"There is an enormous change going on forcing us to look for new business models without losing sight of the core business, because that's where the money is made."
In this episode, we welcome Manuel Krauß, Senior Consultant Business Model Innovation at Bosch Innovation Consulting. His mission: Supporting internal and external innovation teams to validate new ideas and take innovation management to the next level.
In this casual exchange, we talk about the different types of innovation at Bosch and take a look at the organizational structure required to manage organizational ambidexterity. Furthermore, we talk about the topic of business model innovation in companies and - in this context - get introduced to the Bosch Accelerator Program. Want to get the full story? Then tune in.
Below, you will find the full transcript of the episode.
Organizational ambidexterity and innovation at Bosch
Chris: Hi, and welcome back to Innovation Rockstars. My name is Chris Mühlroth, and in this episode, I am really excited to welcome Manuel Krauß in his role as Senior Consultant of Business Model Innovation at Bosch. With Manuel, we will discuss his experiences on organizational ambidexterity and business model innovation. So, Manuel, thanks so much for joining us.
Manuel: Very welcome. Thank you very much for having me.
Chris: All right, so let's kick things off with a short 60 seconds introduction sprint. And this sprint is all about you, your career and your current role at Bosch. So I do have the digital stopwatch with me. So for the next 60 seconds, the virtual stage is all yours. Let's go.
Manuel: Yeah, my pleasure. Hi. My name is Manuel Krauß. I'm a Senior Consultant consulting at Bosch Innovation Consulting. My academic background is in business administration. After graduating from Mannheim University, I started my career as a freelancing consultant at a big automotive OEM, supporting software development teams to generate new business models at a time when nobody called that business model innovation. End of 2006, I joined Bosch as a management trainee, followed by several positions in logistics, supply chain management, and sales. Next to my job, I co-founded a startup in the food and beverage sector. And in May 2021, I joined Bosch Innovation Consulting, helping internal and external innovation teams and external clients to validate new ideas quickly and to take innovation management to the next level. Privately, I'm married and a father of four lovely kids living in the Munich area.
Chris: All right, that's quite a bit. Thanks very much. For the next thing, I have three sentence starters for you, and I would like to ask you to complete those sentences. Number one goes like this: “If organizations do not innovate, they …”
Manuel: Will end up as dinosaurs and die sooner or later.
Chris: Number two, that's an interesting one. “In five years, artificial intelligence will be…”
Manuel: I would say, playing a much bigger role in business and our private lives. It will be more present, much more obvious. But still, I think most of us will struggle to comprehend the full magnitude of change AI will bring to us.
Chris: That is an interesting perspective. Thank you for that. And finally, the third statement goes like this: “One bad recommendation I often hear in my profession is ...”
Manuel: Let's just do it; we can skip the validation.
Chris: Oh, interesting. All right. Why do you think this is a bad recommendation?
Manuel: Because one of the major pitfalls we see in corporate innovation, or innovation in general, is that you invest ahead of learning. So you put money on an idea or a new venture without having it properly validated, which is usually cash burn. So we recommend highly investigating and validating thoroughly before putting money on it.
Chris: Let's take one step back and start with organizational ambidexterity. This term is not new. It refers to an organization's ability or capability to do both. So to be good in today's business and to be able to adapt to the changing demands of tomorrow. You can also put this differently and say, the two sides of ambidexterity are also referred to as ‘exploitation’. So the existing business where innovation can happen. But maybe it's more often found to be rather incremental. And ‘exploration’. So new business that includes business model innovation which is riskier, and the tendency is perhaps somewhat more radical, at least not too much incremental. And many innovation management systems today are at least what we see, still set up to exploit insights and knowledge about the system markets, customers, technologies etc. And maybe you can confirm, but we've seen over and over in the past that established firms were challenged in a number of industries by new market entrances, be it retail Amazon, automotive Tesla, travel booking.com, Expedia and so on. And actually, research shows that it is hard to handle exploitation and exploration in one homogeneous innovation management system. Maybe we can talk about that also in the context of Bosch. What are the different ways to innovate at Bosch? Of course, recognizing it is a complex in a multinational organization.
