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Connected and intelligent products are predicted to be the biggest “user group” of the Internet by 2020, estimated at 24 billion devices. In the industrial world, connected smart devices have the potential to transform how factories operate, buildings are managed, and vehicles are maintained and operated. 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 will happen next? As this new wave of connectivity continues to unfold in an almost limitless number of new industrial processes, functions and services, businesses will need to respond by creating new business models and capabilities.
For example, connectivity and smart devices enabled tire manufacturer Michelin to completely shift their business from just selling tires to providing the mobility and safety of tires as a service. Sensors and intelligence embedded in the tires let Michelin monitor tire performance. 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 tires 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 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.
Elsewhere, services have become mature. Consumers are now volunteering to have a black box monitor their driving and allow car insurance charges to be levied on the information garnered from driving data.
At the core of all the services mentioned is embedded software and analytics. Analytics has taken the data provided by embedded software and turned it into valuable insight on which actions can be made, services provided.
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 and through to back office functions. 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.
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.
This rapidly-emerging ecosystem, known in some regions as Digital Industry 4.0 , is often viewed as a technology and technical challenge, but the conversations that will drive value are about how business models will change. More companies will begin marketing and selling products as a service as we move to a world where connected, intelligent products provide the information for new types of services, where data is harnessed to offer as-a-service products – all supported by a fully digital value chain. Developing the capabilities to support them must be a priority.
Ralf Russ is a managing director at Accenture plc responsible for sales and business development for Accenture Industrial Software Services.