Finance-enabled Business Models Drive Organizations’ Competitiveness
Siemens Financial Services (SFS) has released a new research paper that investigates emerging pay-for-outcomes business models. The ongoing globalization of trade continues to apply pressure to margins, compelling businesses to closely scrutinize costs and efficiency. Instead of financing enabling access to critical business equipment and technology, payments are increasingly based on predicted productivity or efficiency results.
Capturing testimony from businesses and industry associations in 13 countries, the paper examines where these business models are currently being applied, the continued growth of coexisting pay-to-use financing models, and the likely development trends as we move toward 2020. Across the globe, different countries are at various stages on the journey toward adopting new pay-for-outcomes models. The research indicates that organizations in the US and western Europe tend to have more diverse funding arrangements than those in eastern Europe and Asia.
The paper shows, however, that the availability of and interest in solutions where an organization pays on the basis of expected business outcomes has significantly grown over the last few years. Outcomes can include such effects as manufacturing productivity gains, reduced energy consumption, lower cost per process, faster patient throughput or reduced pollution.
The paper highlights that organizations no longer expect their established machinery, equipment and technology landscape to keep them ahead competitively for a decade. As a result, pay-to-use arrangements, enabled by financing techniques such as leasing and asset finance, have also gained ground over the last 20 years and are expected to grow and develop further as well. They continue to evolve to embrace and accommodate trends in the technology markets.
By paying for the outcome from the technology rather than the technology itself, costs are more transparent, the risk of technology obsolescence and capital commitment are avoided. As a result, these business models help end-user organizations maintain competitiveness as well as offer innovative solutions and services to their customers.
“Being able to pay for business outcomes is the latest development in finance-driven business models in manufacturing, services, infrastructure and healthcare," comments Julian Hobbs, Sales Director at Siemens Financial Services. “This is a significant advantage in a world where the accelerating pace of technology replacement increases investment risk."
Over 40 senior financial managers at manufacturers, infrastructure organizations and healthcare providers were interviewed over the phone in September and October 2016. They were asked their views on pay-to-use and pay-for-outcomes business models, including their likely growth. The same questions were also put to representative trade associations. Interviewees came from the following countries and regions: China, France, Germany, India, the Nordics, Poland, Russia, Spain, Turkey, the UK and the US. The study also utilized data gathered from more than 100 additional interviews conducted with companies, hospitals and city authorities during 2015 and 2016 on manufacturing, healthcare and infrastructure digitalization.