How the equipment as-a-service model is transforming traditional business in high investment sectors

This case study explores how the equipment as-a-service model is transforming traditional business in high investment sectors.

The emergence of Industry 4.0 and the adoption of the Internet of Things (IoT) impact every economic sector – from manufacturing to healthcare and mining to retailers. This is especially true for businesses in legacy industries that need to embark on a business transformation journey to stay relevant.

According to a report published by IoT Analytics, the global spending on Industrial Internet of Things (IIoT) platforms will surge at an annual growth rate of 40%, reaching US$12.44bn in 2024.

Why does the IIoT see such growth?

The power of the IIoT lies in its ability to create a unique competitive advantage for industrial businesses by bringing together connectivity, embedded intelligence and unprecedented levels of analytical insights. It comes as no surprise that the IIoT has become a steppingstone for building innovative business models and opening new revenue streams.

The rise of the Equipment as a Service model

Production

The term Equipment as a Service (EaaS) describes the process in which production systems, machines, or equipment are not purchased but are provided by a third-party company for a certain period and billed to end customers for usage.

The Industrial Internet of Things lies at the heart of its success – enabling equipment uptime and reliability. It helps the service provider adapt maintenance intervals flexibly to the actual usage of machines and production systems and use complex data analysis and evaluation to detect possible damage in advance and avoid it proactively. Furthermore, networked systems can recognise additional usage options based on production data, thus allowing the IIoT to make previously untapped potential visible and usable.

Equipment as a Service has much to offer, not only in cost savings but also in new modes of flexibility, scalability and operational efficiency. Because the EaaS model entirely covers maintenance and service, operation becomes more efficient than the conventional operating models, such as procurement, installation, testing, validation and maintenance of the assets.

Beyond products

The EaaS model changes traditional business models in high investment sectors. Outgoings for fixed assets, such as machines and equipment, are no longer needed in this model or can at least be reduced significantly. There is value created for the companies that are operating equipment when shifting from a capital expenditure model to an operating expenses model.

Then there is value created for the original equipment manufacturers (OEMs) – capturing much more of the asset value itself.

What are the benefits of the opex model?

It is easier for customers to buy when they can mark a purchase as an operating expense rather than capex. Switching to opex leads to higher customer satisfaction and an increase in revenue. One big advantage of IIoT technology is transforming products into services. Furthermore, the services can be adapted to various variables, for example, levels of usage and types of usage. The Industrial IoT is a powerful tool for making the pay-as-you-go model available for physical equipment.

Sensors in the equipment can detect and record usage, sending the data to a central accounting and control system, either in the cloud or elsewhere. There are even more benefits – levels and types of usage are logged, and the equipment’s location is always known. The opportunities are endless. Hydraulic presses, generators, turbines, earthmovers, and even jet propulsion engines – all can be offered as a service.

The EaaS transformation journey

One important point to consider is that unlocking the value of digital in manufacturing has been centred around disruptive technology and tools rather than business outcomes. Technology cannot provide value if there is no profound understanding of how and why to use it. Even when the companies know how to use technology, they are hesitant since they realise it brings a shift in mindset and changes the whole company.

The transition to the EaaS model affects the entire organisation – shaping the whole value creation chain of planning, research, development, manufacturing, marketing, sales and services. It is essential to create a bulletproof EaaS strategy to reap the benefits and avoid financial risks.

Here are some possible approaches:

• Establish digital transformation as a CEO driven agenda

• Carry out a careful risk assessment

• Calculate customer-specific price points based on a realistic analysis of the lifecycle costs

• Draw up contracts that take your customers’ specific situations into account

• Think big – external capital can help your organisation focus on transforming the entire business model instead of focusing on single initiatives and pilot programmes.

How can you make sure that your EaaS transformation is successful?

Man is using iot device

When embarking on a business model transformation journey, get ready to face the build versus buy dilemma. You will inevitably need to decide whether to implement IIoT solutions alone or bring an expert partner onboard. Even if your business instinct leads you to an in-house solution, you should take your time to weigh the options carefully.

There are numerous questions to consider before deciding which road to take. These are tough questions to answer – particularly for businesses implementing business transformation for cost-cutting, streamlining or efficiency reasons.

Bringing a third-party IIoT partner on board may appear an unnecessary expense and one that’s difficult to justify. There are also other points to consider, for example, the time required to select the appropriate technologies and train teams to work with the new systems. Let’s not forget the time needed to maintain and update these systems. And what about the time that you will lose on your core business as you redeploy resources?

All in all, the factors playing a decisive role in the business transformation journey can be placed into two categories – the human component and the technical one. Finding an answer to the build versus buy dilemma means considering both elements.


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