The purpose of this thesis was to explore the connection between the theoretical concepts of strategy and business models and to understand how business models can be changed to establish a sustainable competitive advantage. The study was lead by the following research question:
How is Daimler changing their business model to establish a sustainable competitive advantage by making advantages of digital trends?
After defining the research question, the industry lifecycle and key challenges for the automotive industry were introduced. The analysis unfolded that the industry is threatened by price competition and commoditization. In this context, digital trends are highly relevant for the industry to explore the establishing of sustainable competitive advantages. In the following, the theoretical framework was established, which set the foundation for defining the relation between business models and strategy.
This thesis follows the argumentation of the vast majority of scholars, which argue for a complementary relation between the concepts. The complementary relation guided the development of the theoretical model. Hence, the obtained data to answer the research question has been analyzed from the complementary perspective of strategy and business models. Firstly, the case company and their relevant digital services were presented. Afterwards, each component of the business model has been studied to understand the classical business model. In the next step, the business model change framework was applied to outline how the digital services influence the business model. In the second step, the complementary analysis of the business model and the strategy outlines how digital services establish a sustainable competitive advantage. The results of the analysis are summarized in the concluding remarks.
VIII.1 Concluding remarks
1) Digital trends change Daimler’s business models towards an increased service orientation
Digital trends influence the existing business model through new business systems and revenue streams that are different from the existing paradigms. The service-oriented business models offer the following advantages:
• Digital services expand revenue streams. Daimler can generate significant revenues even after the delivery of the car to the customer.
• Digital services establish new channels to reach customers directly. Daimler can interact directly with customers, which reduces the dependence on intermediaries.
• Digital services have lower capital requirements. Compared with Daimler’s classical business model, digital services do not require great investments in production facilities.
The listed advantages of service-oriented business models influence Daimler’s existing business models and support the development of a portfolio of several business models to act rapidly, when the existing business model is outdated.
2) The integration of digital trends in Daimler’s business model can establish a sustainable competitive advantage
Digital trends present an opportunity for Daimler to establish a sustainable competitive advantage, since the relevant criteria are fulfilled:
• The business models of the digital services offer unique value for the customers, are hard to replicate, and differentiated from the competitors. Daimler’s digital services rely on sophisticated technological competencies and offer experiences that go beyond the automobile.
• The strategic resources for the digital services are valuable, rare, inimitable, and Daimler is organized to exploit them. The harmonized combination of the strategic resources sustains Daimler’s core competence in executing innovative business models.
• Daimler managed to enter an attractive industry and positioned the digital services in strategic alignment with the corporate strategy. Daimler enters markets with less rivalry, strengthens the unique position of exceptional quality and technological leadership, and differentiates relevant activities in the value chain.
The complementary analysis of the business model, the RBV and the MBV confirm the establishing of a sustainable competitive advantage by making advantages of digital trends.
Furthermore, the aligned strategy and competencies between the classical and the new business model ensure strategic fit, which can sustain the competitive advantage in the long-term.
The answer to the research question is that Daimler is changing their business model towards an increased service-orientation. Although the product-oriented business model still accounts for the
great majority of Daimler’s revenues, the increased service-orientation offers opportunities to make advantages of digital trends. Daimler recognized the opportunity and implemented digital services that establish a sustainable competitive advantage.
This answer is valid for the Daimler AG and could be generalized for other car manufacturers with similar business models. The generalization may be done taking into account that there are no significant differences between the classical business models in the automotive industry, which has been confirmed through an interview with the VDA (A8).
The thesis provides further validation for the complementary relation between business models and strategy. The developed theoretical model (see chapter IV.3) complements both perspectives and contributes to the academic debate that both concepts have a complementary relation.
Furthermore, the thesis outlines how digital trends can change the business model to establish a sustainable competitive advantage. This research is considered to contribute to the academic debate and to foster the curiosity for further research, since the existing literature has not analyzed the way strategy and business models interact to establish sustainable competitive advantages by digital trends.
Further research is necessary to deepen the understanding of the changing impact of digital trends on business models and the contribution to establish sustainable competitive advantages. Since this thesis focused on studying a company from the automotive industry, it would be very interesting to research how digital trends influence business models in other industries.
VIII.2 Managerial implications
This section is aimed at presenting the managerial implications, as a result of the analysis of the empirical data obtained during the research.
Daimler has been successful in changing their business model to establish a sustainable competitive advantage by making advantages of digital trends. Nevertheless, there is still potential to improve the business model. “The winners in the new mobility culture will be those companies that achieve the right balance of marketable technologies and apply the appropriate business models to cater to increasingly tech-savvy customer groups” (Becker et. al., 2015).
Through combining the technological and automotive development, Daimler was able to integrate an increased service-orientation in their business model. The co-existence of the production- and the service oriented business models might be the foundation to develop further competitive advantages.
According to the VDA, “there will be cooperation between traditional automotive and digital companies” (HK A8). Daimler should be actively seeking these kinds of cooperation, since they present an opportunity to sustain their position as quality and technology leader. Improving the
quality of the established digital services is highly important, since “networked and automated driving technology will become an important element to be differentiated from competitors” (HK A8). Hence, Daimler should develop the digital services further to escape price competition and commoditization in the classical automotive industry.
Further potential offers the closer integration of Daimler’s production- and service-oriented business models. This could lead to business model innovation, since the value creation involves new business systems and revenue streams that are different from existing paradigms. For instance, the digital services innovated the traditional relation between Daimler, dealerships and customers. Selling cars directly through digital platforms is different from the existing paradigms.
This is an opportunity to establish new revenue streams and to gain full control of marketing and distribution.
The co-existence of the production- and service-oriented business models should be leveraged in the area of mobility services, corporate culture and new business opportunities. For instance, car2go is increasing the visibility of the product and an opportunity for customers to experience a car without actually buying the product. Introducing further Mercedes-Benz cars could leverage this. Whereas Mercedes-Benz benefits of the intelligent product placement, Car2go could keep the Smart as a differentiating factor and upgrade their mobility portfolio with higher quality cars.
Furthermore, the different corporate cultures of the production- and service-oriented business models should be for leveraged. Whereas the production is characterized by efficiency and cost considerations, the digital services are thinking creative to exploit new business opportunities.
Daimler can benefit of these different ways of thinking and become more attractive as employer.
“This is especially relevant for the recruiting of web developers, who are actually not interested in large companies but rather in smaller and more agile start-ups” (TH A7).
These diverse competencies are required to develop new digital business models that focus on the analysis of data about the vehicle usage and the driver behavior. For instance, the integration of digital services – like entertainment, driver-assistance, safety features or tourism information – in the cars offers potential for future profits and differentiation.
Concluding, the co-existence of the production- and service-oriented business should be leveraged to sustain the outstanding quality of Daimler’s products and services. The precondition to integrate both business models relies in the alignment of the strategic positioning as quality and technology leader. While digital services become an ever-more important part of Daimler’s business model, the core area of expertise and the main source of revenue remains the production of automobiles.
Nevertheless, the field of digital services needs further development to vanquish the pressure of price competition and product commoditization in the mature product markets.