The demand for corporate responsibility accelerates the development of digital business models in industrial production

Industry 4.0 raised great expectations for digitalization to enable more efficient production and revolutionize business models. Instead, the development froze down. Now social pressure acts as a catalyst for the renewal of business models. But why does this happen, and what does it take to succeed?

When a manufacturer packs a machine full of sensors and starts selling its products as a service and charges, for example, a monthly fee based on usage, it sounds great. However, that is not enough to call it a breakthrough – let alone a new business model.

“For ten years, there has been talking about physical devices becoming smart and connected, bringing new business models to the table. Today, almost every company offers data services or has an initial plan. Still, it is a lucrative business only for a few,” says Etteplan's software business development director Kari Jussila.

“Many did start their journey only to realize that they were vastly underprepared for the expectations of the customer field. It is quite naive to think that new Industry 4.0 business models would be built around machines and production facilities on their own. So, the enthusiasm weathered down.”

The service model can stumble right from the start if the buyer has the wrong attitude. Many are hesitant to share their operational data with the supplier's service or portal. No one wants to be the first to open their data to outsiders, which also hinders data-based remote optimization and predictive maintenance.

“It seems that no one paid proper attention to producing value for each entity operating in the value network. You cannot just promise to deliver your service on a monthly fee and focus on the money, efficiency, and productivity boost coming your way. We need to abandon the idea of development starting from our own point of view alone," Jussila characterizes.

However, the change in business models has now been given new life due to the climate crisis. Investors, partners, and personnel expect any company to operate responsibly, reduce its environmental footprint, promote the circular economy, and use cleaner raw materials. The pressure towards change affects the manufacturing industry particularly strongly.

“If you think about the investor field alone, they want to guide investments on the basis of sustainable development and responsibility. Social regulation also needs to be compliant. This forced responsibility acts as a catalyst for many changes that have not been implemented solely from traditional business premises,” says Jussila.

“Societal pressure brings in the demand and keeps the development of business models alive. The change has become a hygiene factor more than a competitive advantage. Responsibility requirements force companies to think about things more broadly,” he says.

Even in Germany, the birthplace of Industry 4.0, it has been established that only a few companies can make new digital business models succeed by themselves.

“It is essential to look up from mere efficiency and own cash flow. You have to consider the value of your own service in terms of the entire value chain, think about the whole, understand the value network, and share information with the subcontractor and dealer network. You have to be able to tell how the subcontractor and the customer win.”

For example, tracing the carbon footprint requires digital solutions and opening up the playing field. Even in product and plant design, sustainable development must be considered, and care must be taken to ensure that everything is traceable. The task is to find out if the solutions are recyclable, if there is a secondary market for them, and how to manage them sustainably.

It is not a good idea to hastily sink resources into fancy business models because the implementation will quickly become expensive. Instead, you need to consider whether the model brings value to you and your entire network.

“Fortunately, the digitization solution doesn’t always have to be massive; sometimes, a web form directed at a subcontractor, or the distribution of selected data to your value network, can be enough. A well-thought-out goal and plan enable the development of the business model in small and responsible steps,” Jussila refrains.