What is in this article?:
- Beyond Efficiency: Using IT to Drive New Manufacturing Revenue
- Elevating the Role of Technology
It’s a paradox of production. Information technology automates manufacturing processes that commoditize some products, while helping manufacturers secure entirely new market opportunities elsewhere. Efficiency plus technology equals extra capacities which create opportunities for new business models. As the role of information technology shifts from driving efficiencies to driving entirely new revenue streams, however, it demands a new role for CIOs in manufacturing companies and requires CEOs to set business strategies that are led and fully charged by technology.
In an economy which saw GDP contract by almost 3% in the first quarter, securing sustainable growth is critical to manufacturers. Many now recognize that the industrial internet offers the greatest chance of success. Take Michelin, the French tire manufacturer. It is not just using technology to strengthen traditional operations or improve shop floor productivity; it has disrupted the tire market by offering entirely new services via the recently-established Michelin Solutions.
The new business uses networked smart devices, the Accenture Cloud Platform for hosting and monitoring and analytics technologies, to develop insights from data created by its fleet clients’ vehicles. Putting this data at the heart of its business enables Michelin to offer new services that improve the safety and fuel efficiency of those fleets. Michelin’s services extend to training drivers to further improve fuel efficiency. Offering customer value well beyond the production of tires, Michelin Solutions has allowed the tire maker to move from manufacturer to service provider. Its move has not only mitigated any future commoditization of its tire business, it has produced a service that is difficult for others to replicate and deepened its client relationships. It has created an entirely new market.
Such innovative business models are also seen elsewhere. A drilling manufacturer sells the ability to create ‘holes,’ not drills, while mining equipment manufacturers have switched from selling excavation equipment to monetizing the volume of materials extracted. Taleris, a joint venture between Accenture and GE, finds new value in engine aircraft data transmitted by sensors to reduce delays and maintenance costs and improve aircraft availability.
What these developments show is that disruptive technology, far from being an overwhelming threat to incumbent manufacturers, can become their route to continued leadership. The last decade seemingly saw digital start-ups do all the running: music retail, satellite navigation systems, taxi services and financial payments. But increasingly, large traditional industry leaders are embracing these technologies and coupling them with their existing market presence, customer relationships and sheer scale.
The question for CEOs, irrespective of their sector, is how to take advantage of new technologies to drive new business models, not just to improve efficiencies. Recent Accenture research found that, although the vast majority of U.S. CEOs recognize the importance of digital, an alarming 26% said their company is focusing its digital investments primarily on new growth opportunities versus the 68% who said such investments were focused primarily on driving efficiencies and cost reductions. If manufacturers are to follow the examples of GE or Michelin, they will have to reverse this ratio or risk going the way of any number of venerable companies that were disrupted to their own demise.