I ran a manufacturing and logistics round table for a bunch of Dutch based CIOs this week. The thread running through the conversation was how to 1) deal with the ever growing mountain of data and 2) use it to catalyze a business model makeover. Key discussion points following my pitch focused on who owns all this rich data? Is it your customer’s data or is it your suppliers? How do you share data in a safe and secure way around the whole value-chain (security is BIG deal, like, everywhere)? How do you innovate and monetize it? All in all, tell me the best way to move from "widgets to digits" i.e. selling services rather than things.
Engine manufacturer Rolls Royce offers a European take on how to make the transition from widgets to digits. The engineering company has done a great job of blurring the lines between manufacturing things and selling services. Right now, it generates roughly 85% of its revenues outside its home market and these have doubled in the last decade by melding SMAC technologies, manufacturing techniques and a business model predicated on services rather than products. Financial analysts now estimate that the aircraft engine makers like Rolls generate roughly seven times more revenue from maintenance and spare parts than the actual sale of engines—and they even sell them at a loss. Rolls has gone one step further, convincing customers to pay a fee for every hour that its engine runs with the assurance that the company replaces any parts or engines that break down. Rolls Royce isn’t selling engines or maintenance; they’re selling hot air out of the back of an engine! Half of its engines now in the air are covered by these contracts as are about 80% of current sales. And the data flows are colossal—reams and reams flowing in and around all its 3,500 engines, beamed back to the operations room in Derby so Rolls can continuously assess, analyze and predict failures or spot opportunities for process and engineering improvements. Others like Phillips are making similar moves too with lighting as a service.
I ran through my take on IoT and manufacturing (you know the drill) as products get smart, they deliver game-changing innovation; enriched customer experiences and new, across the board levels of efficiency etc. etc. This audience got it because many among them have been trading data for years, co-creating with their suppliers and customers. No surprises there, but what they did find fascinating was the second and third phases of what I call the smart product economy, where technology and software prowess determine how products and processes begin to meld and optimize with one another and, critically, spark new revenue opportunities. The ability to pump and share product data around a supply chain determines the collective and collaborative success in tackling these emerging markets (like the connected car, the connected home or connected health). Everyone round the table got it yet no one knows how the spoils from this brave new world of connected, smart products will be divvied up. So building the business case for accelerating IoT is extremely challenging to do, yet, instinctively most want to do it. And that’s before some agile, nimble and dammit, younger legacy-lite player enters, stitches the pieces together and disrupts the chain.
But you know what this new, smart world needs? It needs the right talent to make this vision a reality. Although the discussion quickly revealed that building the business case to combine and co-opt product data is extremely challenging to do, these skills are clearly needed. New partnership models at the edge of the business and organizational structures within it are sorely needed. Financial and business modelling skill-sets will command a premium so companies can predict how the IoT and new data enabled business models will impact cost and revenue flows. Cultural change making the transition too will be a huge issue. There was a collective intake of breath from around the table when one of the audience revealed how the DNA of their particular company had changed (had to change) with the focus on nurturing eco-systems for longer term wealth creation for all parties playing together.
So this was a logistics round table too...so as an aside...if you have not heard of What3Words then I am pretty sure you soon will. The company provides addresses hundreds of times more precise than any postcode can. (It would have helped me massively when my taxi left me forlornly standing at the front gates of a huge campus stretching into the distance of the Dutch countryside). What3Words does is offers three words that narrow any search anywhere on the globe to within a 3m square. The names are allotted by software and you can find anywhere on What3Words.com. According to the company, 75% of the world’s population has no address so you can imagine the benefits to a courier company, or dare I say, Amazon. But the efficiencies available to logistic company are huge from more accurate scheduling of deliveries, distance travelled and fuel spent. Simple, technology led innovation with massive potential. So go and check out, go onto the site and enter these three words dissolve.create.survive to see where my roundtable was this week...
PS. What’s clear is that the omnipotent "digital" has become a catch all term for any sort of technology led process change or innovation—big data, mobility, robotics, IoT—it’s all in there (nothing wrong with that unless you’re pedantic ex-analyst). Perhaps that explains why everyone wants to try things quicker and faster or risk getting bogged down in any one initiative that’s going to be superseded by the next BIG thing. Perhaps that’s why the term fail-fast works for some but goes against the grain of our European sensibilities. A better approach could be "trust and verify".