Changes in Earnings Models Through Digital Product-Service Systems: The Example of dormakaba PDF

# Changes in Earnings Models Through Digital Product-Service Systems: The Example of dormakaba **Angela Beckenbauer, Carmen Kobe, Jacques Hefti, and Anja Meyer-Jürgens** ## Summary dormakaba is a global provider of smart and secure access solutions and an example of digitization in manufacturing...

# Changes in Earnings Models Through Digital Product-Service Systems: The Example of dormakaba **Angela Beckenbauer, Carmen Kobe, Jacques Hefti, and Anja Meyer-Jürgens** ## Summary dormakaba is a global provider of smart and secure access solutions and an example of digitization in manufacturing companies. Digitization affects not only dormakaba itself but also changes procedures and business models in the entire building and security industry. Buildings are used more flexibly. On the other hand, digital solutions are already being used in the planning and implementation of buildings and in building management. With the digital platform "dormakaba exivo", dormakaba enables electronic access management. This is the foundation for a variety of new business models related to access to and use of spaces. The Business Model Profit Schema shows for some of these new business models which physical components or services are provided free of charge or at very low costs and with which services contributions are generated. ## Keywords Key technologies: digital access solutions · new business models · free and paid digital services · digital innovations ## Digitalization for Manufacturing Companies Digitalization enables new business models. And many of these new, digital business models emerge in digital or digital-adjacent sectors. In the manufacturing industry, digital technologies enable improvements, especially in process optimization and networking (Industry 4.0) or are used for quality optimization and increasing the variety of variants. Although so far mainly large digital players such as Google, Apple, Amazon and Paypal have shaped the upheaval through new digital business models, manufacturing companies must also prepare for changing markets. New business models are not simply additional revenue streams. They have much more potential to change existing business logic and value chains and to create new business ecosystems. With changing value chains, the role of customers, suppliers and partners is also changing. Suppliers become partners, customers become competitors and vice versa, With changing procedures, the role of customers, suppliers and partners is also changing. Suppliers become partners, customers become competitors and vice versa. ## The Company dormakaba dormakaba is a global provider of smart and secure access solutions for over 150 years. Since the merger of Dorma and Kaba in 2015, the Group has been one of the top 3 companies in the global market for access and security solutions. With over 16,000 employees, dormakaba generated consolidated sales of CHF 2.8 billion in the fiscal year 2017/18 (June 30, 2018), which represents an increase of 12.7 % compared to the previous year. This growth is mainly due to the acquisitions of Mesker, Best Access Solutions, Kilargo and Skyfold. The organic growth amounted to 2.6 %. dormakaba closed the fiscal year 2017/18 with a consolidated profit of CHF 238.7 million (previous year CHF 224.6 million). dormakaba Holding AG has been listed on the SIX Swiss Exchange since November 1995. dormakaba is organized into four operating, geographical segments, known as "Access Solutions", as well as a functional segment "Key & Wall Solutions" (see Figure 4.1). The latter differs from the other four segments due to its specific products such as mobile partition solutions and locking systems - **Access Solutions AMER** - **Access Solutions APAC** - **Access Solutions DACH** - **Access Solutions EMEA** - **Key & Wall Solutions** ## Digitalization of the Building & Security Industry Digital solutions have radically changed how, when and where people live and work. The residential and commercial space has been redefined and so has the use of real estate. Since cloud services and Internet access are available universally, employees can work from practically anywhere, whether mobile, from home office, at different company locations, at the customer site, in a co-working space or in a shared workspace in the building. Space is becoming more individual and versatile. The more digital systems permeate the processes and procedures of organizations, the more the way space is used, managed and further developed is changing. Facility Management is particularly challenged in this context, using digital solutions to implement requirements such as: - **Services (SVC)** - **Lodging Systems (LGS)** - **Safe Locks (SAL)** - **Door Hardware (DHW)** - **Interior Glass Systems (IGS)** - **Entrance Systems (ENS)** - **Master Key Systems (MKS)** - **Electronic Access & Data (EAD)** - **Local Products (LOP)** ## Digitalization @ dormakaba The core business of industrial companies like dormakaba is based on core competencies, product leadership and global sales and service quality. The associated resource deployment is high and also means that the core business is organized according to product lines, while digital business opportunities are built up in a complementary manner. To explore this, dormakaba has established the area "dormakaba digital" to take on the task and is committed to working closely with existing business areas in order to realize concrete digital projects together with customers. dormakaba is therefore following the "dual transformation" approach described by Anthony, Gilbert and Johnson (2017). dormakaba explores how digital technologies can help in the collaboration with customers and partners, the networking of products with each other and the collaboration within the company itself (Figure 4.3). This can lead to networked platforms forming the basis for new business models with corresponding growth potential. ## Networked Customers and Partners The networking with customers and partners via digital platforms is already a firm component of dormakaba today. Customers can individually configure products online, for example. Digital collaboration is much more than that: online partner portals already enable continuous exchange with business partners today. The trend VR was recognized early on, and a virtual building, the "Virtual Design Center", was developed by dormakaba. The Virtual Design Center is