Manuel: Indeed, it is and I absolutely agree. And, of course, this is a challenge we at Bosch have to tackle, just like many or any other big corporation. And we try to do so by differentiating between core, adjacent and beyond core business innovation. And the innovation in the core is the responsibility mainly of the business units. So they are responsible for it and drive innovation within their core sphere. Beyond that, the adjacencies usually either come from the business units, cross-business units, or cross-domain activities. For example, in our mobility sector, a huge sector at Bosch, there is a dedicated unit searching for innovative new business models, attached to the mobility sector and fitting to the Bosch strategy. Beyond core innovations, or some call it Horizon Three, can somehow be triggered by a certain business unit. But mainly it is handled centrally. And, of course, there is a very strong central corporate development unit at Bosch. Also, the central IT department is looking for innovative talks. They focus strongly on innovation projects for future technologies and businesses. So we try to have all those under one roof but still being on different paths because there's different velocity, speed, and activities on those roads.
The Bosch Innovation Framework
Chris: And is that basically how Bosch designed the different ways to innovate, to address organizational ambidexterity and exploit the core business and then explore in adjacent or maybe in other areas and non-core areas in different business units? Is that kind of how you try to address this?
"We designed a process called the ‘Bosch Innovation Framework’. This gives us a framework for all our innovation activities. It deploys to both ‘exploit’ and ‘explore’ innovation. Because we just don't want to miss an opportunity."
Manuel: No, I wouldn't say so. So a couple of years ago, we designed a process called the ‘Bosch Innovation Framework’. And this gives us, as the name says, a framework for all our innovation activities. That actually deploys to both exploit and explore innovation. And that is because we just don't want to miss an opportunity. For example, if we're building a business unit that's a kind of innovation that's close to the next-generation core product or whatever, we don't want to miss an opportunity for a business model that's one step ahead. So, for example, if we do something on a product base, it could be that we think about, okay, can we add a service to that, or can we be in the role of the facilitator instead of just the seller of the component? This framework also applies to exploitation. When we innovate and are closer at the core, most things focus more on operability and efficiency than ideation. When we think of ideas that go beyond, then we have to dwell much longer on the earlier part of this framework. Be it the strategic fit, the problem definition, and the validation phase because there's much more uncertainty about the business model, not just facts but assumptions. You don't know who the customers are yet, you have to prove that there is a must-have need, and you just have to test and validate your assumptions.
Chris: Is it fair to say that you shift the weights of the time investment in the innovation framework depending on whether it is explore or exploit? But it is the same innovation framework that applies to both.
Manuel: It is the same framework. Yes, you have to spend much more time on that earlier phase of the framework if things are less clear.
Chris: And in terms of the organizational structure, can you maybe just talk, from your experience, about what an organizational structure should look like to allow and account for exploitation and exploration? And a follow-up question would be: Should organizations set up a permanent structure for exploring new business? That's, for example, how Google or 3M does it. Or rather project-based, which I think we've seen with Volkswagen.
"When you want to be successful in those fields of exploration and exploitation, then you have to keep the new ideas, the new ventures protected from the core. Otherwise, there's always the risk of them getting suffocated or swallowed by the core business."
Manuel: This is a difficult one. I don't know if there's a golden rule that always solves it. What seems to be clear is when you want to be successful in those fields of exploration and exploitation, then you have to keep the new ideas, the new ventures protected from the core. Otherwise, there's always the risk of them getting suffocated or swallowed by the core business. You can do this in a separate org structure or you can provide a certain amount of freedom within the existing system. Both can work. Both are not easy to do. Because when you overload a new venture too early with strong KPI targets, they will not meet them. After all, it's basic assumptions, and it's not worth making plans for it if pressure gets too high and the weight of the core is so much higher that the smaller ones will get diminished. On the other hand, what you do want to do is that you still, even if you kind of separate those units and for example, in Bosch, we have a platform called a particular unit called ‘Grow’ for certain projects. When you want to do this and still want to use the synergies, you want to use the assets you have as a corporate. Your market power. All your production capabilities. All sales channels. All that weight, all that advantage big corporations have. The new venture should somehow be able to use those but don't get fully incorporated at once. And this is difficult to do. I don't think there's an easy answer to that question.
Chris: Most probably, this is a case-by-case decision, right? Is there any way to decide? For example, you say there is a specific program in Bosch called ‘Grow’? How do you decide which path or route a possible venture should go? Is there a set of rules, or is it indeed a case-by-case decision by maybe a portfolio manager or something?
