The Production Management division at the Institute of Technology Management at the University of St. Gallen (HSG), together with the Institute of Computational Life Sciences at the Zurich University of Applied Sciences (ZHAW), has developed a method for simulating and comparing digital business models. The software tool helps Swiss and Liechtenstein industrial companies and their customers to navigate the complexities of usage- and outcome-based pricing models, says Jonathan Rösler from the University of St. Gallen (HSG).

Another important question we had to ask ourselves over the course of the project: How would the business model be financed? This has been a big issue, especially with small traditional companies like Agathon. The HSG has already done a lot of research on trends in the finance industry. Machine manufacturers have previously had little to do with international sales markets. We spoke to various financial services providers – with the result that they are now buying machines from individual companies (see use case below).

Despite the manufacturers having different product and sales volumes, the challenges for the project partners involved were very similar. It was interesting to note that technological issues often played a rather minor role.

A new era is dawning for Agathon AG: “Agathon goes digital” is written in large letters on its website. The Swiss manufacturer of high-precision grinding and laser processing machines is aiming to double its service sales by 2027. To achieve this, Agathon is focusing primarily on new digital offerings such as subscription models, access to intelligent interfaces for MES systems (control systems in operational production management) or a usage-based pricing model (pay per use), in which machines are not purchased but rather provided and maintained in exchange for a fee (equipment as a service).

Digital transformation is still uncharted territory in many manufacturing industries, as Agathon’s CSO Daniel Felber points out (see also article here). Agathon, an SME that is over 100 years old – and with just under 250 employees at its headquarters in Bellach in the canton of Solothurn – is the global market leader in the field of grinding and laser machines for machining indexable inserts. Its customers – including small to large tool manufacturers for the machining production industry – produce mainly in Europe, but also in Asia and North America. “We operate in a niche of a niche,” says Thomas Hess, who is responsible for after sales services at Agathon.

After sales services – referring to services such as customer service, spare parts services, revisions or various training courses that come into play after a machine is sold – are becoming increasingly important for SMEs. In addition to traditional services, Agathon is also offering more and more digital services. “Our customers are increasingly using professional MES systems, but are also struggling with staff shortages at the grassroots level. This requires making adjustments to the conventional service blocks, or replacing them with alternatives,” says Thomas Hess.

“In recent years, we have offered our customers plenty of digital and non-digital services, but not systematically enough,” Felber says. The Innosuisse project for the development of a digital business model therefore came at just the right time.

Key issues for Agathon when it came to developing a digital business model were positioning and pricing. Such as in the case of teleservice, for example. “We’ve been offering remote maintenance free of charge for over ten years now. Why should customers now pay for something that used to be free? We have found a solution: the service is no longer free, but it also offers our customers added value such as extended business hours or priority when it comes to processing.”

“The pay-per-use model that we developed together as part of the project is a huge milestone,” says Daniel Felber. With this model, customers no longer buy the machines. They now pay only for the hours they are producing using the machine – with a certain risk surcharge for over- or underproduction, similarly to insurance. “The customer’s investment costs are shifted into operational costs as a result, which means they have more money to invest and also cushions them against the risk of underload.”

The model is particularly attractive for smaller companies. The delicate start-up phase of production for new products, in which production is not yet carried out in several shifts, is thus associated with fewer risks. Instead of buying a machine, customers can now use the machine to capacity. For this purpose, Agathon is working together with financial service providers. “Instead of selling a machine to the customer, we now sell it to the financial services provider, who then sells the machine to the customer according to a pay-per-use model. The customer only pays for hours where the machine is actually being used. And we have still sold a machine.”

Pay-per-use is a complex model that is not yet well known in the industry. The configuration tool developed by the Zurich University of Applied Sciences (ZHAW) as part of the project is now particularly helpful when it comes to providing advice. It shows interested parties whether buying a machine, leasing or rather a pay-per-use model would be worthwhile. “Customers can see quickly and transparently whether or not this would be a profitable business model for them.” This will be particularly important for 2023, which will be a financially “opaque” year for the production industry, Felber emphasises.

Both are enthusiastic about the Innosuisse project, which they carried out with the University of St. Gallen (HSG) and the ZHAW as well as seven other companies. “It was very helpful for us to exchange ideas with other companies and industries and to be inspired by them. What’s more, it’s always interesting to see where we stand in comparison to the rest of the industry.”