used to present the product portfolio and the company to customers and partners. With VR goggles and controllers in hand, visitors can go on a discovery tour in the dormakaba universe and gain insights into new forms of digital collaboration in virtual reality. ## Networked Products The networking of products is particularly realized by dormakaba in innovations with mobile solutions. These are, for example, mobile access solutions that enable customers to grant access with mobile phones, tablets or smartwatches. The hospitality sector and especially hotels are pioneers in the use of such products, which are already using virtual room keys today. Web-based or cloud-based solutions make it possible to simplify check-in for hotel guests and to realize digital add-on functions, such as the hotel-app. Existing mechanical solutions can be equipped with electronic upgrades with digital add-on functions. The products are thus transformed into product-service systems, which enable new business models. ## Connected Company A diagram demonstrating the interplay of "connected customers, connected services, connected company and connected products" is shown in Figure 4.3. ## Networked Business At dormakaba, networking in the sense of Industry 4.0 is particularly implemented in production facilities. Networking is intended to increase flexibility and thus enable dormakaba to adapt quickly to changes in the environment in order to maintain its competitive edge over the long term. Increasing flexibility and responsiveness are the driving forces of networking. In Singapore, for example, dormakaba is currently testing the feasibility of a "Digital Twin". This virtual twin consists of a virtual counterpart to a real production plant. With the data that the digital twin provides, production processes can be simulated and made more efficient. ## Interplay of Digital Possibilities: Networked Services Through Networked Platforms It's where the networking of products, customers and partners, as well as the internal networking come together, new digital platforms and networked services emerge. One such service is, for example, the "dormakaba exivo" offering, a digital platform that orchestrates all three areas of networking (dormakaba 2018). The web-based platform enables the customer to manage access rights to their premises independently and electronically. The installing retailer can also take over this administration if required, so that he also has an interest in this system. The relevant product data of the installation is evaluated by dormakaba, for example, to improve preventive maintenance. In turn, the retailer can use this to carry out remote maintenance. dormakaba takes on the role of orchestrator for platforms. ## Innovation Potential Through Digital Ecosystems The development of new business models requires new ways of thinking and working. Identifying and testing business opportunities is often faster in digital models than in existing, real business areas. The dormakaba digital team is therefore working with agile methods to jointly review and test innovative ideas with the relevant business areas or to put them into practice. In particular, dormakaba is further developing its approach of networking products and services on digital platforms. The data that can be collected in connection with the planning, maintenance and use of locking and security systems offer much greater potential for collaboration in many areas than with conventional dormakaba products. Many new offers are being realized in close cooperation with partners - so dormakaba has identified ecosystem integration as a success factor in order to realize new business models. To realize successful, promising innovations, it is crucial to understand the needs of the end customer and which needs or opportunities arise from this for dormakaba's partners and dormakaba itself. The following criteria form a search raster for promising cooperation partners: - Relevance of access management (e.g., access management of hotel rooms, for sports facilities) - Individual solutions or functions create added value for the (end-) customers A superior platform or mobile app for interaction with the (end-) customer is available (and used) or is feasible in the future. Digital solutions mainly have an impact on the flexibility of buildings and their use. Building Management is therefore an important business area for dormakaba (Figure 4.4). The area of door and locking systems and access control is directly affected by this. At the same time, new "Delivery Service" business models are emerging, such as "Amazon Key", where the Amazon package is delivered directly to the apartment, garage or the customer's vehicle. It is therefore conceivable for dormakaba to offer a platform for access solutions that can be integrated into the existing ecosystem of a logistics provider. ## Examples: Mobile Access Solution for Hotel Rooms Mobile access solutions serve to control access to buildings, entrances and rooms. They provide a complete overview of who has accessed or entered which room and when throughout the whole building. Below, we'll discuss the example of mobile access solutions in the hotel industry, focusing on access solutions for hotel rooms. This example is presented using the four fields of a business model (1. customer benefits, 2. resources and 3. processes, 4. earnings model, see Figure 4.6) and then discussed, and how this business model holds disruptive potential. ### Customer Benefits The hotel chain enables customers who are registered in the rewards program, in addition to other benefits, to receive their (virtual) hotel key directly online. Checking in at the front desk is no longer necessary. This product-service system is based on a "Mobile Key" solution by dormakaba. While a working and secure locking system is expected as standard equipment in a hotel, online check-in has differentiation potential. In the product-service system "online check-in", a simple and fast online check-in while on the go is paramount for the hotel guest. The hotel guest prefers this to the normal check-in at the hotel reception and can therefore access the room directly at the hotel. For the hotel chain, customer loyalty is crucial: the customer books another hotel room and does so directly via the hotel chain's website. This increases the likelihood that the customer will choose another hotel from the same chain on their next hotel stay. ### New Resources and Processes For the implementation of such