12. Bosch: Creating Innovations Through Active Collaborations

Marina Mattera

Economics & International Relations Area
Universidad Europea de Madrid—Madrid (Spain)

The Base of the Pyramid (BoP) is a way of designating the four billion individuals whose annual income per capita is below $3,000 international dollars purchasing power parity (PPP) per year (World Resources Institute 2007).

In the late twentieth century, businessmen started considering tackling BoP individuals as potential consumers. Hence, BoP also became a concept used to depict a business strategy that focuses on creating products and services using a market-pull approach that is to meet the specific needs of this target segment. Additionally, the BoP strategic approach deems suitable contributing to the creation of enterprises in those areas where the four billion individuals live, as a means to contribute to poverty alleviation. This initiative serves two purposes: poverty alleviation and new business opportunities. BoP individuals face significant challenges in their daily lives, such as food, housing, clean water, energy, healthcare, and education, which are largely unmet. These communities also lack employment and entrepreneurship opportunities, which implies a clear opportunity for businesses to engage in development of companies or subsidiaries to provide both. As a result, people in such areas will have higher incomes and therefore higher purchasing power, leading to higher possibilities for companies to obtain benefits from their products and services offers.

Organizations promoting development in those areas work toward assisting those individuals in greatest need, yet private businesses can also contribute to this cause through collaborations with nongovernmental organizations, or NGOs (Prahalad 2004). Thus, targeting specific needs of BoP contributes to poverty alleviation while it represents a major business opportunity, enlarging markets in which firms operate. The potential of the BoP is yet to be revealed; however, the telecommunications and micro-finance industries have already engaged with BoP business reaching tremendous success (World Resources Institute 2007).

This concept was best described by C. K Prahalad, author of The Fortune at the Bottom of the Pyramid: “The world’s most exciting, fastest-growing new markets? It’s where you least expect it: at the bottom of the pyramid. Collectively, the world’s billions of poor people have immense entrepreneurial capabilities and buying power. It’s being done—profitably” (Prahalad 2004, 29).

This research focuses broadly on “distribution” or the demand side of the BoP in order to investigate the challenges of how products get into the hands of BoP customers. This report bases the definition of “BoP distribution” on the article “Socially Responsible Distribution: Distribution Strategies for Reaching the Bottom of the Pyramid,” which defines distribution to the BoP as “initiatives that provide poor producers and consumers with market access for goods and services that they can benefit from buying and selling, by helping to neutralize the disadvantages they suffer from inadequate physical links to markets, information asymmetries, and weak bargaining power” (Vachani and Smith 2007, 2). This paper uses a wide definition of BoP distribution focusing on three of the four elements of the “Commercial Infrastructure at the Bottom of the Pyramid” illustrated beside (Prahalad and Hart 2002, 8)—including Improving Access, Creating Buying Power, and Shaping Aspirations.

The fourth element, Tailoring Local Solutions, which relates to the development of innovations that meet the needs of the BoP based on deep local insights, is largely product design focused, and is therefore out of scope for this work. To further define the BoP concept, the main focus of this framework is on consumers, as opposed to the traditional supplier-focus approach. All activities usually used to distribute BoP products to customers are in scope, including both the local physical distribution and the associated entrepreneurial programs, microfinancing, communications, education, sales, and service activities. Product innovation, design, development, manufacturing, and related activities involved in creating products are out of scope for this research. Financing, funding, and administrative activities, as well as international distribution, such as shipping, are also out of scope.

The modern economy operates under a set of complex interrelationships among companies that acquire technologies from some firms, raw materials from others, and incorporate new procedures and products in their intermediate creation value process. It has become evident that there is an interrelation between different companies, either because they divest, license, and create new companies with joint venture or because they have simple supplier-client relationships. All of these derive from research and development efforts, and there are new intermediate products and processes that are patented, sold, and incorporated to diverse production lines (whether in the same sector or in another industry).

New models for conducting business emerge, and together with them new difficulties. Known as “Open Innovation” models, the aforementioned interrelationships among companies to deal with innovation have also gained a purely international character due to the complex level of the existing interrelationship between firms and countries. In this context, it is difficult to conceive and clearly determine the company’s culture, values, and beliefs, given that it cooperates, works with, and constantly interacts with other firms, on many occasions beyond national borders. Therefore, the line between one company’s identity and that of another is increasingly more translucent.

