# The Successful Commercialization of a Digital Twin in an Industrial Product Service System

Oliver Stoll, Shaun West, Paolo Gaiardelli, David Harrison, Fintan J. Corcoran

## ► To cite this version:

Oliver Stoll, Shaun West, Paolo Gaiardelli, David Harrison, Fintan J. Corcoran. The Successful Commercialization of a Digital Twin in an Industrial Product Service System. IFIP International Conference on Advances in Production Management Systems (APMS), Aug 2020, Novi Sad, Serbia. pp.275-282, 10.1007/978-3-030-57997-5_32. hal-03635645

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# The successful commercialization of a digital twin in an industrial product service system

Oliver Stoll¹(0000-0002-1918-3842), Shaun West¹(0000-0002-8042-1459), Paolo Gaiardelli²(0000-0002-2207-3628), Prof. David Harrison³(0000-0003-1068-7611), Fintan J Corcoran⁴

¹ Lucerne University of Applied Sciences and Arts, Horw CH-6048, Switzerland
oliver.stoll@hslu.ch, shaun.west@hslu.ch

² Università degli studi di Bergamo, 24129 Bergamo, Italy
paolo.gaiardelli@unibg.it

³ Glasgow Caledonian University, Glasgow G4 0BA, Scotland UK
D.K.Harrison@gcu.ac.uk

⁴ Mebag, Planungs- und Bauträger AG, Cham CH-6330, Switzerland
fintan.corcoran@mebag-services.ch

**Abstract.** This paper describes the design, development and commercialization of a digital twin in an industrial product service system (industrial PSS). The twin was one of a number developed as part of a Smart Twin project in Switzerland with multiple industrial partners. The case here follows a commercialization process for digital twin-enabled services and will highlight some of the critical success factors. The service provided with the support of the digital twin was based on the reliable and predictable operation of a server room. Equipment in the room comes from several original equipment manufacturers (OEMs), and a system integrator manages the system. The approach is to apply action research as the methodology on a single case and then to identify and assess the aspects where Service Dominant (S-D) logic supported or hindered the development of the new digital technology-based service that was being co-created between the supplier and the customer. The analysis of the case confirmed that S-D logic supported the development of Smart Service offerings and showed that value co-creation can be developed.

**Keywords:** Smart Services, S-D logic, Industrial Product Service Systems.

## 1 Introduction

The purpose of this paper is to describe the design, development, and commercialization of a digital twin in an industrial product service system (industrial PSS) based on a real case. The case is a Swiss firm which has developed and commercialized a Digital Twin as a service. The researchers had the opportunity to support and observe the development of these services. Along the way, the firm used experimental methods for design and development. In commercialization traditional methods were used, with which the firm encountered several barriers, therefore adapting the approach. Closer investigation of this use case may allow other firms to develop new digitally
enabled services. The barriers to development and commercialization are different for digital services, with a greater focus on value co-creation and co-delivery than with traditional services. Therefore, this investigation aims to identify the key success factors (and barriers) which need to be understood to design, develop, and commercialize digital smart services. The motivation was to understand how, where, and why S-D logic assisted or hindered the co-development and delivery of Smart Services.

## 2 Theoretical background

Industry 4.0 and the internet of things (IoT) are enabling manufacturing firms and system integrators to offer new value propositions to their customers. Anderson [1], stated in 1998 that to build a value proposition for a customer, it was first essential to understand what they valued and how they created value. Firms can use the data from their existing equipment to gain deeper insights that can lead to competitive advantages [2]. One way to seize the opportunities of data insights is the Digital Twin [3]. Digital Twins are, in general, a digital representation of a physical object or a process [4,5], providing a link between the virtual and the physical [3].

Industrial Product and Service Systems, consisting of many actors across different organizations, machines, and services, includes the design and commercialization of digital services. Industrial PSS has mainly been investigated from the product perspective; very little is written about it in the context of S-D logic [6]. This field now offers the opportunity to investigate the commercialization of digital services in an industrial context, making it possible to examine themes such as ecosystem analysis, actors and their motivation [7], value propositions in an S-D logic context, and value sharing and co-creation [6,8].

Servitization has been studied for over 30 years [9]. However, today there has been a step-change with digitally enabled servitization [10]. The emerging digital capabilities of original equipment manufacturers (OEMs) increase opportunities to develop smart services using digital technologies such as IoT and advanced data analysis. Kohtamäki [11] identified a range of business models relevant to servitization and highlighted the importance of value creation within the value proposition. West et al., (2018) [12] assessed the smartness of services using S-D logic premises by analyzing the service ecosystem, service platform and value co-creation, independent of the type of firm. The use of S-D logic supports the value discovery described by Anderson [1].

