Business Model and Industry 4.0

By Dr. Dhanuskodi Rengasamy

The term Business Model (BM) is a wide term. There are no generally accepted definition of it but there are few cogitate ideas accepted by academics and practitioners.

According to Peric et al (2017), BM is all about value. A well-designed business model manages to balances the value provided to customers and the value provider (Teece, David J., and Greg Linden, 2017). According to some academicians, BM is mainly focused on a company’s strategic plan for earning profit, observing and identifying the production and marketing of products and services that it plans to sell in its target markets.

BM is essential for both established businesses as well as newly-started businesses. It is necessary for established businesses to update their business models regularly, otherwise it would be difficult to face the challenges ahead.

Periodically, business models evolve and are subject to changes according to industrial revolutions. Technological advancements influence the way businesses operate. According to DaSilva, Carlos M., and Peter Trkman (2014), BM describes the current scenario of the business. Furthermore, the business is required to face upcoming changes with new strategies and capabilities. For example, film distributing companies are streaming movies online instead of selling or renting physical copies.

Obviously, business models are being affected by the fourth industrial revolution (Industry 4.0) currently being implemented across the world. It involves the application of highly advanced information and communication technologies to drive the industries of tomorrow. It is an extension of Industry 3.0 where computers were used extensively for production in factories, but Industry 4.0 takes the next step, networking all systems into ‘cyber-physical production systems’ and creating ‘smart factories’.

Under these systems, the production systems, production components and human resource requirements are communicated via networks. The major components of Industry 4.0 are thus (1) cyber-physical systems, (2) Internet of Things (IoT) platforms, (3) on-demand availability of computer system resources, and (4) cognitive computing.

Here is each component and their relation to BM in more detail:

  • Cyber-physical systems (CPS): It integrates various aspects such as sensing, computation, control and networking into physical objects and infrastructure, connecting them to the Internet as well as to each other. For example, embedded computers monitor and control physical processes in real-time.
  • Internet of Things (IoT) platforms: Under this system, interrelated and inter-connected objects are able to collect and transfer data over wireless networks without human intervention. An example is an IoT device providing automatic messages to bank customers while they are using their online accounts on their mobile phones or making a transaction on an ATM (exchange of data).
  • On-demand availability of computer system resources: Under this method, resources are made available to users on an ‘as need’ basis. For example, cloud-hosting companies can provide their clients with access to resources on demand.
  • Cognitive computing: This method stimulates human thought processes in a computerised model. Computers can mimic the way the human brain works. The hardware and software can help to improve business decision-making.

Industry 4.0 is certainly beneficial to businesses when it comes to sharing data among their customers, manufacturers and suppliers, and other stakeholders. This inevitably improves the productivity and competitiveness of businesses, expands the digital economy and drives the economic growth and sustainability of countries. Ultimately, the innovative and transformative business model increases profit, reduces cost, and improves customer experience, value and loyalty.

Dr. Dhanuskodi Rengasamy is a senior lecturer in the Department of Accounting of the Faculty of Business at Curtin University Malaysia. He holds a PhD in Commerce (Accounting) as well as an MBA in Finance and a Postgraduate Diploma in Computer Application. His research interests include accounting, auditing, financial reporting, corporate governance and banking. Dr. Dhanuskodi can be contacted by email at dhanuskodi@curtin.edu.my.

References:

DaSilva, Carlos M., and Peter Trkman. “Business model: What it is and what it is not.” Long range planning 47, no. 6 (2014): 379-389.
Peric, Marko, Jelena Durkin, and Vanja Vitezic. “The constructs of a business model redefined: A half-century journey.” Sage Open 7, no. 3 (2017): 2158244017733516.
Teece, David J., and Greg Linden. “Business models, value capture, and the digital enterprise.” Journal of organization design 6, no. 1 (2017): 1-14.