Abstract
Digital transformation using emerging technologies such as internet of things (IoT) is transforming the way business is conducted within industrial value chains. Consequently, business model innovation and the transition to networked business model are required. Yet, many gaps are being researched to analyze how industrial companies can leverage digital transformation to transform their business models to achieve sustainability benefits. Typically, issues related to value creation and the delivery of business models require more clarification. It is also important to recognize how these components integrate to the sustainability of industrial initiatives. The main objective of this chapter is to pave the way for business behaviors associated with internet of things environment and the related innovative contracts. The discussions and conclusions discussed here will help organizations to establish a long-term, complex relationships with their suppliers, customers, and other value chain actors.
TopBackground
Digital Transformation using emerging technologies such as Internet of Things (IoT) is transforming the way business is conducted within industrial value chains. Consequently, business model innovation transition is required to maximize digital transformation profits and to achieve sustainability benefits. The term IoT is being used to describe the connectivity of things as “a system of uniquely identifiable and connected constituents” (Ng & Wakenshaw, 2017)
Utilizing new technologies can lead to considerable increase in efficiency and thus clear competitive advantage (PWC, 2014). This shows clearly that the use of digital technologies represents a significant potential for business model innovation in business-to-business (B2B) contexts, while at the same time providing new revenue and value-added opportunities. Those companies that can capitalize on the digital transformation potential driven by big data and analytics will outperform their peers in terms of revenue growth and operating efficiency. Numerous industrial companies are motivated by perceived opportunities and benefits to experiment with innovative business models based on digital technology. (Marshall, Mueck, & Shockley, 2015)
A major challenge for many businesses is to find, select and implement customized or preferably configured technology solutions for their operations. Moreover, there is a new demand from digital technologies and business model innovation to promote continuous improvement in order and keep up with competition and provide consumers with long-term value. Exploiting digital transformation thus goes side by side with business model innovation which requires new products and processes that determine how value is created, delivered, and captured between suppliers, customers, and other value chain players.
Digital Transformation changes necessitate contracting transformation with innovated approaches to get desired benefits, reduce risks and enhance operational controls. More and more companies adopt agile practices to increase speed and flexibility (Gerster & Dremel, 2019); The adoption of agile practices has widespread implications on products, processes, technology, people, and structure that are just beginning to be understood (Highsmith, 2009).
Agile practices can be seen as a response to challenges resulting from the traditional way of development according to “Plan-Build-Run” (Kelker, Gerster, & Dremel, 2018) and the resulting separation between build and run (Rigby, Sutherland, & Takeutchi, 2016). Agile practices can be exemplarily characterized as follows: Formulation of value stories, removing complexity, shortening release cycles to incorporate customer feedback, and the estimation with story points to reduce effort estimation complexity (Abrahamsson, Conboy, & Wang, 2009)
Key Terms in this Chapter
Innovative Contracts: Contracting structure that enables the maximization of opportunities and reduction of risk based on agile and smart features.
Internet of Things (IoT): The term is being used to describe the connectivity of things as “a system of uniquely identifiable and connected elements capable of virtual representation and virtual accessibility leading to an internet-like structure for remote locating, sensing, and/or operating the constituents with real-time data/information flows between them.
Agile Methodology: A project management approach based on delivering requirements iteratively and incrementally throughout the life cycle.
Vertical Diffusion: An integration occurred when a business expands by acquiring another company that operates before or after them in the supply chain.
Horizontal Diffusion: An integration used when a business grows by acquiring a similar company in their industry at the same point of the supply chain.
Risk Management: The act of handling the risk exposure through mitigation, acceptance, sharing and avoidance.