In the previous blog of the Build Back Better series, we listed four key imperatives for Industrial Manufacturers - Resilient Business Operations, Business Models of the Future, Greener and Sustainable Businesses and Workforce Reskilling as the key building blocks of the future enterprise.
Over the last 100 years, we have witnessed multiple large-scale industrial revolutions, each bringing a dramatic shift in the very nature and philosophy of business. Each revolution ushered in an era of unprecedented efficiency improvements and economic growth with rapid business model innovations.
While there are many ways to define innovation in business models, this one by BCG perhaps defines it most holistically; Business model innovation is the art of enhancing advantage and value creation by making simultaneous and mutually supportive changes both to an organisation’s value proposition to customers and to its underlying operating model.
Subsequent to the pandemic, four key macrotrends: heightened connectivity, lower transaction costs, unprecedented automation and shifting demographics – necessitate rapid reinvention in business and management concepts. Today’s organisations were designed for more stable business environments, they are not well-suited to perform these functions. Reinventing the organisation for the next decade will require embracing five imperatives:
- Integrate technologies for seamless learning
- Migrate human cognition to new, higher-level activities
- Redesign the relationship between machines and humans
- Nurture broader ecosystems
- Rethink management and leadership accordingly
The increasing power and capabilities of IT convergence technologies and virtual space make it possible to incorporate the above into the organisational fabric and transform the business models.
In 2016, SAP published a paper on Reimagining New Business Models listing six potential business models, while the HBR article on Transformative Business Models captures the critical success factors for business innovations. The table below captures both along with key business processes and technology capabilities required to launch and operate the business models:
|Six New Business Models (SAP Paper 2016)||Six Keys to Success for Innovating Business Models (HBR)||Six Key Capabilities Required|
Smart Products with Embedded Systems
Industrial products are already shifting from being largely mechanical to having more
digital functionality, allowing even more flexible product configuration throughout a product’s lifecycle. Consequently, the value contribution of software has grown significantly over the last few years. Industrial manufacturers need to continue equipping their products with software-based features for flexibility and with connectivity to enable remote monitoring.
Manufacturers need to extend the physical product with completely digital services that will augment and enhance product functionality, extending the lifecycle of the product and increasing lifetime revenue. As the feedback loop from the product back to the manufacturer is established and developed, product enhancements and future developments will be based on the actual usage of the product, from first interaction to product retirement.
Focus Paper 1: The Intelligent Enterprise for Industrial Manufacturers
Individualised Customer Experience with Personalised Solution Offerings
Companies can offer unique and contextual customer experience and maintain for-life relationships based on a 360-degree understanding of their customers. It starts with a holistic view of their customers’ business processes and knowledge of how those customers use the products.
Truly customer-centric companies will interact seamlessly with their customers on a constant basis through multiple channels including web, direct and IoT connectivity. Industrial manufacturers need to evolve their current routes to customers into an omnichannel model to seamlessly serve customers. These perspectives will transform the collaboration, from sensing demand to delivering value through products and services.
Having understood the customer requirements holistically, industrial companies can evolve to deliver completely customised products, services, and solutions that precisely fit the needs of an individual customer based on sophisticated platform, configuration, and mass-customisation strategies.
They can achieve this by rationalising existing product options, evolving into platform and configuration models to cover the majority of customer requirements; then extending these models by adding requirements, engineering, and functional modelling to establish a more formal view of customer needs and how these are implemented in the products. Once these relationships are clear, they will expose the functional models directly to end customers through configurators and, thereby, let customers define their own products on the fly.
Everything As-a-Service Offering Capabilities
Industrial companies’ revenue going forward will stem from services that are based on and built around smart products, the data they create, and the value they deliver. Usage and, in turn, value-based business models will be the norm by using remote condition monitoring of assets to identify and provide additional value-added services.
As they continue to collect increasing amounts of data from their own business operations and the use of their equipment by their customers, they will be able to offer new digital services through an IoT platform, thereby monetising the data by deriving insights of value for customers, partners, or end consumers.
As they begin to understand their customers, they can offer pay-for-outcome models due to their ability to assess which customers qualify for which type of business model based on the risk and long-term value of each customer.
Single Platform to Enable Multi-Industry Processes
Industrial organisations need a digital core of operations that spans business processes across not just industrial manufacturing but all allied industries with immediate adjacencies. This will allow companies to extend and adapt their business model on the fly and enter new industries and markets with limited changes to the digital core.
The digital core with embedded advanced analytics, predictive tools, and machine learning will aid improved decision making in real-time and IoT integration will allow integrating the physical world with enterprise applications for enhanced data capture and monetisation opportunities, as discussed above.
Enterprises need access to innovative, vertical, and specific solutions across industries. Preferably built on an open platform, these solutions should be interoperable with the digital core, enabling business and industry extensions to seize new opportunities, and manage business disruption and changes within and across industries.
Focus Paper 2: Innovation with Industry Cloud
Business Network Capabilities
The source of business innovation can be both within and beyond the enterprise value chain, hence the need to extend transformation beyond the enterprise to help businesses move faster by creating dynamic, digital connections with suppliers, carriers, and assets; sharing data and orchestrating workflows; while applying network-wide intelligence to guide decisions; adapt quickly; and keep improving inter-company collaboration.
Focus Paper 3: Competing Successfully in the Networked Economy
Digital Innovation Platform
Enterprises need a digital innovation platform to uncover innovation opportunities, enhancing outcomes along and beyond the value chain by connecting applications, data, and processes. A set of pre-built industry content, use cases, and contextual data from applications will further help jumpstart innovation.
About the authors
Ashutosh Apte: Director Industry Value Advisory – Manufacturing, SAP (UK)
Ashutosh brings over 20 years of professional experience including last 15 years at SAP – spanning Value Advisory, IT Consulting and Sales & Marketing profiles. Ashutosh has extensive expertise in building technology led transformational roadmaps and business cases by working collaboratively with customers and partners. Ashutosh is also responsible to drive business process improvements leveraging process KPIs and best practice adoption benchmarking techniques for manufacturing enterprises. Ashutosh holds a Master of Management degree from School of Management, IIT Mumbai and B. Tech in Chemical Engineering.
Pablo Navas Sampere – Executive Advisory at Innovation Experience Group, SAP (UK)
Pablo is currently undertaking a leadership rotational program within SAP, the IMPACT Program based in Walldorf, Germany. Originally from Barcelona, Spain, Pablo has an MBA from IESE and previous work experience in France in Sales Strategy and Digital transformation in a Professional Services company. His previous rotations at SAP include working with the RISE with SAP team, the UK & Ireland Industry Value Advisory team, and the Innovation Experience Team, in the US.