BMW Report Draft: Product/Services Innovation – Car-sharing

Introducti on

Car manufacturers are becoming more and more focused on identifying new and innovative
business ideas, which together with their spending on efficient and sustainable engines and
automotive parts is changing their long-established goal of building more powerful engines. One of
the most important areas of development is the one regarding the ownership and usage of cars in
the future, with two disruptive players having emerged during the last years: car-sharing and ride-
hailing.

The first one, car-sharing, typically has to do with a third entity owning a car and lending it to
different users (normally multiple ones during the course of a single day), although many argue that
in the future cars could even be owned by communities which would share it between members.
Companies such as ZipCar, Enterprise Carshare, car2go, BMW’s DriveNow and Fair (start-up partly
funded by BMW) operate in this segment.

The second one, ride-hailing, which may be a little more established, consists on a third party
offering the service of driving customers from ne point to another. Although taxis have been doing
this for a long time, the service nowadays is closer to the customer: available at any time and from
mostly anywhere through the internet and at a cheaper price. Companies such Uber and Lyft lead
the market, although new market players appear very frequently, with BMW’s ReachNow also
offering these services since midyear 2018 (TechCrunch, 2018).

In this part of the report, BMW’s efforts to promote innovative business ideas, mainly in the fields of
car-sharing and ride-hailing, will be evaluated by analysing the building blocks of each innovative
idea through the Ten Types framework. Moreover, due to the disruptive aspect of this new business
strategy, which shifts the scope from producing cars to be sold to individuals to producing fleets of
cars to be used in conjunction by different individuals each time, the 360° Business Model Innovation
framework will also be applied.

Development of Initi ati ve

As mentioned above, one of BMW’s most notable start-up investments was Fair (CB Insights, 2018).
However, most importantly, the German car-manufacturer also developed its own company:
DriveNow. It was not until June 2011, after having previously tested the idea of leasing electric cars
to direct customers (first with a significant fleet of Mini E to then incorporate BMW i cars) that BMW
launched DriveNow together with leading car renting company Sixt (Financial Times, 2013).

This idea was initially devised by the team behind “project i” thanks to the company’s open
innovation model, which assigned this team with the task to research and discuss new business
ideas, specifically regarding the future of urban mobility and transport (Financial Times, 2013). Such
approach towards open innovation also led to the development of BMW i Ventures, BMW’s $500mn
investment arm focusing on electric cars and urban transport innovation (Wired, 2016), and
innovation workshops such as the Innovation Lab or the Start-Up Garage, where BMW collaborates
with entrepreneurs to develop their ideas within the company (BMW Blog, 2018).

Going back to DriveNow, the project begun as a collaboration of BMW’s fleet of electric vehicles and
Sixt’s car rental experience and services, and through the following years other ideas from BMW i
Ventures were also integrated, such as ParkNow (an app allowing free and fast parking) and
ChargePoint (a system of electric charging points). In 2014 DriveNow also entered the UK, previously
present in Germany and Austria, and while other car manufactures had to leave several markets
they kept growing into further markets: Denmark, Italy, Portugal, Sweden, Belgium, and in the US as
ReachNow (Reuters, 2014).

Following its initial development in the US, where DriveNow was launched in 2012 in San Francisco,
the company ceased to operate in 2015 and BMW relaunched it in 2016 in Seattle (later Portland
and New York) as ReachNow, evolving from prior BMW investment RideCell (TechCrunch, 2018). This
year, BMW also launched ride-hailing services there under its ReachNow brand, using data analytics
to decide what the optimum share of cars for each service for each specific timeslot is and hiring
drivers from a third party accordingly. Finally, also in 2018, BMW doubled its bet on the project by
becoming its sole owner and buying out Sixt’s 50% share for €209 million, to then merge all its
services with Daimler’s car2go in an attempt to scale the already profitable business and lead the
market (Reuters, Bloomberg, 2018).

Evaluati on through Innovati on Frameworks

As mentioned in other sections, the Ten Types of Innovation model lays out the ten building blocks
of innovation, which, although different, may be present at the same time. These building blocks
help identify and evaluate innovation within a business project or idea, and three different groups
constitute it: configuration, offering and experience. Therefore, to evaluate BMW’s car-sharing and
ride-hailing initiative with the relevant building blocks, the configuration ones will be examined first.

