13 September 2018

Cars or fast horses? – How to develop a digital business model

“If I had asked people what they wanted, they would have said faster horses.”, said Henry Ford about his innovation strategy. But what about your digitalization strategy – do you speed-up your horses, or do you create real+new value? Let us talk about your path toward a digital business model!

Technology drives digitalization, but value creation is key

Numerous technologies are relevant to Industrie 4.0. Topics such as comprehensive end-to-end engineering from the product idea to the production facility, the increasing flexibilization of the automation or the semantic integration of all data are considered vital to the digitalization of the industry. These include, for example, the introduction of real-time locating systems (RTLS) as multi-applicative localization infrastructure, collaborative and mobile robotics or additive manufacturing methods (3D printing). The horizontal and vertical integration of processes across company boundaries, too, makes an important contribution. For each of these innovations, successful application examples can be pointed out in practice.

New technologies like RTLS offer great possibilites, but they have to support a competitive digital business model.

Nevertheless, these fields of action ignore one of the key drivers of digitalization, namely the need to develop a competitive, digital business model. The starting point in these business models must not be the efficiency of one’s own processes, but first of all a possible, new customer benefit that creates a special value in a unique way. Although this can also be achieved through a better integrated (and thus more flexible) production, new customers can first and foremost be gained by new and unique service offerings, where a provider fulfills the requirements better and less expensive than its competitors. The use of modern technologies inspires and enables new business ideas here, but at the same time sets limits with regard to practical feasibility.

The typical marketing approach is not applicable

The problem with digital business models, however, is that customers can not always be asked about their requirements, because they can not articulate them or simply are not aware of what they need. Henry Ford is credited with the quote: “If I had asked people what they wanted, they would have said faster horses.” For instance, SMS for mobile phones would probably never have been invented, if customers around 1990 had been asked, in the context of market research, about the benefits of a short message to be laboriously typed on a numeric keypad – later it became a major source of revenue, lasting many years, for mobile operators.

Customers can not always be asked about their requirements, because they simply are not aware of what they need in every case.

Instead of an upfront analysis and subsequent implementation, innovation here starts with a prototype (probe), which is then tested in the market for acceptance (sense) and finally implemented (respond) – an approach that in particular start-up companies take advantage of. The idea is to develop a promising technology or product idea with little effort up to the point where users or customers can make an initial assessment of the potential and performance promise. On this basis, project teams then step-by-step develop the complete product with the customer, which is then also broadly marketed.

The solution: Technology-based Business Model Prototyping

Würth Industrie Service evolutes its highly competitive e-Kanban offering by examine the business potential of new technologies.

An example of the successful implementation of the approach presented is Würth Industrie Service in Bad Mergentheim (Germany). The company offers its industrial customers a Kanban-controlled supply of C-parts that in the past was based on manual processes and thus prone to errors. By examining digital technologies, modern supply systems in the form of an electronic Kanban could be developed, which on a daily basis report the actual consumption to the central warehouse at Würth Industrie Service. The starting point, though, was not the technology, but the business vision of optimized customer value – what needs to be done to make supplying customers better? Besides various sensor technologies, such as cameras or RFID, the focus also was on setting up an appropriate communication landscape to reliably process the information gained. Both together – the data collection via Simatic RFID and the integration into the IT systems via suitable networks and Scalance components – form the basis for the future advancement of the business model, with important advantages for customers and a strengthened competitive position for Würth Industrie Service.

The example illustrates that innovative business models require technologies for their implementation, but the use of technologies has to be clearly aligned with the desired customer value. If this balance is achieved, digital business models can also be successfully placed in the industrial sector and at medium-sized companies.

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