TABLE OF CONTENTS

1.0 INTRODUCTION.....................................................................................................................4

2.0 COMPANY OVERVIEW.........................................................................................................4

3.0 INNOVATION..........................................................................................................................5

3.1 Types of Innovation...............................................................................................................6

3.1.1 Product.............................................................................................................................6

3.1.2 Service.............................................................................................................................6

3.1.3 Process.............................................................................................................................6

3.1.4 Organizational.................................................................................................................6

3.1.5 Technological..................................................................................................................6

3.1.6 Radical.............................................................................................................................7

3.1.7 Incremental......................................................................................................................7

4.0 LEAN BUSINESS MODEL CANVAS....................................................................................8

4.1 Problem..................................................................................................................................8

4.2 Solution..................................................................................................................................9

4.3 Unique-Value Proposition......................................................................................................9

4.4 Unfair Advantage...................................................................................................................9

4.5 Customer Segments................................................................................................................9

4.6 Key Metrics............................................................................................................................9

4.7 Channels...............................................................................................................................10

4.8 Cost Structure..................................................................................................................10

4.9 Revenue Streams..................................................................................................................10

5.0 VALUE-CHAIN ANALYSIS.................................................................................................12

5.1 Primary Activities................................................................................................................12

5.1.1 Inbound Logistics..........................................................................................................12

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 5.1.2 Operations.....................................................................................................................12

5.1.3 Outbound Logistics.......................................................................................................13

5.1.4 Marketing and Sales......................................................................................................13

5.1.5 Service...........................................................................................................................13

5.2 Support Activities................................................................................................................13

5.2.1 Firm Infrastructure........................................................................................................13

5.2.2 Human Resource Management.....................................................................................13

5.2.3 Technology development..............................................................................................14

REFERENCES..............................................................................................................................15

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 LIST OF FIGURES
Figure 1: Lean Business Model for Audi (Author's own work)....................................................13
Figure 2: Value chain (Source: Finne, 1997).................................................................................13

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 1.0 INTRODUCTION
The paper purpose of this report is to develop a new product feature for an existing German
company. The selected organization is Audi and will develop illustrate its nee busines model
with the use of the Lean business Model Canvas, which one of the most famous tools for
business innovation. The applicability of innovation in this report follows with the identification
of a problem in the organization’s product or processes which has further room for improvement.
Once the problem is identified, the author may use innovation to provide a solution to it which
could be either a new product solution with new features or even an improvement in its
processes.

Moreover, the competitive advantage of the selected company will be analyzed in this report.

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 2.0 COMPANY OVERVIEW
Audi is one of the world’s leading manufacturers in producing Luxury, premium vehicles (Audi, 2021a).
the birth of Audi took place when its founder, August Horch focused on his interest in the automobile
business after graduating from the Technical Academy in Mittweida and gaining some experience by
working for the Carl Benz company in Mannheim, in 1899. As his business, named Horch developed into
a joint stock corporation, in 1904. With its expansion, in 1909, Horch left the company and established
another automobile company which he named “Audi” as his original name “Horch” was legally registered
and Audi was the Latin translation of the same name, which later in 1914 grew into a joint-stock company
(Audi, 2021c). Today, Audi stands at the top in the world ranked as the 44 th in the world’s most
valuable brands 2020 (Forbes, 2021) and 14th in the world’s consumer reliability list 2020
(Hirsch, 2021). Audi highly focuses on customer centricity as it promises uniqueness by way of
the product looks and functions (Audi, 2021b).

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 3.0 INNOVATION
Innovation is referred “a mechanism for creating new market spaces. Innovation is the
commercialization of an invention. Implying, innovation isn’t just a new idea, but is putting that
new idea into effect and gaining from it (Herrera, 2015 cited in Herrera, 2016, p.1725). In simple
terms it could be described as bright new ideas that are implemented into a firm’s products,
processes or organizational approaches (Souto, 2015). There are various types of innovation,
including: service, product, process, organizational, technological and each of these innovation
types can be classified as radial or incremental.

3.1 Types of Innovation

3.1.1 Product
The commercialization of a step-by-step developed or completely new product or service (OECD
& EUROSTAT, 2005 cited in Souto, 2015).

3.1.2 Service
Application or the development of a new service (Souto, 2015) covering many aspects involving
the whole service concept itself, how businesses manage/deal with customers, the delivery
system, technological options (Kindström et al., 2013; Dominguez-Péry et al., 2013 cited in
(Christofi et al., 2015).

3.1.3 Process
Introduction of new or gradually improved production processes in an organization. Covers any
kind of operational activity, relevant to both product and service operations (OECD &
EUROSTAT, 2005 cited in Souto, 2015).

3.1.4 Organizational
(Gumusluoglu & Ilsev, 2009 cited in Christofi et al., 2015) explains it as the creation of a new or
the significant improvement of a product or service within a firm. (OECD & EUROSTAT, 2005
cited in Souto, 2015; Gunday et al, 2011 cited in Christofi et al., 2015) States, it is the
introduction or the improvement of a new organizational method/practice.