The types of innovation under configuration concentrate on the internal side of the business system,
and these are profit model, network, structure and process. The profit model was the first element
that lead to this idea, as European car manufacturers saw considerable profit cuts due to the
financial crisis, together with the new emission regulations and the new trends in urban transport,
and BMW identified the opportunity to capitalise on these new urban trends, with a higher demand
for short-term and flexible car usage in cities.

This change of paradigm was not seen as a disadvantage, but rather as a new profit model to be
developed. In this case, BMW is profiting from an initial sign-up fee (excluding the UK and ride-
hailing services) and a fixed amount per minute of use billed to the customer’s credit card (starting
from 25ct/min, €9/h and €80/day), whereas for ride-hailing also from a fixed amount per mile driven
(BMW DriveNow, 2018). As a result, BMW has been able to tap into this new market, lower emission
penalties with a fleet made up of mostly electric cars, and even turn cars into a different product,
shifting its revenue stream from a single bulge one to multiple predictable revenues over the course
of its life. With regards to other configuration types of innovation, BMW recognised several key
partners for this venture, building a network with Sixt (car rental experience and infrastructure),
ParkNow (parking) and ChargePoint (electric charging points), and changed part of its internal
structure and process as a result of manufacturing cars destined for this service in batches instead of
directly for sale.

In relation to offering types, which concern the core product or service that is provided, product
performance and product system are analysed. Regarding product performance, the main idea
behind the project was adjusting to the demand, therefore clients have responded positively
towards it. Some additional services, such as free parking and charging stations in some cities, and
insurance and taxes being included within the price, ensure the product’s favourable performance.
Additionally, the system is fully integrated with ride-hailing in the US, with an algorithm determining
the optimum share of cars for each service, which allows customers to choose which service they
prefer at any given time (i.e. ride-hailing instead of driving a car on a night out).

Finally, experience building blocks analyse the elements that interact directly with the customer:
service, channel, brand and customer engagement. With this new venture BMW has been able to
offer a new service, meaning they are now longer seen by clients only as a car manufacturer, but
also as a service provider for car-sharing and ride-hailing. Moreover, with a mobile phone app as the
channel to contact said clients and a brand which is increasingly popular thanks to its electric
vehicles and its focus towards sustainable urban mobility, the company has gained access to a new
customer segment: younger and metropolitan clients (millennials).

In parallel to this analysis, BMW’s strategy regarding car-sharing and ride-hailing can also be studied
with the 360° Business Model Innovation framework, as this framework is useful for analysing
initiatives which imply a radical change in the business model of a company. The first aspect of this
model is the effect the business initiative has, whether it affects the company’s model itself (‘inside
view’) and/or the market or industry (‘outside view’). In this case, it is clear that if successful this
new strategy would affect the whole industry, as it would shift towards a car-sharing environment
rather than the current ownership model.

In more detail, the changes regarding the business model itself have to do mainly with the extent of
changes, as not many components are changed (cars produced are the same, only with more focus
on electric vehicles due to their fit for urban mobility), although those ones are greatly affected
(such as the profit model going from being based on single direct total payments to small continued
payments and the ownership of the vehicles being retained by BMW, who in turn ‘rents’ said
vehicles to different users). This business model therefore transforms the industry, not only are new
customers reached (‘millennials’ and urban inhabitants), but these customers can also come from a
different market, such as non-consumers who previously commuted by public transport or bicycle.
All of these elements are illustrated in the graph below:

Figure: 360° Business Model Innovation graph

As a result, this framework proves effective to identify the key areas that are affected by the
initiative and the impact it has on the company’s prior business model and the industry it operates
in, and these areas are easier to evaluate by separating them in 5 different categories: Value
creation, value proposition, value delivery, value capture and value communication.

In BMW’s case, the car-sharing strategy touches all 5 categories. Value creation mostly by affecting
its core competencies (new service of ‘renting cars’) and offering complementary assets (use of
vehicle with insurance, parking and fuel). Value proposition mainly through a change in its pricing
model (quantity per minute and/or distance vs total price of car directly) and service offering (new
services of car-sharing and ride-hailing). Value delivery by using mobile phone apps as main
distribution channel (revenues through ‘rentals’ or ‘rides’ through app). Value capture as a result of
the new revenue model (upfront single payment to multiple small payments for usage). And finally,
value communication by making a significant impact on the brand’s name (more attractive due being
environmentally friendlier and closer to urban and younger customers).

