Just Use Don't Own

Everywhere I go to meet customers these days I talk about JUDO. Not that I am a major fan of this great martial art – I stopped it quite early with a green belt if I remember well – but I use this acronym to describe a major trend in consumer behavior which is affecting all industries, including the most heavy industrial machinery: we want to use things when we need them and not have all the disadvantages of owning things. Moreover, we want these things to be smart enough to deliver on the task by themselves as much as possible – we just want the job done.

These aspirations exist for ever: I don’t want to upset a very good customer of SAP, but why would I buy an expensive high-pressure cleaner to clean my terrace twice a year? Maybe because I didn’t have a choice before, unless my neighbor had one and was willing to lend it to me. In Singapore for a few weeks I have been intrigued by all these yellow bicycles placed randomly everywhere in the city. I realized 3 companies had been approved by the LTA (Land Transportation Authority) to rent their bikes by the minute: with a simple mobile app, you locate a bike near you, you unlock the lock with your smartphone, ride and pay as you lock the bike again and leave it where it is for someone else to rent. So easy. I started to think about my own bike which is getting dusty and rusty in the backyard, and remembered I needed to change a tyre and fix that broken pedal.

The Connected autonomous car: a good illustration of the trend at stake

Take the arrival on the market of autonomous vehicles; in just one year, self-driving cars have gone from the theoretical to the imminent. Their high level of smartness will solve many problems: it should prevent us from losing time in traffic, it should help us optimize our time while on the road, and spare us the pain to find a parking. While many drivers use their car to commute, autonomous vehicle will calculate the route and the right speed to ensure smooth flow of traffic and prevent the creation of traffic jams. Many data can be shared quickly between vehicles and street infrastructures, in order to streamline and distribute traffic on all roads: at SAP we have different initiatives around intelligent traffic management, traffic congestion management, traffic safety, and other scenarios to leverage vehicle insights, which prove it is real and it is now. Moreover, autonomous vehicles should lead to less vehicles on our roads and to a downsizing of fleet with increased utilization rate for each vehicle. In the American market, it is estimated that the generalization of autonomous vehicle will reduce by 90% the rate of accidents. Moreover, it will drastically reduce fuel wastage during traffic jams, with a loss from 7.2 billion liters to 720 million.

Ultimately, to move through our mega-cities in Asia our anywhere else, the ownership of a vehicle will probably not be a Must anymore. Whereas before we owned our vehicles, in the coming years, we will consume mobility as a service. When combined with electro-mobility, it will change completely our vision for public transportation: why would cities continue to invest tax payers’ money in capital intensive mass transportation when the electric autonomous car brings the best of both worlds? The impact is huge.

OEM manufacturers are fully aware of this gradual disappearance of ownership of the means of transportation, and it forces them to look for other sources of revenues than volumes of cars, as it is today. It will soon be no longer enough to mount a maximum of standardized, not visible components from suppliers on a limited number of chassis to optimize purchasing, it will be necessary to rethink the strategic direction of the automotive industry. Winners will be companies that will be able to invent and deliver on the market new desirable and profitable services – these services will connect the things (vehicles, infrastructure), the people (passengers), the processes (the OEM’s or other companies’ processes like Tier1 suppliers or third party service providers of different kind – in the tourism industry for instance).

What does it mean for other discrete manufacturing industries beyond cars?

If cars are an example that anyone can easily understand, it certainly is the “tree which hides the forest” as the French say. You can obviously think about taxis, buses, delivery vans or long-haul trucks. In the US there is a shortage of truck drivers: people don’t want to do this very difficult job which takes you away from your family during several days on the road. Autonomous trucks will solve that. In the mid-term, a driver will wait for a truck (not “his” truck anymore) at the entrance of the city to drive it for the last mile, all the rest will be automated. Who will then own the truck and deliver the logistics transport as a service?

In fact, these trends affects all discrete manufacturing companies.

Soon everything will be connected: every asset, material, supplier, worker, warehouse, delivery truck, stakeholder, and customer. At the same time, products are rapidly becoming more intelligent and even interactive, more and more autonomous even when it comes to accomplishing the most complex jobs. The remote control and even the autonomous functionalities are already a no brainer for construction equipment manufacturers: see what ASI-Robots, one of our 3000+ startups in our Startup Focus Program, does in this field. Now research focuses on getting the hole done right, without human intervention. I may require the support of aerial views with drones to assess the area to be excavated for instance, like another startup we work with is already providing: 3D robotics. It is just a matter of integrating these technologies together; high quality real time insights into customers usage from machine data and other sources allow for a level of customer intimacy never achieved before; supply chains are optimized with asset intelligence networks in the Cloud which allow to track and share all important information from any assets in relevant business networks of partners, customers and suppliers… All this is creating more opportunities to apply emerging technologies in ways that we could not imagine before.