Bearing in mind that specialization has become the key to obtaining and maintaining a competitive advantage, it is also crucial to evidence the level of importance that internationalization and complexity bring along company-to-company relationships. It is harder to conceive and clearly establish what the company’s culture and values are, and what its social responsibilities are, from a corporative point of view. This means enterprises should now be viewed and analyzed as a whole, which includes all the diverse branches, franchises, and other stores under the company’s brand name and other consolidated trademarks.

Firms have constant relationships with the communities in which they operate, and have an impact on social and environmental matters; therefore, they should conduct their operations in a socially responsible way. This implies integrating to their corporate strategy aspect of social responsibility, as seen in Figure 12.1. This will, in turn, provide beneficial effects for the company, because they will receive feedback on which matters are important for society and will create innovations to satisfy these needs.

Figure 12.1 Corporate social responsibility in Open Innovation models.

Bosch is a privately owned corporation whose stakeholders can be divided into three main groups. Approximately 7% of the company’s stakeholders are the Bosch family that are descendants from the man who created the firm, Robert Bosch. The largest proportion of the enterprise’s stocks (more than 90%) is in the hands of the Robert Bosch Stiftung, which has been managing for more than 40 years the philanthropic bequest of the firm’s founder. This foundation’s purpose is directly and exclusively charitable, making use of funds received from the distributed dividends of Robert Bosch GmbH Corporation and not engaging in any corporate activity. The stocks held by the foundation do not hold any voting rights (which is a way of separating entrepreneurial from philanthropic activities). Those rights were transferred to a trust, which constitutes the third group that owns the firm, called Robert Bosch Industrietreuhand KG, which holds 0.01% stakes and 93% voting rights.

¹ Average market data calculations (Yahoo! Finance, November 5, 2012).

Throughout the first decade of the twenty-first century, the firm experienced a steady growth with increasing sales revenues, while keeping R & D investment at a constant rate, as evidenced in Table 12.1. In spite of being affected by the impact of the 2008’s global crisis, the firm managed through its solid Business Strategy and Corporate Policy to overcome this downturn in record time. The company’s sales revenues decreased during the 2007–2009 period, while presenting a net loss of $1.55 billion (1,214 Mio Euros) in year-end 2009. Notwithstanding this fact, Bosch continued to invest in R & D, following its strategy, and the firm experienced a major recovery between 2009 and 2010, increasing sales by approximately 23% and subsequently between 2010 and 2011 experiencing a sales increase of 8%.

Table 12.1 Bosch’s Key Figures 2007–2011 in Million Euros

Among other key auto features that turned the group into a leader in this industry are anti-lock braking system (ABS), traction control systems (TCS), electronic stability program (ESP), body electronics (i.e., central locking doors, windows, and seats, among others), oxygen sensors, injectors, and fuel pumps.

Car stereo systems and in-car navigation systems are also high contributors to the company’s overall revenues, because Bosch is the leading enterprise in manufacturing these incorporated technologies. In mid-2008, it formed an equally stock-owned company with Samsung SDI, under the name of SB LiMotive, with a 28.000m² lithiumion battery cell manufacturing plant. Through this joint company, Bosch will provide lithium-ion energy storage solutions, from a single cell to complete battery systems, and completely electrified powertrain systems. Through this firm, larger employment opportunities are offered, as well as an increased number of employees and an expansion of the already large Bosch Corp. staff.

However, Bosch’s most recent and groundbreaking innovation regarding the automotive industry is the connected vehicle. This product will consist of a car that not only is fully fueled by electricity, but also will be connected to the Internet and other vehicles. Bosch has created in Singapore an Internet platform for electromobility, linking the car to charging stations, service providers, and so on. Thus, the vehicle will be a new version of the electric car, being not only emission free but also connected to the electricity network.

