What value do we create
for our customers and for other
stakeholders?

Value Architecture
How do we create the value?

Revenue Model
How do we earn money?

31

The business model is
the DNA of a company

32

A business model is the simplified model of a business
you can make it as detailed as needed but don‘t get lost in details
Business Model

Revenue Model
Value Architecture
Value Proposition

For customers For other Product-/ Internal Value Arch. External Value Arch. Mix of
stakeholders Market resources customer interface sources of
and value Model value chain distribution channels revenues
partnenrs communication customer information
channels communication channels
coordination value partners
mechanisms active (suppliers,
customers, competitors)
passive (supplier of
complementary goods

33

A business model is no strategy: A deliberate change of or an innovation
in a business model can be a strategy

Starting points
for innovations

Most business models are
constructs of the past
All components of a business
Value Proposition
model can be the starting points
for innovation
value innovation
Architecture
architectural innovation
revenue model innovation
Revenue Model
In the end all business model
innovation must be a value
Business Model
innovation to guarantee success

34

The strategy canvas of Bosch IXO: A clear profile of the value innovation

6 Traditional brands No-Name Bosch

5

4

3

2

1

0

-1

35

Where does the value innovation of Bosch start?

Eliminate – Reduce – Create – Raise Matrix

Eliminate Create
technology talk • easy of use
• fun

Differentiation
cost reduction

• inspiring people

Reduce Raise
• performance • price
• heavy duty • home decoration
• men, muscle & sweat

36

A business model
innovation is always
about differentiation
37

We love clear profiles
We have only a limited capacity
for each category

amazon is online books
IKEA is crazy and modern furniture
Otto is the mail order house
Apple is the cool computer kid

What do you think as a customer about this
idea?

„ Our service is much worse than
your competitors. We need your
cooperation for transportation,
moving and assembling for our
service. But for all your hassle, you
really get a great price!

Great idea, isn‘t it?“

39

„Scary to be this nail. Where will
the hammer hit next time?“

„Business model innovation is
about being

DIFFERENT!“

REALLYDI
NO, FFERENT!

And you can be innovative in

ANY
INDUSTRY!

Contact

Dr. oec. (HSG) Patrick Stähler
Partner & Founder
fluidminds GmbH, the business innovators
Gemeindestrasse 23
8032 Zürich
Switzerland
Tel: +41 79 770 27 09
www.fluidminds.ch
Blog.business-model-innovation.com

Ackknowledgement
Pictures in the presentation taken from Toni_V (flickr),
Bosch and others
Graphics in part from Marty Neumeier, Neutron LCC

44

Growth by business model innovation, a lecture at Leuphana University

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