Digitising European industry, the Swedish contribution

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Digitising European industry, the Swedish contribution The Swedish government wants to sharpen the digitalisation of the industry. The digital transition of Swedish industry and its ability to cope with this shift will determine Sweden's competitiveness in the future. The increasing digitalization and automation of Swedish industry creates opportunities for new businesses and the possibility to deliver high quality offers through new business models and more efficient production. But, digitalisation also means important challenges and the need of substantial investments and expertise. Therefore, the Government Agency for Innovation Systems, VINNOVA, in cooperation with industry, academia and public sector has been assigned by the Government to promote and support a digitized Swedish industry. The aim is to strengthen the industries innovation capabilities and competitiveness. The Swedish government has in a first phase allocated SEK 22 million to VINNOVA to start up this work during the first half of 2016. - The industry is a prerequisite for Sweden's prosperity with its close to one million employees, directly and in industry-related services. Other countries have already taken actions to create the best possible conditions for their industry to manage the digital shift and now action is needed also for Sweden to maintain its leading position, develop digital competitiveness and exploit digitization opportunities. To do that, we need a road map, collaboration and a clear leadership, says Mikael Damberg, Minister for Enterprise and Innovation. The first step to enhance the work of digitizing Swedish industry is to develop a joint strategy and an action plan. VINNOVA has therefore asked three Strategic Innovation Programs 1 (SIP), important for digitalisation of industry, i.e Production 2030, Internet of Things Sweden, Electronic component and systems and Process Industrial IT and Automation (PiiA), to develop a SWOT analysis and to suggest strategic actions to quickly get started. The four programs are ten years public private initiatives aiming at implementing research and innovation actions for around EUR 30 million yearly. An Advisory Council for the Renewal of Industry Prime Minister Stefan Löven and his Government appointed on 1 July 2015 four senior individuals from different parts of the Swedish industry to advise and support the Government towards a strategy for the renewal of industry and to promote business and competitiveness. Digitalisation, the understanding of value creation and new models for business development are core topics for the group. 1 http://www.vinnova.se/en/our-acitivities/cross-borde-co-operation/cooperation-programmes/

The following individuals are members of the Advisory Council: Olof Persson, former CEO Volvo AB, Volvo CE, Bombardier Lisa Lindström, CEO Doberman (digital communication and design agency) Pia Sandvik, Chair of board RISE, former Vice Chancellor Luleå University of Technology, pro Vice Chancellor Mid University, Ericsson Karl Gustaf Ramström, CEO Prevas, former SSAB and ABB Renewing industry through digitalisation and services in Sweden The use of ICT is changing the way value is delivered to the user. Today, goods and services are (often) intertwined into new products where the value for the customer is core. Digital tools provide new possibilities to bring added value to the user. Companies having the ability to efficiently integrate digital tools and regard business development as creating high value for the user will be competitive also in the future. Teknikföretagen, the Association of Swedish Engineering Industries, is one of Sweden's largest employers' organizations with 3,700 member companies representing one-third of Sweden's exports. Among our members are global companies like Ericsson, Scania, ÅF, ABB and Volvo, but the main part of the members is much smaller companies. The members of Teknikföretagen all have in common that they develop world-class products and services and that almost all sales are made in global competition. The mission of Teknikföretagen is to provide member companies with the best possible conditions to be competitive at a global market. Teknikföretagen is actively involved in several of the Strategic Innovation Programmes to strengthen the possibilities for our member companies to create new and sustainable businesses. Teknikföretagen is heading the program secretariat of Production 2030, with the aim to support a competitive Swedish manufacturing industry based on a strong collaboration between industry, academia and research institutes. The program focuses on six areas of strength including Environmentally sustainable production, Flexible manufacturing processes, Virtual production and simulation, Human-centred production systems, Product and production based services and Integrated product and production development. The programme is implemented through five instruments; Research and innovation projects, Knowledge and technology transfer to SMEs, Education, Mobility and Internationalisation. The last call, issued in 2015, focused on digitalization and with a budget of 8 MSEK for short projects where the results are newsworthy and can be up scaled to industrial use. Teknikföretagen is equally acting Chair of the Board for Internet of Things Sweden Strategic Innovation Programme. Based on the close dialogue with member companies, Teknikföretagen has made concrete proposal of activities that would support and speed up the shift to a digital industry. The proposal, put forward to the Government and VINNOVA, is based on a model to canalize and coordinate different ventures to maximize the use of our common efforts. The model includes ongoing initiatives such as the SIPs together with three horizontal activities; creating new

