# Combining Agile Hardware Development with Additive Manufacturing: Implications for a Manufacturing Firm's Business Model

Daniel Omidvarkarjan, Robin Streuli, Omid Maghazei, Torbjørn Netland, Mirko Meboldt

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Daniel Omidvarkarjan, Robin Streuli, Omid Maghazei, Torbjørn Netland, Mirko Meboldt. Combining Agile Hardware Development with Additive Manufacturing: Implications for a Manufacturing Firm's Business Model. IFIP International Conference on Advances in Production Management Systems (APMS), Sep 2022, Gyeongju, South Korea. pp.302-309, 10.1007/978-3-031-16407-1_36 hal-05386074

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# Combining Agile Hardware Development with Additive Manufacturing: Implications for a Manufacturing Firm's Business Model

Daniel Omidvarkarjan¹(✉), Robin Streuli², Omid Maghazei³, Torbjørn Netland³, and Mirko Meboldt⁴

¹Inspire AG, Zurich, Switzerland

omidvarkarjan@inspire.ethz.ch

²Turbo Systems Switzerland Ltd., Baden, Switzerland

³Department of Management, Technology, and Economics, ETH Zurich D-MTEC, Zurich, Switzerland

⁴Product Development Group Zurich (pdlz), ETH Zürich D-MAVT, Zurich, Switzerland

**Abstract.** Manufacturing firms are increasingly adopting Agile approaches for the development of physical products. In combination with advanced production technologies such as Additive Manufacturing (AM), Agile offers unprecedented opportunities to cope with increasing uncertainties, risks and complexities involved in hardware development operations. Following the case study method, this paper sets out to investigate the implications of combining Agile hardware development (AHD) and AM for the business model of a high-end manufacturer of photography equipment. A comparison of the business model canvas for plan-driven versus Agile development at the case company revealed that the two approaches featured significant differences, which required adaptations in every building block of the canvas. This study's implications are threefold. First, this study empirically examines the potential of AHD approaches and highlights that the adoption of AHD engages with virtually all organizational functions of a manufacturing firm. Thus, AHD calls for holistic approaches during implementation. Second, this study shows that regular product take-backs are required to account for product iterations becoming frequently outdated. This result implies a closed-loop manufacturing system for operations and supply chain management. Third, this paper discusses strategies for both product design and product take-back processes, which could further enhance companies' AHD operations.

**Keywords:** Agile hardware development · Additive manufacturing · Business model canvas · Closed-loop manufacturing system

## 1 Introduction

In recent years, product development has increasingly become more volatile, uncertain, complex, and ambiguous [1]. Popularly abbreviated as VUCA [2], this trend represents a major challenge for many firms in the hardware industry because they are required
to deliver new products with more customer value faster than ever to remain compet-
itive [3]. To cope with such challenges, iterative development approaches have been
identified as promising strategies, among which Agile has received remarkable atten-
tion from both academics and practitioners [4]. Agile refers to a group of new product
development (NPD) methodologies that employ short, iterative development cycles with
Scrum being the most widespread framework. The primary goal is to rapidly create cus-
tomer value while ensuring high responsiveness to change throughout the NPD process
[5]. Compared to traditional, plan-driven product development approaches (such as the
Stage-Gate and waterfall process), Agile is well suited for highly uncertain and complex
contexts, in terms of both technical implementation and customer requirements [5].

Despite being virtually the industry standard in the software industry, Agile hard-
ware development (AHD) is an emerging phenomenon in both research and practice
[6]. A recent survey by Atzberger [7] revealed that firms in the manufacturing industry
still struggle to fully adopt AHD in their NPD and broader operations. The authors have
concluded that, among other barriers, dealing with AHD's hardware-specific restrictions
represents the main barrier to AHD adoption. Evidence shows that existing Agile meth-
ods from software must be adapted to address the characteristics of hardware product
development [8].