3.1.5 Technological
Technological innovation includes industrial arts, engineering, applied sciences or pure sciences
(Garcia & Calantone, 2002, p. 112).

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Innovation could be categorized by its novelty as mentioned before. Any type of innovation has
its degree of novelty which is the way the innovation is implemented within the organization
(Souto, 2015). The two categories are:

3.1.6 Radical
Application of a whole new product, process or organizational method. The degree of novelty is
highest in this type of innovation. It involves the sudden departure from an existing design to a
new one (Velu, 2015).

3.1.7 Incremental
Small changes an organization makes to its existing designs. The degree of novelty is lowest in
this type of innovation and is the easiest and cheapest form of innovation as it involves gradual
changes to an existing design (Velu, 2015).

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 4.0 LEAN BUSINESS MODEL CANVAS
When it comes to the corporate environment and ecosystems it is important to effectively
communicate. With the constant changes in the corporate world where new concepts and ideas
evolve, it is important that every firm stays updated with these trends. Hence, such ideas,
innovations need to be discussed and effectively communicated so that they could be developed,
improved and implemented. Nevertheless, when communicating such ideas, it is important that
the essential ideas are not missed out, and presented within a framework in a simplistic manner.
Hence, the Lean Business Model Canvas came into existence. It was designed by Osterwalder,
Pigneur and Clark (2010), eventually it was developed by Mauriya, (2010) and evolved into the
model that will be utilized in this report (Ching & Clemens, 2013).

The entire diagram is divided as the product and market, where on the left side are those
elements belonging to the product category and those elements on the right belong to the market
category. However, the unique selling proposition is divided into half as it belongs to either
(Ching & Clemens, 2013).

According to (Joyce & Paquin, 2016), this model is developed as a creative tool for presenting
business model innovation.

4.1 Problem
The identification of problems in a market, among customers to cater to their real needs may
enable Audi to kick out new competitors, even though highly unlikely in such a market or even
retain their position in the market and maintain its strong competitive position. This is where
innovation plays an important role since it is important to be creative and innovative to develop
solution to evolving customer problems. It is essential that businesses keep improving their
products and services by being innovative (Muhtaroglu et al, 2013). Furthermore, according to
(Muarya, 2010), usually, businesses introduced a solution and hoped it would sell, but it was
learnt it no longer works that way. Now, it is important that first a problem is identified where
then possible and feasible solutions could be provided for profits and also with estimated demand
and calculated risk (Ching & Clemens, 2013).

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4.2 Solution
The solution is the counterpart to the problem, where it is important to ensure that it fits with the
problems that is identified (Ching & Clemens, 2013). The solution that Audi presents is a fully
autonomous, smart and electric vehicle that may cater to needs of high-end clients who may
represent blue-chip companies or respected and well-recognized companies. Therefore, being
known to consume such a product, despite the extremely high investment on the asset, they may
be looked up by the society as role-models setting an example to community, since the product is
eco-friendly and consumes 0 fuel. Moreover, it also satisfies their need to be efficient and not
miss out on any urgent meetings or queries and the vehicle is autonomous and wouldn’t need a
driver. Also, risk of accidents may be mitigated by a high percentage. This may minimize the
risk of important and Very Important Persons (VIPs) meeting with unfortunate accidents, as
losing such people may cost a lot to important organizations hiring them.

4.3 Unique-Value Proposition

The unique value proposition is where the product or service adds value to the customer with its
offering. This is where value is created for the customer for the investments they make (Ching &
Clemens, 2013). In the case of Audi, its value is created where a special car with three in one
special features are produced: including smart services, autonomous driving and electric.

4.4 Unfair Advantage

A firm’s unfair advantage is basically its competitive advantage. This may be further studied in
the next section, with the use of a value chain analysis. This covers special features of the
organization that cannot be mimicked (Ching & Clemens, 2013).

4.5 Customer Segments

This is the segment of customers that Audi will be creating value for. It defines who the likely
customers are to use their products and services (Ching & Clemens, 2013). Audi will be focusing
on high-end clients as it only satisfies their needs for a cost they could afford.

4.6 Key Metrics

Key metrics work as Key Performance Indicators (KPIs), where this corresponds with the key
actions or activities. It is important for an organization’s management to set key metrics so that it
known what the firm hopes to achieve by producing such solutions using its resources, skills and

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expertise. Furthermore, it enables decision-makers to evaluate and monitor the performance or
results of the solution that is produced (Ching & Clemens, 2013).

In the case of Audi, the solution falls under radical innovation where a sudden change occurs to
the product range of Audi, with the introduction of its 100% autonomous, smart and electric
vehicle. Hence, to measure the success of this new product innovation, key metrics may need to
be established as illustrated in the table below.

4.7 Channels
Channels are more towards marketing and promotion where it is decided how the organization
may interact with customers. This is the touch point of meeting with customers to communicate
the solution they will be providing (Ching & Clemens, 2013).

4.8Cost Structure
The cost structure is basically the expenses incurred for the value that is produced and delivered
(Muhtaroglu et al, 2013). For Audi these cover product development cost, market research costs,
wages for production workers, additional engineer salaries, factory equipment and machinery,
electricity costs, raw material and technological costs, advertising and promotion costs.

