Industrial renewal is upon us – be bold and gain a foothold!

Digitalisation, automation, IoT, AI, blockchain, 3D printing – I could continue the list with quite a few juicy terms. How many times have you read or heard one of these words during the last week? I dare to wager that it was quite a few. Certain themes rise to the surface and remain a topic for discussion, until a new trendy word rises to everybody’s lips. Instead of using inordinate amounts of time and energy around an individual concept or technology, we should shift our focus to the change taking place in the big picture and to what kind of a future we could create with the help of various technological enablers.

New trends force changes upon the current operations

Automation and robotisation alone are not enough to answer the challenges placed on companies by the global market and the increasingly demanding customer needs. Companies have no choice but to draw parallels between their development and, for instance, the following trends:

  • Smart products, production systems, production and delivery chains;
  • Renovation of the design of products and production through digitalisation and automation;
  • Need-based production, real-time delivery chain, distributed production;
  • Robotisation and flexible automation combined with artificial intelligence;
  • Service business with (or without) the help of digitalisation; and
  • Industrial ecosystems and platform economy.

I believe in the claim that the smart products and services of the future will be created in new industrial ecosystems supported by a globally connected platform economy. The leap from today to this vision seems wild, and the ability of companies to see the steps they need to take can be limited, when there is no concrete action plan available. It is therefore gratifying that we can find examples around us where a company’s own desire for development launches a networking project full of growth potential.

Expand your operations with the help of industrial networks

When a Finnish medium-sized machine manufacturer wishes to broaden its offering in order to speed up its growth in the global marketplace, the traditional model is to start planning business acquisitions. It would be more agile to avoid the risks and slowness of acquisitions by establishing a network structure, where a number of companies linked to the sector in question commit to creating a shared offering.

For global customers, this network appears as a seamless entity, while inside it, different actors work according to their own core competencies and deliver their share of the total. In this model, the success comes from working together, challenging each other within the network and obtaining help from select key customers.

Automation streamlines and adapts production

The radical renovation of design, manufacturing and service business with the help of digitalisation builds competitiveness and business opportunities for the industry also in countries with traditionally high cost structures. Robotics offers various solutions for making production more efficient and increasing productivity in the manufacturing industry.

However, it is not a question of robotisation only; an industrial company must be able to increase its agility and flexibility in order to create solutions that maximise the customer benefit. New manufacturing processes and the delivery chains built around them will bring customer-specific solutions up to a level we have not yet seen.

Thus far, automation has mostly been linked to equipment and production processes. However, the real leap in productivity will take place at the systemic level, where the entire delivery chain is examined, boldly questioning the current operating models. Must a company producing products have its own manufacturing capacity, or could it connect to a network of manufacturing plants and commission the manufacturing of the products from the plant that is most optimal to the need? On a longer term, one could think that this kind of a system is self-learning and able to adapt to the production needs of the owner of each brand. Once again, these are major questions from the perspective from the Finnish manufacturing industry; after all, we wish to ensure that we have strong connections to the future network models.

We help companies realise bold and ambitious visions

VTT possesses strong competence in the above-mentioned themes of industrial renewal, and even now, we are involved in enabling the birth of several industrial networks. In addition to technological research and development, we are a natural and competent partner also for the creation and organisation of new ecosystems.

Mika Toikka VTT

Mika Toikka
Vice President, Sales and Business Development
(Smart Industry and Energy Systems)

Is the circular economy just a fad or future necessity?

We live an era of different economies: bioeconomy, platform economy, digital economy – and circular economy. Are these only fads or the new reality that will change the way we consume and live our lives?

The circular economy is not a new phenomenon. Throughout history, it has been the way of acting and managing in times of scarcity. Our grandparents and great grandparents lived sparingly and put everything to good use down to the very last thread. People still do this in the developing countries and under severe or exceptional circumstances, such as during war.

The circular economy has become a topical issue again, since the increasingly limited global raw materials, food, and water and energy resources are not sufficient to cover the needs of the still growing population. We must learn to think differently about ownership and consumption.