One notable context that stands out and has been repeatedly discussed in both research and practice is the integration of Additive Manufacturing (AM) technology in AHD [9, 10]. Originally developed as a technique for rapid prototyping, AM has evolved into a mature manufacturing technology [11]. With its unique technological properties, AM is highly compatible with the iterative development rhythm of AHD. In essence, AM's manufacturing costs are theoretically independent from lot size [12], which makes the flexible production of constantly evolving product designs during AHD economically feasible. Various case studies have shown that an iterative development approach is often suggested for AM products [13] because AM can significantly alter how manufacturing firms create value [14]. For the company Tailored Fits, adopting AM for ski boot production transformed the firm's value creation from hardware manufacturing toward a software-driven, service-centric business model (BM) [15]. This pattern can also be observed in other industries [16].

## 2 Case Study

Although some studies [9, 10] have provided early empirical insights into the combi-
nation of AM and AHD, extant works on the adoption of AHD in manufacturing firms
remain few and far between. For example, it is unclear how firms’ value chains outside
of research and development (R&D) are affected by the implementation of AHD. This
paper’s main objective is to explore the implications of AHD for a manufacturing firm’s
BM. This empirical investigation is based on the following case study.

### 2.1 Case Description

The case company is a small manufacturer of high-end photography equipment from
Switzerland, serving a small niche of professionals and wealthy enthusiasts in the field
of medium format photography. Its products can be characterized as high-mix, low-volume luxury goods. They are mostly produced with conventional manufacturing technologies (i.e., aluminum milling) together with external partners. The minimum batch sizes required for milling represent a major challenge for the case company because exploratory product ideas can hardly be pursued without a substantial investment. To overcome this barrier, the firm combined AM and AHD for the development of a novel product for an emerging market (in this case, large format videography). As depicted in Fig. 1, the NPD project took place between June 2017 and December 2018 and included three development sprints of four to five weeks each. Within every iteration, the resulting product increment was internally tested by lead customers to acquire user feedback. An initial product release took place after the second iteration. Based on the market feedback, the product was substantially redesigned after 12 months. Selective laser sintering, a polymer-based AM process, was used to produce all development prototypes and final product units. These parts were manufactured by an external partner.

<figure><img src="image_3.png" /><figcaption>**Fig. 1.** Overview of the AHD project analyzed within the case study with an idealized illustration of information, material flows, and revenue streams (product photos © ALPA of Switzerland)</figcaption></figure>

## 2.2 Research Methodology

This study is aimed to compare the BM of products developed with a traditional, plan-driven process to one using the AHD approach at the case company. The business model canvas (BMC) is used as a framework for this comparison. Originally presented by Osterwalder and Pigneur [17], BMC is widely established in practice for the design and visualization of BM. It comprises nine building blocks, which collectively cover the four main areas of BM design (the who, the what, the how, and the why). This standardized structure facilitates comparison among different BM variations and enables the generation of transferable BM patterns [18]. Both of this study's BMCs were created based on 12 interviews and two workshops. These were conducted with firms' managers, including CEO and head of products, as well as firms' suppliers, from March to June 2021. The workshops were structured using the methodology provided by the BMC's
creators [18]. Based on the information of the interviews and workshops, the authors created the BMC for both the plan-driven and AHD approach.

## 3 Results

Table 1 displays the comparison of the two BMCs for the case company, with the traditional, plan-driven process depicted on the left and the AHD approach shown on the right. The results show that the introduction of AHD led to a significant change in almost all the aspects of the firm's BM.

