October 26, 2015

Changing company DNA from tangibles to digital

Joni Lehtonen

, Kone

Many established companies today are thinking about how to capitalize the opportunities of digitalization in the future. There are many drivers to catalyst the digitalization, like fear or seeing the opportunities.

In MIT study 53% of 350 CxO respondents were found to have fear like 'if we do not do anything, there will be one or some, who enters the market place and will take the most fruitful bits of our business, while we are left to survive in low cost, commodity or volume businesses.' Some others think of using the digitalization as an opportunity to evolve or grow into something new compared their operations today, or even think that the value chain they are operating in, can be disrupted in a way that they will get bigger portion of the business.*

Whatever is the motivation or driver to start the digitalization journey, it’s good to first define a targeted future digital business model.

  • How will we compete in the future?
  • How do we interact with the customer?
  • What is our competitive advantage in the digital world?
  • How will employees leverage the capabilities to deliver that advantage?

In the industries like manufacturing where the business has based on tangibles, the existing business model is defined in terms of infrastructure, context and content. Meaning that what kind of products we sell to the customer, how do we build up customer interaction and how do we measure our business according the product lines or divisions.  While in digital world the business will be based (at least partially) on intangibles like services or information (data or content) for a varying number of customers who can pretty easily change the supplier of intangibles services. This type of transformation from concrete value creation to intangibles requires different capabilities than the companies used to have.

On high-level digital capabilities can be divided into three layers:

  • Platform
  • Customer experience
  • Content

Based on my thinking, the easiest way for many companies is to build up these capabilities evolutionary over a time in this sequence, although some companies might select a different order, or focus only into one or two of those capabilities. It depends of the maturity level and the targeted business model.

Platform

Platform will define the way, how the digital business services will be delivered in the future. The platform capability can be divided into two sub-categories, internal platform(s) and external platform(s). Technically speaking platform is an API enabled layer, which will provide services into business applications or machine data. From business perspective one of the first service models to utilize platform is spare part web shop, which combines the information from the content management system and ERP. In this kind of model platform can be seen as an enabler to cover or enhance existing machines with some service elements.

Customer experience

Customer experience is a composition layer, which utilizes services as components in order to constitute a unique solution for a customer business pain or challenge. Customer experience layers define how the service is packaged. From business model perspective this might mean that machinery company, instead of delivering service only to its own machines, integrates a complex system and delivers it to the customer. Still being in a product driven business, but providing more value to customer by taking care of the integration challenge, and acting as a single contact point.

The second step in customer experience can be operational service. In this model the machinery company steps out from the product business and start to operate the system on behalf of customer. In a way the company aims to be an organic part of end customers’ business process, or can even take care of a single process as a whole.

Content

Content layer is based fully on data. It can be independent from other capabilities, and company can ultimately develop a content capability by outsourcing the other capabilities. However the more typical scenario might be that company focuses at least into content and customer service, while outsourcing the delivery platform, or builds all of these by themselves bundling everything into one package. From Business perspectives the content layer can be an optimization of the machine or system operations, while the process execution happens by other parties, or it can be electronic product deliveries e.g. performance analysis reports, or real time predictive recipes for the party who operates the machine.

Summary

Digital transformation will be a journey. Creation of the road map for this journey requires that the vision is defined, and clear road map items scheduled on the road map. Transformation journey also requires the company to score the required capabilities and importance of them over the journey (importance might vary over the time) which will be a guiding principle for technology road map and investment levels and investment priorities in it.

* This blog is part on my series of blogs “Sleepless in Boston” while participating MIT Certificate training in innovation, digitalization and suffering from heavy jet lag. The blog post is adapted from a MIT course ‘Revitalizing your Digital Business Model” at Cambridge, Boston 13th and 14th of October 2015.

 

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