Technology accelerates the circular economy and business activities

In addition to being a necessity, the circular economy is a great opportunity to create sustainable demand and, consequently, new kind of business activities. Once a product has reached the end of its life cycle, technology makes it possible to recover its raw materials and components, and use them for new purposes. Nothing goes to waste.

Efficient use of resources calls for new operators, distribution networks and systems to make sure that the right shipments are in the right place at the right time. In the textile industry, there are good examples of how used clothes can be recycled into secondary textile fibres for the needs of clothing and technical textile industries. For example, the awarded Ioncell-FTM method, for which VTT developed a pretreatment technique for cotton waste, dissolves cotton waste for reuse without any toxic agents. 3D printing, on the other hand, allows resource-wise use of materials in the manufacturing industry and, best of all, recycling of recovered materials. All this, however, requires that people everywhere in the business environment adopt new ways of thinking.

Current modes of operation will not bring success

Research and development play the key role in ensuring that the circular economy functions efficiently. We need radical innovations that promote resource-wise and sustainable economic growth.

The circular economy is not only a way of thinking, but it is also a business activity that creates value, jobs and tax revenues. We need good ideas, broad-mindedness and bold trials to transform the ideas into business activities. How to minimise the amount of waste and reuse the remaining waste? What used to be regarded as the final point of the process, can nowadays generate new business, of which the side streams from food production serve as a good example. These include the manufacturing method patented by VTT, where the berry press residues from juice processing industry are used as an ingredient for augmenting the fibre content in muffins. Innovations like these are not generated from nothing, but they need to be founded on research and developed further to succeed.

Feathers to the catwalk

Innovations do not happen either if there are no individuals who dare to think big or in novel ways. A good example of this are feathers – a small, light material lending itself to many purposes. After having provided warmth and protection for their owner, feathers can be transformed into protein-rich animal feed or used in packaging materials.

We are familiar with feather-filled pillows, but how could, say, the textile industry make better use of feathers as raw material. When will we see feathers on the catwalks at fashion shows?

Growth for Finland from circular economy

What lies at the core of the circular economy are services: buying and owning are transforming into lending and shared use. This has been the reality in, for example, the housing market for a long time, and now similar way of thinking is also expanding from tools (see the pilot project Liiteri) to vehicles.

Services already account for more than two thirds of the value of Finland’s gross domestic product. When the opportunities offered by the circular economy are understood everywhere in society, this share will grow even more – and the burden on the environment will reduce.

New services will boost growth and employment in Finland. On one hand, digitalisation replaces jobs, but, on the other hand, its use in the circular economy will provide growth opportunities for enterprises: the whole manufacturing and product life cycle needs new solutions that the Internet of Things applications can offer.

Finland is well equipped to become a pioneer in the circular economy. The key issue is the boldness to think things anew. Do I really need a car of my own? Are there any real obstacles for renting a car whenever I need one? We must call our conventional ways of thinking into question.

The way of thinking and acting the former generations used to practice will transform into business activity that helps to build the welfare society. Finland has a highly-educated population, plenty of natural resources, and R&D activity, so this small country can develop global solutions that really save resources and enhance well-being.

Anne-Christine Ritskchoff VTT

Anne-Christine Ritschkoff
Executive Vice President, Strategic Research
Twitter: @AnneRitschkoff 

Is security achievable in a digitalised and networked platform society?

Mikko_Dufva

The digital transformation and platform economy are expected to herald an era of new growth and a break with existing industries. By platform economy, we mean a new, multi-directional way of creating value, in which producers and users of services are connected by social and technological structures and the distinction between them is blurred. Driven by the digital transformation, the rapid and extensive collection and analysis of information will enable networked activity within the platform economy.

Companies based on the logic of the platform economy have already gained market share from actors sticking with traditional practices. However, the impact of the platform economy is not restricted to new companies breaking into the market, but challenges the current economic logic in general. For example, the concept of the cooperative is enjoying a renaissance, while the sharing economy is creating a new kind of communality. All of this is giving the tax man grey hairs.

