Die approbierte Originalversion dieser Diplom-/Masterarbeit ist an der Hauptbibliothek der Technischen Universität Wien aufgestellt (http://www.ub.tuwien.ac.at). The approved original version of this diploma or master thesis is available at the main library of the ViennaProfessional University of Technolo MBAgy (http://www.ub.tuwien.ac.at/englweb/Automotive). Industry Service Innovation in the business relationship between Tier1 supplier and OEM – History, trends and impact on business model innovation A Master’s Thesis submitted for the degree of “Master of Business Administration” supervised by Dipl.-Ing., Dr. oec. Christoph H. Wecht, MBA Ing. Maria Stefan 1127145 Vienna, 25.01.2013 Acknowledgement I am pleased to thank Dr. Wecht, my thesis supervisor, for the support, valuable suggestions and feedback to my work. A special thanks to my beloved family, my colleagues and all those who have accompanied and encouraged me to develop myself, to gain as much as possible knowledge and experience. “Try not to become a man of success but rather as a man of value” Albert Einstein (1879-1955), Observer, January 15th 1950 “Genius is one percent inspiration, ninety-nine percent perspiration” Thomas A. Edison (1847-1931), Harper’s Monthly, 1932 1 Affidavit I, Maria Stefan, hereby declare 1. that I am the sole author of the present Master’s Thesis, “SERVICE INNOVATION IN THE BUSINESS RELATIONSHIP BETWEEN TIER1 SUPPLIER AND OEM – HISTORY, TRENDS AND IMPACT ON BUSINESS MODEL INNOVATION”, 87 pages, bound, and that I have not used any source or tool other than those referenced or any other illicit aid or toll, and 2. that I have not prior to this date submitted this Master’s Thesis as an examination paper in any form in Austria or abroad. Vienna, 25.01.2013 ___________________________ Signature 2 Table of contents Acknowledgement..……………………………………………………………………….1 Affidavit……………………………………………………………………………………...2 Table of Contents………………………………………………………………………….3 List of Abbreviations……………………………………………………………………...4 List of Figures……………………………………………………………………………...5 Abstract……………………………………………………………………………………..6 Executive Summary……………………………………………………………………....7 1. Introduction…………………………………………………………………………….11 1.1 Research Question…….………………………………..……………………….11 1.2 Research Hypothesis……………..………………………………..…...……….12 1.3 Structure of Thesis…………………..…………………………………………..12 2. State of Art…………………………………………………………….……………….13 2.1 Background Information to Service- and Business Model Innovation....……14 2.2 Analysis of Service Development and Associated Business Model......……24 2.3 Drivers for Change in the Services from Automotive Suppliers…………….26 2.4 Service Innovation in the Automotive Industry………………………………..34 2.5 Trends 2012 for the Service Providers in the Automotive Industry….……..35 2.6 Business Models in the Automotive Industry………………………………….36 3. Methodical Approach….………………………………………….…………………..40 3.1 Research Approach…...……….…………………………..………...…….……41 3.2 Tools for the Analysis of Business Model………….....….…………...………41 4. Business Case Magna Steyr ………………………………………………………..46 4.1 Short History of its Business Model……………………………………...…….47 4.2 Analysis of Existent Business Model………………………………………......50 4.3 Conclusion………………………………………………………………………..57 5. Business Case Bosch Engineering GmbH…………………………………………58 5.1 Short History of its Business Model…………………………………………….59 5.2 Analysis of Existent Business Model……………………………………………64 5.3 Conclusion…………………………………………….…………………………..70 6. Business I-Point GmbH…………………….…………………………………………71 3 6.1 Short History of its Business Model…………………………………………….73 6.2 Analysis of Existent Business Model……………………………………………78 6.3 Conclusion …………………………..……………………………………………83 7. Critical Discussion regarding Conclusion of Research and Outlook….…………84 8. Bibliography …...………………………………………………………………..…….88 4 List of Abbreviations Acronym Definition OEM Original Equipment Manufacturer ICT Information and Communication Technology KIBS Knowledge-intensive Business Service R&D Research and Development ICE Internal Combustion Engines JIT Just in Time EVL End Vehicle Life ESO Engineering Services Outsourcing 3 PL Third-party logistics M2M Machine-to-Machine (connectivity) SAE Society of Automobile Engineers BIW Body in White EMC Electromagnetic compatibility HEV Hybrid electric vehicle EV Electric vehicle PHEV Plug-in-Hybrid ESP Engineering Service Provider RWTH Rheinisch – Westfälische Technische Hochschule CNG Compressed Natural Gas ELV End-of-Life-Vehicle EU-directive on type approval of motor vehicles with regard RRR directive to their reusability, recyclability and recoverability IMDS International Material Data Systems KERP Kompetenzzentrum Elektronik & Umwelt GmbH CLEPA European Association of Automotive Suppliers IT Information Technology SEC Securities and