Reshaping business models for digital era in manufacturing industries

Digitalization and Internet of Things (IoT) are shaping nowadays the industrial economy and it is said to be a driving force for a fourth industrial revolution. The traditional business functions should be restructured. A successful organization needs diversity amount employees and innovative resource combinations should be created from individual competencies. This study indicates that manufacturers’ entire business model should be redefined for being successful and competitive in the future.

Digitalization is forcing companies to redefine and rethink nearly everything they do. The traditional business functions, such as product development, IT, manufacturing, logistics, marketing, sales, and after-sales service, are being redefined. Starting from product development, the increasing of embedded intelligence in product requires competencies and integration of several disciplines: mechanical, electronic and software. In addition to being multi-disciplinary, the development of complex systems is usually multi-life cycle, multi-site and multi-organization at the same time. Marketing and sales will have completely new ways for operations as digitalization, virtual reality and other new tools can support the operations. After-sales is moving already more and more towards automated sensor data based analytics, which makes possible entire new predictive service models.

Observations from the practice indicate, that today the competencies might not fit in the future requirements and for searching solutions for digitalization opportunities and creating new value for customers. Diversity among employees can create better performance results with creative tasks such as innovations, product development or targeting new markets. Manufacturers will have to hire experts in applications engineering, user interface development, and systems integration, and, most notably, data scientists capable of building and running the automated analytics that help translate data into action. New competencies will be the base for the new kind of organizational structures. Because of the growing volume, complexity, and strategic importance of data, it is no longer desirable or even feasible for each business function to manage data by itself, build its own data analytics capability, or handle its own data security. To get the most out of the new data resources, many companies are creating dedicated data groups that consolidate data collection, aggregation, and analytics, and are responsible for making data and insights available across functions and business units. This new organization unit could be called Unified Data Organization. The second new unit will be Dev-Ops (a clipped compound of “development” and “operations”), which emphasizes the collaboration and communication of both developers and operations personnel. The third new organization unit will be Customer Success Management, which is responsible for managing the customer experience and ensuring that customers get the most from the product. This new unit is extremely important, when moving towards service business and product as a service operation models.

At the end, manufacturers’ entire business model should be redefined for being successful and competitive in the future. Value proposition in the future will be based on the Digital or Smart connected products and digital life-cycle services. Basic product will be supported by Tailored performance service offerings and Right timed product-service deliveries. Customer Success Management (CSM) unit will define analytics based customer segments locally and globally. On the supply side, selected performance and value creation partners will be defined, as well sustainable production partners. For the logistics and supply chain the agile demand-driven supply chain partners are needed. Physical transport is not sustainable and cost efficient, so in global business, still the utilization of local resources will be important. Key activities are Streamlined customer processes through innovation, production, problem solving and networking, as well the Business data management. Key resources are organized in new ways with taking care of entire new organizational units, as mentioned in earlier chapters. In revenue side, new performance and value based revenue models will be formed. On the cost side, efficiency and sustainability are the key targets. As a conclusion of literature and case studies findings, the elements of future business model are listed on following Figure.

Jukka Hemilä

Manufacturing Industries Business Model for digital era.

Digitalization is a major opportunity and strategic investment that often requires renewal of the business strategy. The digitalization itself should not be the driver, but the opportunities created by digitalization. Practitioners should analyze the future customer value, what is valued by customer in the future, which kind of technologies, products and services create added value for the individual customers. New kind of competencies are needed in successful organizations and HR will have to rethink many aspects of organizational structure, policies, and norms. In modern industrial ecosystem, companies should still focus on core business and non-core areas should be outsourced. It is time to redefine business model according the future customer value and needs.

This blog post is based on the published conference article:

Hemilä, Jukka (2016): “Reshaping Business Models for Digital Era in Manufacturing Industries Supply Chains”, The Proceedings of 7th International Conference on Operations and Supply Chain Management (OSCM), Phuket, Thailand, 18 – 21 December 2016.

Jukka Hemilä, Senior Scientist, VTT Technical Research Center of Finland

Manufacturing industry in digital transformation

Data is power and capital in the digital world. Data can provide the basis for new services, can be used for the development of existing products or the creation of new ones, and can enable us to learn more about our customers, enhance existing customer relationships or discover new markets. Manufacturing industry has traditionally been about selling machines and devices, while life cycle services tend to cover after-sales service and the sale of spare parts. The digital revolution is transforming old practices and turning the business environment and work at the customer interface upside down.

Data is easy to collect and store, but little is being done to exploit it in the development of business activities or of products, services and processes. This is due to the fragmented nature and uneven quality of the data collected and a lack of the required analytical skills. Companies are often still unclear about what, or what kind of, data they hold. Sensibly combining data of various quantities and from various sources is difficult. Companies may also be unclear about the quality or value of the data they hold.

