The Future of Digital Business Models for Industry 4.0 in the Post-Corona Economy

covid 19 digital business moels

Position paper by the expert group "Digital Business Models for Industrie 4.0" (AG 6) of the German National Stakeholder Platform Industrie 4.0.

The COVID-19 pandemic is challenging politics, society and the economy to an unprecedented extent. The effects have been so drastic that they have forced companies and entire industries to consider methods of crisis-management for both short-term issues and the uncertain future.

Although we have not overcome the crisis, it is already becoming apparent that the pandemic will act as a catalyst, reinforcing existing trends and thus fundamentally changing our everyday economic life and creating new winners. The business models that will prevail will be those that respond to changing economic and social behaviour and new demands, using the full technological opportunities underlying Industry 4.0.

Against this background, the Expert Group "Digital Business Models in Industry 4.0" of the German Platform Industry 4.0 has formulated ten theses on the future of digital business models for Industry 4.0. Expressed in the form of propositions, they provide companies both with impetus and inspiration to deal with the consequences of the COVID-19 pandemic from a strategic perspective.

  1. Boost for digitalisation and digital business models, but also a clear demand for scalable digital infrastructures and high-performance communication networks are becoming increasingly important

The crisis has given a significant boost to digitalisation in general and digital business models in particular. In response to the experience of the lockdown, companies will automate their production even more, transforming their services into digital offering at a rapid rate.

Throughout Europe, however, the crisis has also demonstrated the importance of high-performance digital infrastructures and scalable communication networks for industry, the healthcare system, but also in public administration and education. The crisis also revealed significant deficits and differences, particularly with regard to the digital maturity level of various industries and sectors (e.g. processing possibilities of real-time data, the maturity of digital processes, the speed and willingness of adaptation).                                        

  1. Flexibility and agility become the basis of competitiveness

Flexible companies, which can quickly switch to new markets and products, gain an advantage over specialised high-volume manufacturers when there is a need to react to exogenous shocks like a pandemic. The economic benefits that conventionally mandated the pursuit for economies of scale and a shift to low-wage countries are now being reconsidered.

Established complex value chains differentiate themselves into focused production and supply chain constellations for different component and product classes. Agility and flexibility are becoming even more than before the core strategic objectives of the transition towards Industry 4.0. A core design principle for the factory of the future will be assortment and volume flexibility.

  1. Resilience of value networks as a new business case

Resilience will complement the conventional set of strategic objectives of Industry 4.0, becoming similar in importance to operational efficiency (OE, OEE) and strategic differentiation (e.g., individualisation, flexibility, sustainability). Resilience is becoming a driver for the development of the next generation of applications with industrial artificial intelligence.

To achieve greater resilience and stability, some companies will integrate previously distributed value-chains more vertically (i.e., prefer to make over buy and increase the depth of their value creation), no longer making strategic decisions based on cost considerations solely. Digitalisation is used to manage the increasing complexity resulting from vertical integration.

Other companies will increasingly rely on networks and cooperation, seeking additional strategic partners and suppliers who benefit from a focused position in a value chain. Value chains are shortened, and more partners are added for diversification, primarily to secure (system) critical components and increase their flexibility in production and service delivery.

  1. Localisation of manufacturing demands adaptation of product and process architectures

The desire for more local and robust value chains will lead to the emergence of new players. Production will become more decentralised and local. Flexible local factories will work as a contract manufacturer for various product suppliers (brands) for a confined market.

This requires new business models for manufacturing ("Manufacturing-as-a-Service"), but also new product architectures with less complexity, higher flexibility and/or the use of local and recycled materials to fit local market conditions. Additive manufacturing technologies will get an additional growth of adoption by this development.

  1. New ecosystems and marketplaces are emerging

Disruptions in global supply chains and sharp fluctuations in demand have disrupted the balance between supply and demand and the confidence in established supply chains in many industries.