<table><caption>Table 1. Comparison between the BMC for the plan-driven approach and the BMC for AHD.</caption><thead><tr><th></th><th>Plan-driven development approach</th><th>Agile development approach</th></tr></thead><tbody><tr><td>Customer segments</td><td><ul><li>Established market (medium format photography)</li><li>Variety of customer groups (professionals, enthusiasts, noble amateurs)</li></ul></td><td><ul><li>Emerging market (large format videography)</li><li>Focus on lead users, early adopters (innovative professionals)</li></ul></td></tr><tr><td>Value proposition</td><td><ul><li>Longevity, precision, durability</li><li>Investment (high reselling value)</li></ul></td><td><ul><li>Co-innovation and co-design, customization</li><li>Early access to most innovative products</li></ul></td></tr><tr><td>Customer relationship</td><td><ul><li>Loose relationship after product sale, partly anonymous (not all customers are known)</li></ul></td><td><ul><li>Personal and collaborative, even after product sale (direct & constant exchange of feedback, needs for improvement)</li><li>Service-centric</li></ul></td></tr><tr><td>Channels</td><td><ul><li>Various dealers around the world</li><li>Direct sales through web shop</li></ul></td><td><ul><li>Primarily direct sales</li><li>Collaboration with selected video equipment rental houses</li></ul></td></tr><tr><td>Key resources</td><td><ul><li>Brand recognition</li><li>Dealership network</li></ul></td><td><ul><li>Internal AM design competence and tools</li><li>Network & relationships with lead users, early adopters</li></ul></td></tr><tr><td>Key activities</td><td><ul><li>Coordination of external R&D and manufacturing resources</li><li>Marketing & sales</li><li>Quality check, distribution</li></ul></td><td><ul><li>Lead user interaction (feedback acquisition)</li><li>Internal product development with AM</li><li>Quality check, distribution</li></ul></td></tr><tr><td>Key partnerships</td><td><ul><li>Dealers</li><li>Manufacturing and R&D partners</li></ul></td><td><ul><li>Lead users</li><li>AM supplier</li></ul></td></tr><tr><td>Revenue streams</td><td><ul><li>Transactional sales (fixed list prices)</li><li>Monetization only after end of product development</li></ul></td><td><ul><li>Rent-instead-of-buy* (access to most recent product iteration for a leasing fee)</li><li>Early monetization already during product development</li></ul></td></tr><tr><td>Cost structure</td><td><ul><li>High fixed costs, low variable costs, due to large initial lot sizes for conventional manufacturing, and big upfront R&D expenses</li></ul></td><td><ul><li>Low fixed costs, high variable costs, due to on-demand manufacturing with AM, and constant R&D expenses for subsequent product iterations</li></ul></td></tr></tbody></table>

Comparing the *customer segments* of the two BMCs shows that the AHD approach is shifting the focus towards delivering solutions to a narrow group of highly innovative lead users and early adopters. Furthermore, the AHD project's overall product field (i.e., large format videography) is more dynamic and uncertain than the established market covered by the plan-driven approach (i.e., medium format photography).

<footnote>* Only planned, could not be implemented due to change of business strategy</footnote>
The shift in focus is also reflected in terms of *value proposition*—set against the conventional BM with its emphasis on longevity, precision, and durability, the AHD approach is much more tailored to providing lead customers with early access to the most innovative products, including those that have yet to be fully matured. For this particular product field (i.e., high-end videography), having access to the most recent technology and innovations represents a unique selling proposition to differentiate early adopters from their competitors. As such, the case company's lead customers are ready to accept a product that does not constitute a fully robust solution and are even willing to pay a premium to access the product earlier than other potential users. Moreover, the AHD approach offers customers the opportunity to co-innovate and co-design a product for their individual needs because they can drive development by providing user feedback. For instance, the case company included an active cooling solution in the third iteration specifically based on several customers' feedback.

This shift in value proposition also manifests itself in *customer relationships*, by keeping close contact with its customers via direct and frequent exchange of user feedback, the firm established a more personal and collaborative relationship compared to the conventional, plan-driven approach. To enable such a closed feedback loop, the firm was required to move its channels from dealerships toward direct sales. Instead of relying on a large network of individual dealers, the firm recognized the need for direct communication channels with its customers and few selected partners (in this case, video equipment rental houses). Such selected partners would not only support the sales process but also could forward the user feedback they received from the customers to the case company's R&D department.

In terms of *key resources, activities, and partnerships*, the AHD approach, with its user-centric and iterative nature, revolved around acquiring customer feedback and implementation through in-house engineering in subsequent product iterations rather than order fulfillment in the plan-driven approach. Therefore, ensuring access to those lead users and building up the required internal R&D capabilities (i.e., competence in AM design) was of great importance for the case company.

