Pumps-as-a-service: the future beckons
On 1 May 2017, Fredrik Ostbye, a Swedish entrepreneur with a track record of digital product development, joined the 72-year old Danish pumps manufacturer Grundfos in the newly created role of group vice president and head of digital transformation.
It’s a bold move for a traditional pump-making business like Grundfos. Östbye was previously vice president, internet of things at Telenor Group, the Norwegian multi-national telecommunications company, and before that, chief executive at valve and actuator manufacturer WaterVision. His brief is to work with management and the company’s digital task force to build digital capability across the business, to identify and establish partnership opportunities, and to drive digital projects.
Östbye started his first company, installing solar heating systems, while studying at Chalmers University of Technology in the 1990s, graduating with a Masters of Science and Electrical Engineering. “I installed hundreds of Grundfos pumps with my own hands. That business I handed over to employees some years later,” he explains. Östbye then moved on to develop water treatment solutions for the shipping industry, and in 2002 started an engineering company focused on smart technology.
“We built up digital services on top of our solutions very, very early. In 2005, we delivered our first digital service to utility companies in Sweden and Scandinavia,” he says. “I learned a lot from that, and could see that if we can do great services on top of products, we can be more relevant to our customers, we can take a larger responsibility for the function of the product.”
In 2013, the business was acquired by Telenor. Östbye stayed on, at first helping to integrate the platform that his company had built, for connecting products to the internet, and later as an internal catalyst for change across the telecoms giant. “I have been kind of an entrepreneur inside Telenor, to challenge them with new opportunities,” he says.
The idea now is for Östbye to adopt a similar role within Grundfos. “In my role at Telenor I have been helping companies such as Husqvarna, the outdoor power tool maker of chainsaws, trimmers, garden tractors, and mowers, to see how they should do their digitalisation,” he explains.
Östbye’s latest move also dovetails with a personal interest in supporting the sustainability agenda within business. “Manufacturing companies today can deliver service instead of products. Things will be more focused on the function and less on the volume of product sold. It’s more interesting to keep products living for a long time than to replace them, the responsibility goes to the one delivering the service, and it brings down the upfront cost, making it accessible to developing economies,” says Östbye.
The new role to oversee digital transformation at Grundfos is about other things too, including developing digital customer relationships, and a digital supply chain; “very much on the model of Industry 4.0 from Germany, where manufacturing is very much more efficient,” Östbye says — but it’s the product-as-as-service new business model that he keeps coming back to.
“You move towards a recurring revenue rather than a one-off business model. So instead of selling the product once and get all your money, now you deliver the function as a service in a recurring business model. If you do that wisely it can be a great benefit for the customers and the manufacturer because who knows more about a pump than those who have developed it and produced it?” he asks.
The new model envisages combining data collected from the products with other data such as weather forecasts and electricity prices to create a service that optimises the use of the product, and reduces operational costs. A central element of this new service model is predictive maintenance.
“When a pump is connected you can monitor it wherever you are, you can have Artificial Intelligence applications looking at all the data coming from the pumps and making predictions of when you need to intervene. This pump you buy as a service from us. We take care of maintenance and replacement before it breaks down. That is what most manufacturing companies are looking into now. Can we make a transition from a product company, to product-as-a-service,” he explains.
The future may be a hybrid of a traditional business model, and a recurring service model, or it may be a full transition to product-as-service, where the hardware is included in the service. Further still, Östbye adds: “We may say, ‘We make sure you have access to water.” But that’s a bigger step.”