knowledge through cross cutting research and innovation projects; test and demonstration projects aiming at showcasing digital tools as an enabler in industrial sectors and; knowledge transfer. In autumn 2015, a number of globally leading companies with a strong base in Sweden, created an informal group with the aim of strengthening Swedish industries future competitiveness. The group is currently developing a proposal for strategic ventures needed to succeed with the digital shift in industry based on a systemic view of business development where ICT and software act as enabler to generate new value offers to the user. Teknikföretagen is acting secretariat to this group. In preparation for Horizon 2020 Strategic programme 2016-2017, Teknikföretagen, together with other Swedish and Finnish research and innovation actors, developed a position paper to inform the European Commission on how we believe Horizon 2020 best would support digtialisation and service innovation. 2 The Swedish government is currently preparing the 2016-2020 bill for higher education, research and innovation. To do so, the Government has asked all relevant stakeholders for their opinion on priorities. Teknikföretagen's proposal is focusing on the need for a national research and innovation model based on Swedish areas of strength to support the renewal of industry including the digital shift. It is crucial that Sweden continue to increase investment in education, research and innovation. A Swedish research and innovation model also needs to interact with the EU framework program Horizon 2020, with its increased focus on innovation, small and medium-sized enterprises and that the results will come faster to market. Teknikföretagen proposes a higher education system responding to the industry s needs, e.g. knowledge and capacity around ICT has to be integrated and strengthen in all levels of the education system; a continued focus on collaborative research and innovation programs, and an increased involvement of industry to meet the societal challenges. 2 See Annex 1

Teknikföretagen s suggestions on Digitising European Industry, four pillars Towards this background, Teknikföretagen suggests the following actions to be taken at European level to support the shift towards digitalisation and services, related to the four pillars described by Commissioner Oettinger: 1. Digital innovation hubs. Develop a European strategy for innovation infrastructures, similar to the ESFRI roadmap and base strategic investments in focus areas to build critical mass and avoid overlapping, aiming at world class digital innovation hubs. The access to innovation infrastructures/innovation hubs needs to be facilitated through a better adapted financial support system, at regional, national and European level. Cross border collaboration could be further stimulated through the Structural Funds and H2020. 2. Leadership in platforms for digitalt industry. The development of state-of-the-art, open and interoperable platform technologies should be supported by research and innovation programs to be used by any business to make their products, processes and services ready and competitive in the digital age. 3. Closing digital gaps. Based on the Swedish experience of supporting skills development in production, the Production Leap, Teknikföretagen suggests to develop a similar program the Digital Leap, to improve skills in digital tools adapted to the needs of the companies. The Swedish programme has been very successful to improve knowledge and capacity in companies (mainly SMEs) around Lean Production. The methodology developed in this programme could be transferred and adapted to a similar concept to increase digital skills in companies in collaboration with regional actors. It would be beneficial to benchlearn with related initiatives to develop the concept and help adapting it to different contexts and needs. European initiatives could support benchlearning, developing the concept through integrating skills development in regular projects etc The national and regional levels are important to reach out to companies and adapting the training to local needs. 4. Framework conditions for smart industry: Successful business models are built on value creation. The new 'utilization economy' builds business models around networking, where ICT often is an enabler. A technology-neutral regulatory framework based on principles allows companies, regardless of their business models, to comply with its purpose and requirements. We must not allow existing regulatory procedures to serve as protective mechanisms for some market players and barriers to establishment for others.

Teknikföretagen, in collaboration with our member companies and network of research and innovation actor, remains active and engaged to further contribute to shaping the European Strategy for Digitising Industry and to discuss additional areas of the strategy crucial the renewal of European industry.

ANNEX 1 Highlighting service innovation, digitalization and value creation from intangible assets in Horizon 2020 Finnish- Swedish Non Paper on digitalization and services November 2014 A central challenge that Europe must tackle in the coming decade is how to maintain and develop the position of European businesses in a globalized world. Competition will increasingly center on the capability of companies to deliver higher value to the customer. Developing physical products based on latest technologies and product innovations will continue to be important, but increasingly, the value received and experienced by the customer will consist of a value offer, where goods, services and other intangibles are often interlinked. Service innovation, i.e the ability to create high-value offers to the customer in a systematic and integrated way, is increasingly important not only for companies, but also for public organizations. Companies and organizations, regardless sector, need to invest in service innovation to be competitive and find sustainability in their business. The traditional way of distinguishing between goods and services no longer reflects reality. Goods and services increasingly complement each other in order to create the best offering for the customer, and services in turn are tied to goods or a technical solution responding to the user s needs and expectations. Service innovation should therefore be brought to stronger focus all through Horizon 2020. This requires new approaches and new tools in the programme. Service innovation gains 1) from an integrated system view 2) interdisciplinary approaches spanning a number of sectors, 3) design thinking and tools. All these approaches should focus on customer needs and long term customer value. They all require new skills and knowledge, new work methods and forms of cooperation. The use of ICT, digitalization in broad terms, has changed the way value is delivered to the user, and consequently, the way that organizations and businesses work. Digitalization empowers customers, whether in a B2B, B2C or in a public sector context, and open up totally new opportunities, as well as challenges, in all parts of the value chain. If Europe is to keep up with global competitiveness, we need to better support the possibilities of

