Business Model Innovation for Digitalization in the Swedish District Heating Sector

Abstract

Despite decades of research and development, digitalization remains a key challenge for the Swedish district heating sector. Business model innovation is believed to be necessary to capitalize on digitalization, yet it is especially challenging for municipal companies. This study aims to identify the potential impact of digitalization on the business models of Swedish district heating companies and to analyze the barriers that exist for digital business model innovation. Through case studies of eight municipal district heating companies, this study demonstrates how the entire business model is potentially impacted by digitalization. This study also identifies the barriers to digital business model innovation that are linked to two conflicting views (restrictive versus comprehensive) on digitalization. The restrictive view diminishes the importance of business model innovation, outsourcing innovation to minimize both costs and risks for the company. In contrast, the comprehensive view embraces digital business model innovation through trial-and-error and opens the innovation process to stakeholder influence. These two perspectives are motivated by different beliefs about the need for digitalization to secure future business opportunities, as well as differences in owners’ risk appetite. The implications for industry outlooks and the design of policy support for the digitalization of district heating are discussed.