Evolving Business Models

The “new normal” of negative interest rates in the financial markets, the technological revolution of Industry 4.0, and the transformation of traditional business models through the pressure of new digital providers, such challenges, which are confronting all industries, occupy the pages of popular media and management literature alike. Given these challenges incumbents have to optimize their traditional business while at the same time invest in disruptive business models. This requires a combination of solid industry knowledge in addition to cross industry, functional competencies and learning.

Traditionally, teaching and research in the Western and Eastern world for decades took place in a state-dominated model. The Humboldt type of chairs (“Lehrstühle”) can be considered a metaphorical model for teaching and research in that rather hierarchical setting. The fundamental changes in the social, economic, and most importantly technological environment have challenged this model and led to new functional patterns in teaching and research and subsequently to new and innovative business models in this sector. This article describes the drivers of this change and derives a new functional logic for teaching and research in the age of digitalization and globalization. In a conclusion, dilemmas for the transformation of the sector, for example, the question of the future role of private and governmental actors, are discussed. On a more generic level, the teaching and research sector also serves as a role model for other sectors, which have to find a new rationality and business models lying between hierarchical governmental logic and pure market and network logic.

The financial market crisis has led to extensive regulation of the financial sector at national, European, and international levels. The new measures are aimed at restoring confidence in the stability and functionality of the financial system. Regulation is focused particularly on the provision of capital and liquidity and the risk management of financial institutions.

The regulatory measures are having a major impact on the business models and profitability of financial institutions. The authors show that digitalization offers new opportunities and prospects for the innovative expansion and optimization of the banks’ business activities.

The market environment for chemical companies has changed dramatically during the last decades, especially considering the rise of emerging market players and, along with it, intensified competition. With Industry 4.0 knocking at the door, the pace of change is not expected to slow down. Thus, chemical companies more than ever before need to have a clear strategy in place. First, they have to decide which businesses they want to be in. Second, organizing those businesses according to their characteristics and strictly pursuing a business model will be decisive in creating and strengthening competitiveness.

This article provides an overview of the basic business models used in the chemical industry and their success factors. The main business models are described in detail: basic chemicals, application-oriented solutions, and product innovation-driven specialties. Examples illustrate how these business models work. The corresponding success factors are highlighted: keeping a clear view of market realities, employing strict implementation, having a review system in place, and ensuring flexible back-end organization. If this can be achieved, several business models can be run successfully in one company, resulting in a style of business model management parallel to traditional portfolio management.

Finally, the article assesses how Industry 4.0 will affect the chemical industry. The industry needs to continue to transform itself. Digital transformation will open significant opportunities for those who understand how best to apply it.

The concept of business model innovation is currently the focus of many discussions. This is for good reason, since the forthcoming Internet of things offers the possibility to shape business in new ways.

Bosch is pursuing the topic of business model innovation from a number of different angles. First, we believe that having state-of-the-art knowledge about business model innovation as well as being aware of best practices is a prerequisite for enabling new approaches. Furthermore, we are building on cross-domain innovation and looking at external sources for ideas, both of which are helping to foster business innovation within the company. Finally, we see it as essential to rely on the company’s fundamental strengths when proliferating new businesses. To offer a better understanding of how Bosch is using these different approaches to drive forward business model innovation, three case studies are presented. In all of them, leadership is a key success factor for innovation, for example, by providing room for exploration and experimentation.

This article describes the development of environmental components in companies, from the first environmental protection concepts to environmental management and—taking into account economic and social components—sustainability management. Global requirements already play a key role in corporate reporting and strategy development, and these considerations will continue to gain importance in the future—e.g., through global networking. Accordingly, sustainability management has become one of the strategic success factors for companies, and it requires cross-sectoral knowledge, particularly to support generic “e-processes.” In the context of environmental protection, industry-specific knowledge and reflection are necessary for the success of the company in a market.

Over the last decade, the pharmaceutical industry has undergone a period of breathtaking change driven by scientific progress and changing market realities. A description of the drivers of the industry and the key levers of pharmaceutical innovation leads to the conclusion that, although the business model remains essentially without alternative, it needs to evolve.

Pharmaceutical companies have been reinventing their business model as they have diversified away from the blockbuster model into portfolios of more targeted medicines in strategic therapeutic areas, as well as into other segments such as generics and biosimilars, consumer products, vaccines, or animal health. For companies focusing on patented medicines, the ability to foster research productivity and innovation while globally increasing access to these drugs is crucial for their success.

The research-based pharma industry is currently in the early stages of the next phase of significant change: real-world outcome data from clinical practice will be increasingly digitized and analyzed, in addition to existing data sets derived from clinical trials. The ability of companies to make use of “big data” will become key to innovation and the improvement of health outcomes, both by optimizing existing treatment options and by gaining new insights for research and development purposes. The pharma industry has the chance to make use of this big data opportunity in the best interests of patients and overall healthcare value, at a time of growing political pressure to short-term drug budget savings.

As companies invent new business models to better manage health outcomes, they will sustain focus on covering unmet medical needs through scientific insights and by expanding access to their medicines. The success factors underpinning the evolving business models of research-based pharma companies will be expanded on below.