As a result, we will see more and more industrial companies building the services and ecosystem which will put them in a position to deliver a “job done” instead of the equipment involved in that job… and charge for the measured outcome, be it tonnage of minerals produced, megawatts produced, compressed air consumed, flown airplane hours…

An example we like a lot at SAP is KAESER KOMPRESSOREN, an industrial product company specialized in air compressors, which has a go–forward strategy to charge for “air–as-a-service”: With its Sigma Air Utility offering, customers pay for the volume of compressed air consumed, instead of buying, installing, and operating air compressors. Not only they need to measure the usage, but KAESER KOMPRESSOREN keeps the ownership of the compressors and therefore is responsible for business continuity. They need a comprehensive IoT solution and predictive maintenance capabilities to manage their business properly now.

When it comes to the shared economy, in this hyperconnected world, you need to look further than Uber and Airbnb and ask yourself why Caterpillar just bought Yard Club, an equipment rental platform. Even heavy equipment can be used instead of owned.

If they are not yet providing outcome-based or peer-to-peer services, some companies are already close with fleet management services, like HILTI which makes tools for builders, and provides contractors with the right tool at the right place at the right time for a monthly lump sum that includes all maintenance costs. A fleet management companies like ARI may also be well positioned to seize the opportunity.

“Why if we don’t change at all… and something magical just happens?”.

It is not as if industrial companies were not aware. 90% of them, at the highest management level, recognize the major importance of digital transformation for their business. But it seems they think they have time, that there is nothing urgent. Only 15% have a plan. Customers often tell me “We like to speak about it, contemplate the fascinating changes, but when it comes to taking action, business as usual monopolizes us”…

Waiting and being a spectator of the changes is not an option. Because of the exponential nature of the changes at stake, you will be out of business before you even understand what happened. On that notion of exponential thinking, I recommend you to read the blog of Jonathan Becher, SAP Chief Digital Officer, here and also here.

Needless to say that the race to build the best platforms for value creation is on. Will a startup emerge from nowhere, which will fully embrace the JUDO trend, and use your weight and strength as weapons against you?

Now I am asking you: Who is in the best position to take the opportunity? Is it the OEM? The rental company? The Fleet Management Company? The Dealer? The pure digital player who just copies Uber in the industrial world and do not suffer the legacy of an asset intensive business? Google?...

In your domain, who do you think is best position to take the opportunity? What are your company strengths to meet the challenge? Please start the discussion replying to this blog on what you think is the path forward as far as you are concerned.

What to do, where to start?

As explored in our latest white paper on Industry 4.0, what is for sure is that industrial companies will have to think beyond optimizing what happens within their four walls; indeed, it is only the first stage – the necessary foundation for even greater transformation and potential to accompany the trends described above. This is where incremental steps leveraging “industry 4.0-type of technologies” in different use cases meets the ultimate vision of the transformation of the business model of your company. Both things are needed, both need to be aligned.

“Advanced Industry 4.0”– made possible by an increasingly connected ecosystem, new technologies, and shifts in customer mind-sets – remember JUDO ! - can bring customers of products (and in business-to-business [B2B] contexts, even their customers) into your product value chain, making it possible for you to re-imagine your entire business model based on extreme end-customer intimacy.

So how can companies get moving along the maturity curve?

Still from our latest white paper on industry 4.0, SAP recommends jump-starting the process by:

??Reviewing and assessing your organization’s current maturity level. Determine current levels of automation and digitalization within top-down and front-to-back processes across functional silos. The goal is to identify opportunities for improvement in areas such as operational efficiency, product quality, cycle times, and speed to market.

??Evaluating existing products. Look for opportunities in which to embed software, intelligence, and connectivity to gain additional insights on product usage. The end-user data you collect from connected products can help you identify new customer needs, develop new or better offerings, improve customer experiences, and deliver increased – and even totally new – value to customers.

??Investigating the potential of new technologies such as artificial intelligence, machine learning, and 3D printing. Competitors are likely already doing so – so don’t fall behind. By studying examples of other companies and thought leaders and partnering with solution providers driving innovation, you can learn how these technologies can help you change business models, strategies, and business operations in a whole new way.

??Brainstorming about potentials for disruptive innovation and new business models. They are the key to outpacing competitors and entering new markets. Brainstorming should include discussions with selected customers and analysis of how customers are using your products.

SAP created a community of leaders in charge of transforming their company’s business with digital, the Executive Digital Exchange: let us know if you are interested in joining the community. SAP also conducts Executive Innovation Exchange (EIX) which are 2 to 3 days workshop with an executive audience in one of our Innovation Centers, often based on Business Model Innovation tools and techniques, to help your Executive Committee align on a vision and a plan for your transformation.

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To learn how emerging technologies and innovation platforms can accelerate your transformation journey with Industry 4.0, see www.sap.com/leonardo .