What do you mean, security?

Discussions of the platform economy have gradually shifted their focus from technology-orientation and the contemplation of new business models to social impacts. The debate has centred on the transformations in various industries and the workplace. Less attention, on the other hand, has been paid to security – now is the time to consider preparing for the changes being ushered in by the platform economy. Security is about more than information security and privacy issues; it also concerns other challenges and opportunities – related to trust, risks, the distribution of power and the management of complex wholes – that will accompany the new networked practices.

Networks and increasing mutual dependence have led to an entirely new approach to the concept of security. The risks are now much more complex and difficult to identify. In place of hierarchies, organisations are now network-based and temporary venues where traditional top-down control no longer works. This means that we are operating in a complex world of adaptive systems in which chaos theory would be a more appropriate starting point than process models. In this context, concepts such as power, control and trust gain new meanings and dimensions. What does power mean within an interdependent system? Can trust be outsourced to algorithms?

Rather than individual and single players, in the platform economy the focus is shifting towards communities and collaboration. The platform economy is a particular headache for legislators because its business models and the blurring of roles between customer and company do not fit into existing ‘pigeonholes’. Traditional supervision and regulation are difficult to apply when, for example, an accommodation service frames itself as merely a link between supply and demand – and owns no accommodation. Although regulations and restrictions will remain important for networked operations, the related culture will become an even more important source of security.

Will the platform economy take security to a new level?

On the other hand, security could be boosted by the platform economy, digital transformation and networking. Platforms connect people, while communities built on platforms take care of their members, particularly if the platform incentivises them to do so. The design of platforms and networks involves a social as well as technical and business challenges: how can we create platforms that promote security and build a sense of community? In a situation where all interactions leave a digital trace, will the resulting, reputation-based economy build trust or inequality? What role will companies, the state and individuals play in shaping platforms?

The digital transformation, platform economy and many other, corresponding terms refer to the transition from a production-based society to a collaborative one. Instead of focusing on which sector will be the next to be disrupted by a platform economy player, perhaps we should take a proactive attitude and talk about how to create the kind of future we all want. How can the digital transformation and platforms serve common goals and forge security? How can we ensure fairness, the minimisation of risks, and common ground rules?

These questions, among many others, are explored by the foresight, organisational dynamics and systemic change team at VTT in projects such as Platform Value Now.

Mikko Dufva, Research Scientist

mikko.dufva (a) vtt.fi

Twitter: @mdufva

Now is the right time

Antti_Vasara

State Secretary Martti Hetemäki recently commented the situation in Finland with the words “Either we fix the employment situation or make some new adjustment actions or give up the idea of cutting debts.” I think we all agree that improving employment situation is the only sensible alternative that we should promote. One has to wonder why this has been so difficult in Finland. Did we forget employment as our target for several years because we had other concerns after the finance crisis? We can create new employment opportunities either by creating new competitive products and services or by being better in sales and marketing. It was easy to cut marketing and R&D costs when the economy was declining – but did we get stuck in this mode? I think we did.

The economic growth that is necessary for increased employment doesn’t just happen on its own and the new products don’t just pop up from nowhere. And they certainly don’t sell themselves without any marketing efforts. We have lot of know-how and knowledge in Finland, lot of positive examples and great success stories of brave entrepreneurship. The situation is by no means gloomy even if we have a national tendency to see negative sides of the situation. We need bold decisions both from the state and the companies to invest in R&D and we need it now. In marketing, we have to be able to gain visibility and create something fresh. In R&D we need new, even radical concepts that help us to find ambitious product and service innovations. These have to be concrete, we have to have the courage to be different and visionary even if this means that we are taking the risk of being challenged. Far too often we end up being too general and too cautious.

At VTT, we want to create opportunities, suggestions of new businesses, and develop them together with our business and university partners. Our company also has to  change so that we get more speed and impact in our activities. We are now in the acceleration phase and on the right path in our change process.

Antti Vasara

President & CEO

Twitter: @ahavasara

Theme digitalisation: How do business models change with digitalisation?