## 3 Research methodology

Although multiple case studies are considered in order to build more robust theory [13] due to their potential for triangulation, single case studies can be more effective to describe complex interactions among several variables characterizing the problem under investigation [14]. Voss et al., [15] suggest single case approaches demonstrate more effective learning on long term cause and effect relationships. The data-driven servitization project by the company highlighted in this case analysis was initiated by a Swiss innovation project between numerous Swiss universities acting as research
partners, and multiple other implementation partners. Consequently, throughout all stages of this project continual reviews and constructive discussions took place to verify the direction of the project and assist all implementation partners to overcome any shared complications.

Action research methodology was applied for the reflections on the digital twin roadmap; evidence included identifying the tools used at each stage of the roadmap, and considering their usefulness, as well as the challenges and opportunities identified at that particular point. In this paper, a single case-based approach was used and analyzed on the timeline of the design, development, and commercialization. The main reason for selecting this approach is the scarcity and inconsistency of practical insights on design and commercialization challenges in industrial PSS literature.

Action research is a practically-oriented approach for small projects that aim for fast progress. It incorporates change as a characteristic that allows discoveries on the go, using the framework: plan, act, observe and reflect. The process is cyclic with multiple iterations from researchers and practitioners. [16].

# 4 Case analysis

The starting point for the case is shown in Fig. 1, which presents the digital twin development roadmap developed by the commercial manager for the firm and provides evidence from each of the phases described below. The development was the first digital service for what was a traditional building and facility management firm in Switzerland. This family firm delivers its core values through the execution and delivery of high-quality services such as, building planning, construction, and long-term management of multiple facilities. Therefore, the idea to pursue a servitized activity came about from a desire to integrate their current services with industry 4.0 and improve the already high quality of their broad range of services.

## 4.1 Stage 1: Motivation

The initial motivation for the project came from the firm's strategy to "do something digital" and to maintain a longer-term relationship with their customers after the handover of a project. The outcome here was to find a solution that supported the daily work routines through the application of smart services. This was intended to create a competitive advantage for the firm by capturing a partner for the longer term. The challenges it created were that both parties needed to understand digitalization, and for the firm there was a need to acquire new resources.

The major dimensions of service platform and value co-creation were considered important when moving from the strategic decision to "do something digital with customers over the longer term". Working with the customer to co-create a service was considered essential for both parties.
## 4.2 Stage 2: Understand and ideate

Application of the Data2Action framework [17] and additional research identified the processes that cause the most frequent pains for the building occupier. The problems were detailed in collaboration with the actors, and their roles were identified before moving on to an ideation stage. The opportunities came from understanding the processes and pains from many different perspectives. The challenges were collecting the information and describing it clearly without assumption. The framework [18] supported solution ideation with its four perspectives for services.

Collaborative working created a shared view of the problem, from many actors' perspectives. It also provided input into the initial view of the architecture for the solution, and the co-creation and co-delivery of value between actors (multiple) within the system became more evident.

## 4.3 Stage 3: Solution evaluation

The partners created ideas around a common set of problems, using a set of different service design tools that were previously integrated into the Data2Action framework [17]. A decision matrix (effort vs value) was used to reduce the number of possible solutions. Storytelling supported the testing of early prototypes within a universal language that all were able to share. The integration of the business model into the storytelling provided a validation tool to confirm whether the service could be delivered (or not) and how. Nevertheless, there were some critical challenges associated with solution testing and evaluation, and many were based around value identification and agreement on the value quantification in the co-creation environment.

S-D logic focuses on value in use (outputs) rather than the inputs into the process, and this supported the development of services with 'availability' commitments rather than ones based around basic inputs (e.g., call out times). The value co-creation here was described (often the process was based around three or more actors), it also supported the definition of the rules of exchange and the accommodation of multiple roles as there was a degree of resource integration. The use of the term 'beneficiary' was helpful when assessing the different situations and the perspective of the value that was co-created.

## 4.4 Stage 4: Development of a sales roadmap

This phase focused on defining the offer into a form that could be commercialized. The service was clearly defined, and the roles and readabilities clearly described. Customer segmentation and competition analysis were developed, leading to an action plan with a clear aim and timeline. The required resources for the execution of the roadmap were identified in detail and labelled as core/non-core.

The focus on value in use and co-creation of value supported the development of the sales roadmap. Discussions between the parties supported the revenue model and the identity of the firm's core activities and tasks that the customer was best suited to deliver. Revenue models that provided a gain/pain share were preferred to support
value co-creation. Roles and responsibilities were clearly defined, also detailed re-source integration while keeping an architecture that was designed to be flexible.

## 4.5 Stage 5: Commercialization

The objective was to have a system that was in commercial operation. Based on this, a cost model was built to integrate all of the firm's resources; the design was modular to support different levels of resources. A performance-based agreement was designed that described the obligations of all parties, along with the governance processes to deal with changes flexibly. This flexibility created a challenge, as it resulted in slightly adjusting or moving tasks and obligations to another party within the agreement; this was not appreciated by the legal team. The discussions around revenue models provided opportunities for capturing the value that was co-created.