4.9 Revenue Streams

This covers how the company could earn a return with its value creation. This element shows ho
the business model captures value for the organization (Ching & Clemens, 2013).

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 Problem: Solution: Unique Value Unfair Advantage: Customer
 Need to  Safe travel while Proposition:  Employee skill, Segments:
travel in the attending to  High-end experience and  “C” Suite
safety of the official matters. clients don’t know-how corporates
customer’s  Electric vehicles have to worry  Exposure to  High-end
personal with 0 fuel about missing advanced clients like
vehicle, consumption. out important technology entrepreneu
whilst  Smart features work, unlike  Resource rs
attending to when travelling availability
urgent, in normal  Reputation
official Key Metrics: vehicles which Channels: Early
needs.  Sales revenue needs to be  Using Event Adopters:
 Smart growth driven or in the Marketing  Audi
features  Product case of a driver, where events corporate
 Environment performance give directions, and parties are leaders
al safety,  Number of times the vehicle hosted and the
minimum referred in operates on its product features
pollution, 0 magazines and own, at the and uniqueness
fuel Television for its same time, is presented to
consumption unique consumes 0 fuel potential high-
Existing combination of and is very end clients.
Alternatives: features environmentally  High-end
 Toyota friendly and magazines
 Rankings and
 Mercedes safe.  User-referrals
awards won by
Benz crucial, top
 Tesla organizations and
institutions.
Cost Structure: Revenue Structure:
 Product development cost  Asset sale
 Market research costs  Subscription fee from a Real-Time Traffic
 Wages for production workers Information (RTTI)
 Additional engineer salaries
 Factory equipment and machinery
 Electricity costs
 Raw material and technological costs
 Advertising and promotion costs
PRODUCT MARKET
Figure 1: Lean Business Model for Audi (Author's own work)

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 5.0 VALUE-CHAIN ANALYSIS
Porter recommends a strong value chain compared to its competitors or of high standards to
obtain sustainable competitive advantage (Finne, 1997). The value-chain analysis may be used to
study the competitive advantage of Audi.

Figure 2: Value chain (Source: Finne, 1997)

The value chain analysis explains how Audi stands out from the rest of those companies in its
industry. It is categorized into 2 as primary activities and secondary activities. The primary
activities include inbound logistics, operations, outbound logistics, marketing and sales and
services. The secondary activities are those support the primary activities and may be of
assistance to the primary activities. These include, the firm infrastructure, technological
developments, and how human capital are managed.

5.1 Primary Activities

5.1.1 Inbound Logistics
Audi sources its supplies and raw materials from 14,000 suppliers from around the world in 60
different countries. Hence, the enormous supply chain is complex yet, adds up to a large
responsibility, at the same time it offers enormous potential to operate sustainably at critical
positions since Audi is a highly responsible automobile giant (Audi, 2021d).

5.1.2 Operations
Audi aims to make all of its production facilities CO₂-neutral by 2025 and is currently under
implementation. On its journey to the clean Smart Factory, the company is leveraging the very
latest technologies in every area. The key of the circular economy and the fulfillment of

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environmental standards in the supply chain is its sustainability strategy in production (Audi,
2021d). The automotive industry is in the process of reinventing itself. Audi is making its
production fit for the future with intelligent, digitally connected high-tech solutions. This will
enable the company to respond to new challenges more flexibly, adaptably and swiftly (Audi,
2021e).

5.1.3 Outbound Logistics

According to the report (Automotive Logistics, 2021), Audi has an extensive outbound plan
where it uses different methods of transportation for its products, based on the location of the
various markets, the type of customers, for the required speed and delivery dates. It highly
depends on sustainable methods of outbound such a rail.

5.1.4 Marketing and Sales

Marketing covers a vast area since Audi is established across the globe, in many different
countries. Its target market are the high-end customers as a premium company selling premium
vehicle. It uses many methods to promote and market its products. From television
advertisements, to billboard posters, magazines, radio there advertising is vast. It also focuses on
Public Relations by sponsoring many sports events like car races and more. Audi marketing
doesn’t stop at one necessary place.

5.1.5 Service
Audi provides after-sales services, covers the insurance for its customers and even delivers the
product right at their door-step. Leasing facilities are also provided.

5.2 Support Activities

5.2.1 Firm Infrastructure

Audi adopts an effective supply chain management through which supplies are controlled and
possesses production facilities across the globe.

5.2.2 Human Resource Management

Audi takes responsibility for its employees and for society as a whole. In doing so, the Company
takes many different factors into consideration, it doesn’t miss out to consider the transformation
of the workplace, the need to balance family life and careers, the desire for lifelong learning, and

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occupational health and safety. The company’s focus is first and foremost on its people. It has
allowed the opportunities for many societies, takes measures on preventing gender
discrimination where women are encouraged to organize women’s day campaigns and much
more, it invests in employee training and development where employee skills, expertise and
knowledge is developed to suit newer technological advancements (Audi, 2021f).

5.2.3 Technology development

As highlighted before Audi keeps investing in improving technology and uses the latest
technologies in its production and even with its products.

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