Amid the dawn of a new industrial revolution, the winners will be those who can adapt, embrace technologies and respond to new demands. Diego Tamburini, manufacturing industry strategist, Autodesk, explains.
Manufacturers have traditionally pursued attaining a competitive advantage with a combination of three strategic priorities (which have remained essentially unchanged):
- increasing productivity.
- continually innovating products, processes or business models
- delivering quality products and services
Yet, any competitive differentiation achieved through them has a finite life; eventually your competitors will match – and sometimes surpass – any improvements in productivity, innovation or quality you’ve attained.
Innovative processes and methods eventually become the norm. Your competitors copy and improve upon your inventions. And customers constantly expect better quality from your products. It’s a constantly moving target.
So, if the methods that manufacturers use to remain competitive and the temporary nature of any competitive differentiation achieved have always been the same, then what’s changed? In a nutshell: speed.
We see five key business forces and technical disruptions as shaping a new manufacturing landscape and the competitive environment of the industry, forming a huge opportunity for innovative, responsive manufacturers.
Democratisation of manufacturing
Thanks to the latest technological advances (cloud, 3D printing, Manufacturing-as-a-Service) and new practices such as crowdfunding/sourcing, the means of intellectual production, physical production, and commercialisation are becoming more accessible to individuals and smaller companies.
The playing field is levelling, and startups and entrepreneurs can compete with the incumbents and bring innovation to market – in some cases even faster. A student is just as likely to change the world as a multinational.
As a result, established manufacturing companies now face a new group of competitors – some of whom they haven’t even met yet. In an environment where flexibility, agility, innovation and tolerance for risk are competitive advantages, startups and smaller companies have a real edge compared to larger, traditional, more established manufacturing firms.
That said, newcomers and incumbents can coexist if they play up to their unique strengths. Specifically, newcomers focusing on developing products with high innovation content, targeted to smaller markets, with very short product lifecycles; and incumbents focusing on products that require more know-how, established supply chains, brand recognition, and can survive longer product lifecycles.
New roles in the playing field
Traditionally, when we refer to a manufacturing company we think of something that performs all the functions related to the product development lifecycle – marketing, design, manufacturing, commercialisation, and services – plus the supporting functions required to run a business – finances, HR, legal, etc.
While we don’t predict that this end-to-end business model will become extinct, it is experiencing tensions that are increasingly harder to reconcile in the new manufacturing landscape; tensions between the need to innovate, be agile, shorten product lifecycles, and address niche markets, alongside the need to have efficient, scalable, flexible, resilient, and global operations.
These tensions are creating incentives for some players to evaluate the role they want to play; some roles will fragment, while others will consolidate. We believe that in this new environment we will see the following four main models:
- End-to-end (traditional) manufacturers: who perform all the product lifecycle functions. They own and operate the resources, equipment, and facilities required to design, manufacture, sell, distribute, and service the product. This model still makes sense for some segments (i.e. aerospace, automotive, and industrial machinery), but in order to remain competitive they will have to become leaner and more agile.
- Fast innovators: focused on bringing true change in the market, the startups and entrepreneurs empowered by the democratisation of manufacturing. Unencumbered by executive boards and expectations of mass volumes of production, they can pursue products and markets that weren’t interesting enough – normally from the ROI point of view – to large established companies.
- Infrastructure providers: deliver high-volume, routine process services. They have made big capital investments in physical infrastructure such as manufacturing facilities, equipment, data centers, and transportation networks, and have the knowledge, experience, and tools for transforming ideas into real-world products and making them available to customers.
- Connectors: the ones establishing connections among innovators and infrastructure providers – ‘match.com’s’ of the manufacturing industry. Other connectors may provide consulting-like services to help innovators bring their ideas to market, design for manufacturability, and connect with manufacturing infrastructure providers (typical of startup incubators and accelerators).
A push to extend the value of the product
There’s a growing interest from manufacturers to extend the value to the company of the products they make by providing attached services through the rest of the product’s life – known as servitization. In some segments, such as industrial machinery, the ability to provide attached services is already a competitive differentiator.
With the explosion of IoT, the ability to remotely monitor and control products 24/7, and collect and digest enormous amounts of data, this is stepping to a whole different level. Now manufacturers can apply advanced analytics and extract insight to predict failure, optimise performance, or suggest improvements in design in real time – services that weren’t possible before.
Even more, this connectivity also enables new business models where the customer pays for the outcome of the product (as opposed as for the product itself), known as ‘Product-as-a-Service’.
Popular with manufacturers and customers alike, the model provides manufacturers with a predictable source of revenue, and while assuming the risk of keeping the product performing at its best.
Convergence of hardware and software
Some have rightfully remarked that the lines between hardware and software are blurring Hardware companies are also becoming software companies (GE, Ford), and software companies are also becoming hardware companies (Google, Microsoft, Amazon).
Before the emergence of embedded systems, the only way to solve problems was with mechanical solutions. Even with the emergence of embedded systems, we still solved the main problems with hardware, and left software and electronics mainly for control purposes.
However, as microprocessors and sensors have become more powerful, smaller, and cheaper, it increasingly makes sense to solve problems with software instead of hardware.
Software solutions are easier than hardware to deploy, fix, configure, customise, and upgrade, and allow for more intelligence, driving a “software-first” mentality in the manufacturing industry. Now manufacturers from all segments are asking themselves first if a feature can be delivered by software rather than by hardware.
Relentless pressure to innovate
Manufacturers have always had to innovate in order to differentiate themselves from the competition and gain an edge. However, product life cycles have been compressed from years to months, customer loyalty is more ephemeral, and technical breakthroughs are more frequent.
Adding to this pressure are an increasing numbers of nimble startups – empowered by the democratisation of manufacturing – that can introduce innovation as fast (or sometime faster) than the incumbents. The opportunities to innovate really are endless, once the right mindset and tools are applied.
The changes driving the current industrial revolution are not only dramatic, but happening at pace. We will see more change as a result of these five trends in the next decade than many incumbents have experienced in their entire lifetimes.
The winners in the future of making things will be those who can adapt to these changes, embrace the new technologies at their disposal, and respond to the new demand by:
- Empowering customers
- Satisfying a fragmented demand
- Increasing agility
- Mastering product complexity
- Connecting their products and build an analytical muscle
- Introducing innovative services and business models