Unlocking Business Model Innovation through Advanced


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Unlocking Business Model Innovation through Advanced Manufacturing
WHITE PAPER JANUARY 2022

Cover: Getty Images/Just_Super Inside: Getty Images/gorodenkoff; Getty Images/Halfpoint; Getty Images/ipopba
To cite this paper, please use the following: Srai, J. S., G. Parker, N. Joglekar, M. Bärring, J. Boehm, E. Enselme, M. Basso, F. Betti and B. Schönfuß, “Unlocking Business Model Innovation through Advanced Manufacturing”, World Economic Forum, White Paper, 2022
Contents
3 Executive summary 4 1 It is time to think beyond manufacturing operations 6 2 The business model innovation opportunity for manufacturing companies 9 3 How to unlock business model innovation through advanced manufacturing 13 4 Five strategies to accelerate and capitalize on business model innovation 16 5 Guiding questions to help stakeholders drive their transformation journey 17 6 Conclusion: The path forward, a call to action 18 Appendix: Case studies 27 Contributors
Disclaimer This document is published by the World Economic Forum as a contribution to a project, insight area or interaction. The findings, interpretations and conclusions expressed herein are a result of a collaborative process facilitated and endorsed by the World Economic Forum but whose results do not necessarily represent the views of the World Economic Forum, nor the entirety of its Members, Partners or other stakeholders.
© 2022 World Economic Forum. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system.
Unlocking Business Model Innovation through Advanced Manufacturing 2

January 2022 Unlocking Business Model Innovation through Advanced Manufacturing

Executive summary

The COVID-19 pandemic has highlighted the critical role manufacturing and supply chain systems play in powering the global economy. But while most companies have been able to adapt to the unprecedented disruptions by leveraging and deploying technologies across factory sites, manufacturing and supply chain leaders need to enhance their efforts if they want to remain competitive in the current environment.

Given the complexity of the journey towards business model innovation, five key strategies most commonly used by leading players illuminate the way forward: 1) start with leadership and culture shifts; 2) forge system-wide collaborations; 3) adopt new metrics to measure success; 4) leverage core manufacturing strengths to close the gaps with digital natives; and 5) relentlessly pursue the broader purpose (Section 4).

The new challenges posed by consumers and society at large require leaders to go beyond operations, productivity and efficiency improvements (Section 1). The most successful companies will be those able to leverage their investments in advanced manufacturing not only to optimize operating models, but also to unlock new business models that create and deliver new value to all stakeholders, including the companies themselves, workers, society and the environment. Three essential stages, from point solutions to end-to-end digital infrastructure and integration to new business models, are necessary for the transformation (Sections 2 and 3).

This White Paper aggregates the views of over 50 leaders from manufacturing companies, services providers and academia, and highlights successful case studies from those who have already started to unlock business model innovation by adopting advanced manufacturing. The objective of this paper is to inspire manufacturing and supply chain leaders to start or accelerate the business model innovation journey and ensure it can achieve and deliver its full potential for driving responsible industry transformation and growth.

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1 It is time to think beyond manufacturing operations

The COVID-19 pandemic provided a vital reminder of the importance of supply chains and the role of advanced manufacturing. Companies in the production ecosystem had to quickly pivot and accelerate digital transformation to keep operations up and running, serve their consumers in a fastchanging environment, and support the needs of their employees and communities.

While companies have used technologies for decades to optimize production processes, the most forward-looking organizations have been taking advantage of advanced manufacturing not only to drive efficiency across their operations and supply chains, but also to bring a more innovative, sustainable and inclusive approach to value creation, benefiting customers, workers, society and the environment.

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Three main trends are pushing companies to go beyond the transformation of manufacturing operations and to leverage investments in technology to reinvent their business models:

1 New customer needs and a constantly changing demand environment:
The pandemic has deeply changed how consumers select, buy and interact with products, and how they expect to be engaged by the companies producing them. Customers are now looking for frictionless purchases, transparency of product information, and personalized products, which require new levels of agility and flexibility across manufacturing and supply chains for companies to meet new needs.

2

Climate change and the imperative of a net-zeroemissions world:
Current planetary challenges have elevated the importance of manufacturing companies cutting CO2 emissions and creating circular business models where supply chains can recover or recycle the resources used to create their products.

3

Digital transformation is here to stay, and disruption will further accelerate:
To remain competitive in markets increasingly threatened by digital players and new entrants, manufacturing companies must go beyond digitalizing their operations and leveraging their investments in advanced manufacturing to transform and innovate their operating and business models.