Manuel: No, it is a case-by-case decision. One trigger to decide is we always look for the strategic fit of that new idea. We do that early on because if there's no strategic fit to Bosch, to the company or any business unit, then it's highly unlikely that it will ever scale within Bosch. And we don't aim at spinning out ventures. It could be the case, but we usually don't do it. If there is a strategic fit and if there's a business in it, maybe it's more the adjacent business or could be even more than adjacent but very good fit to an existing business, then this usually would be funded and supported and stays with that unit. There's no need to put it on a separate lane. If the idea applies to several business units, it is more complicated. Or if that's really something new for Bosch, then it might be a good idea to have them separated for a while. They stay there for two or three years to get market traction, see if it works out, and then look where to reintegrate them in the best possible way or spin them off. So it's another option, and it depends on the maturity, the strategic fit, and other factors.
Financial and human resources for innovation at Bosch
Chris: Let’s talk resources, financial and also human resources. On financial resources, obviously, you don't need to name any numbers, like real total numbers, but on the funding in general, do you put aside an annual innovation budget? Like, this is a pot of money, and then the ventures can request certain funds at a certain stage. Or is it more fluid on the financial side? What does the operations look like?
Manuel: I think it's differentiated within Bosch. Of course, there's funding and budget for everything that is out of corporate research. So future technologies and so on. Business units or divisions may have their own funding budget for innovative ideas. For some occasions or for some strategic topics, there might be a central budget for certain new businesses or specific directions Bosch wants to go. But that is kind of, as you said, fluid, and it's the company's responsibility, and it's to fund the ideas. Okay.
Chris: It makes perfect sense. Now on the human resources side. How to find and where to find the right talent for this. Are you marketing this quite a bit internally, and that you actually get a lot of inbound requests to be maybe part of the programs. That you also collect ideas or possible ventures. So on staffing, how do you find the right talent within Bosch?
Manuel: As you said, we promote it internally. We try to get the word to as many employees as possible. So there is some central communication within the regions, the business unit, and the divisions. And usually, there's quite a lot of interest, for example, in taking part in a call for ideas or projects or being part of our own acceleration program, which we run internally from the department I'm working for. And there usually is high interest because that's something different from the day-to-day business of most employees. And most of the time, people find it very rewarding, exciting and joyful to work outside their box, outside their comfort zone even. And at least some of them don't want to go back to their old job and want to stay in a new venture. Maybe they would have never started a startup outside of Bosch, never being an entrepreneur on their own, but within a corporate, being able to work like a startup founder or like an entrepreneur is another thing. Quite some people like it still; it's challenging to find enough people being really into it, being committed and going the extra mile until the end.
Chris: But that's actually an interesting combination, isn't it? You get the benefits of still getting a monthly salary. So you're kind of derisking on the financial side. Still, at the same time, you get the opportunity to work on interrupters programs and build something new, whether it's in a business model, a product or a service. So that's actually an interesting combination for people who want to do this externally but hey, you can stay at Bosch, you get your monthly salary check, but you are empowered to work on that. That's interesting. This might be a tricky question, but what do you think? Where in your business, specifically in your business, are you feeling the pull towards this organizational ambidexterity the most? Is there anything you can tell me?
Manuel: If you mean by that, that was the most kind of pain or the most significant push where we need to innovate beyond our existing business. I would say generally speaking for all our divisions. All our business units. The trend of digitalization is strong, and everyone has to look for new digital business models. They don't have to be far from the core but something new, and for some, it's something very unique. Without any doubt, within the automotive sector, they are amidst a vast transformation. Right? And they have an intense search towards new business models, and that push not only that pressure doesn't only come from the shift towards e-mobility but also from new software topics and the software-defined car. There's a massive transformation going on, making it a must to look beyond your core business and look for new business models. At the same time, you need to keep up that exploit business because this is where you make money. You need that money to be able to invest in new ideas. Recently, I heard Steve Langford say: “The operators pay your salary, the innovators pay your pension”. I think he's right.
