What Our Partners at Bosch, Siemens, SAP, and Fraunhofer Think about Collaborating on New Business Models in Industry 4.0
How do new business models emerge in Industry 4.0, and why is it important to find the right partners with whom to collaborate on innovative business models? These were the primary questions we wanted to unravel during the meetup with our clients Bosch and Siemens, and our partners SAP and Fraunhofer. Find out the answers in the wrap-up below.
Key Takeaways:
- Industrial enterprises are more open to collaboration today than ever, and their innovations are primarily shaped through dialogues with their customers.
- Collaboration in industrial IoT is also much needed to achieve more standardized software interfaces.
- Equipment-as-a-Service is mainly driven by customer demand and the changing situations of industrial manufacturers (e.g., a shift from capital expenses to operational expenses).
First Track: The Need for Collaboration in Industry 4.0
Diana (ZkSystems): Veronika, have you seen any changes in the way emerging technologies like IoT and blockchain are leveraged today in Industry 4.0?
Veronika (Bosch): We have invested early on in setting up IoT infrastructure and IoT services and even invested in our own Bosch IoT Cloud. When we first approached production plants and asked plant managers about what benefits these new solutions could deliver to them, they were very conservative about putting data in the cloud. Meanwhile, that has totally changed, and we have more and more inquiries from customers who want to find out how they can actually leverage the data from connected products and services.
Years ago, digitization and IoT might have been perceived by critics as buzzwords that would disappear soon. I’m happy that the more examples of lighthouse IoT applications we provide, the less we hear such critique. There is much sense in working together on such applications because in IoT you shouldn’t go alone. Especially for end-to-end solutions, companies have to join forces. That’s why we drive partnerships with corporates, but also with startups. Our Startup Harbour program facilitates developing and validating new business models in collaboration with startups.
Diana (ZkSystems): Petra, emerging technology like IoT and blockchain are efforts where multiple stakeholders are involved. Do you see a lot of collaboration happening in this area?
Petra (Siemens): From my point of view, we see more and more collaboration within Siemens and with our customers. Nowadays, employees from all levels inside Siemens are requested to participate in new projects, and they also challenge management when they want to participate proactively. This way, they can impact decisions like specific production facility planning or other business-related topics.
I also see some advancement in collaboration with our customers. Already in the very early stages of product development, we are talking with customers to double-check that the development of new products and solutions goes in the right direction.
Diana (ZkSystems): Christian, you have a very good understanding of the technical industrial needs and challenges of SME (small and medium enterprise) manufacturers. What is needed from a technical standpoint to enable more collaboration there?
Christian (Fraunhofer IPK): The goal of I4.0 is obviously to develop more collaboration. To achieve this, we need more standardization and standardized interfaces. We have a lot of machines that don’t have modern interfaces, like OPC-UA (open-source machine communication protocol), for example. Many machines in manufacturing SMEs still have analog interfaces such as BUS. These analog signals would need to be digitized and parameterized before they could be used for industrial 4.0 applications. Other machines have OPC-UA, but it’s not enabled. We have a lot of machines in our machine park where we can’t access the parameter that we want to use for our process model because it’s not enabled by the machine control. To solve this, we need greater effort from machine tool manufacturers, machine control providers, and users to enable standardized interfaces. A good example of such collaboration is umati (universal machine tool interfaces). This is a standardized interface based on OPC-UA and created by the VDW (German Machine Tool Builders Association) and its 17 partners.
Diana (ZkSystems): Stefan, you have over 22 years of experience in sales at SAP. How did the collaboration with customers and startups develop in this time?
Stefan (SAP): What we have seen in industrial IoT over decades is that processes and IT landscapes are sometimes grown not historically, but rather, hysterically. A lot of IoT environments are siloed solutions that were initiated far away from standard processes by people who might have left the company years ago. This makes changes and updates in these IoT systems rather complicated. In this regard, I agree with Christian. We need more professional exchanges to drive data and process standardization and to enable more co-innovation. At SAP, we have an acceleration program called SAP.iO, which I like and support personally. It’s a worldwide startup program that takes place in the United States, Paris, Tel-Aviv, and all over the world. This program drives a lot of exchange between startups and SAP and helps us come up with joint, quick, and agile solutions together.