Using digital technology to transform services into service businesses has become topical among SMEs in the manufacturing sector. A huge challenge lies in transforming into a digital business on the one hand, and making the leap from being a product manufacturer to a service business on the other. Thought must be given to the ramifications of such a change for the firm’s management, operations, tasks, skill requirements and cooperation, whether internally or at company-network level. Issues to be considered include how structural and functional changes and the adoption of new skills can be planned and implemented in a managed way that keeps employees on board with the transformation. However, digitalisation is not an end in itself – solutions must also be considered from the perspective of added value for the customer and business.

Digitalisation also offers new solutions and business models for firms engaged in developing their productivity and turnaround times. Maximal use of 3D models and digital information throughout the supply chain should be explored at the design-production interface. Interfaces between companies and systems are challenging; digital communications often fail to cross such interfaces, while the same data is fed several times into multiple systems within silos. By analysing the flow of information within the order-delivery process, an overall picture can be obtained of the consistency of data flows, and of the cost effects of information blockages on general productivity.

The Smart Machines and Manufacturing Centre (SMACC) of VTT Technical Research Centre of Finland Ltd and Tampere University of Technology focuses on the challenges posed for manufacturers, particularly SMEs, by the digital transformation. Experts from SMACC have developed tools and methods using which companies can quickly build an overall picture of the potential offered by digitalisation from both the business and technology perspective, as well as a clear roadmap for taking the digital leap and for the practical implementation of what follows.

Jyrki_Poikkimaki_2Jyrki Poikkimäki

Key Account Manager

Interactive robotics – the key to small series production?

Over the past couple of years, robotics has frequently made the headlines.  For example, Frost & Sullivan have listed robotics as one of the future megatrends. It is expected to gain a similar position as the Internet. The expectations of robotics are high, particularly in terms of its ability to increase efficiency in European and Finnish manufacturing.

Robotics to promote European manufacturing

Attitudes to robotics in production are contradictory: on the one hand, manufacturing is expected to get a boost in efficiency, but on the other hand, there are fears that jobs will be lost. However, more efficient production can mean the preservation of current jobs, the creation of new ones and a change in the nature of work in a more technical direction. Robotics can thus help European manufacturing to survive in the face of the competition from lower-cost countries.

Industrial robots and humans

In industrial robotics, cooperation between humans and robots is a new phenomenon that is referred to using terms such as interactive robotics, collaborative robotics or human–robot interaction. They all mean that a human and robot work simultaneously within the same space. The human can even be in physical contact with the robot. Interaction makes it possible to effectively utilise human perception abilities and powers of reasoning.

New standards as an enabler

The introduction of interactive robotics in industry has now been made possible by new safety standards for robots, ISO/TS 15066 in particular. It identifies four types of collaborative operations: safety-rated monitored stop, hand guiding, speed and separation monitoring, and power and force limiting. Within these categories, robots no longer need to be isolated from their operating environment in e.g. cages.  When a robot is performing an automatic task, a human approaching or even entering its workspace does not have to trigger an emergency stop – reducing speed and, if necessary, stopping movement is enough. When the human has left the space, the robot can continue operating as usual. Moreover, if the force exerted by the robot is sufficiently small and the robot reacts to contact, it can operate alongside humans. Possible dangerous situations caused by the robot tool must naturally be taken into account.

From a future concept to agile small series production

It took quite a while before technology – and standards in particular – developed to the level required by practical applications. Professor Aarne Halme, who at the time worked for the University of Oulu and later became a long-time Professor of Automation Technology at the Helsinki University of Technology and a prominent figure in the field of robotics in Finland, introduced interactive robotics as early as the beginning of the 1980s. I myself used the heading of this article as the title of my conference presentation in 1987. Today, interactive robotics accelerates production and increases efficiency. It makes the programming of tasks faster and enables the automatic or semi-automatic execution of production tasks.  These issues are of key importance in agile small series production, in which new goods are continuously put into production and batches of a few items or even single items are common.

Inexpensive force-limited robots

Several force-limited robot models – lightweight desktop robots – have been brought to the market whose accuracy is measured in hundreds of a millimetre at best. These robots can cost less than €20,000, meaning that investing in a robot now involves much less costs than before. Thanks to power and force limiting, cages are not needed to ensure safety. However, force-limited robots run at significantly lower speeds than regular industrial robots. Additionally, due to the less expensive materials and components used, their effective working hours can fall short of those of regular robots.

VTT's control stick enables faster teaching of paths

VTT’s control handle enables faster teaching of paths

Teaching a robot

In interactive robotics, a human interprets the environment for a robot and its sensors by pointing with a device or by using simple marking methods such as identifiers. The human tells the robot what the environment contains and, for example, which surface of a workpiece must be polished. The robot’s paths can also be programmed by showing the robot where to pick up and drop off a piece, or by teaching, for example, polishing paths with a tool attached to the robot and in contact with the workpiece. This can also be done without saving the robot’s path points, in which case the robot can be used as a skilful assisting device for moving heavy items. Heavy objects can even be assembled using this method. The human operator grabs the robot’s wrist or a control handle attached to the load and guides the robot to pick up the object and drop it off at the destination. In the interactive handling of objects or teaching of paths, it is essential that the robot is equipped with a sensor that recognises forces and with corresponding force/torque control.