About business model innovation
Chris: There, that's a great statement. That should go on some t-shirt or merchandise you guys provide, and then let's dive deeper into business model innovation. But before we dive deeper, I would love to play a quick round of a game called either or, which is a game of choice, and yeah, it's interesting sometimes to get the answers. So let's see what happens. The game is straightforward; it works like this. I will give you two options. So, either option one or option number two. You then choose one option and spend one sentence on your opinion and why you chose a specific option. And I guess the key to this is speed. Right. So let's see what happens. Okay, the first one is either winter or summer.
Manuel: Summer. Definitely summer. Much more opportunities with four kids. We are not skiers, so we like to be outside.
Chris: That makes perfect sense. Okay. The second one is either investing in Bitcoin or in Ethereum. Why?
Manuel: Not investing in one of those? But I think I would go for Ethereum, as Bitcoin seems to be so much volatile and triggered too much on tweets by Elon Musk.
Chris: Interesting perspective. And the last one, if you could decide, would you run a country or a business?
Manuel: I think a business. Running a country might also be interesting. But I think you're so much pushed by worldwide circumstances you can't influence. Maybe I would go for the business.
Chris: Okay, let's go for the business. Well, thank you. Interesting answers. Let's finally go back to the core of this episode's topic. Business model innovation. You already mentioned quite a bit, right? And out of many ways how to innovate at Bosch, you specialized in business model innovation. When we think of a definition, an easy, clear, concise definition, how would you define business model innovation exactly?
Manuel: Maybe not so easy, but several definitions exist. We use a lot of Osterwalders ‘Nine Blocks Canvas’. But in terms of the definition, I would go with the St. Gallen model with four quadrants or four aspects- You can describe a business model with those four different segments, be it that the customer in the center, and then there's a kind of what they call magic triangle around it. And the corners of the triangle are the what. So what do you offer to the customer? How do you create value and value generation? Where does the profit come from? And then the definition is if you change or innovate in at least two of those four aspects, customers or value generation and so on, then we talk of business model innovation.
Chris: Got it. Okay. Well, that's a framework you can basically work with. That's very nice. And when you think of, specifically in corporate and large corporates such as Bosch, what do you see are really mission-critical barriers and challenges of innovating business models, of business model innovation in those corporates?
"There's not a lack of ideas. We see that there is plenty of ideas out there. Picking them up and then doing a proper validation and incubation is maybe the most significant challenge."
Manuel: Quite a few. And what we see from the look outside of Bosch is that corporates struggle to bring out new ideas from the beginnings, so the ideation phase, to really all the way through a new business with a repeatable, scalable and profitable business model and then really scale it. Usually, at least from our perspective, there's not a lack of ideas. We see that there is plenty of ideas out there, and the employees within the corporate do have a lot of ideas. Picking them up and then doing a proper validation and then incubation before you put a lot of money on it and burn it maybe because you can't pick winners is one of our claims. So you do not know at the beginning if that's a good or bad idea. So you have to find out, and corporate struggle with that, even if you have to validate an idea. Maybe the most significant challenge then is integrating that validated idea into your main business or bringing it to business of some magnitude with some impact. That is rare that companies strive in this discipline.
Chris: Why do you think it's specifically hard to incorporate those ventures, projects, or small businesses into the organization to scale up and ramp it up? Why do you think that is?
"Actually, many companies struggle to kill a bad idea."
Manuel: One reason is that it requires a strong management focus, top-level management focus, not in the sense of micro-managing those ventures, but for giving them, providing them with the freedom they need to flourish, to come up. Way too often there are a lot of those silent killers of innovation. There are processes, regulations, and decision chains that are so long and take so long that for a new venture, it's just not the right atmosphere to have enough speed to be agile and innovative. Managing this is not easy. And also, you do need kind of skilled people, you do need some expert knowledge on how to do this innovation work, how to validate ideas, how to conduct interviews, how to derive your learnings out of your validation work to say this is a good idea or this is a bad idea. Actually, many companies struggle to kill a bad idea. There are a lot of what we call dead horses out there. So new ideas, but not so new anymore, being around for two or three years in a corporate still not having market traction, still existing because no one has the guts to say now we stop this. There's a framework, I think we are on the right way for this. But it's not easy to do.
