“Build only products that customers want” – sounds easy, right? However, in practice, this can be quite hard. Sometimes, companies approach us with requests like “I have developed a new technology but how do I build a business around it?” or “Our technology is superior to our competitors’ – why don’t our customers see that?”.

Do these or similar questions sound familiar to you? Then I encourage you to keep on reading. In this blog post, we discuss how the Business Model Navigator approach can help companies put customer needs first by looking at the example of the 5G technology in the Smart Manufacturing Business-to-Business (B2B) environment.

We first build common ground on the 5G technology (without going into too much technical detail), with a focus on the B2B environment in Smart Manufacturing, then share our insights on identified customer needs and problems and last how business model innovation can help in addressing these needs and problems.

What’s the buzz around 5G all about?

5G has been recently quite prominent in the news, especially pushed by smartphone manufacturers and mobile network operators praising the high data rates and bandwidth enabling new applications for private consumers.

What is 5G?

5G refers to the 5th Generation of mobile networks, following the 4G or Long-Term Evolution (LTE) standard. It offers high speed and low latency and is, therefore, a key enabler of many new technologies, such as augmented and virtual reality applications or automated guided vehicles. In this blog post, we will take a closer look at the potential of 5G to unlock the promises of Smart Manufacturing.

What is Smart Manufacturing?

Smart manufacturing, also called industry 4.0, is a technology-driven approach to production, using machinery connected through the web to monitor progress and collect data to improve efficiency. It is considered to be part of the internet of things (IoT).

Experts believe that 5G technology will take smart manufacturing to the next level:

• 5G can support up to one million IoT devices per square kilometer, enabling data collection on an unprecedented scale.

• Due to the ultra-low latency of 5G networks, they will enable e.g., super-fast reactions of mobile machines in safety-critical environments.

• Network-slicing, or the ability to build virtual end-to-end networks tailored to application requirements, will help support these critical business processes with unmatched efficiency.

Where do we stand today?

According to analysts of markets&markets, the 5G enterprise market will grow from USD 2.1 billion in 2021 to USD 10.9 billion in 2027. Hence, it is not surprising that many of the world’s leading companies reportedly work on integrating this technology. As companies continue to explore new and exciting use-cases, industry insiders agree that three fields stand to be the most impacted through 5G:

1. Real-time automation

2. Monitoring & tracking

3. Autonomous robotics.

Though these areas promise to see impressive growth, major questions remain around the commercialization of 5G technologies. As the technology and the market are still not very mature, the roles of the players in the ecosystem are yet to be defined. Similarly, it is highly contentious which business models can deliver maximal value to all involved parties.

That’s why we took on the challenge of identifying the most promising business models that can lead to meaningful value creation and capturing in the long run for different players in the ecosystem building on interviews with smart manufacturing companies to identify their needs and problems.

Developing business models for 5G technology

Regardless of whether we develop a business model for a new technology, a new product, or a new service – we always approach business model innovation using our Business Model Navigator. The methodology is structured in the 4 iterative phases initiation, ideation, integration, and implementation.  You can read more about the core methodology here – this blog post focuses on the initiation and ideation phases using the 5G technology as an example.

Step 1: Analyzing the ecosystem

We start by examining the 5G Smart Manufacturing ecosystem with its players and their currently applied business models. The current players mostly rely on traditional business models, inherited from the 4G area: hardware providers sell or lease their products to mobile network operators, who then provide the network solution, selectively including operation and maintenance services to industrial customers.

Step 2: Identifying customer needs

We then interview potential customers to identify areas of opportunity. These are the findings of customer research in the manufacturing sector.

• Level of awareness: Most manufacturing companies have a solid understanding of the key benefits of 5G. However, only a few companies have already deployed a 5G network. The few existing networks are either limited to specific use-cases or in a proof-of-concept phase.

• Level of importance: Manufacturing companies tend to view 5G as one of many enabling technologies improving the network infrastructure of factories and production processes, rather than viewing it as their core business. Therefore, the business benefit of a 5G network along concrete use-cases must be made more explicit to convince potential customers. To reap the full benefits of the use-cases, we need expert knowledge on the network and industry know-how.

Step 3: Mapping opportunities

Compared to the 4G technology, in Germany, 5G technology will be set up in a way that opens new opportunities for companies. For the 4G technology, the entire frequency range for private and industrial use is in the hand of telecommunications providers. They invested significant sums in the bidding process for getting the right to own specific frequency bandwidth and deploying the network infrastructure. If an industrial company wants to have access to this network, it must work with mobile network providers.

With the 5G technology, this situation is different: A dedicated 100 MHz frequency range between 3.7 and 3.8 GHz has been reserved by the German “Bundesnetzagentur” specifically for industry-related applications. It allows industrial companies to deploy their own 5G factory networks without the explicit need to obtain the service from Network providers.

Under these conditions, all players need to overthink their business models:

• Mobile network providers: To retain their existing customer base and expand it in the 5G area, mobile network providers are now looking into ecosystem approaches.

• Hardware providers: By directly addressing industrial customers, hardware providers have the chance to alter their position in the value chain.