Recommendati ons

For BMW’s car-sharing initiative to be profitable in a way that it changes the company’s real focus,
the product/service must be scaled, and although the merger of DriveNow with Daimler’s car2go is
an important step towards this direction, the estimated value of the resulting company is only €1bn,
which is still very small compared to BMW’s whole value, with a market capitalisation of around
€50bn (Handelsblatt, Bloomberg, 2018). Therefore, if BWM wish to focus on this specific product it is
clear they must aim to grow further, expanding the network of customers towards more
geographies and creating a more robust business unit (i.e. centralising infrastructure and services).

References

Velamuri, Vivek (2013), ‘BMW’s car-sharing innovation’, https://www.ft.com/content/c6fe4eae-

4153-11e3-9073-00144feabdc0, (retrieved 10/12/2018)

Pitas, Costas (2014), ‘BMW tries to succeed where Daimler failed with London car-share scheme’,
https://www.reuters.com/article/us-britain-bmw-carsharing/bmw-tries-to-succeed-where-daimler-
failed-with-london-car-share-scheme-idUSKCN0JI2B020141204?
feedType=RSSfeedName=businessNews, (retrieved 10/12/2018)

Holder, Michael (2018), ‘BMW takes full ownership of DriveNow carsharing service’,
https://www.businessgreen.com/bg/news/3028696/bmw-takes-full-ownership-of-drivenow-
carsharing-service, (retieved 10/12/2018)

Korosec, Kirsten (2018), ‘BMW’s ReachNow adds ride hailing to its car-sharing app’,
https://techcrunch.com/2018/07/17/bmw-reachnow-ridesharing-car-sharing-app/, (retrieved
10/12/2018)

Fasse, Markus, Kreijger, Gilbert (2018), ‘BMW and Daimler merge car-sharing in challenge to Uber’,
https://www.handelsblatt.com/today/companies/fearing-uber-bmw-and-daimler-merge-car-
sharing-in-challenge-to-uber/23581658.html?ticket=ST-58852-WV5FDHyZ1pBXBbeVlsVB-ap1,
(retrieved 10/12/2018)

Alumni Case Study at Harvard Business School – Technology and Operations Management (2016),
‘BMW – Drive now, analyze later?’, https://rctom.hbs.org/submission/bmw-drive-now-analyze-
later/, (retrieved 10/12/2018)
Reuters (2018), ‘Sixt to sell its DriveNow stake to BMW’, https://www.reuters.com/article/bmw-
carsharing-drivenow-sixt/sixt-to-sell-its-drivenow-stake-to-bmw-idUSL8N1PO2UB, (retrieved
18/12/2018)

Sachgau, Oliver, Rauwald, Christoph, Coppola, Gabrielle (2018), ‘Daimler, BMW Reach a Deal to
Merge Car-Sharing Units’, https://www.bloomberg.com/news/articles/2018-03-28/daimler-bmw-
are-said-to-reach-deal-to-merge-car-sharing-units, (retrieved 18/12/2018)

CB Insights (2018), ‘15 Trends Shaping Tech In 2018’,

https://www.cbinsights.com/research/report/top-tech-trends-2018/, (retrieved 16/10/2018)

Woollaston, Victoria (2016), ‘BMW turns tech VC as its i Ventures fund moves to Silicon Valley’,
https://www.wired.co.uk/article/bmw-vc-investment-startups, (retrieved 26/11/2018)

Nica, Gabriel (2018), ‘BMW Invests in Five Start-Ups for Innovation Lab Set up in the UK’,
https://www.bmwblog.com/2018/02/05/bmw-invests-five-start-ups-innovation-lab-set-uk/,
(retrieved 26/11/2018)

BMW (2018), ‘Thousands of Cars. One App.’, https://www.bmwgroup.com/en/brands-and-

services/now-mobility-services/drive-now.html, (retrieved 26/11/2018)
BMW Report Draft: Distribution Innovation – Logistics

Introducti on

At the centre of BMW’s operations lie both manufacturing and the distribution of the resulting
assembled products, and these two key activities are integrated through logistics. For this given field,
the company is focusing on improving efficiency through innovation, and one of the most interesting
ideas BMW has developed is autonomous transport and logistics robots.

In addition to being one of the most revolutionising trends in the automotive industry, autonomous
vehicles could also disrupt the transport of parts within manufacturing plants, the process of supply
to assembly lines and even the unloading of trailers. In order to evaluate the reasons behind this
development and its key outcomes, the implementation of autonomous robots and vehicles into
logistics will be analysed through the Ten Types of Innovation framework.

Evaluati on through Innovati on Framework

The Ten Types of Innovation framework establishes the ten building blocks of innovation with the
aim to identify and analyse the key areas where innovation can be developed, and they are arranged
in three groups: configuration, offering and experience.