Chris: It is not easy, and sometimes stopping is way more complex than starting, right? You can start things and say, oh yeah, cool, let's do this and create a team or get a little funding and see what happens. But actually stopping all this and maybe sending people back to their day-to-day jobs or units where they come from is much harder because it's somewhat connected to the sunk-cost fallacy. We just need to push it a bit more, and then magically, this thing will scale up or get market traction.
Manuel: We already invested so much money, and we already invested so much time, so we can't stop it right now. Yeah, absolutely.
Chris: That's kind of hard. And I guess one way how Bosch tried to tackle this is that Bosch has established a central department that coaches and promotes innovative projects to advance intrapreneurship. Can you describe the concept and how this works?
Manuel: First of all, it's not a classical center department. We transformed into a service department so that we support and help other segments, business units and parts of the company as consultants. So there is a designed program, which is a validation program. Internally we call this the ‘Bosch Accelerator Program’, and it was designed, I think, in 2016, or 2017, so it was quite some time ago. And we did this with the help of colleagues from UC Berkeley, the University of California Berkeley, and still get some support from them. And this program is meant for early-stage intra-company startups which have an idea not yet validated but with a particular maturity. So there is already the idea of a business model, and that's just a product idea. And there is a business model. There is a team with capacity, and there is the backup of a sponsor from some business unit or area. So there's already a strategic fit. And then, there are two phases in this validation journey. Phase one is eight weeks, and it's customer development. So, for early validation, we require the teams to do 100 customer interviews within eight weeks. That is quite a lot. It's hard work, especially for B2B business models, but it's possible. It's about finding a must-have need and so on. And then, after eight weeks, there are coaching sessions each and every week. There's a short prep week, coaching sessions every week, and then the presentation of a lessons learned at the end. We don't pitch. We show our lessons learned. And then it's a decision made by the team itself, whether it is a go or no go. And the coaches, if you see them as a go or a no. And usually, that matches very well because the criteria are clear, the journey is straightforward, and we base this decision on evidence. And then, the go teams follow a phase two, roughly six to seven months. And within this time, it's another validation phase where the teams have to develop an early demonstration and early demonstrator. Then an MVP really tests their solution with the customer. It goes in a similar way, coaching sessions, then biweeklies, and at the end, the evidence-based decision whether to proceed further into incubation or to stop it. That's, in a nutshell, the program.
Chris: Yeah, that's super insightful. And explicitly referring to the first phase of the very early validation. Are there some methods or tools in the toolbox that are no-go for Bosch? For example, when we think of digitization or digitized products, like fake door testing. You create a website and actually try to get to a sale, but you don't have the product. So you actually, once it looks like you’ve basically purchased something, then it shows to the customer, well it's faster than us, we don't have it, it was just a website. Ha ha. Which might be harmful to the marketing, for the brand and stuff. Are there some no-go things that you typically recommend not doing?
Manuel: Well, there are, but it can be tricky in detail. Let's put it like this. So, for example, if you want to use the Bosch brands, the Bosch logo and then be connected to Bosch, then specific regulations apply, and you're not allowed to do anything you want. If you do fake tests without one particular brand and maybe just to see if the problem is there, someone is interested in that problem. Then a fake test would be okay as long as you stick to any legislation or rules. In a later phase, every time you bring something into the market, some real product, be it a physical product, then, some laws apply, and Bosch ensures that we stick to this. So that has to be done in line with any quality topics, which is sometimes tricky for early demonstrations. So you have to find the right way but not violate official regulations.
Chris: Yeah, super interesting, and maybe from a quantitative perspective, just to give us a feeling, how many new ideas do you actually get?
Manuel: So for our accelerator program, we usually run two or three batches per year, and the batch contains something between 10 to 25 innovation teams in one pack. As it is a global program, we have to usually split up within this batch due to time shift issues. Asia, Europe, Africa and America do not fit well into one time zone if you make a call, but that would be two to three batches of this size, and then we have something beyond that batch systematic for teams we call a ‘walk-in format’. So every team that qualifies for the program can come whenever they want, and if we have enough capacity on the coaching side, they can do at their own speed the same curriculum but at different timing. And if you count it up, that would be something like 50 teams a year, maybe more within our accelerator program. But as Bosch is very big and complex company, there is not only one innovation program. There are some others in parallel, which we support, and there are some more ideas out there.