Exchange Comission iPCMP iPoint Conflict Minerals Platform ROI Return on Investment 5 List of Figures Figure number Designation Figure 1 Structure of the Thesis Figure 2 Development of Partial Models during the Design Process Figure 3 Overview on the Definition of Partial Models Figure 4 Business Model Innovation - adapted overview Figure 5 Maturity Level for Service Organizations Figure 6 “Smart” Services or “One-stop-services” Figure 7 Drivers for Change in the Automotive Supplier Industry Figure 8 Typical Operating Models for ESO Provider Figure 9 Competitive Landscape of Major Automotive ESO Provider Supplier’s Best Value Capture at Components and Figure 10 Solutions Positions Figure 11 Dimensions for Design of Business Model at Tier 1 Figure 12 The Supplier Business Model Space Figure 13 Basic Features JIT, Integrated Supply and Modular Consortia Effect of Economic Crisis 2008/2009 on Business Model Figure 14 Redefinition Figure 15 Patent Activity in the Automotive Industry 2012 and 2010 Figure 16 Business Model Canvas Figure 17 Value Innovation Figure 18 “The Eliminate-Reduce-Raise-Create-Grid” Based on the Four Actions Framework of Blue Ocean Strategy Figure 19 Blending Approaches for Analysis Figure 20 History of Magna Steyr Figure 21 Business Model of Magna Steyr in 2001-2003 Figure 22 Mix of Brands and Models produced by Magna Steyr 2012 Figure 23 Business Model of Magna Steyr in 2012 Figure 24 The “Eliminate-Reduce-Raise-Create-Grid” applied to Magna Steyr’s business model from 2001 to 2012 Figure 25 Ranking of the European Automotive ESP’s 2011 Figure 26 Customer Perception for the European Automotive ESP’s 2011 Figure 27 Business Model of Bosch Engineering GmbH in 2003 Figure 28 Business Model of Bosch Engineering GmbH in 2013 Figure 29 The “Eliminate-Reduce-Raise-Create-Grid” Applied to Bosch Engineering’s Business Model from 2003 to 2013 Figure 30 Business Model of iPoint-systems GmbH in 2009 Figure 31 Business model of iPoint-systems GmbH in 2013 The “Eliminate-Reduce-Raise-Create-Grid” by Comparing Figure 32 iPoint-systems GmbH Business Models from 2009 and 2013 Comparison of the Three Business Cases Regarding Value Figure 33 Innovation 6 Abstract The automotive industry has proven from the beginning of its history to be a driver of innovation in regard of technology, manufacturing and quality processes, services and business models. These innovations influenced also the education system and human resource strategies of the companies operating in the automotive industry. The pace of change in the automotive industry has accelerated in the last 40 years more and more. After the appearance of the information technology, the relation- ships between OEM’s and suppliers were modeled by the new communication platforms in a revolutionary way and called for more speed, flexibility and complexity. Economic reasons have brought new challenges: the globalization for more markets and at the same time localization for more flexibility. As key factor for the survival in the vigorous competition due to narrower markets, the need for distinction brings new ideas that offer a wider portfolio. Both the car producers and their suppliers are nowadays manufacturers, product developers and service providers, each in his own way. In all areas innovation became a necessity in the struggling against cost pressure, competition, shorter life cycles and market trends. New service related business fields appear continuously and shift the car industry from the classical patterns towards innovative technological, industrial and business solutions. The aim of this master thesis is not a prediction of future trends in the innovation of services and future business models. It’s simply an analysis of some interdependencies that are created by service innovation in the Automotive Industry. These have consequently impact on the innovative adaptation of business models of the involved business partners. 7 Executive Summary In recent times in the strive for development of alternative propulsions and new mobility solutions, the words “innovation”, “service innovation”, “business model innovation”, have more and more usage and importance in the concept of new automotive projects. The definition of innovation has been not re-invented; it’s getting only new weighting highlighted in the change processes. The main objective of this master thesis is to analyze the impact of service innova- tion on business models used in the Automotive Industry. Service innovation has for each sector of economy a different meaning. The differentiation depends on the approach of the service concept (whether the innova- tions refer to new service products, optimized processes of services, customer tailored business services, cutting-edge industrial services, etc).