Databooster Workshop: Managing Financial Risks of Smart Services
By Markus Konz, Swiss Re, and Jürg Meierhofer, ZHAW
On August 29, 2023, we conducted an idea mining workshop in the field of financial risks of smart services in Zurich. The topic of the workshop was centered around the following two risk types, which emerge from the new characteristics of data-driven services:
- If a provider (typically in manufacturing, i.e., providing a machine) goes to output oriented services, it takes over the risk of temporarily being not able to provide the output promised. This may create financial damage to the customer and depending on the contract, the provider must pay a penalty for this or does not get the fee from the customer because there is no output. How can this financial risk for the provider be quantified and what would be possible instruments to mitigate this risk?
- If the provider going to a XaaS (e.g., machine as a service) offering, it lowers the investment hurdle for the customer because there is only OpEx, no CapEx. However, the provider needs a priori financing for the machine, e.g., by a loan. It pays interests for this loan which need to be re-financed by the recurring service fees. Additionally, there is an uncertainty regarding these future cash flows (e.g., due to insolvency).
Applying the service design methodology, the workshop had the goal to shed light on these questions:
- Desirability: To what extent do machine builders actually have the pain assumed above and need a solution?
- Feasibility, viability: To what extent do financial service providers have the capacity to deliver services for these needs in an economical way?
Almost twenty attendees from several countries contributed to the rich and multifaceted discussion, which brought up the potential for further going analysis and projects.