With regards to its impact on configuration, the main reason behind the development of automotive
robots to operate logistics has to do with a need for further efficiency in distribution times to and
from the manufacturing lines and in data management (automating processes makes data easier to
access and to work with). For this matter, Smart Transport Robots are being introduced in increasing
numbers into the company’s plants to move parts and containers within it (BMW, 2018). Regarding
data management, BMW has also implemented the usage of Smart Watch devices within logistics
staff to facilitate the transfer of data and schedules (BMW, 2018). These changes mainly imply a
change in the process, as more effective methods are carried out to obtain the product (shorter lead
times mean shorter distribution times and the possibility to produce more vehicles).

Moreover, the implementation of these robots affects the distribution of the plant and these shorter
lead times may also mean the structure of the distribution process could also need to be adapted to
keep up, which in BMW’s case has been done by implementing the AutoTrailer, which through laser,
sensors and cameras is able to load and unload trailer track without requiring guidance and enabling
more of these operations to take place each day (BMW, 2018). These upgrades in the process also
lead to more effective use of parts and containers, which together with an increasing use of data
improves the collaboration with the network of suppliers and, ultimately, the profit model (i.e. more
informed decisions, lower misplacement of parts, lower costs, possibility of increasing production).

With regards to innovation on offering, product performance is substantially affected by these

initiatives, as the resulting decrease in distribution times means BMW is able to offer a superior
product/service: delivering the car to the client in a shorter time.

On the same line, lower distribution times mean higher customer satisfaction and could even be a
competitive advantage. It positively affects BMW’s name and brand by increasing customer
satisfaction, and as a result also customer engagement. For instance, in comparison to Tesla who
offer a delivery time of 3 to 4 months (Tesla, 2018), BMW are currently offering delivery times for
new configured cars of around 8 weeks (BMW, 2018), depending on the country and car model, and
have multiple vehicles in inventory which can be delivered even faster.
Recommendati ons

Further developments in automation seem key to improve plant efficiency and also to reduce lead
times for cars, which seems to be one of the key objectives BMW is pursuing to differentiate itself
from competitors such as Tesla. However, as with any automotive development that affects
employees’ conditions, there is a risk of unfavourable regulation towards the company. For this
reason, ensuring that in the process of developing innovative automotive solutions the presence of
employees is considered should be a priority in BMW.

Nevertheless, this seems to be the case, as the car manufacturer believes its human workforce is key
for logistics and is also developing collaborative robots called ‘cobots’, which work together with
employees and only support them in specific tasks (The Economist, 2017).

References

Ludwig, Christopher (2015), ‘BMW: Getting connected for a new era of distribution’,
https://automotivelogistics.media/intelligence/bmw-getting-connected-for-a-new-era-of-
distribution, (retrieved 10/12/2018)

BMW Press Release (2018), ‘Connected, flexible, autonomous: BMW Group expands use of
innovative technologies in production logistics’,
https://www.press.bmwgroup.com/global/article/detail/T0287775EN/connected-flexible-
autonomous:-bmw-group-expands-use-of-innovative-technologies-in-production-logistics, (retrieved
10/12/2018)

Williamson, Jonny (2016), ‘Logistics: the beating heart of BMW Group’,

https://www.themanufacturer.com/articles/logistics-the-beating-heart-of-bmw-group/, (retrieved
10/12/2018)

Tesla (2018), ‘Support - Frequently Asked Delivery Questions’,

https://www.tesla.com/en_GB/support/frequently-asked-delivery-questions, (retrieved
20/12/2018)

BMW (2018), ‘Click and Buy your Bmw’, https://www.bmw.co.uk/new-cars/buy-your-bmw-online,

(retrieved 20/12/2018)

Carwow (2018), ‘New Car Delivery Times’, https://www.carwow.co.uk/new-car-delivery-times,

(retrieved 20/12/2018)

Barons BMW (2018), ‘About Car Delivery’, https://www.baronsgroup.co.uk/bmw/car-delivery,

(retrieved 20/12/2018)

Cartelligent (2018), ‘Should you special order your new BMW?’,

https://www.cartelligent.com/blog/should-you-special-order-your-new-bmw, (retrieved
20/12/2018)

The Economist (2017), ‘Cobots – For robots to work with people, they must understand people’,
https://www.economist.com/science-and-technology/2017/08/17/for-robots-to-work-with-people-
they-must-understand-people, (retrieved 20/12/2018)