Most manufacturers have set their sights on the Internet of Things (IoT), but few companies have leveraged the technology successfully as the engine to power new product as a service business models.
Although IDC Manufacturing Insights expects product as a service to gain traction with mainstream manufacturers by 2018, the business model is currently in active practice among only a set of early pioneers. One of the best-known examples is GE Aviation, which is harnessing operational data collected by engine sensors to deliver proactive maintenance services and for analysis of fuel usage -- part of an initiative to help aircraft customers optimize engine performance and avoid downtime caused by parts failure.
John Deere is another recognized leader in this space with its Field Connect IoT platform. This IoT-based service harvests sensor-based data on weather conditions, soil temperature and wind speed to help farmers improve crop yields while also delivering data on equipment performance as a means of providing preventive maintenance.
Beyond industrial equipment makers, consumer manufacturers are also embracing the product as a service concept. Consider Babolat, one of the oldest manufacturers of racket sports equipment, which now offers the Play Pure Drive tennis racket, which comes with a smartphone app-based service that helps players improve their game through analysis of ball behavior.
"Right now we have a bifurcated market," noted Rob Black, IoT product management senior director at PTC. "There are a number of manufacturers with tens of thousands or hundreds of thousands of connected machines, which are solving problems and getting rich data off of their devices. Other companies have little to no connectivity. But over the next few years, there will be a tidal wave of companies moving to IoT-connected products and getting benefits."
A new business model could be a competitive differentiator
This tidal wave of activity will encompass both large and midsize manufacturers, noted Black, who maintains that smaller companies can see more significant benefits by committing to a product as a service business strategy. "Midsize companies benefit greatly because they can differentiate themselves from larger competitors," he said. "They can be more nimble in the transformation since they don't need as much buy-in across the organization."
All Traffic Solutions, a manufacturer of traffic signs and safety equipment, realized several years ago that a connected strategy was the linchpin for competitive differentiation among manufacturers of traffic sign hardware, according to Ted Graef, the company's president. All Traffic now offers its customers a range of subscription services that complement its sign products, including remote equipment management, remote diagnostics, and a "time-to-destination" highway and road notification messaging offering.
Three generations into its cloud-connected traffic signs, the company is seeing rising demand for such services, to the point where they have become a key driver of revenue growth, Graef said.
"We realized early on that any unconnected product becomes a commodity," he explained. "Bundling services provides a completely different value proposition for our customers because we can now save them time and money compared to our competitors. Anyone making hardware needs to be nervous if they're not thinking about connectivity."
A new business strategy won't happen overnight
Making the transition to a product as a service business strategy is a journey and won't happen overnight, cautioned Graef and industry analysts. It starts with determining the right set of services that can add value to the product and then evolves with a roadmap for building out the technical infrastructure to support the new business model.
In addition to that heavy lifting, typical change management challenges are associated with any major strategic transformation, including reorienting the culture, modifying core business processes and getting organizational buy-in, said Jeff Kaplan, managing director of THINKstrategies, an independent consultancy focused on cloud computing, IoT and big data. An effort of this magnitude also calls for active participation from a CEO with a vision for product as a service and the chops to drive the necessary changes to support the business model, Kaplan said.
"The organizational challenge is fundamentally around a change in mind-set," he explained. "You may still be producing a product, but you have to think about your responsibilities in terms of delivering the functionality of the product in the form of a service. You need to think about what's required in terms of business processes and people to support the service delivery process."
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