This paper focuses on business models (Osterwalder et al. 2005) and how new technologies influence business models. By reviewing literature it can be realized that research regarding business models and new technologies considers two different areas:
One area is the capture of value from new technological innovations. A new product development should be linked to the development of a respective business model by defining value strategies for the new development. A new technological development does not automatically mean business success. Hence, a business model design for the new development is a key element in order to create value out of the new development (Teece 2010; Chesbrough and Rosenbloom 2002).
The other research area – and this is the focus of this paper - looks at how new technologies influence business models. After a short introduction a practical example will be given of how a cooperation adapted its business model due to digitalization.
1. How new technologies change business models
With new technologies many current organizations are facing challenges regarding business model adaption. Creating a radically new business models is a high risk. Hence, companies are rather adapting business models than completely creating new business models (Pateli and Giaglis 2005). Pateli and Giaglis (2005) propose a methodology for business model evolution with the influence of technology innovation (cf. appendix, figure 2).
In general, new technologies enable new market chances for enterprises. With digitalization companies are able to adapt their product-oriented business models to service-oriented business models (Böhmann et al. 2013). There are two main characteristics which are making the difference between product-oriented and service-oriented business models (Böhmann et al. 2013):
- Duration of the supplier-customer relationship: Selling a product takes place at one specific moment whereas a service is a continuous process. The value add of a service is built over time.
- Interaction: The basis for a good service is good communication and interaction between supplier and customer (see example in next section).
Based on these different characteristics (amongst others) some building blocks of respective business models need to be adapted when technology makes the company sell service rather than just products.
2. How new technology affected Rolls-Royce business model
Rolls-Royce is a well-known example of how technology can influence traditional business. One of the key drivers for business evolution of Rolls-Royce is digitalization. In recent years the sale of turbines was in focus. Nowadays however, turbines itself are not sold anymore. Rolls-Royce is now selling “power by the hour” which means that operating hours of these turbines are sold. Turbines are monitored by remote maintenance technologies which permanently analyze the status of respective turbines. If an incident occurs respective actions are initiated. Algorithms had to be developed in order to predict potential incidents. Hence, the supplier takes over risks of turbine failures and he has to guarantee the sold and promised operating hours. The customer buys a service. Due to the permanent monitoring the supplier is able to provide important data to the customer, e. g. fuel consumption, which the customer can use in order to improve his internal processes. For sure the gained data is useful for the supplier as well (tracking of failures (weaknesses of product), getting a big picture of customer needs). (Böhmann et al. 2013)
However, technology (IT systems) plays a crucial role in order to enable this new service-oriented business model. Technology needs to be integrated in aircrafts which is tracking data and simultaneously sending respective data to Rolls-Royce. As mentioned in the previous section: a good interaction between customer and supplier is the basis for this business model. There is a permanently ongoing interaction between Rolls-Royce and the airline and if a potential failure is realized a fast communication ensures the elimination of the error before the error occurs. (Böhmann et al. 2013)
Basically this new business model is a win-win-situation. Both sides of business benefit in the following way: (Böhmann et al. 2013)
- Rolls-Royce gains data of its product and is able to improve its product just in time.
- Rolls-Royce gains data of the customer and is able to offer customized products specific to the customer’s needs.
- Rolls-Royce generates long-term revenues due to a long-term service contract.
- The airline does not need to worry about maintenance of turbines (less risks).
- The airline is in a position to make use of the tracked data.
In order to display the changes in the building blocks of the business model canvas the following figure has been created. Items in bold are new in the new service-oriented business model canvas.
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Figure 1: Business model transformation of Rolls-Royce from a traditional product-selling-oriented to a digitalized service-oriented company (according to Böhmann et al. 2013 (cf. appendix))
In summary it can be stated that the new business model of Rolls-Royce (figure 1) is not a completely new business model. It is rather an adaption and an extension of the old traditional business model. New technologies are a big part of this new service-oriented business model. IT plays a crucial role. However, this new model has benefits for both: customer and supplier. But it takes more resources on the supplier side to fulfill this new business model (e. g. new monitoring systems).
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- Business models model canvas Rolls-Royce Rolls Royce business model IT information technology information systems Wirtschaftsinformatik