digitalization and services in our companies to deliver value added offers that meet and preferably exceed -the expectations of the customers. Digitalization and services together form a new infrastructure for the economy and Europe needs to put a coherent strategy in place to maintain a competitive position towards platforms and ecosystems rising from elsewhere in the world. Besides improving productivity, digitalization creates new high-skilled and high value-added jobsin Europe., It enables more flexible experimentation with various business models, new ways of collecting and analyzing customer data while providing platforms for engaging customers in the innovation process. Customer value consists of customer s benefits and experiences provided by the offer these in turn, increasingly consist of value created by skillful use and management of intangible assets such as design, brands and interaction e.g. in social media and clever management of R&D results. What should be tackled through Horizon 2020 programme? European companies should be encouraged to challenge existing value chains, create new business models and become more resilient movers in changing economical and industrial structures. In many fields, successful companies are increasingly positioning themselves as integrators of value chains and networks. The value is more and more created jointly with the customer, whether supplier or end-user. Competitive (new) European goods and services will require deep insight of consumer needs and behavior. In this Age of Customer, gathering those insights through projects that focus on digitalization, design and services is essential, but equally important is mainstreaming these aspects into the more research- and technology-driven projects. Strengthening service innovation in Horizon 2020 should incorporate and take into account the following: - The servitization of industry, the shift from a product-centered view of markets to a user-centered model, and the concept of service-dominant logic should be reflected in the content and calls of H2020 work programme. Thematic work programmes including the SME programme should take this into account, applied and tailored according to the theme and challenge in question. - The central role of ICT as a key enabling technology and using it in creation of scalable and hyper-scalable smart services.

- Development of services merging elements from different areas such as ICT, design, clean tech, manufacturing and health. - Enhancing the knowledge base on global consumers and customers, including their purchase and consumption patterns, in different fields of European flagship industries and unlocking the innovation opportunities arising thereof. This implies to better integrate and transfer this knowledge into projects more focused on technological development and deployment. - The development of new customer-oriented management, leadership and participation skills should be better covered in the projects. - In some cases financing a large number of smaller, experimental projects where users and customers are involved is one way to find the most potential tracks for radical innovations stemming from new technologies, service platforms and market transformation. - The assessment of business potential as well as service and customer orientation should be made more visible and strict requirement when evaluating the impact of the projects. - Technology Readiness Levels (TRL) are originally designed for straightforward technological development patterns and thus are not sufficiently well indicating all the essential features needed for turning technology into a commercial success. The development of accompanying services, as well as new type of financial and organizational activities, are crucial drivers for commercial success and should be incorporated into the definitions of TRL. - The early market interaction with the users should be funded in H2020. Complementing the assessment of TRL with assessment of Market Adoption Readiness Level (MARL) and incentivizing early stage user involvement should also be considered in the call design and consequently in the evaluation stage. - We need to invest in creating new infrastructures and forms of collaboration where we can experiment, pilot and demonstrate new ways of doing things in a systematic manner with a critical mass of users. Smart cities, smart transport, advanced manufacturing, digital health services and complicated conversion processes are examples of areas that would benefit from public-private partnerships, innovation policy actions promoting the development of financial markets and the internal market, cutting red tape for innovative SMEs and creating smart demand, regulations and standards. For example large scale Internet-of -Things (IoT) pilots with an early integration of users addressing societal challenges in H2020 would create an understanding of the adjustments needed to make regulations innovation-friendly for the digital service economy. In parallel, relevant standard development needs to be integrated into RDI projects at earliest possible stage. - We suggest investing in creating fora to facilitate the exchange of knowledge and experience from both industry and academia. These meeting places should be an

environment where experimentation, pilot testing and demonstrators can be used to find new ways of doing things as well as enhancing existing applications. They need to have the power to attract the best minds that Europe can bring around the table and should leverage existing investments in Living Labs across Europe to reach a critical mass of test users for readying solutions for mass deployment. Resources should be allocated in such a way that it allows to work on real applications and using technology and existing platforms in a collaborative manner. - Issues related to how to protect service innovations/intangible innovations legally or otherwise are important but difficult and often neglected. The focus of discussion in protecting intellectual capital has been mainly in patents, but the approach should be broadened to other types of intangible capital and related strategies. Launching some specific support actions and integrating IP issues and strategies to Horizon 2020 projects from this angle are needed. - Last but not least: just like digitalization is acknowledged as an important horizontal issue in H2020, also service innovation and intangible value creation should be considered horizontally and thus be duly followed up and monitored in the course of the programme.