Taking the next step of digitalization - what does it take?
Toni Ahonen & Pasi Valkokari
Opportunities, enablers and barriers
A large number of companies are currently making a transformation toward a service mind-set with digital capabilities. The exploitation of data and the development of profitable data-based business is a topical development target that involves many ongoing projects. Digitalization transforms companies' operations, businesses, and ecosystems in several ways, providing new revenue and value-producing opportunities.
So, what does it take to create profitable services that create novel customer value? It demands a strict focus on the customers, and their appreciations and experiences. Taking a look at what pioneers have already achieved may also offer new ideas. Use of new technologies as an integrated part of the adopted business models and processes provides new opportunities for gathering and exploiting information relevant for the customer. Furthermore, agile testing together with understanding long-term objectives thoroughly makes it possible to start with new things quickly, while also keeping an eye on the overall strategy.
What makes it so hard to create digitalized services? Sometimes knowledge-intensive services cause a demand for changing the operational processes of the company, which may hinder the implementation of the digitalized services. For data-based services the issues with data ownership and security still require attention. In addition, the availability of data in many cases is a potential barrier. However, the lack of capabilities to produce required information for different decision-making situations of the customers is the real bottleneck, which is a result of poor knowledge on customer needs. This stresses the need to communicate and understand customer value, specifically on segments with pure focus on costs.
What should be done and how?
Development of digital services is not just about technology. Instead, there are a variety of aspects to consider, starting from customer needs and strategic fit, finally leading to the requirements of the technologies. We have identified the following focal development areas where VTT can support companies.
Approach to service development
We have divided the service development approach into four development areas as follows.
- Road mapping: Bottlenecks of the current systems need to be identified in order to recognize the potential for improvement and thus services. Digital technologies may open up new significant opportunities and therefore there is a need for mapping relevant technologies and identify their exploitation potential. Furthermore, a company should also define its strategic position with respect to digital services. If, for instance, there is willingness for transformation from a product supplier to a value partner, there is a demand to consider and plan practical steps.
- Understanding customers' decision-making context: The developed services may target at strategic, tactical and operational levels. At all these levels, the objective should be to support customers' decision-making situations. Acquiring adequate understanding of these decision-making situations can be supported.
- Business model development: The business model is the rationale for how an organization creates, delivers, and captures value. Development of digitalized services calls for rethinking the value proposition. The focus may be for instance on the development of a) service platforms and enabling technologies, b) analytics-based services, c) asset performance services. Since the business logic is different between these service types, capabilities are needed for business modelling and service design.
- Agile development: Agile development practices are needed due to e.g. increased complexity, data and service intensity of manufacturing companies and their products. Since there is a risk that all rapid experiments are not aligned with the strategic focus, there is a need for reliable and continuous evaluation of the ideas and development projects. A range of service design methods may be selected to ensure that the features of the services are in line with the customer needs. Furthermore, an external facilitator is capable to bring in the required development methodology and, in addition, experience and benchmarks from a wide range of industries.
Data to Wisdom and SmartAdvantage project seminar for international business brought people together from industry, Business Finland and research organizations
A collaborative event for speeding up international business, organized by two research projects, brought together 9 business representatives and 10 researchers to address the internationalization paths enabled by circular economy and digitalization. In addition to research institutes, companies received support from an expert from Business Finland, Reijo Smolander.
Smolander told about Business Finland's services and the internationalization path of companies. He has a strong service business background from Nokia, and has also led the "Industrial Internet - Capitalize your Knowledge" growth program at Finpro. Through for example market research and mapping services, Business Finland supports companies in their efforts to build up global business. Focal needs of the companies include opening up new doors, supporting networking opportunities as well as producing and utilizing information on a new market right from the beginning of the new business creation.
Finnish companies have strong technological know-how. However, competitiveness is difficult to reach based on only technology, and therefore it is important to expand the offering. Constant interaction with the customer enables up-to-date understanding related to customer needs which is essential for offering development. Services are a great way for this. Reijo Smolander emphasized that in developing services, establishing customer understanding as early as possible is a prerequisite for the success of a new business.
The company can be at various levels of service business with respect to the depth of a customer relationship. Services vary from providing occasional support and resources towards a deeper partnership where company is an integral part of the customers' business and development. It was agreed on that a deeper partnership does not necessarily offer greater profitability. Instead, it is essential that a company defines its strategic position with respect to the service business levels.
