Managing Innovation in Business

This report discusses the importance of innovation in business and focuses on BMW's future innovation building capacities. It explores the future of the automotive industry, analyzes BMW's innovation requirements, and evaluates its capabilities for future innovation. The report also highlights the technological, business, and societal innovations of BMW.

MANAGING INNOVATION
IN BUSINESS

EXECUTIVE SUMMARY
Innovation is the introduction of new and unique ideas which leads to the creation of
technological, economic, corporate and social values and improves core business competency in
today's world. BMW is a German automotive company which manufactures luxury cars and
motorcycles. It was founded in 1916, headquartered in Munich and is regarded as a leading
producer of motor vehicles. The aim of the report is to evaluate the future innovation building
capacities of BMW by 2020 and beyond. The future of automotive industry is illustrated and
Porter’s five force model is used for competitive analysis. The outcome of analysis in context of
competition are need of new technological developments such as automation in assembly,
upgradation of the car features for customer satisfaction, making a dedicated segment for low
emission and electric car models. Future Trends and technology in the industry encompasses AI,
shared mobility, Vehicle to vehicle connectivity and automation. A PESTLE analysis is done to
assess the future requirements of the company. Integrated innovation model is applied for
evaluating future building capacities of BMW which implied innovation requirements in the
areas of science and technology, Business and Society. Various approaches that BMW can
follow are commitment to a transformation roadmap, defining the what and how of development
and managing changes. The capacities can be built via electrification, autonomous operations,
sharing, connectivity and annual updation. The current practices of the company in terms of
Technological, business and societal innovations have been determined.

TABLE OF CONTENTS
EXECUTIVE SUMMARY.........................................................................................................2
INTRODUCTION...........................................................................................................................4
MAIN BODY..................................................................................................................................4
1. The Future of Automotive Industry.........................................................................................4
2. BMW's future innovation requirements...................................................................................6
3. Future innovation Building capabilities of BMW...................................................................8
CONCLUSION..............................................................................................................................14
REFERENCES................................................................................................................................1

INTRODUCTION
Innovation refers to the introduction of something new and unique which leads to the
creation of technological, economic, corporate and social values and is a core business
competency in today's world. The companies should focus upon aligning their business strategies
to innovations. BMW is a German automotive company which manufactures luxury cars and
motorcycles. It was founded in 1916, headquartered in Munich and is regarded as a leading
producer of motor vehicles including Formula 1 sports cars and touring vehicles. This report will
highlight the future of automobile industry by using Porters Five force model and finding out
new innovations that are happening in the industry. BMW's Pestle Analysis will describe its
innovation requirements and future capacities for innovation in the company will be evaluated by
using drivers and model for innovation and approaches that should be adopted by the company in
future by focusing on certain areas.
MAIN BODY
1. The Future of Automotive Industry
The automobile industry is changing with the dynamic technological trends and
innovations. Consumers have a tendency to adopt highly complex or even expensive technology
in order to make their lives easier (Kalaignanam, Kushwaha and Swartz, 2017). Users of the 21st
century value Ease and Convenience. The core values have shifted to these two areas and the
automobile industry is defining its technical cultural dimensions in present times.
Porters' Five Force model is used to analyse the industry attractiveness and determine the
potential competition and industry's profitability (ÖNEREN, ARAR and YURDAKUL, 2017).
1. The threat of new entrants: This is a weak form of threat when it comes to automotive
industry. This is due to the major barriers faced by new players such as requirement of
upfront capital (the setting up of an AI based advanced robotics manufacturing facility)
and development of a strong brand equity (Hayward, 2017).
2. The bargaining power of Buyers: The customer of the future will be very conscious of
the purchase decisions and might conduct a thorough examination of available options.
Customers can use various sources for research purposes such as automotive reviews
from various online sources like expert channels and reviewers or travel magazines. A

better alternative in terms of features or price structure can make them switch to other
luxury automobile brands. This implies that they have high bargaining power.
3. The threat of substitutes: There are no close substitutes for luxury automobiles.
Although, the changing concepts of people regarding air pollution, harmful emissions,
rising environmental consciousness among millennials & Gen Z and initiatives for
reduction of carbon footprint may lead to an increased usage of bicycles or public
transports. Therefore, this is a very low degree of threat in the present times for
automobile industry but there are chances of future government interference (Wong,
2016).
4. Supplier power: In automobile industry, this threat refers to the supplier's bargaining
power in terms of automobile components, electronics, tires, and auto unions who
conduct assembly of the car. Roughly 35% of BMW's suppliers are located in other
European countries. Any political instability in EU or import restrictions could harm the
supply chain, therefore this could be considered a moderate level threat (Galankashi,
Helmi and Hashemzahi, 2016).
5. Overall competitive rivalry: There is fierce competition in the automobile industry and
the future is even more dynamic and volatile. The major threat in luxury car segment is
the quick adoption of new technologies by companies like Audi, Mercedes-Benz and the
electric car manufacturer Tesla. An increased advancement of technology in countries
like Japan, US, China, South Korea, Taiwan etc. is estimated in the upcoming years.
Therefore, BMW can face even more technologically advanced international brands in
future (Trump and Newman, 2017).
The future innovation requirements identified from the competitive analysis are need of new
technological developments such as automation in assembly, upgradation of the car features for
customer satisfaction and needs such as innovative driving system and parking features, adoption
of competitive pricing policies and making a dedicated segment for low emission and electric car
models.
Future innovations and trends in the Automobile industry:
 Artificial Intelligence: AI technologies like computer vision, deep learning and machine
learning can be applied in automation by robots in the automobile industry. This can be