The slogan “Innovation for Life” applies to any aspect of the corporation, shown in the creation of new goods based on consumers’ needs, making those products fit for customers’ lifestyles, and preserving the society and the environmental context in which it operates. Most of the profits obtained by the firm are reinvested in the corporation, in order to support research, development, and innovation to build the company’s future and sustainable growth. Because of this, nearly all profits distributed to stockholders are devoted to altruistic causes, thanks to the Robert Bosch Stiftung (such as humanitarian or environmental projects).

The Robert Bosch Stiftung provides research and development contributions to society, by founding a hospital (Robert-Bosch-Krankenhaus); an Institute for Clinical Pharmacology (Dr. Margarete-Fischer-Bosch Institut für Klinische Pharmakologie); and the Institute for the History of Medicine (Institut für Geschichte der Medizin der Robert Bosch Stiftung), where they keep track of progress on medicine and healthcare.

All of them conform to Robert Bosch Stiftung, but there are other associate foundations that contribute to similar causes: Hans-Walz-Stiftung, the Otto und Edith Mühlschlegel Stiftung, the DVA-Stiftung, and the Rochus und Beatrice Mummert-Stiftung.

Besides these initiatives and collaborations, Robert Bosch Stiftung organizes program areas in order to support a wide range of independent (not related to the foundation) project ideas and initiatives. Year 2010 project grants awarded by the foundation resulted in a 63.2-million-euro investment. Robert Bosch believed that people are the basis of innovation—the reason why the program areas revolve around human capital. These areas are Health and Science, International Relations, International Relations II, Education and Society, and Society and Culture.

Bosch’s CSR is shown in the initiatives, projects, and researches it supports directly or indirectly, as well as in the Code of Conduct, being one of the 20 German companies to sign it in 2010.

Also, the multinational has a Basic Social Principles agreement applicable to all its employees in more than 320 locations, in more than 60 countries, and its collaborators.

Apart from these research locations, Bosch has a large network of alliances and commercial agreements with the academia and business worlds, as well as governmental, nongovernmental, and transnational organizations, to jointly develop innovations in line with achieving sustainable growth objectives.

Bosch owns 100% of several subsidiaries, located all around the world: Argentina, Australia, Austria, Belgium, Brazil, China, Czech Republic, Denmark, Finland, France, Hungary, India, Italy, Japan, Malaysia, Netherlands, Portugal, South Africa, South Korea, Spain, Sweden, Tunisia, Turkey, United Kingdom, United States of America, and many others, employing more than 300,000 people on all five continents.

Bosch Group is also the major stockholder of key industrial companies:

• Bosch-Siemens Hausgeräte: European appliance maker.

• Blaupunkt unit: Vehicle audio equipment.

• Bosch Rexroth: Hydraulic, electric, and pneumatic machinery (applications of this technology range from automotive to mining).

• Telex Communications and Purolator Filters (joint venture holder with Mann+Hummel).

This is one of the main reasons why this firm has internal standards and norms, such as the Purchasing and Logistics Guidelines. Agents who want to collaborate with Bosch can learn the company’s minimums required of others wanting to engage in transactions with the firm. Taking into account the increasing degree of market globalization and the wide range of sectors, industries, and locations where Bosch operates, the core elements of the guidelines commanding the firm’s business are based on fulfilling standards of quality, cost, and supply targets (resulting in the QKL acronym for its German initials).

Any agent (firm, institution, NGO, etc.) that wants to engage in transactions, research, or business relationships with Robert Bosch GmbH must abide by, commit, and have its own regulations in alignment with these principles. By asking for this commitment, Bosch ensures that its cultural values are cherished, as well as its actions being supported, respected, and not overruled (at least by its own collaborators). This particular approach is based on UN basic principles of the Global Compact—that is, respecting human rights, having optimum working conditions, taking strong action to fight corruption, protecting and minimizing environmental damage, and most, important, inspiring and involving employees to commit and work along these lines.

