November 25, 2013
By Vivek Velamuri
The story. By the end of 2008, German carmaker BMW was feeling the effects of the global financial crisis as sales of new cars fell significantly. With a 90 per cent drop in profits year-on-year in 2008, and new emission regulations imposed on manufacturers in the EU, the carmaker was under pressure to rethink its strategy. In addition, young people were shifting away from car ownership because of rising costs and improvements in urban public transport.
The challenge. BMW’s eventual goal was to diversify both its product and its service portfolios while also finding new business models and revenue streams.
In addition, it wanted to capitalise on its reputation as a leader in innovation and to be in the forefront of bringing environmentally friendly car technologies and new ideas about transport to the market.
The strategy. Based on research at its internal think-tank, BMW launched a separate unit that it named “project i”. The unit aimed to develop new ideas about cars and transport in general that would reduce the environmental impact along the whole value chain, from raw materials to after-sales support.
The unit focused mainly on the needs of densely populated areas. Under the leadership of Ulrich Kranz, the team interviewed researchers, architects and urban planners globally about how transport might evolve. The team also worked closely with battery manufacturers and utilities as it envisaged electric-powered vehicles as the key to developments.
In 2009, BMW conducted extensive field trials by leasing 590 Mini E electric cars to private customers in Germany, the US and the UK. The tests provided valuable insights into how electric mobility could work in everyday situations.
Other electric vehicles were introduced, culminating in the launch of a new sub-brand, BMW i, in early 2011. At the same time, BMW set up BMW i Ventures, with a remit to make strategic investments in innovative service providers aiming to solve transport challenges in densely populated cities. Projects explored included making an electric car from carbon fibre in a factory powered by wind turbines.
Against this backdrop, in June 2011, BMW partnered with Sixt, the global car rental company, to launch DriveNow, a premium car-sharing service in Munich. Car-sharing was growing fast: drivers hire a vehicle that they pick up from a designated spot, usually for a short period of time. The European market is expected to reach €2.6bn in 2016, up from €220m in 2009. The joint venture hoped to benefit from combining BMW’s prestigious technology with Sixt’s car-rental expertise. BMW would provide its new premium-class electric vehicles to differentiate the scheme; Sixt would provide rental knowhow and IT infrastructure.
Because car-sharing is both affordable and environmentally friendly, BMW hopes to expand its customer base substantially by attracting new and younger customers. Ultimately, it expects initiatives such as DriveNow to benefit the entire group because all the business units gain access to the new customer base and cross-selling opportunities. DriveNow operates more than 2,200 vehicles in five German cities and San Francisco. It is acquiring an estimated 10,000 new customers a month.
BMW has also introduced extra DriveNow services, such as ParkNow, a San Francisco-based app that allows users to book free parking spaces at short notice, or ChargePoint, a charging station network for electric vehicles. Both were backed by BMW i Ventures.
The lessons. When companies are experiencing performance issues and facing external pressures, innovation in products, services and the overall business model can help remedy the situation.
By not losing sight of the bigger picture, BMW is changing its traditional role as a luxury vehicle maker to become a provider of sustainable transport products and services.
The writer is a professor in entrepreneurship and technology transfer at HHL Leipzig Graduate School of Management
Read more Case Studies at ft.com/management/case-study
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