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NEW RESEARCH | 3 tips for industrial companies in transition

Maria
 Gustafsson
DELA
Mats Pettersson works in technology development at Ericsson.
Mats Pettersson has been working on business model innovation at Ericsson for 20 years. Photo: Juliana Wiklund.

How can established large companies best transform their business models to take advantage of new technologies such as artificial intelligence and 5G? Researchers from the Stockholm School of Economics give their best advice.

The business model is set in stone and the working methods have been the same for decades. But rapid technological change has shaken the foundations of established large companies. Having worked in business model innovation at Ericsson for 20 years, Mats Pettersson entered academia to find out how his employer should work to capture the value of new technologies.

– Fast-moving startups can easily adapt their business models to keep up with changing technological developments. “Established companies, on the other hand, have special challenges because they are slow-moving and easily miss out on capturing the value of technological developments,” he says, describing the main practical findings of his doctoral thesis.

New teams are needed

To create new business models that are in line with technological developments, companies need to restructure internal organizations and processes, bring in new skills, formulate adapted contracts and ensure scalability.

– The transition is often about moving from selling a product to selling a service or a result. In the case of Ericsson, one case is about selling capacity instead of products and services.

To create such a business model, you need to build a new organization and disconnect it from regular operations. This is an extremely important first step, according to Mats Pettersson.

– The transition cannot be done in the normal course of business. The new team will work exclusively on this.

He says the new organization will be experts in how the new technology and the business model can best interact and how to capture the value of the service.

– The experts need to know how the company can harness the technology and use it effectively. But also how the new business model will capture the value of the technology so that the company gets a return on its investment.

Little understanding of complexity

Changing the business model by – as in the case of Ericsson – starting to sell a service/capability, rather than a product is a complex exercise.

– This is my practical experience and is also reflected in my study. Unfortunately, this understanding is not always present in management, which can make the transition more difficult.

Was there anything in your research that surprised you?

– Yes, how important it is not to focus on how new technologies drive new business models, or how new business models require new technologies. It is rather a two-way communication between business model innovation and technology innovation when it comes to fast-growing technologies. The rapid pace of technological development places extremely high demands on businesses.

– You have to work continuously on business model innovation to keep up. A lot is happening at Ericsson, we are already working on 6G, which will come in 2030. You have to guess, but we have to be flexible to be able to handle different business models in the future.

Contact mats.o.pettersson@ericsson.com

3 practical advice on technological and business model innovation:

  1. Make sure to actively balance the integration of new technologies with business model evolution: This is to effectively capture value from technological advances. Rapid technological development requires continuous business model development.

  2. Create a dedicated, cross-functional innovation team: Put together a team with different skills to develop and implement new business models. This includes restructuring internal organizations and processes, developing new skills, formulating customized contracts, and ensuring scalability.

  3. Integrate R&D into business model development from the start: Ensure that research and development is an integral part of the business model development process. It enables a symbiosis between technological innovation and a working business model.

More about the thesis
Mats Pettersson recently defended his doctoral thesis at the Stockholm School of Economics. Charting the Uncharted – How an Industrial Firm Uses Business Model Innovation to Capture Value from Emerging .

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