We still have not seen a big breakthrough in the creation and acquisition of digital service offerings. It has also been stated that, while companies' product sales are increasingly focusing on the emerging Asian markets, there are still major challenges in the sales of services to that specific market, for example, in communicating the value of the services.
Jukka Hellman from Huurre presented their development of international service offering for cooling and heat production. This approach includes, among other things, machine-learning based services for energy optimization and maintenance, as well as comprehensive cooling and heat production services. Hellman sees digital services as a key factor in internationalization.
In the group work of the event, companies created ideas that would enable companies to enter the international market with the support of each other, their partner networks and researchers. Discussion focused on e.g. the services to the end-of-life phase of the technical systems, the resource efficiency of the food production value chain and new service solutions for the production of recovered fuel.
At the event, the conversation was brisk and the networking and peer support was considered to be successful. Networking will continue in the result seminar organized again by the projects in January 2019. More experiences will then be shared on how to develop the circular economy and digital solutions.
Collaboration event with Data to Wisdom project
SmartAdvantage and Data to Wisdom projects held a joint event where industrial companies and research organizations shared their thoughts on digitalization and circular economy. Results: D2W_SmartAdvantage__WS_Results_170915.pdf
Third project workshop
The third project workshop was organised in April 2017. The workshop focused on business models. The group discussion concentrated on how the business models need to be changed when moving towards data driven service provision. The Business Model Canvas was used as a tool for structuring the discussions.
Key observations from the discussion included the following:
- Value proposition needs to be carefully considered when transforming to data driven business. Understanding customer needs is central.
- Customer relationships become continuous and are based on mutual trust. Open APIs are important. Customers will be important partners when the focus is on customers' lifecycle.
- Channels to reach customers are more direct. Reaching customers will be easier through global digital channels.
- Cost structures will change. There will be new types of costs related to data collection, storage and analysis.
- Data sharing with customers and partners need to be carefully planned and agreed with all involved organisations.
Second project workshop
SmartAdvantage project organised its second workshop in January 2017. The workshop concentrated on knowledge-based data analytics. Researchers shared results from previous projects and experiments and provided ground for discussion. The following topics were presented and discussed
- Stochastic simulation (presenter Jouko Laitinen)
- Utilisation of process data (presenter Tauno Toikka)
- Systems of systems modelling (presenter Henri Vainio)
- Analysis of maintenance data (presenter Susanna Kunttu)
- Usewood demo (presenters Ananda Chakraborti and Olli Usenius)
It was discussed that, in many cases, large amounts of data are collected currently but companies do not have readiness to effectively utilize the data. Knowledge of the behavior of the technical systems and understanding of the phenomena in the production systems were found very important in the development of the new analytics solutions. Thus, it was agreed that different skills and expertise need to be integrated. Presentation on the analysis of maintenance data showed that utilization of the available data may start with simple / simplified models and there is an opportunity to gain promising results right from the beginning. From the perspective of the industrial partners, the most significant application areas for data analytics are currently related to maintenance. However, companies are seeking for new opportunities to support productivity improvements in customers' operations.
New business from big data
Helena Kortelainen from VTT and Kari Koskinen from Tampere University of Technology discuss the new opportunities related to digitalization and exploitation of data: https://vttforindustry.com/2017/02/24/new-business-from-big-data/
First project workshop
SmartAdvantage project organised its first workshop in November 2016. The workshop concentrated on sharing information about the objectives of the company cases and utilisation of knowledge from relevant previous projects. In addition, the workshop discussed the following themes:
- Enablers and barriers for digitalisation
- Data management, collection and treatment of data
- Services and business models
Key enabling factors for digitalisation identified in the workshop were e.g. partnerships, rapid experiments, internal communication, training, and marketing. Digitalisation opens new opportunities for internationalisation and developing new types of services. Knowledge-based services can be developed to minimize downtime, optimising value chains, measuring lead-times and analysing bottlenecks.
Data availability is usually not a problem. Large amounts of data are collected, but many times only a fraction of the data is utilised. Data analytics is an area where more know-how and competences would be needed.
Digitalisation enables development of new business models. It is important to develop the business model so that the value proposition is clear and describes the added value for the customers. Revenue models need to be well specified and proper KPIs to indicate the benefits need to be developed. Development of new digital services signifies that customer needs should be well understood. Delivery of new type of services usually requires partnerships. Development of these partnerships is important part of the business model development.