This paper focuses on business models and how new technologies influence business models. By reviewing literature it can be realized that research regarding business models and new technologies considers two different areas:
One area is the capture of value from new technological innovations. A new product development should be linked to the development of a respective business model by defining value strategies for the new development. A new technological development does not automatically mean business success. Hence, a business model design for the new development is a key element in order to create value out of the new development.
The other research area – and this is the focus of this paper - looks at how new technologies influence business models. After a short introduction a practical example will be given of how a cooperation adapted its business model due to digitalization.
At a glance
- Grade: 1.3 (1.0 is the best grade)
- Examines Rolls-Royce’s shift to selling turbine operating hours
- Presents a business model canvas of the Rolls-Royce transformation
- 3 figures
Table of Contents
The document does not contain a table of contents.
Objectives and Topics
This paper examines how new technologies influence business models, with particular attention to the adaptation of product-oriented models to service-oriented ones. It uses a literature review and the example of Rolls-Royce to explore the role of digitalization in business model transformation.
- Technology-driven business model adaptation
- Differences between product-oriented and service-oriented models
- Digitalization and remote turbine monitoring
- Supplier–customer relationships and data exchange
- Business model canvas for Rolls-Royce
Excerpt from the Book
How new technology affected Rolls-Royce business model
Rolls-Royce is a well-known example of how technology can influence traditional business. One of the key drivers for business evolution of Rolls-Royce is digitalization. In recent years the sale of turbines was in focus. Nowadays however, turbines itself are not sold anymore. Rolls-Royce is now selling “power by the hour” which means that operating hours of these turbines are sold. Turbines are monitored by remote maintenance technologies which permanently analyze the status of respective turbines. If an incident occurs respective actions are initiated. Algorithms had to be developed in order to predict potential incidents. Hence, the supplier takes over risks of turbine failures and he has to guarantee the sold and promised operating hours. The customer buys a service. Due to the permanent monitoring the supplier is able to provide important data to the customer, e. g. fuel consumption, which the customer can use in order to improve his internal processes. For sure the gained data is useful for the supplier as well (tracking of failures (weaknesses of product), getting a big picture of customer needs). (Böhmann et al. 2013)
However, technology (IT systems) plays a crucial role in order to enable this new service-oriented business model. Technology needs to be integrated in aircrafts which is tracking data and simultaneously sending respective data to Rolls-Royce. As mentioned in the previous section: a good interaction between customer and supplier is the basis for this business model. There is a permanently ongoing interaction between Rolls-Royce and the airline and if a potential failure is realized a fast communication ensures the elimination of the error before the error occurs. (Böhmann et al. 2013)
Basically this new business model is a win-win-situation. Both sides of business benefit in the following way: (Böhmann et al. 2013)
- Rolls-Royce gains data of its product and is able to improve its product just in time.
- Rolls-Royce gains data of the customer and is able to offer customized products specific to the customer’s needs.
- Rolls-Royce generates long-term revenues due to a long-term service contract.
- The airline does not need to worry about maintenance of turbines (less risks).
- The airline is in a position to make use of the tracked data.
In order to display the changes in the building blocks of the business model canvas the following figure has been created. Items in bold are new in the new service-oriented business model canvas.
Chapter Summaries
How new technologies change business models: This section discusses technology-driven business model adaptation and contrasts product-oriented and service-oriented models, particularly their customer relationships and interactions.
How new technology affected Rolls-Royce business model: This section uses Rolls-Royce to illustrate a shift toward selling turbine operating hours supported by remote monitoring. A business model canvas depicts the associated changes.
Keywords
business model transformation, digitalization, technological innovation, service-oriented business models, product-oriented business models, Rolls-Royce, power by the hour, turbine monitoring, remote maintenance, business model canvas, customer relationships, operating hours
Frequently Asked Questions
What is the paper about?
It examines how new technologies affect business models, using Rolls-Royce as a practical example.
What are its central topics?
Its topics include business model adaptation, digitalization, service delivery, remote monitoring and supplier–customer relationships.
What is the paper’s main objective?
Its objective is to explore how new technologies influence business models and to illustrate that influence through a company example.
What method does the author use?
The author reviews literature and discusses a practical example drawn from published sources. The paper does not report an original survey or interview study.
What does the main body cover?
It first discusses technology-driven business model change, then considers Rolls-Royce’s service-oriented turbine business and presents a business model canvas.
Which keywords characterize the paper?
Key terms include business model transformation, digitalization, service-oriented business models, Rolls-Royce, remote maintenance and business model canvas.
What does “power by the hour” mean in the Rolls-Royce example?
The paper describes it as selling turbine operating hours rather than simply selling turbines.
What role does remote monitoring play in the example?
It provides data about turbine status and supports the identification of potential incidents and communication between the supplier and airline.
- Quote paper
- Johannes Köck (Author), 2015, Business model transformation and innovation. How new technologies influence business models, Munich, GRIN Verlag, https://www.grin.com/document/378126