In their post to our Digitalisation blog series below, Jukka Hemilä and Anna Viljakainen consider how the business models of companies will change and what kind of competences the future business activities will require.

The previous parts of the series: Physical product or digital service?, How to navigate successfully through the digital transformation and Digital transformation calls for user-centricity and technological knowledge.

Jukka HemiläAnna Viljakainen

Digitalisation creates totally novel opportunities for business activities and even breaks traditional business ecosystems. Digitalisation is about a permanent change in the ways we act.

A classic example of the transformation brought on by digitalisation is the transfer from the film era to the digital era in photography. Camera manufacturers, film producers, and photo paper manufacturers – in other words, practically the whole value chain – were forced to renew their technologies, processes and operating methods. In order to secure the success of their business operations, they needed totally new kinds of competences. The operators had to adjust to digitalisation and seek a novel role in the value chain and clarify the idea of what will provide new value for customers and other stakeholders. It was an overall change in their business models, where technology appeared as the enabler of digitalisation.

In line with Tuomo Tuikka’s thoughts in the first part of our blog series, digitalisation is a driver in the transition towards a service business. The transition to services is taking place because they increase the competitiveness of companies and enhance their capability to survive the impacts of economic trends. The economic growth in Finland is increasingly reliant on services.

However, a service business differs quite fundamentally from the traditional production industry that we are used to. For that reason, company strategies, processes, sales practices and corporate cultures need to be developed further. We need to change the operating method by which we create services that produce added value. This means that companies must understand what digitalisation means in their business operations in particular. The higher the added value of the services we are providing, the bigger the role of technology in the production and validation of added value. As an example, we could mention the elevator company Kone, which is increasingly transferring from maintenance and development services to People Flow building management services, aimed at producing better experiences to users of buildings. A change like this requires a digitalisation strategy.

As IoT and the industrial internet are on everybody’s lips, broadly speaking, we are living in the midst of a transfer to a digital era. The Finnish Government Programme has set a goal to conduct a study on how Finland could turn digitalisation into growth. With it, the State has promised to create a growth environment for digital business operations, for example, by changing regulations and opening data sources. The role of companies in this transition is envisioned to be the development of new technologies and the innovation of business models, as seen in the Kone example mentioned above.

Time to renew business models?

Gary Hamel, one of the world’s most renowned business thinkers, has stated that competition no longer takes place between different products, but between different business models. Companies should systematically launch the development of their own digitalisation and the business model transformation it requires.

Tuomo Tuikka already pointed out that the creation of customer added value and greater competitiveness are key priorities of digitalisation from a business perspective. With a view to business renewal, we need to understand the new kind of customer value that digitalisation enables and creates.

Our CUSTOR research project has focused on the problems of customer value creation and strategic business development. Our guidebook Arvosta! uses examples to highlight our views on value creation and understanding it (Hemilä et al. 2016). Through digitalisation we can create new operative, financial and emotional value. In addition to enhancing production efficiency, digitalisation also enables new business opportunities and a total reform of business models.

Business model renewal begins with redefining customer value and analysing the opportunities offered by digitalisation. Recognising the opportunities offered by digitalisation is a major challenge, as we pointed out in our blog post entitled How to navigate successfully through the digital transformation.

Digitalisation is a major opportunity and strategic investment that often requires renewal of the business strategy. Strategy creates the direction and framework for digitalisation, following the realisation and understanding of future customer value and the opportunities offered by digitalisation. Business renewal must be managed by someone and its implementation requires different competences.

Courage to combine competences and technologies

The report “Suomi –Teollisen Internetin Piilaakso” listed a lack of vision and a common narrative, as well as the rigidity of the labour market and work communities as Finland’s weaknesses (Ailisto et al. 2015). Development and application of digitalisation requires innovation activity that combines novel competences and new ways of managing organisations.

Internationally, major corporations invest in organisational diversity, or in combining different competences (e.g. Intel, Microsoft). In successful business operations, one must invest in one’s organisation’s diversity and versatile competences and communication skills (Hemilä et al. 2016). In other words, success does not necessarily require development of a new technology, but incorporating technologies and competences into business operations in new ways.

