10
Principles for Leading the Next Industrial Revolution PART I
Tools and techniques to ensure your company will stand out in the
new age of digitization. See also “A Guide
to Leading the Next Industrial Revolution.”
It isn’t often that the broad infrastructure
that underlies industrial civilization undergoes a dramatic transformation. But
just such a change appears to be happening now. In a great wave of
technological change, sensors are spreading through factories and warehouses,
software is predicting the need for maintenance before a machine breaks down,
power grids and loading docks are becoming intelligent, and custom-designed
parts are being produced on demand. The leaders of the next
industrial revolution are companies making advances in fields such as
robotics, machine learning, digital fabrication (including 3D printing), the
Industrial Internet, the Internet of Things (IoT), data analytics and
blockchain (a system of decentralized, automated transaction verification).
Because these technologies all reinforce the others’ impact, they are
leading to a new level of proficiency, and to new types of opportunities and
challenges for business and for society at large.
One key indicator is that conventional
boundaries between industries are eroding. It’s getting harder to tell the
difference between, say, a telecommunications company and an entertainment
producer, or between a retail bank and a retail store. The relationships among
suppliers, producers, and consumers are also blurring, more rapidly than many
business decision makers are prepared for.
The foundation of business strategy has long
been the classic value chain, which links together raw materials producers,
manufacturers, distributors, and (in the end) consumers through a
well-established commercial infrastructure characterized by a stable set of
transactions. But the rise of digital technology enables individuals to
connect outside the value chain and deliver more efficient, effective products
and services. This will reduce the importance of economies of scale and
conventional divisions of labor. Relationships among companies will be more
fluid and the price and cost of goods and services more volatile than they are
today. There is one certainty, however: Trustworthiness and a clear
articulation of purpose, will become more important to business. An enterprise
that is continually changing must balance that turbulence with purpose and
trust, or people — including employees, suppliers, customers, and regulators —
will not be able to make the full commitments that businesses need.
Our research at PwC suggests that the
Industrial Internet presents unprecedented potential gains for companies that
claim leadership roles. Their ability to realize these gains will depend, in
part, on their actions during these early years: the capabilities they build
and the extent to which they reframe their business and operating models to
make the most of this new technological infrastructure.
How, then, can you lead your company, whether
it is large or small, to play a pivotal role in the next industrial revolution?
How can you take advantage of your existing strengths while developing the
digital prowess and personal skill that you need? How do you balance the
technological acumen you require with the managerial skill to become a true
market leader in this field? How can you help the broader society meet the
challenges posed by this technology — issues related to privacy, employment,
income equality, and general well-being, among others — while still ensuring
success for your enterprise? The following 10 principles can help senior executives
navigate the uncertainties of the next few years in a systematic and profitable
way.
Establishing Your Strategy
1.
Rethink your business
model.
2.
The business world has become accustomed to
disruption. In industry after industry, incumbents that cling to old business
models lose ground to upstarts that introduce new products and services at much
lower prices. The next industrial revolution will accelerate this sequence,
especially in manufacturing, by reducing costs and improving efficiency at a
broad scale. Companies that are slow to change will lose to those that rethink
their business models to take advantage of the new platforms and their new opportunities.
Consider, for example, the electric power
utility industry, which has essentially maintained the same business model
since it began in 1882: metered power generation, selling electrons to
residential and commercial customers. Now power utilities find themselves at
the nexus of an evolving technological ecosystem that allows them to offer a
variety of new options — and just in time, because the revenues from selling
electrons are rapidly shrinking. The new offerings include renewable energy from
solar and wind sources; sensor-based energy monitoring systems that use data
analytics to continuously improve efficiency; and heating, cooling, and
facilities management services. Some power utility companies are recasting
their offerings as “gateway hubs” for Internet access and home security. The
utilities have the potential to capture several new sources of value, but they
will also face unprecedented competition from technology and telecommunications
companies.
Automakers, too, are anticipating a dramatic
new business model; a few years from now, they may no longer rely solely on
individual car sales. They will provide mobility on demand, through their
stakes in shared or self-driving vehicles. Manufacturers of tools, hardware,
instruments, and heavy equipment are adding sensors and connectivity to their
products, enabling predictive maintenance, security, and frequent upgrades. The
healthcare industry is moving toward its own adaptation of the IoT, with
wearable sensors providing data that health professionals can use for early
diagnosis and better follow-up services. Financial services, engineering and
construction, and entertainment and media are all poised for similar changes.
If you are falling into the trap of thinking
that your company can make money indefinitely by following its traditional
business model, you risk losing out to more flexible competitors. You are
not in the same industry that you were in before; soon, that industry may not
even exist. Your path to profitability is different. Your opportunities for
raising capital have changed. Your capabilities may not apply to the same
customers they did before. Your circumstances are probably different from those
of any other company, so you need to look freshly at them, without relying on
an industry playbook, and rethink your business model accordingly.
To fund new investments in R&D,
operations, and customer experience, you may have to cut back legacy activities
that no longer apply. This will take perseverance and discipline, but your
competitive advantage lies with your role in the infrastructure of the future.
Selling or shutting down less essential practices, and focusing your portfolio
of products and services more effectively, can make you fit for growth in this
new world.
2.
Build your strategy around platforms.
