Much of the focus of discussions about the digital future of industry has been on technology – ‘who will be the Google of the internet of things?’. It’s easy to see why. Connecting smart devices has the potential to transform how factories operate, buildings are managed, vehicles maintained and operated – in fact an almost limitless number of new industrial processes, functions and services. As industrial devices become more intelligent and connected, they are producing huge amounts of data that can be collected and used to generate new business ideas and drive a new digital value chain.
So what is the impact? It’s certainly true that new technology trends such as the Cloud, social media and analytics are changing markets and how industrial businesses operate. And we are seeing data-driven companies buying up businesses that produce a wide range of items from drones to thermostats. But to place the emphasis solely on technology is addressing only one half of the opportunity. The changes to business models and the new capabilities and mind-sets that are required to support them are equally important.
For example, connectivity and smart devices enabled tyre manufacturer Michelin to completely shift their business based not on selling tyres, but providing the mobility and safety of tyres as a service. With sensors and intelligence embedded in the tyres, their performance is monitored with a network of support available to ensure that problems can be addressed. Predictive maintenance ensures that trucks operate as cost-effectively and safely as possible, and with reduced downtimes.
In Michelin’s example, the data from the tyres provides the basis for reinventing the business model from pure product sales to a service. Others are also following this model. A drilling manufacturer has switched from selling its products to essential selling the ability to create ‘holes’. Automated building maintenance is evolving from selling the devices that control a building’s environment to business models that focus on energy saving as a service and charge accordingly. Mining equipment manufacturers have switched from selling excavation equipment to monetizing the volume of materials extracted. All these are only possible because of the advanced, connected, intelligent devices that can produce performance data that provides a whole new basis for sellable and billable services instead of products.
But the move from a traditional focus on products to new models based on service is by no means straightforward. It requires a significant change in approach, with implications that run across the whole enterprise, from manufacturing and service through to back office functions. Reconfiguring the business to new models demands a new approach. This is a radical shift away from focusing on the tangible product, to marketing an intangible service delivery concept. This change in emphasis requires businesses to develop new ways of thinking about what they are delivering, how to charge for it and how to support their customers across the end-to-end service lifecycle. A product no longer simply leaves the factory gates and is forgotten. In this new services model, the handover to the end-customer is just the start of the process.
And in this emerging digital world there are new competitive challenges too. There are existing companies already playing in the services space. That makes moving to a new service-based model more challenging because those potential competitors are already digitally-native, nimble and agile businesses with established track records of service delivery. They are able to harness the data created by intelligent, connected products and are unencumbered by the industrial legacy of production plants, or R&D overheads. These competitors can move fast to sit on top of an existing product or asset’s data and extract the value available from providing its operation as service.
So what are the capabilities that industrial businesses need to acquire or develop in order to make the move from product to service-focused business models? The first, and fundamental, step is the ability to reengineer new processes. Offering a successful new business model or service depends on being able to decompose a process into its constituent elements and understand how to redefine it as a service.
Data management and analytics are essential to address the huge amounts of data that connected devices will drive into the business. Creating embedded software for products in the development process is essential to drive their connectivity and intelligence. This requires both software and engineering know-how – mechanical and electronic – in order to understand how the product works, then develop the software accordingly.
Creating an automation layer is equally fundamental for the creation of new service models. These can be for manufacturing, building automation system, telematics in a truck, or in any one of thousands of potential applications. But every domain requires understanding of its specific demands, and that, in turn, requires deep expertise of both the technology and the business change required.
So, while Digital Industry is, on the face of it, a technology and technical challenge, the conversations that will drive value are about how business models will change. Developing the capabilities to support them must be a priority.
Ralf Russ is Managing Director, Accenture