Companies must now seize the challenges and opportunities of digitalisation and create a business model based on digitalisation. We will be able to find the business concept for future success by combining competences and technologies in new and bold ways. We at VTT are pleased to assist you with the renewal of your business operations.

Jukka Hemilä, Senior Scientist

Anna Viljakainen, Research Scientist

References:

Ailisto, Heikki (ed.); Mäntylä, Martti (ed.); Seppälä, Timo (ed.); Collin, Jari; Halén, Marco; Juhanko, Jari; Jurvansuu, Marko; Koivisto, Raija; Kortelainen, Helena; Simons, Magnus; Tuominen, Anu; Uusitalo, Teuvo 2015. Suomi – Teollisen internetin piilaakso. (In Finnish: “Finland – the Silicon Valley of the industrial Internet”.) Government’s analysis, assessment and research activities series of publications 4/2015. Government’s analysis, assessment and research activities. 32 + 4 p. ISBN 978-952-287-174-9.

Hemilä, Jukka; Kallionpää, Erika; Lanne, Marinka; Murtonen, Mervi; Rantala, Jarkko; Ala-Maakala, Mariikka. 2016. Arvosta! – Kuinka asiakasarvoa vaalitaan? (In Finnish: “Respect! How to foster customer value?”) VTT & Tampere University of Technology (TUT). 55 p.

Services will take us closer to the circular economy – but what kinds of services switch consumers on?

Maria Antikainen

Maria Antikainen

Anna Aminoff and Outi Kettunen

From the perspective of society in general, there is enormous pressure to transfer from a linear economic model to a circular economy. To generate economic growth, or even to maintain the status quo, we need to move towards a closed loop, where materials are recycled and their value is maintained or even increased. The key issue is the more efficient and smarter use of resources. This is possible through innovative business models and the wise use of technology. Since the circular economy places consumers at the centre, the choices they make and the actions they take will be increasingly important. For this reason, understanding consumers and their behaviour will play a key role in how companies can succeed in developing new business models.

Would you rent a sofa, washing machine or clothes?

Offering services rather than owning products an efficient way of ensuring the recycling of materials and the maintenance of their value. However, the transfer from owning things to buying services is a huge step for consumers. In group discussions arranged as part of the AARRE project, we explored the attitudes of consumers towards various service concepts, whereby commodities such as a sofa, washing machine or clothes were provided as a service. When transferring from selling products to providing them as a service, it is critical to understand how consumers feel about ownership. The discussions revealed that, particularly with respect to objects – such as sofas – connected to key events or to which people become emotionally attached, ownership is important. Different life situations may also have an influence on the kinds of choices people make. For a student, renting a washing machine or sofa may be a way of making life easier.

Consumers may have a very personal attachment to certain technical products, such as cars, while being far less emotionally attached to appliances such as washing machines. In addition, providing such products as a service would enable improved technical features and higher quality. For these reasons, the people who participated in the discussions were more interested in a washing machine than a sofa or clothes as a service. Attractive added value can be offered to consumers by using technology to make machines smart, bringing benefits such as proactive maintenance or more efficient use. Leasing instead of owning can also lower the level of risk for consumers, eliminating the costs due to breakages, for example. Consumers were also interested in eliminating the risk associated with clothes purchases, by leasing.

All three models focused on the group discussions – renting/leasing a sofa, a washing machine or clothes – divided consumers into two groups. Some considered the opportunity very interesting, while others did not, which was summed up very well by one consumer: “I’m not an owner type of person.” The clearest obstacles were doubt that a leasing model could be implemented in a cost-effective manner, or the service acquisition model seeming odd and unnecessary. On the other hand, the clearest benefits associated with leasing were related to higher quality, flexibility, the opportunity to change the product, and lower risk and commitment.