implemented in self-drive cars, vehicle inspection, manufacturing acceleration and
reduction in costs. Examples: Revits One, Apex AI etc. (Krishnan and Domenech, 2020)
 Autonomous Vehicles or AV: Self-driving automobiles would transform the notion of
transportation by minimizing human intervention and using AI- equipped advanced
recognition technologies like pedestrian behaviour prediction, automatic-brake features
Examples: Udelv and Intvo (Harb, M., and et.al., 2018)
 Connectivity: A digital identity of each vehicle will be created using V2V technology
which can help in connectivity of different vehicles or vehicle-to-vehicle connectivity. If
a consumer shares the vehicular data, it could help in the tracking of vehicles for
insurance, maintenance, driver safety and fleet management purposes. Connectivity can
also help in differentiating one’s vehicle from others in the network. Examples: V2X
Network, NoTraffic (De Stefano, Montes-Sancho and Busch, 2016).
 Shared mobility: The alternative to traditional ownership of cars is going to be deployed
in future which would facilitate connectivity and shared mobility and cater to the needs of
city areas in order to decrease fleet-waiting time, pollution and unused vehicles.
Examples: Beam, Launch Mobility etc.(Feigon and Murphy, 2018)
2. BMW's future innovation requirements
Pestle Analysis
It is a strategic planning tool that helps to examine external environment of the company.
It comprises five elements political, economic, socio-cultural, technological and legal factors
which impacts on organization performance and decision-making process. This analytical model
is used for the BMW to analyse its external business and innovation requirement in its sector.
Political factors
Political stability is the main political factors that has impacted on BMW positively
because it enables to sell its products into multiple countries and in return generate high profit
margin on each product. But company have to face negative impact on its business activities as
well such as there are various countries that have banned carbon di oxide emission cars and
forces to produce eco-friendly vehicles as resultant company have to face financial loss in other
countries like UK, China, Brazil and others. In this situation BMW company requires to develop

electric car as innovative product which brings competitive advantage in its sector
(Chodakowska, 2018).
Economical factors
Due to Brexit has brought vast change in existing policies, currency exchange rate and
disposable income. There are various small-scale companies that have faced huge loss in their
business due to fluctuation in currency exchange rate. Such consequences have increased
unemployment ratio in UK. In this state, BMW Group unable to sell its existing product to the
customers because it has strong brand portfolio along with wide variety product line and all
products are quite expensive. Company will enable to sell its product such as vehicles in limited
customers instead usual time that ultimately brings financial loss in company.
Socio-cultural factors
BMW group company sells its products into multiple countries through it’s subsidiaries
but unable to sell it’s vehicle to all customers because it posses large product portfolio and all are
quite expensive as compared other vehicles. Only few potential customers prefer buy BMW cars
while others like to buy budgeted cars. Such wide variation in purchasing power of the customers
affects sales revenue of the company. So, it is necessary for the BMW group to keep continue
innovation in its existing model or new vehicle which decrease variation of purchasing (Fitt and
et.al., 2018).
Technological factors
Emerging technologies like internet, AI, touchpoints are the great opportunity for the
BMW group that supports in rising demands of consumers by offering extensive features and
services in its vehicles. Emerging technology like eco-friendly car software’s is not only assisted
to cut down cost but also helps to design more comfortable vehicle as compared complex one.
With Artificial intelligence company can take revolution of eco-friendly vehicles.
Legal factors
Intellectual property laws and data protection laws are legal factors that are strictly
followed by multiple countries which impacts on organization’s performance negatively
(Shatskaya, Komaristaya and Kafian, 2017). BMW group abides all laws related to data
protection and property laws which have increased cost of company. these laws do not force
company to bring innovation but supports to avoid illegal practices whenever BMW takes

