Good-bye products, hello services? The IoT and connected products means companies will need to monetise IoTs, says consultant Nick Frank.
‘Assets will no longer be bought, but provided as a service!,’ brainstormed a senior UK manufacturing executive at a recent workshop on UK manufacturing facilitated by Cranfield University. If true, the whole nature of manufacturing, engineering and service will change forever.
We already see that the data generated by digitalisation is beginning to blur the distinction between products and services, two mega-trends are driving us further in this direction:
- IoT and connected products are becoming part of our everyday thinking: As the Internet and smartphones have become integrated into our lives, so the idea of connected products has become the norm. Significant investments from industry heavyweights such GE, Siemens, PTC & Microsoft have created a hype that this is an opportunity not to be overlooked.
- Governments will legislate for the Circular Economy: Who is not aware of the environmental challenges that we face on our planet today. No longer can we dig up resources, turn them into products and then throw them away. Now we have to recycle our assets and ensure they stay at the highest value. Governments are starting to legislate for what is called this Circular Economy in the way they manage large infrastructure investments such as rail infrastructure and defence.
A key challenge for companies is how to react to these big ideas in a way which is relevant to today’s business and society. The current approach appears to be a fixation on technology: ‘Think what the IoT could do for you by monitoring your fridge or health through your Apple Watch’.[quote float="left"]A key challenge for companies is how to react to these big ideas in a way which is relevant to today’s business and society.This is great for stimulating our imagination, but does not help monetise the technology. The key is to mix this imagination, with a deep understanding of the customers’ business model and processes. Then figure out how to apply your technical or business knowledge to improve whatever it is your customer is trying to achieve.
Often this is called Service Thinking, yet most engineering and manufacturing companies actually struggle with it. Yes, these companies look at the customer needs, but they fail to deeply understand how their customers make money and the available profit pools in their industry’s supply chain.
However, increasingly we can see successful examples of how companies are using Service Thinking to expand their horizons.
I recently met with Gerard Shaw who is MD of a small Northern Irish company, LISTO, who style themselves as ‘Cloud Data Innovators’ . His goal is to find people with big imagination and insight, and help them develop solutions. He told me of a 3rd party service company who provided maintenance for air-conditioning systems covering multiple brands. In a very competitive market, their key customers were telling them not to just meet the agreed SLA’s, but to actively optimise their energy and maintenance costs. By monitoring two standard outputs found on all brands – first whether a unit is running and secondly pressure across the filter - they could understand the performance of that unit.
A very simple solution, based on knowing what was important to the customer, and the critical data that could make a difference.
At the other extreme is MAN Truck UK who used Service Thinking to grow their business from £50M to £550M over a period of 20 years. Faced with the challenge of a declining market, the management team worked with their key customers to understand that the truck is only 10% of the annual running cost. Their customers wanted them to tackle the real issue that made a difference to their profitability. This was fuel, which accounts for 45% of their costs and the driver another 29%. MAN knew a 10% saving in fuel consumption, could double the annual profit per truck for the haulier.
Initially they developed a full maintenance contract to optimise performance, a key element of which was the telematics data systems that were just starting to be designed into the truck’s controls. They then had the insight to invest in the telematics infrastructure, allowing them such a high level of control that they could offer the truck as a leasing service. Plus the data they created on how the driver was performing enabled them to further reduce fuel consumption and decrease insurance premiums.
In both examples technology was not the route to the solution. The answers lay in a deep understanding of the customers’ business model and figuring out how to make a real difference to their profitability. Sounds simple, but not always so easy. As more companies master Service Thinking, then maybe we are getting closer to the day when most assets are delivered as a service.