As digitalization paves the way for completely new business models and innovations, many traditional companies are struggling to keep up with the pace of change. Leif Östling, Chairman of the Confederation of Swedish Enterprise and former CEO of Scania, discussed the challenge in an interview with us.

As a warm up for your Innovation Forum, we had the opportunity to interview one of our Keynote Speakers Leif Östling. The Chairman of the Confederation of Swedish Enterprise and former CEO of Scania shared insights the ongoing digitalization – on how is it affecting incubators and traditional businesses?

Image: Ernst Henry Photography

TECHNIA (T): How is digitalization changing current business models?

Leif Östling (LÖ): I come from a very traditional B2B industry, where there are huge opportunities to expand existing business models by using digital technology and innovation. The concept of having just a physical product is outdated. You must have a combination between a physical and virtual product, like using sensors and predictive algorithms to predict when certain machine parts need to be replaced. There are massive opportunities today to create new services built around an already existing product, but unfortunately many companies are struggling to understand those opportunities.

T: How can companies find the right balance between innovation and nurturing a traditional business model?

LÖ: The key is that you can’t have a static business model. Even IKEA, for example, recently opened up a small showroom just for kitchens in central Stockholm, where customers can try out products and then order for home delivery. And Amazon bought Whole Foods in the U.S. to use as its visual shop window.

T: You mentioned creative people: is there a danger that the human element is forgotten if companies focus too much on just technology?

LÖ: Yes, it’s incredibly important to keep focusing on people. Technology is an instrument, but the key is to find the people with knowledge of how to use that instrument. That’s the only way to incorporate new ideas and the power of innovation into your business model.

Analyzing data

T: Looking ahead 5–10 years, what’s the key to developing business models that will maintain a competitive edge?

LÖ: One crucial aspect is to not look too far ahead. You must focus on improving what already exists today, maybe changing it by 5–10 percent each year. Don’t try to change 100 percent. A business model can never be anything but a reflection of what your customer base wants. If you move too far ahead of your customer base, those ideas will fall flat. Don’t try to anticipate what’s coming 10 years from now, because it’s irrelevant.

T: With that in mind, how should companies develop long-term strategies for taking advantage of digitalization?

LÖ: You must view all digital tools as an asset, and then select the right tools to develop your business model in a way that’s relevant for your customer base. In the end it’s the customer who will decide what’s successful, not the company. Traditional companies are still working with an inside-out mindset instead of outside-in. In other words, they should start from the outside, with the customer, and work inward toward the company.

T: What effect will these new business models have on the job market?

LÖ: The percentage of staff involved in the production side of things will continue to decrease. Take Scania, for instance. Today only about one third of our employees are involved in production. Twenty years ago, it was two thirds.