Data Cooperatives: An Opportunity for AI in german SMEs

The Ferdinand-Steinbeis-Institute designs a cooperative concept for the digital space

Digital solutions can be used to create replicas of real objects in a digital setting – for example in production – by creating a digital twin of a processing unit. Data used with digital twins are not the same as classic master or planning data. They are mainly used to represent real objects, also called assets, and capture dependencies between different types of measurements in the form of digital models. In the case of a processing machine, relevant information on the condition of an asset would be something like feed rates or tool temperature. The condition of digital twins can be assessed by allowing them to be influenced by functions and services; changes in their condition are conveyed back to the real object. The success of new value creation scenarios offered by digital twins hinges on firms’ ability to use those digital twins to manage complex processes and other workflows in the real world. Succeeding in this area is a major challenge for German business, which is dominated by small and medium-sized enterprises – the Mittelstand. How can SMEs benefit from the trend toward digital solutions and the new options to add value – without becoming dependent on large, international platforms? Experts at the Ferdinand Steinbeis Institute (FSTI) are conducting research in the context of data cooperatives.

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Business in Germany is shaped strongly by proprietary, stand-alone solutions. Most focus on optimizing in-house products and processes. German companies possess extensive know-how within disciplines, but this tends to be highly specific and is used to continually enhance their own products and processes. Internal information is seen as a basis for optimizing technology or creating AI applications, such as predictive maintenance solutions. All too often, firms neglect the opportunity they have to connect digital twins with context-sensitive control mechanisms.

The international market is dominated by commercial platforms and state-run data trustees

The trend is different when it comes to international markets. Currently, there are a variety of digital platforms offered in the market for the industrial internet of things (IIoT). Their aim is to capture the value added by entire sectors of industry and in doing so, make it easier to plan, manage, and control. This can be clearly observed in areas such as the Far East, where companies are setting up large-scale platforms that make it possible to coordinate entire value chains such as the construction industry and agriculture. Their approach is based on the assumption that there is particular potential to add value by merging and controlling large volumes of connected, digital twins on platforms. These would make it possible to apply artificial intelligence methods and use disproportionately large and homogeneous volumes of information to uncover potential to make improvements.

A different approach, which is particularly common in Europe, is to see the state or multi-state institutions as the guardians of such data. This thinking is particularly interesting when it comes to economic policy, because business interests are removed on a platform level, thus counteracting the tendency for individual providers to strive for sovereignty by establishing a monopoly. At the same time, this approach raises the trustworthiness of platform solutions and dispels reservations.

Numerous instances of data-driven solutions show that neither approach has to be adopted exclusively. For example, if highly personal information is being processed, maybe even medical data, people would probably have more confidence in data trustees offered by the state than in a company looking after their data with the aim of making money. In other contexts, such as when product data needs to be merged in order to carry out further assessments or do benchmarking, having a company running the platform is probably the right alternative. It is therefore the type of data that is being processed, or the aim and context of the required solution, that determines which approach to take. One thing both options have in common is that platform providers don’t normally have the business capabilities it takes within a specific area to exploit any potential to add value (especially by connecting digital twins), so they would also not be in a position to manage the process of value creation. Such business capabilities are mainly in the hand of the companies connected through the platform.

An alternative solution: the Micro Testbed offered by the FSTI

The Ferdinand-Steinbeis-Institute has succeeded in showing that there may be a third approach, as part of its so-called Micro Testbeds, which were originally developed through funding from the Baden-Wuerttemberg Ministry of Economic Affairs. The Micro Testbeds developed by the FSTI bring together larger and smaller companies under the umbrella of cooperative ecosystems. They offer networks through the internet based on open standards, and these can be used to identify and exploit new value creation scenarios focusing on partnership models across different sectors of industry.

It is known from experience that combining the capabilities of different companies across different sectors of industry and exchanging information on digital twins makes it possible for the companies involved to enjoy additional process advantages in ways that were not previously possible. Time and again, using digital twins on a cooperative basis has enabled companies to identify multiple value creation scenarios and, based on these, come up with business models for the overall ecosystem. But to do this, they need what the FSTI calls a Forum of Trust between different partners to make data available to all partners.

Data cooperatives

Based on the Micro Testbed concept, the experts at the Ferdinand-Steinbeis-Institute are conducting follow-on research in collaborative and cooperative ecosystems, focusing on new approaches to participation. Key criteria revolve around safeguarding free access to data while at the same time ensuring stakeholders maintain their ownership and sovereignty over information. To achieve this, a consortium has been formed between the Ferdinand-Steinbeis-Institute, the Baden-Wuerttemberg Cooperative Association (BWGV), and the Institute for Information Systems 1 and the Institute for Management Accounting and Control at the University of Stuttgart. The aim of the consortium is to design and evaluate the concept of data-cooperative . The initiative is being funded until the end of 2021 by the Baden-Wuerttemberg Ministry for Economic Affairs.

The aim of the data cooperative is to find common ways to use digital twins to create new, beneficial scenarios for all involved companies, and to offer network advantages and economies of scale. During the first phase of the project, interviews are being conducted with numerous cooperative representatives and IIoT experts. The results of these interviews will lay a foundation for designing data cooperatives. In the second phase of the project, this concept will be put through its paces in practice by setting up and accompanying three experimental data cooperatives, which will then progress to the next stage.

The legal structure of the cooperative offers advantages on a number of fronts. Cooperatives have for a long time been an established method for implementing initiatives within networks and pursuing shared goals collectively and collaboratively. In addition, the principle of sharing an identity ensures that the interests of members are placed center stage – a principle that sets these cooperatives apart from other forms of partnership. All of these advantages are a good basis for creating a Forum of Trust, providing a space for partners involved in the cooperative to decide for themselves what to do and collaborate as equals – in keeping with the saying attributed to the pioneer Friedrich Wilhelm Raiffeisen: “What is not possible for the individual can be achieved by the many.”

More information: https://transfermagazin.steinbeis.de/?page_id=5265&lang=en