The company has understood that motivated and efficient staff is the most valuable asset to which the firm can effectively apply CSR policies. Training (and lifelong learning) becomes the key instrument to achieve the corporate Business Strategy and sustainable business worldwide in the long run. This belief is a “must” for Bosch, as well as for any subsidiary or participating company, with consequent strategic implication for its collaborators (whether they are firms, academic or other institutions, or government organizations, and so on). Therefore, some of Bosch’s initiatives are high-quality seminars, where technical, work management, and business issues are covered. These courses are offered not only to its own staff, but also to its suppliers’ and collaborators’ (etc.) employees. The seminars are also open for potential future partners, where colleagues can interact with each other, exchange ideas, and understand identities, thus understanding and enabling better formal (as well as informal) relationships in the future.

Associates from Asia, Latin America (and the Caribbean), and Eastern Europe who had contracts for over 24 months increased to more than 400 in recent years. This allows employees and collaborators to gain practical experience; locals are chosen and trained to gain know-how, which will remain in those geographical areas. Such actions have as a result a bilateral flow of knowledge and innovation possibilities. Instead of bringing German already trained and qualified personnel, the firm provides the necessary elements for training and development. In this way, employees hold the key tools and essential knowledge in order to boost local research and development, which can in the future produce outputs that are valuable to the Robert Bosch Corporation.

Given that Bosch is a multinational firm, the set of collaborations is broad and varied. These include not only other companies but also academic institutes (universities, research centers, etc.), nongovernmental organization (NGOs), nonprofit foundations, governmental organizations, supranational organizations (such as the WBCSD), and even the European Union. Bosch’s diverse alliances are evidenced as a collaboration map in Figure 12.2.

• Peer-to-peer (P2P) collaborations with universities for new developments: Bosch has signed a significant number of agreements for research in diverse technical-electronic fields with universities such as the Massachusetts Institute of Technology (MIT), Stanford University, University of Michigan, University of Barcelona (UB- Spain), University of New York Tirana (located in Tirana, Albania), and many other academic-related centers.

Besides collaborating with universities, when creating innovations, there are some cases in which Bosch agrees to co-patent. Therefore, not only do the efforts in R & D rest in the hands of the firm, but also the academic institution can make use of this new creation. There are other cases where the output of the investigation is an individual creation unrelated to any previous agreement. However, due to the potential applications/uses of it, Bosch chooses to purchase the register or idea to continue in the innovative path toward responsible sustainable benefits.

• Supporting scientific research (Bosch InterCampus program): The firm launched a program that supports and provides financial aid to top finance research institutions in four countries: Germany, collaborating with RWTHAACHEN, KIT, and Universität Stuttgart; USA, Bosch Energy Research Network (BERN), by association with Caltech (University of California-Berkeley), MIT, Stanford University, and the University of Michigan; China, where the firm supports the Tongji University, the Shanghai Jiao Tong University, and the Fundan University, where Professor Yongyao Xia is investigating one of the key challenges—improving the performance of lithiumion batteries—which will make the connected vehicle project a reality; and India, where Bosch supports the internationally recognized Indian Institute of Science (IISc), by setting up the Robert Bosch IISc Centre for Research in Cyber Physical Systems.

• R & D agreements with governments: Bosch has reached several agreements with diverse government agents, as well as with the European Union’s Framework Programme.

Together with other enterprises and institutions, they work in developing advanced electronic technologies aiming at the improvement of the competitiveness of the European industry.

• Business-to-business (B2B) collaborations for new developments: Whether in the automotive sector, with companies such as Ford, Volkswagen, and Tata Motors; or in the energy industry, by associating with Infineon or The Linde Group, the German multinational searches peer firms with aligned strategic intentions to exploit its R & D’s maximum.

Bosch also participates in invent, which is an independent association through which German-based firms working in the automotive sector collaborate to create intelligent and user-friendly traffic technology. This initiative comprises companies such as AUDI AG, BMW Group, DaimlerChrysler AG, IBM Deutschland GmbH, Siemens AG, Volkswagen AG, and many more.

Furthermore, the firm invests in reducing environmental damage during their production processes and procedures on different matters:

• Energy and water consumption

• CO₂ emissions from heat use

• Electricity and district heat

• Use of chlorinated hydrocarbons

• Volatile organic compounds

• Quantity of waste and wastewater

• Recycling

• Environmental investments and costs

With reference to CO₂ emissions, natural gas is the firm’s main source (70%), followed by district heat (11%), heating oil (11%), and coke/coal (8%). Levels of these emissions have increased due to an increase in the overall corporation’s production. After this was evidenced, Bosch started devoting part of its R & D efforts to innovation in production processes so as to reduce these emissions while increasing output.

