- How financing enables investments amid changing conditions: Siemens Finance Week presents new business models
- New research paper examines development of pay-for-outcomes integrated financing models in the course of digitalization
- Payments are increasingly based on expected business outcomes
- Pay-to-use financing models will continue to play an important role and will coexist alongside pay-for-outcomes solutions
Capturing testimony from businesses and industry associations in 13 countries, the paper from the Financial Services Division (SFS) 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.
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 Kai-Otto Landwehr, Head of Siemens Financial Services’ commercial finance business in Germany. “This is a significant advantage in a world where the accelerating pace of technology replacement increases investment risk.”
The paper also 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.
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.
From February 13-17, 2017, Siemens Finance Week will be illustrating how innovative financing solutions pave the way for new business models. At five events in Singapore (February 13), Leipzig, Germany (February 14), Boston, Massachusetts (February 15), London (February 16) and Mumbai, India (February 17), the company will show how the combination of technology and financing creates added value for various regions and industries – from infrastructure to energy production and all the way to automation and digitalization. More information on Siemens Finance Week is available at www.siemens.com/financeweek or on the Twitter hashtag #FinanceWeek
For further information on the Financial Services Division, please see www.siemens.com/finance