initiatives to bring innovation in the product and services. Unfortunately, there is no new law that
force BNW for innovation in its existing products like vehicles.
Environmental factors
Strong awareness in people about global warming has impacted on BMW group’s sales
revenue. the reason behind is that people starts to demand eco-friendly automotive & high
resistance of CO2 emission cars that reduced turnover of its BMW car as products (Velazquez
Abad, 2017). Apart from this, UK’s government has imposed rules to produce and sells eco-
friendly vehicles. To comply with UK’s government rule has planned to sell eco-friendly
vehicles by BMW.
From above discussion over pestle analysis can be concluded that BMW group to design
eco-friendly as well cost-effective vehicles to sustain in the market for long time.
3. Future innovation Building capabilities of BMW
Innovation
Innovation is the wheelhouse of automobile companies due to the dynamic nature of
market competition and refers to the introduction of a new quality, product, method of
manufacturing, market, supply sources and the creation of a commercially viable vehicle
(Chang,Liao and Wu, 2017). Innovation in the company are important as it helps them in solving
problems, adapting to change, maximizing opportunities in globalization, facing competition,
adapt to evolving workplace dynamics and changing tastes and preferences of customers.
Model for Innovation
BMW can adopt an integrated innovation model in order to search, select and capture
innovative ideas. Integrated Innovation refers to a coordinated application of technology and
advancements in science with social and business innovations to develop solutions for the
organization (Andersson, Mudambi and Pedersen, 2016). The areas of innovation for BMW are
science and technological, Business and Social innovations. Technological capacities that need
to be innovated include upgraded features, assembly automations, modification in existing
models, feasible and market ready tech. Business innovation include redefining of industry
model, revenue model, business operations, collaborations and strategic partnerships, innovation

culture and leadership. Social innovations include addressing societal challenges, adoption of
customer centric designs and approaches, public and environmental betterment.
Figure 1: Integrated Innovation Model
Source: WHO
The approach to be followed by BMW for future innovations:
1. Committing to a transformation roadmap: The entire BMW corporation needs to be
realigned for the transformation in the departments of production, procurement,
distribution, finance and human resources. Defining BMW's future mission and functions
and the portfolio of its products and also the innovations required to deliver this
transformation (Saji and Ellingstad, 2016). The top management should strategically
decide on areas of operations, performances and future goals with deadlines. This can
include the number of electronic vehicles that should be produced by 2022, the time
frame in order to enhance productivity to attain target etc. The renewal of R&D is crucial
for transformation and determination of risks and tenacity to manage it. At the same time
the overall management of the company, motivation of team, building key relationships
are needed to minimize the disruptive nature of transformation.

2. Defining the what of development: The R&D portfolio has to be analysed and it should
reflect the roadmap of transformation and strategies of BMW. Because the development
of new technologies is very expensive, BMW should focus on an early scrutiny of the
required vertical integration and strategic decisions. The projects with no revenue
generations or little offerings have to be terminated to concentrate the funds and
resources in R&D which are majorly regarding innovation technologies. The requirement
of today's automakers is managing the complexities (Sarasini and Linder, 2018). R&D
has to keep the variables to minimum and continuously search for opportunities in order
to increase standard components, sub-assemblies and other parts of cars. The top
management have to emphasize on cross- functional cooperation with distribution,
Vehicle management and manufacturing to fulfil an organisation-wide management
imperative. This is crucial for achieving greater innovation and manage associated
enhancement costs that are necessary for manufacturing or procurement of materials.
3. Defining the how of development: BMW can never achieve their innovation targets by
using traditional waterfall procedure for R&D. The challenge needs BMW to inculcate
and imbibe supple methods and iterative processes specifically in the development of
technologies and digital features in its car models. Human resources come into the picture
here as right teams have to be selected in these research projects. Personnels have to be
thoughtfully assigned so that no department is overburdened such as engineers of electric
drive systems. Absence of a specialist engineer can put the entire production at risk.
Agile methods don't have to be used everywhere though, and if the units are dissatisfied
by bureaucratic procedures or lack of coordination between innovation teams and
operational unit, it could lead to friction, poor results and meltdowns. Changes are
necessary to avoid duplicity of functions. As a Leading automaker, BMW can address
this partially by founding direct lines of cooperation and communication between sole
R&D projects and their counterparts in business operations- manufacturing, procurement
or vehicle management which will eliminate hierarchical issues. The right methods can
make a difference alongside best practice methods and standardized approaches to boost
the efficacy of departments.