Chris: Okay. And just very briefly, can you describe just a sample project? Obviously, nothing confidential, but something you can talk about.
Manuel: Yeah, well, recently, we have had a team joining our accelerator program, having an idea coming from the power tools division and with an idea for creating new opportunities for digitalization of construction sites. And this is way different from just selling tools. And the idea was perceived so well, and the validation was positive in a way that they found the need for stakeholders at a construction site to use digital data to coordinate their labor, time schedules and tool location and many other things. And so they went through both phases with a go and now incubating or scaling their business. They are called ‘Refine My Site’. Very active right now and very positive feedback. And I think they managed to find a spot where they can offer an additional service and product for our power solutions within Bosch.
Chris: That sounds great and good luck to the team. But that sounds like if they hit the spot, that's cool. And then finally, because we're pretty far with time, I also happen to know that from 21 onwards, you opened up to the outside world. So you're also starting or already actively consulting other companies. Now, where did this come from? Was it one idea or venture you actually had in the internal accelerator? How did that come about?
Manuel: Well, you could say it is a business model, an innovation of our own business model. So from being internal consultants, internal consultancy, and a service department for internal innovation topics, we just took the same assets we have. So our know-how we built up in those years with a lot of state of the art know-how, I dare say, and then explored where we could make use of this and not only train our own peopl. We could help and we are strong at enabling other corporates, not necessarily the same size as Bosch, but there could be smaller ones to build up a similar thing as we did. Successfully train the people, train your innovation muscle, install a proper validation program, do training, and develop state-of-the-art innovation management.
3 success factors of business model innovation
Chris: Yeah, and how this was built. So this is going to be a little cliffhanger, right? But how that was made and how the approach differs from other approaches is something we will discuss in the second part with more of your colleagues. So that's not for this episode, but the second one. So if you're interested, tune in. And then finally, Manuel, I would be interested; maybe we try to summarize what we learned today. So, what are the three most important success factors and/or recommendations for building business model innovation capabilities in organizations?
Manuel: I would say, as stated before, the full backup by senior management, it has to be in the strategy of the corporate. That's super important also for having a positive failure culture. So that comes with giving corporate explorers or intrapreneurs the freedom and the level of independence to explore. So they need capacity; they need expert support. And this is the main thing. And maybe additionally, well, you need the skills. So you have to have some experts internally or get help from outside to train your innovation muscle and build up those skills to positively conduct corporate innovation. So corporate strategy backed by senior management and the skills to do so.
Chris: I also need to ask you for your Innovation Rockstar moment, Manuel. So when you look back on your professional career, maybe specifically at Bosch, tell me about your most incredible Innovation Rockstar moment so far.
Manuel: Specifically at Bosch. Recently, we had quite a huge event. It was a massive event for us, and I was lucky enough to be the moderator together with my colleague Luisa Wagner. And we had Andrew Binns and Charles O'Reilly from Stanford University as speakers on stage. And Charles O'Reilly is one of the authors of ‘Lead and Disrupt’ and ‘Corporate Explorer’, being the godfather of ambidextrous organization, being on stage with him, discussing face-to-face the challenges of corporate innovation. This was pretty cool, I have to say.
Chris: That sounds like a great rockstar moment. And it's also on stage, right? So that's also a brilliant one.
Manuel: This was on stage.
Chris: Yeah, exactly. So an onstage rockstars moment. Well, that's great. And yeah, with that rockstars moment, Emmanuel, we have reached the end of this episode. So I would like to say thank you for being my guest. It has been very insightful, and thanks for sharing your experience.
Manuel: Thanks for having me. The pleasure was all mine.
Chris: All right. And to everybody listening or watching, if you like the show, as always, then leave us a review and share the podcast with whomever you think this might interest. And if you want to get in touch, simply email us at email@example.com. Now, that's it. Thanks for your time. See you in the next episode. Take care and bye-bye.
About the authors
Dr. Christian Mühlroth is the host of the Innovation Rockstars podcast and CEO of ITONICS. Nic Umana is Global Agile Innovation Human Intelligence Director.
The Innovation Rockstars podcast is a production of ITONICS, provider of the world’s leading Operating System for Innovation. Do you also have an inspiring story to tell about innovation, foresight, strategy or growth? Then shoot us a note!
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