VTT is a pioneer in interactive robotics

Technologies related to interactive robotics feature strongly on VTT’s robotics agenda. We have developed methods and wireless technologies for the observation and recognition of objects and humans, and have integrated these into the controls of robots and robot systems in order to provide flexibility and safety. Interactive robotics is a promising starting point for the needs of automation in small series production. VTT is ready to tackle challenges put forward by companies.


Tapio Heikkilä

Principal Scientist

Do we still need the manufacturing industry?

A decade ago China became the country on everyone’s lips. It was to become the cradle of the world’s manufacturing industry. Other countries need not apply. “Would this role be enough to even satisfy China?” “What if China takes it all?” At the same time, Finland was going through a mobile technology and software development boom. Traditional manufacturing became known as a smokestack industry. This term changed people’s image of the manufacturing industry. A representative from a major organisation and a member of a Finnish innovation system caught me off guard with the following question: ”Will there be a need for traditional industries in Finland in the future?” Having recovered from the initial shock, I began to understand what led the representative to ask this question. What I couldn’t understand, however, was the conclusion. With populations that represent 20% and 0.1% of the global population respectively, China and Finland battle in very different leagues. On the other hand, one good 0.1% can be the equivalent of several per cent.

Traditional industries play a major role in providing welfare services in Finland even today. The number of people employed either directly or indirectly in the industrial sector is around one million. What’s more, the industrial sector employs people from different educational backgrounds more equally than many other sectors. Despite the fact that collectively Finns are highly educated, not everyone can work in an engineering or specialist software position. We need jobs for everyone. The proportion of service and health care sectors has increased due to the changing population structure. We cannot rely on either of these sectors to support the national economy alone. We need them both. Just as we need many other sectors.

The Finnish innovation system has been praised around the world.  It has saved Finland from several recessions and hardships, and so has the perseverance and imagination of Finnish companies. However, the times are clearly changing now. One of the positive changes of the past few years is the increase in cooperation. Enterprises and research institutes have engaged in mutually beneficial partnerships.

Unfortunately, the needs of companies went largely ignored in the overhaul of the higher education system in favour of academic merits. Doctorate degrees are awarded on an industrial scale. When a friend of mine defended their doctoral thesis, it was one of three public defences on that day. I suspect the three lecture halls had never before seen that much defending in one day. On the flip side, we have come closer to the way research is conducted on an international level. A doctoral thesis is no longer a record of a researcher’s life work but clearly a “licence to research” for a young researcher. However, as highly-educated numbers increase, graduate unemployment is likely to increase too, rendering many graduates unable to find jobs matching their qualifications. This is a waste. Many small companies run without having a single formally educated engineer on their payroll, not to mention IT experts. There’s also room for improvement in the language skills. Starting an export business without the adequate language skills takes a lot of effort. I’m hoping that younger generations will take the language skills of companies to a whole new level when they enter the workforce.

When I was a student in the 1980s I asked my more experienced friends about the reputation of this restaurant by a bridge in Tampere. ”The typical client of that establishment is an educated person who formulates carefully considered thoughts into perfect sentences while sipping wine. Their discussion partner then replies with an equally well-constructed sentence, and in the end nobody knows what the topic of the discussion is.” Today, research projects sometimes dismiss the industrial sector and a as a consequence a mutual understanding is not reached. With the help of up-to-date applied research projects and partnerships, companies can gain a few years’ head start compared to their competitors. This may not sound like much, but in today’s world a few years is a massive advantage. Therefore I strongly encourage academics and enterprises to find a common language.

Research institutes and universities can help small and medium-sized industrial enterprises. More and more companies can go global and develop or implement new technologies. We need the export industry. I want to see the proportion of SMEs in the export sector to increase from 15% to 25%. This requires companies to increase the share of R&D to somewhere between 3% and 4% of their revenue. It is important to turn newest research results into start-ups, and it is equally important to make older research results available for current companies. Thanks to strides made in research, a research result from five years ago can today give a company a major competitive edge.

We have several wonderful companies who have the potential to succeed in the international markets. In the field, however, the approach to business operations is divided. Some companies rely on bigger companies too much which has led them to neglect their own expertise or products. If the bigger companies then move their operations elsewhere, the smaller companies quickly become economically unsustainable. The most substantial opportunities for SMEs are in the niche markets. They reward the companies for their know-how with a major market share as bigger companies turn their attention to other markets. Project-based one-off deliveries, superior working methods, specialised machinery and equipment as well as products and services combined into a smart product for the Internet of Things are just some of the examples of the keys to success.

VTT’s newest spearhead programme, For Industry, examines the pros of the manufacturing industry both academically and from the business world’s point of view. From the business world’s point of view this means that different research results are examined with the help of applied research methods, activation and innovation to evaluate their potential for increasing a company’s operations. Using the results of this research is promoted by using different operations models in small and medium-sized industries. Academic results enable us to maintain and develop our role in the global research market. Like before, we’ll get through this recession too with the help of research and innovations. And hard work. We don’t want to dismiss anyone. Let’s build a solid foundation for the future.

Risto KuivanenRisto Kuivanen

Business Development Manager