Organizations tend to stick with a good business model, once they find it. Why shake up a good thing, right?
“We have a good business model; we’re selling robots…so, why would we change it?” Christian Liedtke, head of Strategic Alliances at KUKA, said during a presentation at Hannover Messe 2024. “It’s not sufficient anymore; you have to look ahead.”
Enter outcome-based business, when usage determines how much you pay. And Augsburg, Germany-based intelligent robotics supplier KUKA has extensively analyzed data from its headquarters-adjacent plant to see where an outcome-based model might make better business sense than traditional payment schemes.
“How can we actually help our customers to be more successful?” said Liedtke, who is also chairman of the board for the Open Industry 4.0 Alliance. “Now, we have data – and with data, we can do something different.”
Everyday Outcome-Based Business
Most of us have already seen examples of outcome-based business, Liedtke noted. Instead of purchasing a car, you could try car sharing – paying for a car only while you’re using it, often hourly – or you could incentivize an employee, as the Tampa Bay Buccaneers did, paying a $500,000 bonus to NFL tight end Rob Gronkowski for 55 receptions.
And there’s an alternative to buying a manufacturing robot: you could pay based on how often you use it. American automaker Chrysler does this via KUKA’s production facility in Toledo, Ohio, Liedtke noted, where robots weld Jeep components.
“That’s a good business model, and it’s working – it’s really working,” Liedtke said. But the simple reason outcome-based business isn’t common across industries is: “There’s a lack of interest.”
A big obstacle for adoption is that robot vendors and users have competing priorities, according to Liedtke. Vendors would prefer that users run their robots 24×7, maximizing what vendors could charge; while users might want to keep a robot on hand, even if they’d only use it once per year.
This and other obstacles led KUKA and SAP to team up and run the numbers, exploring how outcome-based business might really pay off.
How It Might Work – For Everyone
“The first step is sales,” Alexandra Altermann, SAP solution manager for Industrial Manufacturing Industries, said during the same presentation. After evaluating backend data, “sales can peform different calculations, and can decide which offer they want to give to the customer.”
If this hypothetical customer chooses an outcome-based model, KUKA effectively loans the robot for free – again, charging only when the customer uses it. But KUKA must keep its robot in inventory and maintain it, according to Altermann. So, KUKA might:
- Add the robot to its system in order to keep track of it.
- Determine installation costs, if any.
- Generate subscription rates.
“Say it runs at least one shift: How much does it cost to have it one shift? To have all the maintenance costs covered?” Altman said. “Everything that runs over those eight hours a day is then paid on top, and this is the second subscription.”
Real-time data from robots go directly into SAP ERP, showing exactly how much time each machine is running, Altermann noted. This, in turn, can help vendors and customers reach mutually beneficial subscriptions.
Why It Might Be Right for You
KUKA’s experiment also revealed several organizations for which outcome-based business would make sense, according to Liedtke. First, manufacturers that quickly change the products they make, such as smartphone makers that produce a specific model for, say, nine months, and then move on to the next product.
“You’re running it at full speed for a certain time; you don’t have to worry about ramp-up phases because the vendor’s going to take care of that,” Liedtke said. “When you finish that product, you simply give the machinery back to the vendor, and he can run it in another plant.”
Second, companies with very versatile production, such as contract manufacturers, would also benefit, according to Liedtke. They have machinery on hand, if they need it; but if they don’t, they’re not paying for it.
Next, regions with relatively short depreciation times such as Asia, where a machine can depreciate in about three years, as opposed to about seven in Germany, according to Liedtke. And it’s mutually beneficial, as the vendor can invest in high-quality, long-lasting robots that it can deploy to multiple customers over many years.
Finally, limitations by corporations themselves or by their host regions can drive adoption of outcome-based business, according to Liedtke. Plant managers can still pay for necessary robots, but they must now spend via operating expenses (OpEx) rather than capital expenditures (CapEx); and regulations aimed at curbing carbon footprints, for instance, could soon change how organizations use and pay for machines.
How to Decide
“From KUKA’s perspective, are we going to offer our machines in an outcome-based business scenario from now on?” Liedtke posited, closing his presentation. “No, but we are prepared when customers ask for it.”
Indeed, KUKA learned a lot from its analysis in Augsburg, particularly about relevant data and calculations, according to Liedtke. He encouraged others, especially those running KUKA robots and SAP, to test outcome-based business at their own site – to conduct the same trials that KUKA did – so you can make an informed decision.
“Learn from it,” Liedtke said. “Maybe this is the key for you.”
If you’d like to learn more about outcome-based business, you can see a demonstration at the SAP Experience Center in Walldorf, Germany.