This paper explores the role of industry expertise in senior management under changing conditions. It is argued that the quality of management decisions and the corporate culture always depend on an appropriate mix of specific industry expertise and transversal management skills. The optimum mix changes with the specific challenges presented by an industry at a given time. This is illustrated with the example of the railways in Germany, also in the light of the digitization of the mobility and logistics industry.

The airline industry is a highly competitive market with a commoditized product and unique industry-specific characteristic. The chapter discusses what managerial practices are needed to strive in such an environment: Does the ideal top management team of an airline possess in-depth industry expertise, or is experience in various industries of advantage? The chapter argues that different business models in aviation require a different degree of specialization: Hub carriers still require a top management team with in-depth industry knowledge; a low-cost carrier in contrast may benefit more from cross-industry experience. The article shows how the industry dynamics and the necessary managerial skillsets have evolved throughout the history of aviation. It then elaborates on the six forces that make aviation special and subsequently discusses the difference in the required managerial skillsets for today’s main business models in aviation: hub airlines and LCC.

Digitalization is pervading all industries, and there is a good reason for that: it offers a vast number of opportunities to create value for customers. The question is: What makes a business model both innovative and viable? That is the question companies face when they launch new business models, and they should answer that question by following a structured approach and by using proven tools to thoroughly analyze existing business models. That helps them make adjustments, trigger new ideas for future business models, and concisely explain to stakeholders how the company creates value for customers. Digitalization is transforming value chains into complex ecosystems in which interaction with customers and suppliers takes place on various levels and at every stage of the value chain in complex ecosystems. At the same time, “The Internet cuts out the middleman.” That should be taken into account when developing new business models. Successful business models create value for customers and strengthen a company’s position in the value chain.

Nobody needs a mechanical watch. Still, the luxury watch industry continues to produce and sell hundreds of thousands of complicated mechanical timepieces per year. These watches do not deliver any functional benefit over a much cheaper or electronic product, but they manage to touch our clients and generate desire through their symbolic power, meaning, and the aspirational lifestyle dreams they encapsulate.

Navigating a brand and business in a market that has no automatic demand and is enormously sensitive to consumer moods and discretionary spending requires a very unique skill set and above all a strong instinct to succeed.

This article examines the characteristics of the luxury brand phenomenon, as well as some of the factors contributing to the success of mechanical watches as a luxury product category. Following a broader analysis of the market environment and a definition of the luxury watch brand mission, light will be shed on the key success factors in creating, manufacturing, and marketing luxury timepieces.

In the face of rapid technological process and industry disruption by digital innovations, the final part of the article will focus on the challenges associated with the current digital transformation and the impact this transformation is having on all elements of the value chain, from product design to client engagement.

In the digital media sector, the importance of industry expertise has become ever more important through the concurrence of various factors: technological specialization, user-centric business models and product development frameworks as well as the need for a profound understanding of business drivers in data analysis. Additionally, this tendency is fostered by the growing relevance of informal networks and increasing regulation. Such renaissance of industry expertise clearly provides opportunities, especially by optimizing business models and products in order to create even more value for the customer. However, risks and conflicting developments are substantial: the digital transformation of media business models is not yet at a final stage (and is expected not to be complete for a long time), and the likelihood of disruption has increased, particularly given the convergence of industries and value chains that used to be entirely separate, e.g., entertainment offerings by telecommunications or technology companies or concepts such as driverless connected cars. One should also bear in mind that organizational culture is more company specific rather than industry induced and that the fit with such culture or at least its malleability is a major success factor for management. In short, management in the media industry should retain its more generalist approach. If value creation for customers becomes the decisive factor, it can in some cases be achieved through a stronger industry orientation and optimization of products and processes; in others, however, it may be necessary to innovate the business with concepts from adjoining or even remote fields. Industry know-how and expertise can be intensively utilized through new types of networks, but must always and constantly be challenged and contrasted against other industries. The sum of specialization trends should be balanced with an organizational culture that encourages regular questioning of industry-specific assumptions.

Ben van Beurden, Chief Executive Officer of Royal Dutch Shell plc, explains how the oil and gas company continues to adapt its business model so that it can thrive in a lower-carbon energy future. The acquisition of BG Group in February 2016—one of the largest takeovers in UK corporate history—was a key strategic move to strengthen Shell’s liquefied natural gas and deep water businesses. It also left the group better-placed to focus on scale, profitability, and potential growth. Van Beurden highlights some of the other, major strategic questions facing companies like Shell, such as how to weave the strengths of a locally driven approach into the fabric of a global company. Increasingly, for example, understanding and anticipating customer needs mean tailoring retail products and services to different markets.

Individual mobility is the lifeline of modern societies—today, it is hard to imagine our lives without cars and commercial vehicles. More and more people around the globe are benefiting from the advantages provided by the automobile, especially in the developing countries. The automotive industry is facing a growth trend. At the same time, the industry is also on the threshold of fundamental technological change, driven by the electrification of the powertrain and most of all by digitization. Digitization facilitates greater flexibility and efficiency in production. In the service sector, new offers surrounding the vehicle are being created. Not least, the digital network is paving the way for autonomous driving. In all these aspects, German premium manufacturers are once again underlining their leadership claim with innovative processes, services, and products.