While the case for change is clear, most companies lack clear strategies and are struggling to execute. The journey is complex, so to unpack what it takes to successfully transform operating and business models, the World Economic Forum Global Future Council on Advanced Manufacturing and Value Chains conducted in-depth interviews with over 50 leaders from manufacturing companies as well as technology and services providers. The results of this effort highlight the lessons from those who have already started to unlock business model innovation by adopting advanced manufacturing technologies.
This White Paper presents:
– Concrete examples of how leading companies are leveraging advanced manufacturing to drive business model innovation (Section 2 and the Appendix)

– Tailored guidance on key enablers and strategies, as well as guiding questions, that can help accelerate this transformation (Sections 3, 4 and 5)
– A call to action for scaling innovation across industrial players by stepping up collaboration to address systemic failures (Section 6)
The findings and lessons captured in this paper will serve as a concise reference guide for manufacturing companies to inform their strategies and go beyond the digitalization of operations by leveraging advanced manufacturing to enable new business models. Done rightly, this will give companies a new competitive edge and help accelerate responsible industry transformation and economic growth by creating and delivering new value to address the challenges of the triple bottom line for profit, people and the planet.

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2 The business model innovation opportunity for manufacturing companies

While business model innovation is not a new concept, it remains a nascent topic for many production companies. Most of them are still in the early stages of their digital transformation journeys, often focusing on step-changing the efficiency of

their manufacturing operations. To compete with digital native players and new entrants, however, a narrow focus on transforming manufacturing operations is no longer enough.

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B O X 1 Operating model vs business model: Definitions
Although the terms “operating model” and “business model” are often used interchangeably, and the two are indeed tightly interconnected and mutually reinforcing, they embody very different concepts:
– The operating model refers to how an organization and its supply network operate to create and deliver value for customers.
– The business model refers to how an organization and its supply network capture the value it has created.

Linear Value Chain One-time sale,
recurring revenue (licence, service)
Marketplaces Percentage or
fixed fee
Enhanced Access Advertisement, subscription

Vertically integrated
Durable supply chain capital intense
Flexible supply chain - low capital
Job shops

Source: World Economic Forum

A more detailed explanation is available in the World Economic Forum White Paper, “Winning the race for survival: How advanced manufacturing technologies are driving business-model innovation”.

A common theme from this study is that leading companies are embracing technology to drive innovations that transform how they deliver and capture value – in other words, that transform their business models. The findings highlight four clear benefits of business model innovations:
1. Leveraging technology to address market and/ or climate change disruptions
2. Anticipating and meeting customers’ new needs
3. Enabling agile, co-created innovation for new products, processes and services
4. Developing new revenue models

1. Leveraging technology to address market and/or climate change disruptions
An increasing number of manufacturing companies are starting to address system-wide failures, such as climate change or trade conflicts, through business model innovations. These include multi-sided platforms, marketplaces or ecosystems that are enabled by advanced manufacturing technologies and that allow companies to collaborate with a broader set of partners on the supply and demand sides. Thus, the companies can scale innovations faster.
For climate change, as the race to net-zero emissions becomes an imperative, companies are starting to move from linear to circular value chains to try to generate and deliver more value with the continuous recycling and reuse of the same resources. A good illustration of this is how Ralph Lauren is championing a multistakeholder collaboration to invest in solutions for true reuse, upcycling and life-cycle extension of natural fibres, which currently cannot be easily reused due to their structure. Through circular business models, the life cycle of natural-fibre products can be extended several times (see Appendix, p. 18).

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Further, Procter & Gamble’s Fabric & Home Care division will start producing its first paper bottle in 2022 in partnership with Paboco, a company that produces paper bottle technology. Paboco resulted from a collaborative project developed through an ecosystem of leading consumer goods companies, including Carlsberg Group, BillerudKorsnäs, The Coca-Cola Company, The Absolut Company, L’Oréal and ALPLA, with the aim of manufacturing “green fibre” bottles. It will enable a carbon footprint reduction of 90% compared to a glass bottle, and 30% compared to a polyethylene terephthalate (PET) bottle.
2. Anticipating and meeting customers’ new needs
Several organizations have recognized the imperative of responding to fast-changing customer demands for customized products. They are leveraging advanced manufacturing to address this need by gaining greater insights into buying behaviours and customer choice, and innovating their business models.
Johnson & Johnson is enabling patients around the world to gain personalized and universalized access to healthcare by supplying surgeons with operating room material that meets the needs of each patient and intervention. It is also helping hospitals to optimize operations and asset management with the use of on-site 3D printing, smart cabinets and insights-as-a-service, among other solutions enabled by advanced manufacturing (see Appendix, p. 18).
3. Enabling agile, co-created innovation for new products, processes and services
By bringing buyers, sellers and enablers together, companies that use digital platforms amplify the possibilities to interact, learn and participate with all players in a given production and business ecosystem. Some companies are experimenting with marketplaces to address fragmented, nontransparent and complex value chains. They are also promoting the sharing economy to improve the use of their assets.