What
the value chain was to the old industrial system, the platform is to the new. A
platform is a combination of interoperable standards and systems. It creates a
plug-and-play technological base on which a wide range of vendors and customers
can interact seamlessly with the same collection of hardware, software,
services, and one another. The most successful platforms match customers with
vendors, maintain an appealing and effective customer experience, and collect
data and rents from people who use the system. A business that controls a
popular platform — Microsoft with Windows, Apple with its mobile iOS, Amazon
with its “everything store” merchandising system, Facebook with social media,
and Google with its search engine — can influence the direction of evolution
for a business-to-consumer market. The same will be true of the new industrial
operating systems for business-to-business markets. The users of a platform
become, in effect, an ecosystem: a group of companies exchanging goods and
services, their fates bound together.
These are still the early days of platform
building on the Industrial Internet. Companies such as GE and Siemens are
staking their claims now. GE has announced its goal to be “the world’s first
digital industrial company”; its cloud-based Predix platform combines data
analytics, connectivity, cyber-protection, and offerings such as the Digital
Twin, a simulation of industrial processes based on digital profiles of more
than half a million machines. Siemens is developing its equally ambitious
MindSphere platform in collaboration with Microsoft, offering its apps on the
Azure cloud starting in 2017.
Other industrial platforms are more narrow,
but equally profitable. For example, the Trumpf company, based in Germany, has
established a platform called Axoom, which provides laser equipment, welding,
and metalworking equipment for the many small companies that build components
from metal and plastic, giving them all access to specialized 3D printing tools
and software. There will be platforms for specific types of supply chains, and
platforms for hospitals, banks, and other types of organizations. As
automobiles evolve into autonomous vehicles, they will be designed as
platforms, operating within “smart city” platforms that continue to improve the
ways in which autonomous vehicles navigate.
Your first step in establishing yourself as a
participant in the Industrial Internet is to figure out what role you can
realistically play in this platform-based world. Will you be a platform
“enabler” like Trumpf, GE, and Siemens, a company responsible for building (and
owning) the underlying megahubs? Will you be an “engager” of customers, using
the platform as a vehicle for providing products and services? Will you be a
platform “enhancer,” a developer of new technologies on the platform, selling
them primarily to enablers and engagers? Or will you develop a business that
combines two or three of these roles?
If you become an enabler, building out your
own platform, three elements will help you stay ahead of competitors. First,
digitize your own enterprise — the platforms at GE and Siemens began as
in-house services for their own operations. Second, continually work on gaining
efficiencies, improving the technologies that you already have. Third, build
cost reduction into that continuous improvement; use sensors and analytics, for
example, to raise the quality and performance of your products and thus lower
costs. These abilities take time and acumen to develop, and they will become
core distinctive elements of your platform.
3.
Design for customers.
Because
the next industrial revolution is driven by large-scale digital technology,
it’s easy to overlook the way it could affect human relationships. The new
infrastructure is a web of connections among people: Producers and consumers,
in particular, are much more closely connected than they used to be. Through
smartphones and social media, consumers can connect directly to primary
producers of the products and services they buy. Through sensors and data
analytics, producers can be thoroughly attuned to the needs, habits, and
long-term interests of the people who buy products and services. As a designer
of the new platforms, or a business leader participating in them, you have an
unprecedented opportunity to build a customer-centric enterprise, one that
connects with what people genuinely want and need from your company, thus
generating commitment that will last a lifetime.
For many large businesses, this represents a
dramatic change. Apparel companies, for example, are building new connections
between the retail store and the factory, so that retail customers’ preferences
rapidly translate into new clothing designs. A few farsighted companies, such
as Inditex (Zara) and H&M, have pioneered this approach in their own
operations. Now, the platforms of the Industrial Internet make it much easier
for any apparel manufacturer to follow suit. Banks, power utilities, and
telecommunications providers are making similar transitions: They are cleaning
up their user interfaces, offering new types of services, and solving customer
problems in faster, friendlier, more responsive, and more effective ways.
When you design for customer-centricity, you
translate your desired relationship and mutual commitment into the look and
feel of your enterprise. A true omnichannel customer experience connects every
touch point: all face-to-face contact, every retail environment, all online
activity, anything connected through a smartphone, and all the other myriad connections
between you and your customer. In the new infrastructure of your business,
there are far more touch points to work with. Customers live in an interactive
world. Their behavior is aggregated into data you can consult to make business
decisions. Your behavior, in turn, is more evident and transparent to them than
it has ever been before.
For example, consider a simple shopping
transaction. A customer places an order online for a shirt, trying it on in a
virtual showroom, and then picks it up in a local store. Can he or she move
seamlessly from the smartphone to the pickup point? Is it obvious how to try it
on and pay for it without waiting in line? Is it easy to pay? Does the
store, abetted by analytics, show the customer other items that would look good
with that shirt?
You will need new levels of design acumen to
succeed. People will interact with your company through online automated
systems, and perhaps through robots in the physical world. Are these machines
appealing or frustrating? Do they draw upon knowledge of ergonomics and human
sensitivity? (Does it mimic the sequence and pacing of human interaction?)
Equally important, are your systems adaptable? The more easily professionals
and customers can change and customize their systems — without having to be an
IT professional — the more effective they will be.
CONTINUES TOMORROW
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