Chlorinated hydrocarbons (CHCs) are organic compounds with a wide variety of structural and divergent chemical properties that lead to a broad range of applications (vinyl chloride, chloromethane, pesticides, and insulators, among others).

It has been proved to have a significant degree of toxicity for animals, plants, and humans, which is why since 2005 Bosch has been working on innovations to replace these compounds with nonharmful ones. By 2008, CHCs were used only in the firm’s locations in Changzhou (China) and Nonatola (Italy), currently discontinuing the use at these locations as well.

Moreover, other elements proved to be harmful: volatile organic compounds (VOCs). These are emitted during the cleaning and coating of metal parts, and were commonly used by Bosch until their detrimental effects were discovered. Nowadays, the firm works in order to reduce the evaporation of the substances or achieve effective encapsulation. This is achieved by switching coating methods to water-based solutions or powder coating, as well as using water for cleaning (instead of solvents). Recent results showed there had been approximately a 7% reduction year-on-year.

The quantity of waste (disposal and demolition), as well as wastewater (including sanitary facilities, treated and untreated processes), has been reduced in the past decade. Water-saving measures, as well as innovations involving water treatment, have helped to achieve a lower level of environmental damage.

Additionally, recycling has played an important role in all the aforementioned eco-friendly actions. Used automobile components were remanufactured, and when they could not be reshaped, the materials were divided and reused separately.

Today, EcoPlusHome has won the Scotiabank’s EcoLiving 2011 Innovation Award, and 12 homes with equal characteristics are under construction in British Columbia, Saskatchewan, and New Brunswick. Transition from regular housing to the eco-home implicates creating first hybrid devices, alongside gas appliances, which are being developed to integrate solar thermal systems or electric heat pumps. For DIY-ers and professional markets, new power gardening tools have been launched with particularly high-performance lithium-ion batteries. These are eco-friendly and at the same time cordless—thus being user-friendly and offering a high degree of mobility.

Security technology is also being developed in the lines of sustainable growth and reducing environmental footprint. Automatic fire detectors using intelligent algorithms to distinguish smoke particles from other particles (such as dust) help diminish the number of times they receive misinterpreted signals. This contributes to less wasting of energy and water on “false alarm” fires. Another example of a recently launched eco-innovation in the field of household appliances is the self-dosing washing machine. This product incorporates a specific technology that detects the level of charge and uses detergent and water according to the weight of clothes introduced. This leads to a reduction in these inputs’ consumption, therefore protecting the environment.

Bosch has recently started a new business line: Internet-business. The firm has realized that the use society gives to the Internet has evolved and now has reached the point where we go beyond connecting people. This demonstrates that people want to be connected not only to other individuals but also to their physical elements. In this way, the digital world and the physical one will be directly linked, the uprise of Web 3.0. In pursuit of these objectives, in 2008 the firm acquired and renamed their software and systems unit under “Bosch Software Innovations,” apart from joining forces with a large number of companies to provide the best Software Innovations.

From the variety of elements produced by this area, some of the most relevant are these: the development of a complete inventory control system for commercial firms; providing software solutions for health insurance application reviews; and offering industry-dependent IT consulting services. Every year, multiple initiatives start their developmental process stage after extensive research, of which one of the most important is the electrical powertrain. This new development amounted to approximately $500 million (400 Mio €), and is an investment that will see returns only in a long term. Other key R & D project areas, showing Bosch’s true commitment to eco-friendly innovations, are batteries used in commercialized hybrid cars, as well as those in development stage for future fully electrically powered automobiles.

Considering that future cars will be 100% electrically powered, it is essential to note that these new automobiles will be based on an expensive technology—thus having a higher market price than the same model in its traditional combustion engine version. Because of this, Bosch believes that several innovations are necessary for a harmonic transition between 100% fuel and 100% electrical. Moreover, such an evolutionary shift will also contribute to lower CO₂ emissions.