Towards innovative business models

The key issue would be to find the right and most suitable solution for each consumer. Research and practice show that new services are adopted more easily if they have features in common with former services or products and do not require a sudden major change. Changing people’s habits is the key factor when seeking a long-term impact. Major changes in behaviour take time and occur gradually, one step at a time. The group discussions we had with consumers revealed that some are ready to adopt solution-centric service business models, such as buying furniture as a service. On the other hand, some still want to own things, in which case adding a service to the core product will help to close the circular economy loop.

To ensure that circular economy business models spread, we need to face certain facts; for example, not all of us are yet ready to buy services instead of things – particularly if they are provided by another consumer. We therefore need new, innovative business models that take various customer preferences and practices into account. In any case, the journey towards the proliferation of result-centric service business models has already begun.

Headed by VTT, the AARRE project is creating new, user-driven circular economy business activities. This project is a networked research project (2015–2017) being undertaken in partnership with the business sector, with Tekes as the main funder. In addition to VTT, the other research organisations involved include the Finnish Environment Institute (SYKE) and the Consumer Society Research Centre of the University of Helsinki.

Twitter: @AarreResearch

Maria Antikainen, Senior Scientist

Anna Aminoff, Senior Scientist

Outi Kettunen, Senior Scientist

An energy revolution is on its way in the construction sector

“Do you have your own energy expert?” asks the ‘RANE – energy-related advice for housing and building’ guide to energy-efficient dwelling. I bet that few builders of detached houses or owners of housing association shares would raise their hands.

The energy solutions available when building detached houses, or for housing associations, present consumers with a labyrinth of issues. While worrying about plot location, room layout, HVAC design and many other issues, residents also need to worry about the planning of various energy solutions. In addition, they need to find the right experts at the right time who are able to present options, install equipment and provide them with the assurance they need that their chosen energy solution will continue to be cost-efficient and easy to adjust, use and maintain in the future. Control and adjustment can become very complex if hybrid solutions are chosen that combine various types of energy production such as ground heat, solar power and water-heating fireplaces.  On the other hand, digitalised and wireless systems increase the need for a new kind of ‘brand management’ of building technology.

For consumers, energy is at its best when it is ‘on tap’, keeps their toes warm and the bills aren’t a headache.   Convenience, reliability and affordability are the keywords for consumers when making energy choices related to residence and building.

Increased production of distributed solar energy and wind power –and a range of new, intelligent building technology solutions – are attracting greater media attention as each day goes by. Despite this, housing is seldom marketed on the basis of renewable energy. For example, renewable energy options barely featured at the Asta fair for consumers held in Tampere in February; heat pumps were pretty well all that was on offer for small-scale builders – which is what they are most likely to choose. This is a familiar, tried and tested technology with a reasonable payback period that is an easy fit with home packages and basic HVAC solutions. And it is clearly available. So, is the development of residential energy solutions being dictated by supply? Shouldn’t it be consumer preferences that decide how the energy markets transform and ‘green up’?

For alternative energy solutions to become easy and automatic for builders in the same way as heat pumps – and for renewable energy to play a greater role in house purchasing decisions – experts in house building, building technology and HVAC design and implementation will have to be brought into the mix. This will put the spotlight on building companies, chief designers, HVAC designers, construction consultants advising home builders, and home package companies.   In addition, municipalities could play a greater role via planning and the terms and conditions of conveyancing.

The transition in residential energy towards renewable, distributed and energy-efficient solutions is a prime example of systemic change. Consumers and equipment manufacturers cannot kick off such transitions on their own. Many new energy solutions are already sufficiently mature, in technical terms, to conquer the markets. However, embedded practices, routines and overspecialisation present barriers to their wider use.

This is a question of a broader socio-technical change, in which technical and social factors intertwine. At best, the result is new types of consumers, equipment suppliers, business models and regulatory and contractual arrangements. Innovative business models – such as those based on the rental of solar panels and budding enthusiasm to engage in the self-production of energy within a distributed network, also among housing companies – suggest that a residential energy revolution of some kind is at hand. In addition, demand for energy services is increasing. Time will tell whether standard solutions arise from these new practices.

Maria Åkerman, Principal Scientist 

Nina Wessberg, Senior Scientist