Developing digital initiatives in an asset-based company

Abstract

This report is the result of a study that has been conducted on the development of several digital initiatives for Dutch shipbuilder Royal IHC. The company is a pioneer in the development, design and production of equipment for the dredging and offshore industry and is known as the Technology Innovator. Several digital initiatives are being developed in order to establish this shift towards a more service-based mindset. The report is divided and structured according to the following three research questions: 1. “Which data-driven business models could be useful for Royal IHC?” 2. “What gaps can be found in the digital strategy of Royal IHC?” 3. “What should the go-to-market strategy of IRIS be?’ Although the study has been divided in three main parts, there is a strong connection between them. The link between the different chapters becomes clear when proceeding through the report. The first part of the report gives an answer to the question which data-driven business models could be useful for Royal IHC. Research on this topic resulted in the use of a framework, proposed by Hartmann et al. (Hartmann, 2016). This framework has been simplified and modified to a second version, which perfectly served the purpose of mapping relevant business cases. 46 companies within eight industries have been analysed and mapped into the modified framework. In consultation with promotor John Oosthoek, the 12 most relevant cases were selected and further discussed in more detail. For every selected company, the value proposition, revenue stream and interesting aspects for IHC are analysed. At first, subscription fee, usage fee, gain sharing and the concept of cost advantages came out as the most applicable revenue models for IHC’s digital services. However, more in-depth research clarified that the last two revenue models are not deployable for IHC’s business case. The concept of cost advantages requires a lot of operational data, which is currently not available, since the technical development is still in a pilot phase. This revenue model should be re-evaluated in the future but at this moment this option is considered to be less relevant. The same applies to the gain sharing model. Since it is difficult to calculate the added value the customer can create due to IHC’s digital services, this revenue model is also considered to be not applicable for the service. In addition, this model requires full transparency on the operations and financials of the customers, which is certainly not evident. Given these implications, subscription fee and usage fee are the most appropriate revenue models for IHC. As an answer to the second research question, a profound gap analysis has been conducted on three different levels: business models, technological innovations and target markets. This part of the report intends to point out some interesting possibilities, market opportunities or innovative services IHC has not yet included in its portfolio of digital initiatives. The gathered information of research question one has been benchmarked to the current business model of Royal IHC in order to identify the possible gaps on this level. Research points out that Platform as a Service (PaaS) is the only interesting model for Royal IHC that has not yet been applied. Currently, the company uses a software strategy (SaaS), meaning that a finished software tool is delivered to the customer. Instead of delivering an unmodifiable software tool, Royal IHC should consider offering a platform (PaaS). This digital environment enables the customer to develop its own customized applications according to its own needs. Furthermore, the following technological innovations have been analysed and discussed since there might be some interesting opportunities in the context of IHC’s digital strategy: • Blockchain: Using this technology, a solid system could be created, connecting the several stakeholders in the dredging business. By labelling dredged volumes, the mining, transportation and dumping of materials could be traced, creating more operational transparency for every stakeholder involved. • AR/VR: Augmented and virtual reality are both interesting technologies that might have some useful applications in the dredging industry. AR imposes virtual elements on the real world, whereas VR renders a completely virtual world. These technologies could have a big impact on the efficiency of maintenance jobs and include some interesting opportunities regarding the safety measures taken during operations. • 3D printing: The implementation of a 3D printer on board of a dredging vessel could have a large positive impact on the logistics and operations of the customer. If the customer is able to print any kind of spare part on the vessel itself, downtime could be reduced significantly. In addition, this technology would reduce the onboard inventory of spare parts to a bare minimum. As a final element of the gap analysis, the target market gaps have been determined by means of the Ansoff matrix (Ansoff, 1957). Currently, Royal IHC focuses on offering existing products in their existing markets. With IHC’s digital initiatives, new products will be offered to the existing market. Since some of these services could be relatively easily implementable for other markets, IHC should consider offering their newly develop digital services in other industries and explore new markets. In the context of the final research question, an extensive deep-dive exercise on the go-to-market strategy of IRIS has been performed. As a starting point, the value proposition for IRIS was formulated by conducting an internal and external analysis on Royal IHC, using the Porter’s Five Forces framework (Porter, 1985) and the environmental framework (Fehre, Strategic Management Session 3, 2019). These analyses served as the foundation for a SWOT analysis. Considering the most important items of this analysis, the following value proposition was formulated: “In order to increase the customer’s performance, up-time and transparency, we want to provide reliable solutions and operational transparency to the customers using remote monitoring. This way IHC can create sustainable, long-term partnerships with its customers, claiming a fixed place in their value chain. IRIS will be profitable as from 2021, and the breakeven point will be reached in 2024. It should serve as the foundation of 5 digital initiatives by 2025.” Secondly, a customer targeting analysis was done by mapping the impact of the following four characteristics on the customers’ willingness to implement IRIS on their fleet: level of technical expertise, level of data protection, focus on process optimization and operational transparency. By means of this mapping exercise, the positive features and negative implications for every customer type have been defined. Further in-depth investigation needs to be done in order to target the different customer types with the appropriate approach. As part of the sales strategy for IRIS, a service packaging method is proposed. Remote monitoring serves as a fundamental building block for every package, on which additional services can be build. This packaging system enables Royal IHC to offer the client a customized service solution, according to his specific needs. Based on the customer segmentation, standardized packages were composed to target specific customer types. In order to determine the appropriate launching strategy for IRIS, the following three visions have been formulated, based on gathered information and internal interviews that have been set up: • Vision 1: The offering of IRIS as a fully developed service, charging the customer from the beginning by means of a monthly subscription fee or another appropriate revenue model. • Vision 2: Standard implementation of IRIS as support for further servitization. A lump sum payment is added to the acquisition price of the vessel. IRIS is perceived as a strategic project that has to be selfsustaining but not stand-alone profit making. • Vision 3: Free offering of IRIS in the first year as a proof of concept. This principle, also known as the “cocaine model”, enables IHC to convince the customer about the potential of this technology. In addition, valuable feedback helps IHC to further develop IRIS to the state-of-the-art technology it wants it to be. Once the service is fully developed and the customer is familiarized with the technology, IHC can start charging the customer by means of a monthly subscription fee. This win-win situation makes this last vision the most preferable strategic implementation according to the ICP team and many other profiles within IHC. As a last part of the third research question, an appropriate pricing strategy for IRIS has been defined. Based on a cost-based pricing model, the cost for IRIS was determined for Beavers and Beagles. The remote monitoring service comes at a monthly fee of €500 for Beavers and €750 for Beagle vessels. The prices for the remote support service amount to €2,500 and €4,000. In this case, IRIS is forecasted to be profitable in April or July 2021, depending on the deployment of IRIS only for Beavers or for Beavers and Beagles. Because of the sensitive relationship between Royal IHC and the customer, it was not possible to benchmark the proposed go-to-market strategy to the opinions, insights and preferences of the customer. As a next step for Royal IHC, it is crucial to further investigate the value of the discussed strategic aspects in close cooperation with the customer in order to determine the appropriate approach for IRIS.