Legal advisors were unsure of how to apportion roles, responsibilities and obligations – they sought clarity on how to support this based on S-D logic, as they had been trained on Goods-Dominant logic. The framework [12] sustained the co-creation of value, although discussions were needed to understand its practical use and reference to S-D logic. Some of the aspects valued by the customer and used in the revenue model were more akin to Goods-Dominant logic than pricing based on S-D logic principles.

<figure><img src="image_2.png" /><figcaption>Fig. 1. The detailed roadmap developed and provided by the firm</figcaption></figure>
## 4.6 Outcome and Reflection from Commercialization

The two key beneficiaries of the case studied proposed the best approach to pass the digital twin and its services through the procurement process. This approach involved presenting a full package offer, with all service offerings clearly split and, more importantly, detailing the values the customer receives. The structure and pricing for this offer were developed through sampling comparable offers from competitor service providers while also correlating proposed services with current service level agreements. The process of developing a final offer with all functional aspects of the service and the metrics to measure outcomes, sparked discoveries of value and supported the construction and the fees for the customer.

Two departmental directors (service recipients) presented this detailed service proposal to all other relevant head management individuals. The offer was presented directly to the key individuals that make the final purchasing decisions. The process used bypassed the procurement manager and, as such, reduced the opportunities for a rejection or alternative offers. This suggests that procurement may not be well equipped for buying Smart Services and that a new sales channel may be required.

# 5 Discussion

The case here mirrors the findings of Anderson (1998) [1], who describes the importance of understanding what customers value. The theme is then to identify, create, and deliver value. The case confirms that the process is complex and requires iteration and further confirmation from the customer. The five-step development road map of the firm with the iterations demonstrated the complexity of the process and the poor understanding of value (initially) from both parties.

Co-creation and testing of the solutions proposed is an example of open innovation [19], which assisted the design of the Smart Service as well as important aspects such as the development and testing of the revenue model. It is unlikely that traditional ‘closed’ innovation would have led to the proposed solution. It is also in line with Service Design that focuses on development and testing with different stakeholders within the system, in particular the active beneficiaries and providers [7]. The roadmap and the tools used supported the design and commercialization.

The use of S-D logic helped identify the value (and form) that could accrue or be destroyed in the industrial PSS. It also helped understand each actor’s motivation, and the consideration of co-creation/co-delivery supported the development of the service processes. Data access and ownership concerns were identified and could be negotiated, based in part on the actor motivations and from the detailed understanding of the resources and operation. Value creation/destruction supported the net value for the beneficiary, helping with both pricing and budgeting.

The customer's procurement actors required more traditional pricing models, so the firm had to translate the value from the S-D perspective to a more traditional product view on pricing. The consequences of this were that many value co-creation propositions were lost. The use of the framework [18] supported ideation by creating four questions. The derivation of the S-D logic axioms [12] made the approach more
useable in terms of value discovery. The major difficulties from the ‘value in use’ model were based around the value discovery in different situations and the equal weighting of all situations.

**5.1 Theoretical and practical contribution**

S-D logic is a powerful concept to identify value creation and destruction in a com-
plex industrial PSS. However, it needs both the marketing and the engineering points
of view to be understood simultaneously. The value capture process then helped to
define the reasonable target cost for the development of the digital twin. Service De-
sign supported pragmatic application of S-D logic so practitioners could apply the
approach. The framework [18] aided the development of different customer value
propositions and the ultimate route to the commercialized customer value proposition
with its revenue model/fee structure.

One of the managerial implications challenges the traditional cost-plus or value-in-
exchange approaches, as they do not identify the actual value created. The application
of S-D logic supported the identification of the value created, and the identification of
relevant KPIs that assess and measure the value of the smart services.

**6 Conclusions and recommendations**

The concept of S-D logic helped to describe and develop the complex value proposi-
tions that unfolded when taking a broader industrial PSS perspective in combination
with open innovation and co-development. During the motivation phase, the concept
of S-D logic was used by management to create the foundation to understand value
co-creation. Building this understanding for individuals who didn't know about S-D
logic proved to be complicated. Particularly in the commercialization phase, people
without this knowledge couldn't grasp the value of the Smart Service offerings. Tradi-
tional value assessment methods of procurement were not able to cope with the S-D
logic value propositions, and the firm had to translate the value propositions to meet
procurement guidelines, which lost some of the value. This provides additional chal-
lenges for detailed service delivery measurements. The major limitation of this work
is that it is from a single case. More in-depth research of S-D logic in the context of
industrial PSS is needed, along with new methods to operationalize S-D logic.

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