Volvo CE – from manufacturing to solutions providing

Christine Billaud, director business technology at Volvo CE, explained at the event ‘Industry of Things’ in Berlin the core elements of the company’s journey of servitization.

Christine Billaud, director business technology at Volvo CE, speaking at the event ‘Industry of Things’ in Berlin on 18 September.

Volvo Construction Equipment – Volvo CE – develops, manufactures and markets equipment for construction and related industries.

The company is a subsidiary and independent business area of the Volvo Group.

Christine Billaud explained at the event “Industry of Things” in Berlin on 18 September the company’s three major goals while transforming from being a manufacturer to becoming solution provider for its customers:

  • Zero unplanned stops (downtime)
  • Zero emission (sustainable situation with the customers)
  • Zero accidents on the site

Construction companies worldwide have to withstand a lot of financial pressure (they have to cut machines downtime, fuel consumption ) to produce and to move earth on the sites.

Cost-cutting solutions are always welcome to them.

The implication for Volvo CE as a company, according to Billaud, has been to move from only making machines to becoming a solution provider who makes the smartest construction sites.

Billaud said: “We started equipping the machines at the assembling line with sensors in 2004. Then we extended the procedure, and we decided to connect all our machines on site in 2009.  Our strong point is that we helped our customers to be more profitable.”

Volvo CE’s customers on site do not use exclusively equipment manufactured by Volvo. Most of them use a variety of equipment produced by different manufacturers, and Volvo CE aims to develop efficient fleet management solutions for its customers which can connect all these different types and brands.

Billaud explained: “We have also been utilising the insights and the machines data combing with other sorts of data, this gave us the possibility to protect the machines and to get an insight in how machines are used for instance.

“The challenges are transforming the business. We are pretty much a traditional company which is selling machines. But with offering ‘product as a service’, things are getting complicated.

“The question is how can we fulfill that position and how can we differentiate ourselves from a marketing perspective.”

Image courtesy of Volvo CE

A complex ecosystem creates new rules for success

The rise of new business ecosystems in big data times is altering the key success factors for leading organisations, forcing them to think very differently regarding their strategies and business models.

Billaud: “We are observing that our customers are getting involved in a much more complex ecosystem. They have their own solutions providers and customers.

“We have our customers and our traditional suppliers, which themselves are engaged with different partners. The ecosystems are becoming more complex, and the borders between suppliers and customers are becoming a little bit blurred.

“The big challenge is to shape this ecosystem. How can we make sure that we have the right position in this ecosystem? This question strives the whole company,all the people outside the company and in our distribution network. There is a big impact and a big transformation.

“The journey has started and the major challenge is changing the mindsets. We have to challenge the managing board and to make sure that there is no other way than transforming ourselves.

“We are not a specific industry, we will be disrupted anyways by new technologies, because the business environment has changed, our customer needs are improving, we need to embrace this and we have to be quick.

Image courtesy of Volvo CE

“The question is how do we position yourself beyond that core business.

“In the future we will be talking about how to value the position and the price. It will be more about the entire customer experience than about transaction, selling, invoicing and revenue.”

How to become a solutions provider?

Billaud stated: “Over time, we have developed different types of services regarding fuel emissions, safety guidelines, machines downtimes. For these services, connectivity and IoT is viral.

“Today we have more 100.000 connected machines worldwide, which are sending data though satellites or mobile phones.

“These are monitoring services, making sure that we can have KPIs measuring fuel consumption and combining different approaches to advise our customers who then can compare different ways of using the machines.”

Billaud explained: “For instance, we have developed a tablet with a partner. With the help of GPS sensors, data can help the machine operator to improve processes. The collected data will then be transported either directly to Volvo or to the customer.

“The machines are being constantly monitored and the analysed data are being sent to call centres. After that call-centre agents do contact the machine operators in charge, who can then send a technician directly to the machines to fix any kind of problem.

“In doing so, we have significantly reduced the number of breakdowns within two years.

Volvo CE has deployed its services in 20 markets in Europe, North- and South America, Asia.

Beyond the core business – ‘pay-per-use’ and ‘pay-per-outcome’ 

The emerging business concept known as ‘product as a service’ transforms a service from a standalone function within a manufacturer to an integrated product and service offering that delivers value as the product is in use.

Image courtesy of Volvo CE

For Volvo CE that means, the company is not selling, but lending the customers the machines.

The clients are then paying for the each hour – ‘pay per use’.

Billaud mentioned, when the customers don’t own the machines they takes less risk in terms of insurance costs.

Billaud continued: “Another model we are investigating, is outcome-based pay methods. In other words, the customer is paying only when we are managing to deliver concrete value to him.

“We had a discussion with a customer in Denmark, where we asked him how much money he would be willing to give us, if we would help him cutting his fuel consumption by 10%.

“They said they would give us the entire savings, which we could then invest in finding even better solutions to help them cutting their fuel consumption.

“The model is easy, if the outcome is zero, they won’ t pay. But if we manage to help them saving money, they will pay.”

Billaud said that Volvo CE would invest not only in IoT and data connectivity but as well in zero emission strategies and in automation.

She concluded: “Our industry is traditional but we are transforming significantly. We have a lot of challenges to face. New ecosystems evolve. Competence shifts are disrupting the industry. We need more software engineers, and new capabilities.

“We are running a new business model, although the transformation has started many years ago, and we are hoping to become a good solutions provider for our customers.”