Industrial enterprises with digital business models are more productive and innovative

March 03, 2020

What turnover potential and productivity effects do digital business models offer industrial enterprises? And how widespread are they? A new study by Fraunhofer ISI deals with these questions as part of the representative company survey “German Manufacturing Survey”. Its conclusion: Digital business models can be a decisive competitive factor for the manufacturing sector in the future – if there is clear customer orientation and a targeted use of digital technologies.

More and more companies are transforming themselves from purely product manufacturers to innovative solution providers with new kinds of business models, and are supplementing their core product with complementary services. Digitalization plays a key role here because digital technologies make it much easier to establish new business models. In future, competition will not just take place between products or processes, but rather between business models, and will bring new growth potentials and markets for industrial enterprises.

Against this background, the most recent bulletin based on the German Manufacturing Survey addresses the questions of which (digital) service-oriented business models exist for industrial applications, and how widespread and lucrative these are. It is also of interest which companies are pioneers in this field, and whether digital business models are good for competitiveness. The answers to these questions were based on data from 1,282 firms that took part in the representative German Manufacturing Survey conducted by the Fraunhofer ISI in 2015.

Digitalization favors service-oriented business models in industry

The analyses show that 42 percent of all the surveyed companies use at least one complementary business model. Full service contracts for products are offered the most frequently with 23 percent, followed by machine and product leasing (15%). A more detailed analysis of the business model providers reveals that around 32 percent of all companies are already using digital technologies when offering business models, and only 9 percent of all industrial enterprises operate purely analog business models, i.e. do not use any digital technologies at all. From 2000 onwards, the proportion of companies with service-oriented business models increased from approx. 20 to more than 40 percent, which is largely due to new digital technologies.

Looking at company size reveals that digital business models are offered mainly (61%) by large companies (more than 1000 employees) and by small companies (less than 50 employees) to a much smaller extent (28%). A significant share of small enterprises continues to rely on analog business models. They seem to have greater difficulties using digital technologies, which is primarily due to a lack of know-how or resources.

Industrial enterprises with digital business models are more competitive

What effects do digital business models have on companies' competitiveness, innovativeness and productivity? It can be shown that industrial companies offering digital business models are those with the biggest share of turnover (17%) from service offers, and that one in four of these companies are considered service innovators - meaning they have introduced an important service innovation in the past three years.  In addition, the digital business model providers have a much higher productivity rate than analog business model users – there is a difference of 17,000 euros in labor productivity per employee, which can be explained by greater efficiency resulting from automated processes.

Dr. Christian Lerch, co-author of the study and head of the Business Unit Industrial Change and New Business Models at the Fraunhofer ISI, summarizes the results as follows: “Digital business models may well become a competitive factor for industry in future, because they are not only able to achieve higher service revenues, but are also associated with a greater capacity for innovation in the service sector. Since they also significantly increase productivity, industrial enterprises should carefully review to what extent digital technologies can be used when offering new business models – because their targeted use combined with clear customer orientation leads to a decisive future competitive factor.”

The Fraunhofer Institute for Systems and Innovation Research ISI analyzes the origins and impacts of innovations. We research the short- and long-term developments of innovation processes and the impacts of new technologies and services on society. On this basis, we are able to provide our clients from industry, politics and science with recommendations for action and perspectives for key decisions. Our expertise is founded on our scientific competence as well as an interdisciplinary and systemic research approach.