Regarding *revenue streams*, the firm recognized the need to move from classical, transactional sales to a rent-instead-of-buy business model. Because an updated physical product increment is frequently released in short intervals, customers are less willing to purchase each given iteration than they otherwise would be out of fear that it will soon be outdated. To overcome this challenge, the firm initially planned to introduce a leasing fee for which customers would gain access to the most recent iteration (i.e., rent-instead-of-buy). This idea was not implemented in the case company due to a change of business strategy concerning the product's priority. Nevertheless, the early product release provided the firm with the early opportunity to monetize the product during the development process.

In terms of *cost structure*, the plan-driven approach of fully developing a product up front and pre-producing large batches with conventional manufacturing technologies incurs high fixed costs and low variable costs for the case company. Instead, the combination of AHD and AM resulted in low fixed costs and high variable costs. Although low fixed cost was enabled by AM, and thus reduced initial, up-front investment in the stock
through on-demand production of small lot sizes, the frequent development iterations increased variable R&D expenses.

# 4 Discussion

The comparison between the plan-driven approach and the AHD approach in our case study shows that the adoption of AHD in combination with AM has major consequences for a manufacturing firm's BM. In every dimension of the BMC, the introduction of both factors led to a substantial change in BM design for the case company. To the best of our knowledge, this is the first paper to report detailed empirical evidence regarding the combination of AHD and AM in an industrial context. The findings imply that AHD cannot be implemented within only R&D. In contrast, the adoption must be coordinated among all of a firm's organizational functions.

In addition to the required adaptations in BM design, the case study revealed other implications of AHD adoption for operations and supply chain management. When a new product iteration is released to the market, the previously distributed version becomes outdated. For many products and industries, it would be advised to take back outdated iterations through reverse logistics. For instance, this may prevent customers from acting as resellers on secondary gray markets. The case company recognized that its material flows needed to be adapted toward a closed-loop manufacturing system to account for this frequent take-back of physical products. Establishing such a closed loop system is receiving more attention in manufacturing companies, beyond AHD [19]. Many firms consider closed loop manufacturing as part of their strategies related to sustainable and environmental initiatives. Nevertheless, some studies have shown that applying this concept to physical products is still associated with several challenges, such as costly manual disassembly processes, high changeover times, and inefficient use of resources [19]. This study helped the case company identify two potential strategies to enable the efficient take-back of outdated physical product versions within the scope of an AHD project. First, introducing a *high degree of product modularity* allows for updating and exchanging of single components or features without taking back the entire product system. This strategy is highly compatible with AM because its geometrical freedom can be used to freely introduce modularity through flexible hardware interfaces. The case company isolated, for instance, major parts of the electronics in a modular carrier, allowing them to flexibly reconfigure and update the components if needed. Second, product take-back can primarily be steered using *interaction with the customer through BM design* [20]. In particular, the case study suggests that applying a rent-instead-of-buy BM could reinforce product take-back processes. Through such a BM, customers would be obliged to exchange outdated predecessors for updated product versions by shipping them back to the firm.

# 5 Conclusion and Future Research

This paper investigates the implications of combining AHD and AM in the context of a high-end photography equipment manufacturer. The comparison of the BMC for the plan-driven versus AHD approach revealed that the adoption of AHD causes fundamental
changes in the firm's BM, requiring an adaptation in every building block of the BMC. Furthermore, this paper foregrounds the need for closed-loop manufacturing systems to account for regular take-backs due to constantly evolving product iterations. This study shows that AHD could be further enhanced when carried out in tandem with all organizational functions through holistic approaches. Finally, this research discusses strategies for product design and product take-back processes, which could enhance AHD operations.

This paper's main limitation is related to its single case study design. Further research is needed to validate and expand the results in contexts other than the one studied in this paper (i.e., high-end photography with small-scale operations while using AM as the main production technology). By doing so, the interplay of the AHD approach with a firm's product strategy could be better understood, especially when short demand cycles are present. Moreover, a quantitative assessment of AHD's potential versus that of plan-driven approaches provides a promising research direction for future scholars.

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