Step 4: Overcoming challenges on the way to faster adoption of 5G

Current players in the 5G B2B market in the Smart Manufacturing area focus on technology-related competitive advantages, engage potential customers in technical discussions, and try to convince them of their products and solutions based on technological superiority to existing connectivity solutions.

However, as mentioned above, for most manufacturing companies 5G is not a core technology, but rather an enabler to improve their productivity. They do not really care about the technical details but rather about concrete, value-adding use-cases that are enabled through a fast, secure, and reliable network connection.

Major challenges include:

• Immediate benefits? Companies doubt that they will immediately gain a significant advantage from switching, or adding to, existing connectivity solutions as their current LAN or WLAN solutions function well for the use-cases they implemented.

• Mature technology? Many manufacturing companies question the maturity of the technology especially whether the hardware components that enable 5G can reliably perform in a factory setting. The core network technology is largely seen as quite mature, however industrial 5G devices are still in an early development phase.

• High costs? Questions around the cost implications of 5G remain the major driver of uncertainty. Companies foresee significant CAPEX­- and OPEX-related costs for the implementation and rollout of this technology and are heavily Overall Equipment Effectiveness (OEE) and Return on Investment (ROI) driven when making investment decisions.

The structure and design of the 5G value chain and the ecosystem and the respective roles of each player are still to be defined. Clarifications in these areas will be helpful for all players to determine their role in the ecosystems, either acting as systematic orchestrators or specialized layer-players.

Promising business model ideas

The focus of the BMI Lab is how different players in the ecosystem can tap into the opportunities and maneuver the presented challenges through innovative business models. Innovative business models should address four key questions:

1. How can the current dominant industry logic inherited from the 4G area be broken in a way beneficial to all actors?

2. How can the knowledge on the technological and business benefits of the 5G solutions be increased on the customer side?

3. How can financial and resource-related barriers to implementing a 5G network in a factory setting be lowered, de-risking the customers’ decision to invest in this new technology?

4. How can all required capabilities - ranging from network hardware provisioning over network deployment and integration into existing factory systems to network operation and management - be brought together in an ecosystem that provides the maximum value for all participants of the ecosystem?

At the BMI Lab, we have identified three key areas as a starting point for potential business model innovation ideas.

1) Knowledge Sharing

Recognizing the challenges of manufacturing companies to build up knowledge and expertise around the potential benefits of 5G, knowledge sharing is key to accelerating consumer adoption of the complex new technology. Hardware providers could leverage this opportunity by licensing the technology to manufacturers to accelerate their 5G readiness. We see significant potential to boost OEM and other manufacturing firm’s use-cases by acquiring access to patented know-how.

2) Servitization

The investment costs of 5G are a key challenge for the fast adoption of this new technology. To overcome this challenge, we recommend considering servitization business models, which could offer sustainable pathways to delivering value. Here, a subscription model appears particularly relevant, as it could support transforming CAPEX into OPEX for companies looking to implement 5G. In this pattern, customers mostly benefit from lower initial investment costs and general service availability, the provider generates a more steady income stream.

3) Collaboration

We see a high potential for impactful collaborations around 5G in the smart manufacturing sector. Thus, we recommend placing a high value on ecosystem strategies as a means for developing strong value-propositions spanning beyond single verticals and industries. Two patterns stand out:

We believe that companies could consider a solution provider role. In this pattern, a full-service provider offers total coverage of products and services in a particular domain, consolidated via a single point of contact. Nevertheless, a partner ecosystem can operate in the background to generate the solution. Special know-how is given to the customer in order to increase his or her efficiency and performance. By becoming a full-service provider, a company can prevent revenue losses by extending its service and adding it to the product. This pattern shows potential for companies possessing considerable know-how in manufacturing domains, with the ability to acquire strategic partners.

We also believe that the orchestrator pattern may be a strong and sustainable way to offer considerable added value to clients in this industry. Within this model, the company's focus is on the core competencies in the value chain. The other value chain segments are outsourced and actively coordinated. This allows the company to reduce costs and benefit from the suppliers' economies of scale. This pattern shows potential for companies with strong know-how and the ability to bring together and coordinate a complex network of expert partners.

Outlook: Integration & Implementation

Back to the Business Model Navigator approach: Once concrete business model innovation ideas in these key areas have been developed and prioritized, the most promising ideas have to be detailed and tested for internal and external consistency. This is called the integration phase.

Once the internal and external consistency is confirmed, the implementation phase can start. The business model innovation idea is iteratively tested and adapted based on the learnings thereby de-risking the idea step by step. In the case of positive testing results, the idea can be launched in the market.

Key take-aways:

To avoid finding yourself in a situation where you have to build a business model around a new offering: before developing new technologies, products or services, start with your customers’ needs and build from there.

A (funny) final note shows how companies still fall into the trap of developing new technologies before having figured out a potential business model: Apple has just started developing 6G technology – even before customers are convinced that the 5G technology will bring them real benefits.

However, at least Apple already showed in the past that they do understand their customer needs usually pretty well – quoting the late Steve Jobs:

Let’s see how Apple and other players in the field will leverage these insights to drive the development of 5G and 6G technology.

If you want to learn more about our insights on 5G in specific or need support with a similar situation for new technology, products, or services – please get in touch with our new technologies expert via mail.