Second Track: Rise of Equipment-as-a-Service
Diana (ZkSystems): Petra, what kind of business models are behind Equipment-as-a-Service? Does Equipment-as-a-Service compete with classical financing or leasing models?
Petra (Siemens): One of our services is offering modernization and upgrade solutions for enhancing the performance of power plants by temporarily increasing the energy production of gas turbines. Our customers can modernize or upgrade their gas turbines whenever there is the best chance to generate the most revenue with their power plants. For example, during winter and summer seasons, the probability is much higher that the customer can sell more energy to the grid due to the household’s heating or cooling purposes. In order to participate in this additional energy demand, our customers would like to implement our upgrade solution. So, originally, the pricing was fixed and based on a one-time payment.
Besides this fixed pricing model, we have analyzed different dynamic pricing models as well, like pricing based on time or based on extra megawatt-hours generated with the upgrade. There are different possibilities, and the business model of the automated Pay-per-Use is not in competition with leasing or classical financing for us, as it provides an alternative as an add-on for customers who want to shift their CapEx (capital expenses) to OpEx (operational expenses). We have more and more customers who do not have the long budget planning times like before. According to their feedback, they want to reduce CapEx and share the risk of their investment with us. An automated Pay-per-Use is a good answer to this customer requirement and the inherent market situation.
Diana (ZkSystems): I also see Pay-per-Use as an alternative to leasing rather than a replacement to it. In fact, there are many banks that are currently exploring this as an alternative financial product and a viable alternative to leasing. Cooperating with these banks may be a good strategy for machine manufacturers as well since they can provide you with a usage-based financial product for your Equipment-as-a-Service solution. In March, we will be talking about this at the largest FinTech summit at Deutsche Bank in a track with Siemens Financial Services.
Diana (ZkSystems): Veronika, how do your customers see Equipment-as-a-Service and how applicable is this model for them?
Veronika (Bosch): The progress on Equipment-as-a-Service depends on customer willingness to move towards new business models. In this case, we are not just optimizing what the customer is already doing, but rather, think about how we generate value in the future and how machines will be used. With Equipment-as-a-Service, there is an easy entry in using new machines by leveraging usage-based payment based on IoT data.
Diana (ZkSystems): Christian, we talked about the many benefits of Equipment-as-a-Service. What are the challenges for industrial manufacturers to become involved with this solution?
Christian (Fraunhofer IPK): Let’s take Equipment-as-a-Service for a milling machine as an example. If you want to implement payment based on the units produced, you may run into more maintenance overhead for these machines. The user may drive unauthorized operating conditions. You see this analogy in car-sharing for example, where users are not as careful as they would be with their own cars. Furthermore, it cannot be guaranteed that the user will use the tools until the end of their service life. It is very hard to calculate these overhead costs. To provide this, you would have to implement an automated monitoring system. By connecting it to the blockchain, you could create a layer of trust among machine tools, manufacturers, users, and service providers. The maintenance overhead could be tracked precisely and included in the pricing. This way, the user could be incentivized to take good care of the machines.
Diana (ZkSystems): Stefan, Equipment-as-a-Service is a rather new business model. So was Software-as-a-Service, which is the most used software business model for enterprises now. How did the popularity of Software-as-a-Service develop from your perspective?
Stefan (SAP): SAP invested in the past, actually, and in the future a lot in different innovative business models, like our “customer-first” approach. Providing value for our customers and their business success comes first. With service-based models, we have an ongoing interaction with our customers. We talk a lot with our customers to evaluate the ongoing positive impact of our software on their business: how did his or her business improve, and which aspects of our product were the most impactful for them? It only makes sense to build professional business models that reduce costs and complexity on the one side, and deliver process optimization with sustainable business outcomes on the other side; jointly in the best interest of our customers.
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