a check-in service, new resources are first required, both at dormakaba and at dormakaba's customers, the hotel chains. For example, new or additional information on customer preferences and travel dates must be entered in the hotel chain’s customer database. Equally important is ensuring smooth operation of the entire system, including the necessary maintenance and fault repair services. Interfaces between standard mobile phones and hotel room locking systems must also be provided. This functionality is provided by dormakaba in a software development kit and integrated by app developers in the Hotel Mobile App. ### Revenue Model While the presentation in Figure 4.7 shows the earning mechanisms for the business between dormakaba and B2B customers, such as international hotel chains, Figure 4.8 shows the earning mechanisms for the B2C mobile check-in business. In this case, the software development kit (SDK) provided by dormakaba is free of charge. In this way, it was achieved that already over 20 million hotel chain customers have access to this functionality and can access their hotel room via a smartphone app. The use of mobile key licenses, planning, installation and maintenance of electronic access control systems are regulated by a service contract. The hardware is also part of the product-service system, which serves as an "enabler" for these services (Figure 4.7). With this "Mobile Key" solution, the hotel guest is provided with a free online service. This service enables the customer to check in quickly and easily online. The customer does not have to wait and check in physically at the front desk. The attractiveness and use of the hotel mobile app is thus strengthened. This service can, as discussed above, strengthen customer loyalty and thus increase the number of hotel stays sold. In the long term, this service can also help to reduce the effort required for the classic reception and concierge service (Figure 4.8). ### Disruptive Potential The new service can make a contribution to mitigating a trend that is disadvantageous for the hotel industry: hotel stays have become commodities thanks to booking platforms and are increasingly less often booked directly through the hotel. Booking platforms currently cannot offer online check-in. This service is therefore a point of differentiation for the hotel chain and an approach to increase the share of direct hotel bookings. ## Example: SportsNow Digital access control is also relevant for fitness and activity studios. Access management for fitness and activity studios enables an overview of who is in the studio, when, and for how long, and at the same time, it grants access to the various room facilities (equipment room, exercise room, wellness area, etc.). The second example - the cooperation with SportsNow - is also presented here using the four fields of a business model (Figure 4.6) and the question of disruptive potential. ### Customer Benefits Access control is usually an administrative task for fitness studios that generates little added value for the fitness studio itself. It is perceived as cumbersome and time-consuming, and staff can make a greater contribution in sports consulting than in controlling access. Together with SportsNow, dormakaba has created a digital access solution. The functionality of access control is implemented via the web-based exivo platform, which is operated by dormakaba. The online booking system with member management and mobile app form the core offering of SportsNow. SportsNow is a spin-off company of ETH Zurich and a provider of software solutions for studios from the fitness, health and sports sectors. SportsNow focuses on the Swiss market and is suitable for both up-and-coming activity studios and fitness studio chains. The focus of SportsNow’s offering lies in the booking system, member management, support with the processing of finances and a mobile app for customers and their end customers. With a few steps and without any special knowledge, a profile can be created, including a booking system, efficient member administration and a mobile interface that can also be integrated into a website. Another focus of the offer is the interface with partner systems (such as dormakaba exivo) and, among other things, fitness equipment and accounting software. This means that customers are provided with everything they need in one place. ### New Resources and Processes The exivo platform makes it possible for SportsNow to integrate a simple access control solution in its cloud solution. Customers therefore have a simple "on" and "off-boarding" of their members or access rights. Members quickly receive digital access, and members can even be denied access immediately if they default on membership fees. Electronic access control usually also requires the installation of appropriate hardware. Planning, installation and maintenance of such access systems is usually handled by the dormakaba partner network. This partner network already exists for the support of traditional locking systems. dormakaba partners can therefore participate in the extended digital functions and the dormakaba exivo platform. ### Revenue Model Just as in the case of the international hotel chain with a Mobile Key customer scenario, the interface functionality in the Software Development Kit (SDK) was provided by dormakaba to SportsNow free of charge. This facilitates the integration of exivo into the SportsNow software. The revenue that dormakaba generates directly with SportsNow is limited to the Mobile Key user licenses (Figure 4.9). ### Disruptive Potential Through the integration of dormakaba’s exivo, SportsNow has been able to expand its subscription model. Specifically, the Premium Enterprise package could be introduced. It is interesting to expand this offering with completely new service packages that are made possible through the cloud-based access solution (Figure 4.12). This could mean, for example, that SportsNow customers expand their offering to a 24-hour opening time. Likewise, they can track their utilization more accurately, optimize the use data and can analyze the access data and optimize the services accordingly. An optimized access management system through a cloud-based system is conceivable for other functions such as cleaning staff, supply management and support for food supplies, for example, in the wellness area. If a studio knows exactly how many people went to the sauna, supplies such as towels and wellness textiles can be managed optimally