By Amy Konary, VP, Chair of the Subscribed Institute
A couple of months ago, I had the pleasure of hosting Zuora’s Industry 4.0 virtual event where I got to meet Fredrik Östbye, Group VP and Head of FutureLab at Grundfos. I was so inspired by what I learned from him that I wanted to share it more broadly with the Subscribed community!
The Grundfos story is a great example of digital transformation: a 75-year-old company shifting from selling water pumps in boxes to delivering water-as-a-service. It is the world’s largest pump manufacturer with an annual production of 17 million pumps. The company operates in 56 countries and its products are used in buildings, industries, and to build water infrastructure.
What makes Grundfos’s digital transformation efforts even more interesting is that the business is simultaneously prioritizing social good. Sustainability is the company’s number one corporate value and performance is tracked with a company level KPI.
“In a world where about 844 million people lack access to clean water, a large measure of the water we produce is lost in distribution network leaks. Add to this, the threat of climate change with 80% of carbon dioxide coming from energy production. We’re pioneering innovative solutions to change all of that,” says Östbye.
Formerly the Head of the Digital Transformation at GRUNDFOS, Östbye has been a key player in the company’s new journey. He views digital transformation as an enabler for the much larger transformation to become a sustainability company.
“Our dream is to deliver water-as-a-service — the one product that everyone in the world needs. We believe that the digital revolution will be followed by the sustainability revolution. And the next generation of companies will be those that solve for sustainability and contribute towards creating the future that all of us want.” – Fredrik Östbye.
The “as-a-service” business model is built on the idea that products can be a conduit for valuable services. These services are designed to produce desired outcomes. Because value is in the service that the product enables, rather than the product itself, as-a-service models are inherently more sustainable than traditional product businesses. Manufacturers are:
- Incentivized to prolong the durability and lifetime of the products
- Motivated to increase product utilization
- More likely to implement end-of-life strategies for the products, including remanufacturing and recycling
In the case of Grundfos, the move to offer water pumps and solutions as a service means that rather than only focusing on selling units and systems, Grundfos is focused on the outcomes that the water solutions provide. This allows the company to offer the pumps and solutions as a conduit for valuable services that help create solutions to the world’s water and climate challenges.
The Sustainability Revolution
The digital revolution and sustainability revolution are tightly integrated. Grundfos is leveraging IoT technology—including sensors and the data that these relay—as an enabler to help improve water management and reduce energy consumption. These sensors provide information on pump health and performance, such as pressure, temperature, and velocity. With this data, Grundfos can take more responsibility for the functionality of the products than in the past. “We get to see the network effect of many pumps in a building or in a network, and do things that we haven’t been able to do before when we just delivered a single pump not knowing where it ends up,” says Östbye.
The data also helps Grundfos offer new services such as demand-driven distribution which can save energy and reduce or prevent water loss from leakages in water distribution networks. “We can locate leakages, optimize energy consumption, and help shave peaks in the energy consumption of a city for example. We can also contribute with predictive maintenance and condition monitoring. These are a few things that we can do now which we couldn’t do before. And these are huge value pools that we can tap into,” says Östbye.
These value pools provide opportunities for Grundfos to offer new subscription business models with higher sustainable value.
A great example of this is a waste-water network in Denmark that Grundfos works with. The network effect of the sensors shows the actual flow of waste-water in the network. The company is now able to compare the actual flow with the predicted flow and assess deviations such as infiltrations and leakages. This is very valuable for Grundfos’s customers who can now fix their networks in time and keep them in good condition for longer.
“We help them optimize the utilization of their assets and avoid unpleasant things like overflows. And we see specific use cases that we want to be able to cater to. So that’s why it’s very important for us to be in a long-term subscription relationship with our customers. It allows us to switch our services on and off based on our customers’ use cases,” explains Östbye.
Grundfos strongly believes that its focus on sustainability is what will take it into the future. “Our customers are telling us that business-as-usual is not really an option. They want to use new technologies such as sensors to monitor the condition of their pumps so they can act on time and take better care of their pumps—increasing their longevity. As a result, they may buy fewer pumps from us. Now, if we were to continue with the old product-based business model, this could become a problem and impact our sales. Or we could look at this as an opportunity to innovate and provide value to our customers in new ways,” says Östbye.
For more on the Grundfos story, check out our Q&A with Fredrik Östbye, Group VP and Head of FutureLab at Grundfos.
And to learn more about how IoT and the subscription business model are transforming manufacturing, check out this free chapter from the national bestseller “Subscribed” — IoT and the Fall and Rise of Manufacturing