4. Managing changes: Clarity in terms of tasks, processes and appropriate infrastructure is
necessary to secure the achievements in R&D projects. But at last, no innovation plan can
be successful without intelligent steering. The mangers of BMW have to work way
beyond budget metrics and working hours to measure the performances of vehicle
development teams. Ultimately, results matter the most. Before beginning a project, R&D
teams can make a deadline with distinct milestones for all involved teams and
departments. If it takes around three years to develop a vehicle, a basic idea of the car
should be ready within a year. After that the detailing and designing of the car modules
have to be conducted followed by preparation of assembly lines for manufacturing the
new model (Groenewald,Grandjean and Marco, 2017). Checking the progress on a
regular basis against the deadline is essential so that innovation teams can pre-detect
problems and minimize the application of firefighting measures to deal with production
delays. Early redressal of errors enables managers to promptly apply various
countermeasures like outsourcing of tasks etc.
How BMW should build its innovation capacity:
The automobile sector is facing an unprecedented change and needs reforms in regards to
timescale, complexities and volume. BMW can follow five focus areas to increase its future
capacity:
 Electrification: BMW has to concentrate on emission-free vehicle mobility through
electrification of the drive train (Haider, 2020). This will become a global initiative and
the company has to be updated with this concept of using renewable sources to fuel its
vehicles.
 Autonomous operations: The rapid innovations in artificial intelligence, deep neural
networking and machine learning will redefine usage of mobility platforms. Therefore,
BMW should inculcate autonomous operations in its manufacturing facilities.
 Sharing: Pilot projects of car- sharing facilities have been in practice in the which will
become economically viable by introduction of autonomous vehicles.
 Connectivity: This refers to the CAR2CAR and CAR2X communication which means
networking of a car with other cars or the transportation infrastructure like traffic lights.

This area will concentrate on the use of internet and multimedia services by the driver
during the travel. Annual Updation: the use of electrification. Autonomous operations. Connectivity and
sharing would lead to increase in innovation of the automobile industry. The
conventional model cycles of six to seven years have to be replaced with annual updation
in the range of car models. The short innovation cycle will likely enter the market in near
future (Haußer, 2020).
The future innovations by BMW are:
Innovation by any means necessary has been a core practice of BMW since a century of
manufacturing innovative automotive components. The future innovations that BMW has started
working upon are as follows:
Business innovations:
 BMW is developing new perspectives in production by utilizing the opportunities in
digitalization in order to optimize its manufacturing process. They are inculcating a
flexible production chain to fulfil individual customer needs (Bourjila, 2016).
 3D- Development: BMW group is adopting virtual reality as an integral part of its
workplaces based on mixed-reality system developed from components of gaming
industry. This has allowed new opportunities for developers, simulated drives for
panoramic surrounding testing.
 IFTTT solutions: BMW Labs portal is integrating IFTTT services to its car models to
improve connectivity of cloud and messaging services, automatic switching of outdoor
lights etc.
Technological innovations
 BMW has become the first auto-manufacturer in the world to offer customers with a
digital car key which can be used on their phones, It has been done with cooperation from
the smartphone company Apple. In the future a car key which is compatible with iphones
will allow customers to conveniently lock, unlock and securely operate the BMW car
model with data protection and security.

 A prototype of a camouflage version of car model is soon to be launched by BMW
(Kukkamalla, Bikfalvi and Arbussa, 2020).
 Hydrogen fuel powered cell cars will be the rage of the future and BMW is working on
developing hydrogen engines for its cars.
 BMW is planning to launch a massive EV onslaught containing 12 electric car models by
2023. Their iNext concept will be used to design the models for Europe.
 Automatic car Parking using laser scanners to generate accurate image of areas around
the car and fully-automated Valet assistant to drive the BMW i3 in an independent way
with safety.
 In its communication platform NEXTGen, BMW has showcased its vision for designs of
electrically powered sports car called- the BMW Vision M Next which will give
Illustration 2: Digital key for BMW car models
Source: BMW official website

importance to the driver and integrate the use of intelligent tech with the car (Oppelt,
Schwarzand Gaitan, 2018).
 BMW Motorras Vision DC roadster motorcycle is another development of the company
which lays the future of bikes as another dimension of fun.
Societal innovations:
 BMW is planning to deploy an all-electric forty-ton truck with logistics partnership with
SCHERM Group. This innovation can be useful for public roads for transporting material
and goods in time over short distances. The truck runs quietly because of an alternative
drive train and is carbon-dioxide neutral and does not generate any particulate matter to
pollute the environment.
CONCLUSION
From the above report it can be concluded that automobile industry is facing dynamic
changes in terms of business operations and technological advancements. These changes have to
be addressed by BMW in order to build its future innovation capacities. Porter's five Force
analysis resulted in an estimated intense completion among luxury brands in future and
innovation changes of connectivity, automation, artificial intelligence, shared mobility etc. The
requirements of BMW were analysed by Pestle. An integrated innovation model should be
adopted by BMW to build its innovation capacities which should integrate its business,
technological and societal innovations. The company should focus upon electrification,
connectivity, automation, annual updation, and sharing to increase its innovation capacity for
future.

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