Overall energy use includes electricity, natural gas, heating oil, district heat, coal, coke, and other energy sources. As it is well known, several of these sources damage the environment, which is the reason Bosch created plants to generate its own energy from renewable sources, reducing by 0.5% the firm’s energy consumption in the last few years. As regards the corporation’s water consumption, in recent years the total amount has been lowered by approximately 3%, and the share of Bosch’s water use is below the share of fresh water from public supply. This is partly due to innovative recycling systems, which contributed to efficient use of this resource.

In 2010, hybrid solutions were in their final stage and launched to the market after years of being the center of the company’s R & D. Through a joint venture with Samsung SDI, named SB LiMotive Co. Ltd., Bosch recently started the production of battery cells, while working extensively in eco-friendly initiatives in the automobile industry. Some are further reducing the fuel consumption and emission of internal-combustion engines, especially in those engines equipped with direct injection systems and turbocharging.

Bosch’s expertise in mechanics and engineering, together with a strong drive to improve the company’s own achievements, has led this corporation to be one of the experts in the automotive sector in producing new “e-equipment.” Among these new elements are traction batteries, power electronics, electric motors, electrically driven auxiliary units, and adapted braking systems. With these, they created fully hybrid technologies that allowed cars to be much more eco-friendly.

However, the company believes that by allying with strong automotive firms, they can co-create key electric-vehicle components (electric motor and lithium-ion battery). To achieve this objective, in November 2011, the firm founded EM-motive GmbH together with Daimler AG. The aim of this joint venture is producing electric motors for fully electric vehicles. During early 2012, EM-motive started producing e-motors, and their estimated production for 2020 is one million electric motors. Meanwhile, SB LiMotive is in the process of optimizing the lithium-ion battery. Since 2011, their latest product developments have been tested, and an implementation in the market is expected soon enough.

Following the Internet-business line, Bosch intends to combine electro-mobility with state-of-the-art communication technology, naming it “eMobility.” Through this, the user of the car will be connected to his or her cellphone, GPS, battery charge, where to find the closest charging station, billing information, and many more features. One of the main solutions eMobility will provide is giving drivers the ability to locate available charge spots in the city, to find out how much they will be billed, and to pay online in order to “reserve” their spot.

Fleet managers and utility companies will be interested in other products and services offered, such as surveillance, product transportation, conditions of weather, and estimated time of delivery. This will simplify many aspects of the supply chain management, thus providing an effective and efficient solution to firms. To achieve this, as in the remaining aspects of the Internet-business or Web 3.0, Bosch is joining forces with many firms, as seen in Figure 12.3. The partners Bosch has been searching are from a wide variety of backgrounds, type of organization, location, always aiming at aligning with institutions throughout the world to profit from each of their strengths, and, together, create a breakthrough innovation that will simplify business management and, at the same time, people’s lives.

Leading technology and related services provision, the international character of these sectors and the constant support on research and investment have guided this firm to expand on a worldwide scale and be one of the leaders in its sector. Bosch has seen the importance of internationalization and complexity and has taken advantage of its corporate transnational level of influence. Exploiting such opportunity, the firm diversifies, takes advantage of economies of scale, and makes efficient use of efforts in building strong and meaningful development. The basis for this growth was mainly by focusing on automotive, industrial technologies, and consumer goods, creating products with high innovation, efficiency, and effectiveness.

Acting according to principles shared with many other firms on an international scale helps the company achieve international recognition as a pioneer in Corporate Social Responsibility Initiatives. This implicates having a high-performance business today without compromising either future business performance or society’s future well-being.

What are B2B and P2P collaborations? How do they fit in Bosch’s supply chain management process?

Create a graph of the supply chain for Bosch and incorporate in each stage all the different partners, stakeholders, customers, and any other agent with which the firm collaborates.

How could the firm improve its supply chain management and product innovation considering the herein description of the BoP phenomena?

Do you believe it has been positive for Bosch to ally with such a large number of agents? Would you say it could be improved through new collaborations with underdeveloped countries? Justify your answer.

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World Resources Institute. 2007. “The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid.” World Resources Institute, International Finance Corporation.