Business models are changing

The transformation of business models in Industry 4.0

If we look at the current situation of industrial companies in Europe, to a greater or lesser extent, they are following the path of digitization and the implementation of solutions in the field of Industry 4.0. The distribution that we can find in the progress of these solutions is very dispersed, from those that are beginning their path of industrial automation more typical of the industry 3.0 concept to those that are experimenting with solutions that are not very mature in the market and more typical of the field of research and development. While it is true that there is a widespread pattern in all of them, it has to do with the objectives pursued and the focus of the transformation. We can observe that the efforts aimed at automation, sensorization and data capture, digitization and integration of information flows, real-time data visualization, digital twins, cyber-physical systems, advanced analytics, predictive models, simulations, optimization algorithms and application of artificial intelligence, in most cases the main focus is still the bottom line, i.e., cost reduction through operational efficiency improvements.

However, another major focus of Industry 4.0, still less explored by most traditional industrial companies, is the focus on the top line or sales, in this case through the evolution of the business model based on the opportunities derived from new technologies and the transformation process in Industry 4.0.

Startups and "digital natives" are changing the rules of the game in the way they generate revenue and offer value to the customer, with a focus on the use of new technologies and the exploitation of data as an asset of the company.

If we focus on the industrial field, we see that a number of business models are being developed based on this trend. The difference between the new business models lies mainly in what is the lever that generates the change, where we can distinguish 4 main levers: target customers, value proposition, value chain and how we capture value.

We are going to talk about 4 major trends: integration, "servitization" or service offering, sale of knowledge or expertise and sale of digital products with IT services.

The first trend in industrial business model changes, integration, has as its main lever the transformation in the value chain. An example is the integration of customers in the design process, with the aim of making a shift from mass production to mass customization. Customers can customize their product to a large extent (the core design is usually maintained by a professional in-house designer) and thus generating a customized production on demand. Obviously this business model is only possible when we are able to manufacture in very small or individual batches and have very short manufacturing and supply leadtimes, which implies making major changes in the supply chain, among others, changing from large centralized factories in countries with low production costs to distributed production in small flexible factories close to the final consumer. Major changes in the value chain are necessary, and possible, thanks to new technologies such as having an e-commerce platform with customization and product design for the customer, computer-aided design and manufacturing tools to reduce the time and workload of transforming a customized order into manufacturing orders and production instructions, flexible process automation, additive manufacturing and, of course, all digital and integrated information flows. An example of this can be seen in Atomic Skis, Adidas sneakers or New Balance shoes.

The second trend in business model is "servitization" or service offering, where the main levers are the value proposition and how we capture value. In this area we can find different examples, one of which is the offer of maintenance services derived from product monitoring and data exploitation. This is possible thanks to the development of products with IoT sensors that allow the manufacturer to analyze the data, exploit it with data analytics algorithms and offer complementary predictive maintenance services, generating a sustained revenue base throughout the life of the product. A more radical variant of the above is the sale of product as a service, in which the manufacturer sells a package of services that guarantees product availability and charges per result, for example, hours of use. Examples of this model can be found in ABB Marine Systems (manufacturer of power and automation systems for ships), Rolls-Royce (manufacturer of aircraft engines) or Daimler Mobility Services (mobility services of the car manufacturer Daimler).

The third model we are going to talk about is the sale of knowledge or expertise. This is the case when the company sells consulting services associated with the knowledge they have of their product and process. For example, companies with a very advanced level in their production systems and digital transformation begin to offer consulting services in this area to other companies. In this sense we can find examples such as GE Digital with digital transformation consulting services derived from its internal expertise in General Electric.

The last model we will explore in this article is the sale of digital products and IT services. This case occurs when a company develops a digital solution for its factories and subsequently decides to sell the associated software and IT services to other companies. An example in this regard is General Electric's digital product offering through its GE Digital business originally developed for its plants, for example, the Predix maintenance platform, among many other systems.