Marketplaces are unlocked by advanced manufacturing solutions including digital platforms, end-to-end supply chain connectivity, a robust cloud infrastructure and secure data privacy to build trust and help companies scale solutions fast. Schneider Electric recently launched the Exchange Platform, where technology providers, system integrators and end-users can collaborate and co-innovate for building digital solutions. Participants can meet remotely with experts in various locations and access online digital assets such as products, data and interfaces. They gain visibility and can create, collaborate and scale business solutions to meet customers’ needs (see Appendix, p. 18).
Lanxess built an independent and neutral digital marketplace and was able to shift a traditional industry (chemicals) with a very complex value chain to a more seamless ordering process and user experience for both buyers and sellers (see Appendix, p. 18). This allowed the company to increase efficiency and transparency in the ordering process, creating value for both customers and suppliers.
4. Developing new revenue models
Some companies have transformed the buyerseller relationship into a partnership, which requires greater collaboration and sees performance as a shared responsibility. An example of a new revenue model is a new service from UPS, which outfits certain stores with 3D printers to provide ondemand services for manufacturers and consumers. UPS plans to use its investments in 3D printing to lay the groundwork for a network of on-demand print shops, bringing manufacturing capacity closer to consumers and thereby increasing resiliency, flexibility and reach.
New revenue models have the potential to provide manufacturers with recurring cash inflows, offer more flexibility, engage directly with customers and make the supplier a true partner in ensuring the customer’s success.

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3 How to unlock business model innovation through advanced manufacturing
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While transformation and innovation vary in pace, scope and approach, the common element from the case studies is that they all leverage advanced manufacturing to first-step-change operating models, and then enable business model innovation. They followed a journey of three main stages:
– Stage 1 – Point solutions: Advanced manufacturing boosts factory productivity

– Stage 2 – End-to-end digital infrastructure and integration: New infrastructure and strategy drive impact
– Stage 3 – New business models: Transformation at scale unlocks growth
Progress made at each stage paves the way for the following phase.

F I G U R E Main stages of the journey – from point solutions to new business models

Expected business impact

Stage 1 Point solutions
Learning areas: - Lack of standardized work
processes and technology - Lack of digital skills in
the workforce

Stage 2 End-to-end digital infrastructure and integration

Stage 3 New business models

Learning areas:
- Definition of new metrics that promote technology investments for scalability
- Extensive collaboration with external stakeholders along the value chain, requiring time-intensive upfront investments

Learning areas:
- Definition of long-term metrics of success
- Development of scalable business solutions through digital technologies

Productivity

Time
Notes: [x-axis] Productivity improvement over time: for example, labour, machine or material is measured at a whole-system level incorporating the full manufacturing value chain. The x-axis therefore spans from a single-point solution application at a particular point in the system (e.g. a machine within a factory) to the extended factory network and supply chain, through to a system-wide perspective incorporating suppliers and end users.
[y-axis] Expected business impact: in terms of margin improvement and revenue uplift, but also broader measures on sustainability/environmental, social and governance, as well as inclusivity.
The learning curves can be accelerated by leveraging the key strategies learned from leading companies and summarized in this White Paper (Section 4).
Source: World Economic Forum

Stage 1: Point solutions Advanced manufacturing boosts factory productivity
In this first stage, companies look for ways to optimize their manufacturing operations and operating models by piloting and deploying promising point solutions in a given factory site or value chain. Point solution applications are usually created in close collaboration with a technology provider. These pilots are often focused on validating the benefits of the new solution (typically reduced operating costs and improved productivity) and testing its ease of adoption and potential to be deployed across more sites or value chains.
The business impact includes reduced operating costs and improvements in speed. The case studies from Siemens and Foxconn (Appendix, p. 18) are good examples of such point solutions, which show how advanced manufacturing, such as artificial intelligence (AI), virtual reality and predictive analytics, can fast-track throughput, support new product functionality and reduce material consumption.

While manufacturing companies are generally able to demonstrate productivity improvements through point solutions, they often face two challenges that prevent them from deploying point solutions at scale:
– A lack of work processes, data layering and technology standards across the network of factory sites and value chains, leading each site to request highly customized and expensive solutions
– A lack of digital skills in the workforce, constraining the overall roll-out timeline of new solutions based on the availability of qualified operators and new upskilling and reskilling programmes
Critically, manufacturing companies must assess their capability gaps as they move to Stage 2. Tools such as the Smart Industry Readiness Index were created in partnership with leading industry and technology companies to help manufacturers assess their level of maturity and results of the Stage 1 transformation.

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