Reshaping business models for digital era in manufacturing industries

Digitalization and Internet of Things (IoT) are shaping nowadays the industrial economy and it is said to be a driving force for a fourth industrial revolution. The traditional business functions should be restructured. A successful organization needs diversity amount employees and innovative resource combinations should be created from individual competencies. This study indicates that manufacturers’ entire business model should be redefined for being successful and competitive in the future.

Digitalization is forcing companies to redefine and rethink nearly everything they do. The traditional business functions, such as product development, IT, manufacturing, logistics, marketing, sales, and after-sales service, are being redefined. Starting from product development, the increasing of embedded intelligence in product requires competencies and integration of several disciplines: mechanical, electronic and software. In addition to being multi-disciplinary, the development of complex systems is usually multi-life cycle, multi-site and multi-organization at the same time. Marketing and sales will have completely new ways for operations as digitalization, virtual reality and other new tools can support the operations. After-sales is moving already more and more towards automated sensor data based analytics, which makes possible entire new predictive service models.

Observations from the practice indicate, that today the competencies might not fit in the future requirements and for searching solutions for digitalization opportunities and creating new value for customers. Diversity among employees can create better performance results with creative tasks such as innovations, product development or targeting new markets. Manufacturers will have to hire experts in applications engineering, user interface development, and systems integration, and, most notably, data scientists capable of building and running the automated analytics that help translate data into action. New competencies will be the base for the new kind of organizational structures. Because of the growing volume, complexity, and strategic importance of data, it is no longer desirable or even feasible for each business function to manage data by itself, build its own data analytics capability, or handle its own data security. To get the most out of the new data resources, many companies are creating dedicated data groups that consolidate data collection, aggregation, and analytics, and are responsible for making data and insights available across functions and business units. This new organization unit could be called Unified Data Organization. The second new unit will be Dev-Ops (a clipped compound of “development” and “operations”), which emphasizes the collaboration and communication of both developers and operations personnel. The third new organization unit will be Customer Success Management, which is responsible for managing the customer experience and ensuring that customers get the most from the product. This new unit is extremely important, when moving towards service business and product as a service operation models.

At the end, manufacturers’ entire business model should be redefined for being successful and competitive in the future. Value proposition in the future will be based on the Digital or Smart connected products and digital life-cycle services. Basic product will be supported by Tailored performance service offerings and Right timed product-service deliveries. Customer Success Management (CSM) unit will define analytics based customer segments locally and globally. On the supply side, selected performance and value creation partners will be defined, as well sustainable production partners. For the logistics and supply chain the agile demand-driven supply chain partners are needed. Physical transport is not sustainable and cost efficient, so in global business, still the utilization of local resources will be important. Key activities are Streamlined customer processes through innovation, production, problem solving and networking, as well the Business data management. Key resources are organized in new ways with taking care of entire new organizational units, as mentioned in earlier chapters. In revenue side, new performance and value based revenue models will be formed. On the cost side, efficiency and sustainability are the key targets. As a conclusion of literature and case studies findings, the elements of future business model are listed on following Figure.

Jukka Hemilä

Manufacturing Industries Business Model for digital era.

Digitalization is a major opportunity and strategic investment that often requires renewal of the business strategy. The digitalization itself should not be the driver, but the opportunities created by digitalization. Practitioners should analyze the future customer value, what is valued by customer in the future, which kind of technologies, products and services create added value for the individual customers. New kind of competencies are needed in successful organizations and HR will have to rethink many aspects of organizational structure, policies, and norms. In modern industrial ecosystem, companies should still focus on core business and non-core areas should be outsourced. It is time to redefine business model according the future customer value and needs.

This blog post is based on the published conference article:

Hemilä, Jukka (2016): “Reshaping Business Models for Digital Era in Manufacturing Industries Supply Chains”, The Proceedings of 7th International Conference on Operations and Supply Chain Management (OSCM), Phuket, Thailand, 18 – 21 December 2016.

Jukka Hemilä, Senior Scientist, VTT Technical Research Center of Finland