Is Industry 4.0 the Kiss of Death?

For the past seven years I have worked with dozens and dozens of billion dollar plus manufacturers in the U.S. and Europe, many of which have been in business for more than 100 years.?It is becoming clear that Industry 4.0 is a significant threat to the survival of many manufacturers, and what they do in the next five years will define their future.?Will they thrive as a value-added partner to their customers, or do they face the reality of sunsetting their business as a supplier of commodity products at the lowest possible price?

The threat comes at two levels:

1.??????The convergence of IT/OT drives internal operational improvement.?Companies that do not execute on this convergence will have lower profit margins than those that do, which will reduce the resources available for new product development and make a company less competitive.?The compelling need for this transformation has been well-documented by leading consulting firms, as well as individual thought leaders such as Jeff Winter and Conrad Leiva ;

2.??????The transformation from delivering products to delivering outcomes, to help your customers improve their operations.?This is the bigger threat for most manufacturers, and the one that I will focus on in this post.

Satya Nadella famously stated that “Every company is now a software company.”?Manufacturers that do not accept this will fail to deliver the value that their customers will be getting from their competitors, value that can only be provided by collecting data from connected devices and converting that data into solutions that leverage the installed devices to drive significant process improvements.?

To use a hockey analogy, the industry status and trend can be illustrated as follows:

Manufacturers that are not delivering connected devices and collecting data are already a generation behind competitors that do.?And those that are not thinking beyond remote monitoring and predictive maintenance are a generation behind the manufacturers who are shaping the future of their industry.

But what’s the hurry? ?Most of your customers today don’t care if the devices are connected, and even if they are, many of them are reluctant to share their machine data with you.?Why not just wait until the market hits an inflection point and there is a clear demand for smarter equipment?

The reason for urgency is the risk of data lock-out.?Let’s say you make compressors.?Chances are good that your customers have compressors from multiple vendors.?One of your competitors is probably delivering and installing connected compressors, and providing your customer with a dashboard to monitor their compressors to reduce downtime, optimize servicing schedules, etc.?

Your customer is not going to want four different vendors with their own dashboards.?One of your competitors will start to connect your compressors, collect the data and monitor your equipment, and provide your customer with a single monitoring solution and dashboard.?This makes them the supplier of “intelligent compressors”; generates a new revenue stream; and gives them an insight into the performance of your equipment.

If you get locked out of collecting and controlling the data from your equipment, you will become marginalized as a commodity supplier, and it will be almost impossible to recover from that.?In the good old days if your competitor came out with a new and improved compressor and took some market share from you, you could get it back by introducing a new and improved version of your product.?

But data lock-out is forever.?Data is the raw material you need to build the solutions that will define manufacturing in the future, and if you do not have access to the raw material you will not have a business.

You will have to become a software company if you want to survive as a manufacturer.?This is not an easy transformation, as we have experienced first-hand with some of the largest companies in the world, and over the coming weeks I will be posting a series of articles that will walk you through many of the key elements of business model and go-to-market transformation, such as:

• Overall state of the industry – what are other companies doing?
• What does a data-driven product strategy look like?
• How to get more adoption from your customers
• Should you be stand-alone, or should you form or join an ecosystem?
• Impact on your sales organization – can you use the same salespeople?
• Pricing models for subscription services
• Performance metrics.?You live in a cost-plus world; how do you measure results for a subscription service?
• Do you need a different marketing approach?
• How do you provide customer support?
• Legal issues, such as licensing, the right to use data, etc.

#iiot #manufacturing #businessmodeltransformation #smartmanufacturing