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Centre for Digital Built Britain

 
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For many engineering and manufacturing firms, digital transformation remains elusive as they struggle to emulate the success of platform-based consumer businesses such as Uber, airbnb and Facebook. While new technologies are undoubtedly delivering efficiency gains, complete digital revolution is yet to be achieved in the B2B (business to business) world. There are many reasons as to why success is still to emerge for B2B platforms, including existing market monopolisation, high entry cost, shortage of capital, and lower churn rate in comparison to B2C.

Researchers at the Cambridge Service Alliance (CSA), at the Institute for Manufacturing, University of Cambridge, are exploring the potential for Digital Twins (DTs) as the enablers of business model innovation for B2B organisations to reap the rewards of digitalisation. The digital twin concept specifically represents an opportune channel for business model innovation (BMI) in a B2B platform context. Specifically, digital twins can help create a conduit for customer insight and operations data that can in turn create new services offered in the after sales market. Could digital twins be the way forward? Some of the players in the B2B field are traditional companies and work in a heavily regulated market. They are familiar with the physical and social dimension of operations but still struggle to transition into digital dimensions of business models. This makes it unclear as to how established firms (incumbents) will respond to this necessary change – and what types of business models are required with the adoption of DTs for the manufacturing and construction sectors.

Big picture

Digital replicas of physical assets, processes and systems, digital twins are increasingly acknowledged as the potential gateway to better decision-making securing greater efficiencies, including: improving performance, speeding up processes, predicting and pre-empting maintenance issues, quality control and cutting costs. Cost savings alone are forecast to be impressive – according to Gartner, by 2022 digital twins will be saving consumers and businesses $1 trillion a year in asset maintenance and the global research and advisory firm is predicting widespread adoption, with half of major enterprises expected to be using digital twins by 2023 (Gartner,2019). More recently Gartner forecasts that by 2023, one-third of mid-to-large-size companies will have implemented at least one digital twin associated with a COVID-19-motivated use case (Gartner,2020). In the long run, for many engineering firms, digital twins must also offer new business model opportunities such as increased revenue streams and profitability beyond increased efficiencies and safety.

The project

Researchers are working to develop a framework that will help B2B firms understand both the opportunities digital twins can offer, and how well placed they are as an organisation to capitalise on those opportunities through a digital twin business model taxonomy. To help businesses think about how DTs can enable business model innovation, researchers have identified three pathways to change: from dependency to autonomy; from ignorance to insight; and from inaccuracy to fidelity. Alongside these three key characteristics of digital twins, researchers have observed three key forces which are also driving change within business models: the switch from products to services; the shift in focus from efficiency to agility; and the move from digital separation to fusion. Identifying characteristics of how DTs can enable business model transformation is supporting the development of a framework to understand an organisation’s digital twin capabilities and where their business model innovation opportunities lie.

Key insights

Digital twins and business model innovation can be seen in aviation, automation and, more recently, construction. The construction sector is a tangible and asset-heavy industry often criticised for its low productivity and slow approach to technology adoption.  More recently, and particularly in the UK, the sector is undergoing intensive investment in intangible assets and digital services – but still lags a decade behind manufacturing industry investment in digital transformation. A common criticism of the construction sector remains that few practitioners have sought the relevant guidance from more technologically-advanced sectors, such as retail, aerospace and automotive manufacturing, particularly with respect to improving productivity. The construction sector could also potentially benefit from guidance directly from service industries regarding business model innovation vis-à-vis manufacturing. More recently, in manufacturing for instance, productivity is often yoked to a strategic shift towards servitisation resulting in revised or entirely new business models emerging in the B2B market as well as new industry architecture. Such changes in business models and its constituent components are also referred to as business model innovation in strategy and business management research field.

Researchers are in the early stages of analysing five key elements of a digital twin-enabled business model against which to measure an engineering and manufacturing B2B firm’s activities including:

  • The value architecture – how the business model works
  • The value finance – how the digital twin makes money
  • The value network – how other businesses connect
  • The value proposition – what it provides to customers

Breaking down the business model into its constituent parts enables a better understanding of how value is created with a digital twin.

Challenges

Manufacturing and engineering companies are yet to fully realise the potential of digital twins to transform business in the after-sale market. A number of obstacles remain including: the immense amount of computational power required to operate digital twins; the demand for people with the right skills to develop them; and, perhaps most significantly, the high cost to implement digital twins.

Timeline

The first phase of research consists of a literature review which has been conducted to develop a business model taxonomy related to digital twin products and services. Currently researchers are collecting interview-based data from senior business managers and C-suite executives from large multi-national firms in defence, aviation, automotive, chemical engineering, transportation and manufacturing on digital twin services and business models.

The third and final phase of this research will engage in a mass survey data collection method to validate and gauge the responses from a wider pool of participants in the engineering sectors who are implementing digital twins. The validated framework is envisaged to be ready for review by B2B service providers by the end of 2021.

Industry impact of research

Identifying the relationship between digital twins and business model innovation for B2B firms could help to unlock the potential value derived from digital twins and the associated new services.

"Research into Business Model Innovation with Digital Twins is both a timely and important area of research to HCL and its customers, we see great value and synergy in this research work undertaken by Dr. Parn.”

Ahmed Soliman, Strategic Development Director, HCL Technologies 

Wider benefits

The National Digital Twin programme (NDTp) run by the Centre for Digital Built Britain (CDBB) Digital Framework Task Group, is working towards facilitating an ecosystem of securely connected digital twins across a range of infrastructure assets and organisations that, combined would become the NDT. Cited by the National Infrastructure Commission as having the potential to unlock an additional £7 billion per year of benefits across the UK infrastructure sector, the NDT will support better decision-making to enable a sustainable, zero carbon and resilient economy and society for all.

Collaborators

  • HCL Technologies
  • Caterpillar

Meet the research team

Lead: Dr Erika Parn, Research Associate, Cambridge Service Alliance and Centre for Digital Build Britain (CDBB), University of Cambridge

Team: Dr Mohamed Zaki, Deputy Director of the Cambridge Service Alliance, Institute for Manufacturing, University of Cambridge

“This research delves deeper into understanding business model archetypes and opportunities with digital twins from a range of sectors already demonstrating digital twin maturity (defence, aviation, automotive, chemical engineering, transportation and manufacturing). DT technology cannot solely transform the industry unless a business model can link it to an emerging market need or a value migration in the customer base.” Dr Erika Parn, Research Associate

Engage

Researchers would welcome industry partners to contribute to this research project.

Contact Dr. Erika Parn eap47@cam.ac.uk for queries or to participate and receive detailed insights from this research.

Subject: 

Need to Know

Need to know

  • Business model innovation is considered more influential on the likelihood of firm or enterprise survival than purely relying on efficiency or product innovation
  • Enterprise churn rates (birth and death of firms) in services and construction are on average between 15% and 30% – significantly higher than the average acceptable annual churn rate of 6-10% experienced in IT services markets (i.e. Software as a Service).
  • Key drivers for growth with innovative digital business models (platforms) have been attributed to: network effects, low legislative barriers, advertising-driven business models, high venture capital investments, consumer/customer offerings, business model innovation, open to third party developers, patient investors pursuing winner-takes all approach, regulatory entrepreneurship, political economic institutional support, and multi-sided platform/markets.