New marketplaces and collaboration platforms are emerging to match needs and resources across industries and outside of established business relationships, e.g. in terms of production equipment, freelance capacity, materials, or supplier parts.  

  1. Innovative revenue models are getting traction

Many companies have suffered from a limited cash flow or scarce capital availability both during and after the Corona crisis. Hence, innovative pricing & delivery models for industrial infrastructure, such as as-a-service, pay-per-use, or subscription models, are becoming increasingly attractive. Solution providers of industrial infrastructure and equipment with business models offering low initial investment and flexible terms to their customers will benefit. However, this shifts the investment risk and the difficulty of estimating demand to the operators of such business models and asset owners.

On the one hand, this calls for innovative cooperative financing instruments or crowd-investing strategies to counter limited liquidity and reduction of investment funds. On the other hand, it also demands new engineering skills to design and develop these flexible smart assets and dedicated innovation skills to build the corresponding business models systematically.

  1. Competence requirements are changing radically

To profit from digital business models in Industry 4.0, established competencies in engineering and production have to be complemented by stronger service and user orientation, digital marketing and financing know-how, as well as scalability strategies.

Established industrial companies and their managers and associates in particular need to build and adopt new skills and competencies. Above all, the development of collaboration and interaction competence in virtual networks at employee and company level is becoming a decisive competitive factor.

  1. "Physical distancing" of production: Remote services increase importance

In industrial manufacturing, digitalisation and automation are increasing. The possibilities of working from home in the office area are transferred to industrial production. Remotely managing a plant or even operating a workstation from one's home office will become a very real possibility.

Suppliers and solution providers with corresponding digital service offerings will, therefore, see a significant increase in demand. In particular, remote service offerings will be expanded. Virtual and Augmented Reality (VR/AR) technologies, collaborative robotics, and industrial artificial intelligence will gain in importance.  

  1. Flexibilisation of work fosters new forms of organising and learning

The Corona crisis has, often dramatically, revealed the strengths and weaknesses of many organisations to their management. At the same time, former implementation barriers and adaptation hurdles for digital tools and processes have been drastically reduced – flexible trial-and-error experimentation has been rewarded. The flexibility gained during the months of the crisis will continue to advance, especially concerning forms of work and learning.

The "home office" will remain an integral part of the work organisation. Industrial work processes will be radically changed by remote services, data-based decision-making (e.g. predictive maintenance), and the increased use of digital twins and virtual reality tools. Education and training will follow these developments and will increasingly use digital delivery formats, digital learning tools, and learning analytics.

  1. Industry 4.0 as an enabler for sustainability

The future development of industrial production and its increasing digitalisation offer enormous opportunities for more sustainability in Industry 4.0. The Corona crisis has reinforced the importance of management with a strong focus on ecological and social sustainability. Digitalisation and new value-chain constellations can lead to significant improvements in terms of lower material and energy consumption over the entire product life cycle from engineering and production to maintenance and disposal – and society is demanding that companies utilise these opportunities.

Background: About the Platform Industrie 4.0

In the Platform Industrie 4.0, companies, their workforce, trade unions, associations, science and politics have joined forces to promote the digital transformation of manufacturing in Germany. Started in 2013, the platform's partners see Industrie 4.0 as a pivotal opportunity to strengthen the competitiveness of Germany as a production location. For them, digitalisation is a process of society as a whole, which can only be successful in dialogue.

The platform is steered and led by the federal minister for economic affairs and energy, Peter Altmaier, the federal minister of education and research, Anja Karliczek, and high-ranking representatives from industry, science, and the trade unions. Experts from business, science, associations, and trade unions develop operational solutions together in thematic working groups.

Editorial team of this position paper

Svenja Falk, Accenture GmbH

Sicco Lehmann-Brauns, Siemens AG

Fabian Schmidt, Software AG

Frank Piller, RWTH Aachen University

Lilian Matischok, Robert Bosch GmbH

Daniel Brachmann, STEAG New Energies GmbH

Nils Madeja, Technische Hochschule Mittelhessen

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