The new first and second divisions of the manufacturing industry

The new first and second divisions of the manufacturing industry in the era of Industry 4.0: new core competencies, change and intentional digital question marks

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Executive summary

What does IT bring these days to the manufacturing industry? Change, chance and the need for important business considerations related to data and cloud computing.

Industry 4.0 stand for many things, but undoubtedly is stands for change. A current and future key differentiator in the manufacturing industry is the capability of ‘achoring’ digital value-added to physical products. This will have impact on portfolio considerations, creating question marks and very different potentialities for growth, survival and differentiation.

Cloud disposition competency and data construe competency are helpful concepts introduced with this article for those responsible for transforming a company, so that the chances and challenges of the upcoming Industry 4.0. era can be understood, taken upon and mastered.

What does IT bring these days to the manufacturing industry? Change, chance and important business considerations related to data and cloud computing.

 

Cloud

De facto, cloud technologies today offer the technical possibility of processing virtually any amounts of data whatever in complex chains of events for a great many business models and in ample time. To put it simply: properly (!) set up, everything you can think of in terms of business strategy together with specialized departments and ‘data scientists’ is actually possible with and in the cloud.

At the same time, protection of intellectual property is ensured through end-to-end encryption of device communication, cloud governance frameworks and extensive safeguards with respect to data access in the cloud.

So technically as a matter of principle, (almost) any conceivable use case of digital value added is certainly portrayable with cloud technologies. This has a mayor impact.

Robin ProschSW
Robin Prosch, Director Data Driven Business Smart Digital Services

A new Premier League in the manufacturing world

More and more, the signs are that the world of manufacturing can in future be split into two ‘leagues’ with very different potentialities for growth, survival and differentiation:

Premier League = physical product + ‘anchored’ digital value added

Second League = only physical product

The most important differentiator here will probably be the individual answer to this question:

Can the produced (semifinished) product serve as an ‘anchor’ for digital services?”

As long as you can ‘anchor’ new ideas for digital services to your physical products, you are in the market in the new Premier League: manufacturers with direct access to additional digital value added.

This will frequently be possible in the form of digital value-added services to do with your product. Particularly exciting here is one characteristic of digital value added: the massive scalability. While you can manufacture and sell a physical item exactly once, you can—presupposing good ideas and quick testing on the market—‘anchor’ one or more digital value-added chains to this one physical item and sell the data driven insights multiple times. Sometimes it’s even worth considering no longer selling the item but giving it away solely for ‘anchoring’ digital value add.

Here’s a thought. Which is more worthwhile: the single sale of a train door (with maintenance agreement) to the train manufacturer, or a digital service rendered continually for years, e.g. real-time reporting of how many persons, bicycles and pushchairs go through the door? (With this information, transport operations can attain very efficient capacity control.)

Finding digital business models

There are basically two good starting points for digital service use cases:

  1. “Make new, additional money” ‘Anchor’ new digital value added to existing products (= digital services, based on future-proof use cases, suitable for your portfolio of products).
  2. “Make new, different money” Plan ahead new ways of creating value from your own core competencies away from the existing product range. Anticipate change far in advance and make sure—if not yet the case—that you stay in or get into the Premier League of manufacturers with direct access to digital value added. (E.g. and as mentioned before different kinds of products come about here only because you need their ‘anchor function’.)

Both approaches are legitimate. But, and you’ve already guessed it, they necessitate new core competencies, are of different levels of difficulty, require practice in the methodological approach—and enthusiasm extending across the departments.

And what new core competencies are required when it was the manufacturing-oriented competencies which were the sole guarantee of success up to now?

Additional core competencies for the Premier League

  • Cloud disposition competency

 

Cloud disposition competency means the capability, the mandating and the will to employ internal and external ‘compute’ and ‘store’ resources on demand in order to ensure the necessary adaptability of the company under frequently adapting business requirements.

What this unwieldy definition means is: IT at a speed that’s relevant to business (= the specialized departments). Meaning immediately and without IT set-up time such as hardware ordering cycles or appreciable provision times for a virtual machine … (yes, your IT too has machines J).

If you can get the IT department to understand cloud computing as the opportunity for the company (which, incidentally, simply upends the IT department’s entire present working environment with its holy trinity of server, storage and network), then your prospects for the first division are extremely good.

  1. Data construe competency

By ‘data construe competency’, we understand the capability, the mandating and the will to construe links in internal and external, structured and unstructured data which can thus be used for additional creation of value by your own company, for an internal process, a customer service or even a third party offering in a currently external as yet unknown value-added chain.

This data construe competency is an essential cornerstone for the development of data-driven value-added offers from your company, regardless of whether these are set up internally or added via consulting companies.

In terms of content, this clearly goes beyond Business Intelligence and is often designated as ‘Data Science’. Important here are abilities to do with machine-learning algorithms right down to the designing of forms of intelligence, i.e. ’designed intelligence / ai’, which solve a task (more) intelligently.

Without these two future core competencies as abilities built up in the company or bought in from outside, it will be difficult to take advantage of the digitally scaling (!) growth potential characteristic in the new Premier League of manufacturing.

Change

In all probability, Industry 4.0 is ringing in a change as to how product development will be carried out in your company. In the era of Industry 4.0, it will be common practice to classify value added as a natural component of your future ‘cyber-physical device’ offers when it is no longer quite clear where the product related value add ‘stops’ or the value added is calculated physically/digitally in the mix.

According to the size group, the age and organizational differentiation of your company, other challenges will arise in and through this change; some of these will be easier to overcome in smaller companies (with less organizational specialization, change or rather a transformational ‘doing an about-turn’ is comparatively simpler), others rather in larger companies (more investment budget makes a lot of things easier, creates possibilities of acceleration).

Interim conclusion: change is upcoming

Industry 4.0 is many things. But what it most definitely means too is that technological progress through IT shortens the time span in which larger organizations in the manufacturing industry can derive an advantage from their greater specialization/shop floor for a certain economic purpose.   Perhaps this supposed advantage no longer exists sometimes, and ‘small agility’ beats ‘big optimization of efficiency’?

Portfolio

Whether big or small, you are certainly not alone at present in facing the following questions for your required portfolio analysis:

  • Do I have enough (digital) ‘question marks’ in relation to my ‘cash cows’?
  • How long will the physical ‘stars’ still shine and what will become a ‘poor dog’ much too quickly—perhaps right now?

So, further optimize efficiency in the manufacturing, e.g. through data science, or rather explore new digital space?

If ‘do both and leave nothing’ cannot be the valid answer for you at present, examine very closely again whether being a ‘follower’ is really the right long-term strategy for you in the digital area. Because digitization now has an effect on all sectors and production Levels.

Suggestions

 

  1. Occupy the ‘digital space’ above your own products. Intensively explore possible digital value added, near and far from your current product range and involving your core competencies. If you don’t, others will do so—even from very far away—because the internet can be used for that -> ‘going global in minutes’.
  2. Intentionally ‘anchor’ as many digital ‘question marks’ on products as is justifiable/feasible—clearly designated as ‘beta service’.
  3. Promptly verify or falsify the assumptions of the digital value added portfolio ‘question marks’, learn from customer feedback, iterate.
  4. And how secured is your direct competitor’s market situation actually in this regard? Identify the ‘digital space’ above your competitor’s products, maybe you find and implement a digital value add?

acentrix, consulting and integration partner for the realization of the digital Transformation, IT2Industry, Hall B4, Booth 111

 

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