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Despite huge leaps forward in technology coming at us left right and centre, the companies that will get the most from a process of digitalisation are those that keep fundamental, traditional values of putting the customer first at the core of their ethos writes Nick Frank, Managing Partner, Si2 Partners.

Those companies that are successful in implementing a digital-led growth strategy don’t bother with the jargon of the moment!

The leaders in this field start with the basics – a deep understanding of their customer’s problems and then work backwards to offer solutions that create value or reduce risk. As part of the journey, they look hard at their own DNA and take action to fill their capability shortfalls. They identify the actual data they need and then automate the data collection/analytics process to deliver scalable solutions.

Businesses starting this shift to service led growth would do well to note that successful companies do not focus on the rhetoric, but rather have an intense obsession with how to make their customers more successful. The lesson to be learned is using the latest jargon does not put you ahead of the game. Believe this and you might not realise that you are leaving your business ‘naked’ to competitive actions, just like the emperor in the children’s story.

In the last year, I have heard this same story time and time again. At the recent After Market conference in Hamburg, we heard speakers from SKF, Outotec, Caterpillar and Serco tools all starting with the customer problem, defining the customer pain map in terms of real money.

Talk to experts in machine learning or knowledge management and one hear’s exactly the same story. Start with the business problem or the KPI and then work back to the data solution. For some, this means adding services such as analytics or remote access to products to create customer value. Others go further and no longer sell a product but an outcome such as leasing a tractor unit of a truck by the mile.

In all the success stories there is a common theme. Each company is able to articulate in terms of money, why their customers should buy their solutions.

They almost all do this following what I call the Value Iceberg principal.

The cost of the product or service you provide can be clearly seen above the waterline.

However, from the customers perspective, there are many other costs within their business below the ‘waterline’. Some are easy to define such as labour, material throughput and energy. Others are much harder such as overheads or obsolescence. And then there is RISK and UNCERTAINTY that are extremely intangible and frightening when quantified, but which have a strong emotional impact on companies buying decisions.

The most profitable manufacturing companies understand the iceberg very well. By adding services to their products and creating integrated solutions, there exists a huge opportunity to capture more value that is hidden deep within the customers’ business processes. Take the truck example. The tractor unit represents maybe only 8% of the annual running costs. Below the waterline 50% of the operating costs is the fuel used, 25% the driver and profit accounts for perhaps 2-3%.

Over 20 years ago, MAN truck’s UK distributor identified this value and added maintenance services to their portfolio that were designed to reduce fuel consumption by 10% and so double the profitability of a tractor unit over the year.

Using telematics technology in the cab, they were able to manage the running costs so well, they could shift their business model to effectively lease trucks by the mile. The resulting value argument was so compelling, that over a 20-year period their business grew from £50M to 550M. The other OEM’s are now following!

For leaders of change, this deep, almost obsessive understanding of customer value, gives them the confidence to know in what businesses and technologies to invest. It allows them to understand whether customers can afford more outcome-based services and how far their business should move along the Product to Service continuum.

This value-based phenomenon is also very real when we start to look at the UK macroeconomic viewpoint. When we redefine manufacturing as a product plus associated services, a 2016 study by Cranfield University estimated this to make up 16.8% of the UK Gross Value Added(GVA) versus the traditional definition of manufacturing at 10% GVA

Perhaps this realization that our view of manufacturing is fundamentally changing, is the reason why many people focus on the digital or IR4 technologies, forgetting that these are only enablers of change. In most part, it is through services that the technologies add new value and not the other way around. But sadly many companies have yet to grasp this notion. The reality is that unless they do, many players will be left wondering why digitization and IR4 have never quite delivered on the promise!

If you would like to know more about your Value Iceberg to drive your investment priorities, then you can contact Nick at nick.frank@si2partners.com

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Implementing mobile apps alongside developing a good understanding of your customers can pave the way to harnessing the power of IoT, writes consultant Nick Frank.

The key to monetising the Internet of Things (IoT) and Big Data is not to focus on the technology itself, but the impact on customers’ business processes and business model. However, many companies do not find it easy to imagine how their business model might change. Many are lost in the technical jargon and the abstract nature of data and analytics.

Mobile apps present a pragmatic way forward for industrial companies to understand how connectivity technologies and data can make a difference to their business. By their very nature, mobile apps affect how people “do stuff” and so the business rationale is often easier to define and quantify. As managers and leaders become savvier about apps, their imagination starts to kick in and they see the possibilities new technologies can have on their customers’ business success.

But what exactly is a mobile app? A mobile app is a software programme designed to run on mobile devices such as smartphones and tablet computers. They can be relatively simple such as the weather app on your phone, or they can be tremendously complex such as running a VMI business with its own databases, analytics, integrating a number of legacy systems. Gartner a leading technology research and advisory company, expects that by 2017 mobile apps will be downloaded more than 268 billion times and mobile apps users will provide personalised data streams to more than 100 apps and services every day. Mobile apps have already become truly integrated into most people’s lives. Although the same is not yet true of business, perceptions are rapidly changing. Undoubtedly driven by their everyday life experiences, managers are starting to imagine the value apps can bring to their own business by linking people with processes and systems more effectively.

Talk to leading providers of mobile apps and they will tell you it is not a case of building an app that replaces an existing process. Yes, the app is something new, but if it does not make that process more efficient, then it has minimal value. Often the mistake many companies make is that they see mobile apps as a separate marketing tool or feature. Companies who successfully implement mobile applications take a more strategic perspective and see the app as being embedded within the business processes. These companies first examine their existing workflows in detail to uncover improvement opportunities. Then, they identify the business benefits they expect to receive from the solution and create the metrics that demonstrate value after the rollout. And finally, these organisations pay attention to the deployment in terms of end-user acceptance, testing, implementation and change management.

 

One such app developer, Lextech, even coined ROA, or “Return on App,” as a tool for measuring the value of the mobile app versus the investment in it. To make sure app projects are worthwhile, Lextech helps their clients find apps that provide a 100% ROA within 12 months or less. It is this emphasis on understanding what the mobile app can do for the business that is critical to success. This success can be measured in terms of cost saving, new revenues, customer satisfaction or even employee satisfaction.

The great thing about mobile apps is that they provide solutions to make life easier for employees on the move. Whether that be to automate a process or have access to relevant data, these solutions use the internet/telecoms infrastructure to increase the flexibility and effectiveness of people while they are outside the normal company IT infrastructure. These efficiencies can be easily quantified within the operation and when multiplied across many people, can have a significant financial impact. This makes building the investment plan and decision making much easier to push through than more intangible IoT/strategy/business model projects.

 

Often companies start with automating the workflow because clear time savings can be demonstrated and measured. For example, SKF, the leading worldwide manufacturer and supplier of precision bearings, spindles and seals, knew that their factory inspectors recorded huge quantities of information on paper forms and clipboards. They replaced their paper based inspection processes with an intuitive app that enabled data to be collected and automatically downloaded into the factories reporting systems, thus reducing the reporting time by 70%. But often there are many other benefits that are not anticipated. In this case, nearly real-time inspection enabled faster decision-making on quality issues, which in the end translated to better margins. Highly skilled employees were able to focus on adding value rather than administration. (Source: Lextech)

For example an industrial services company with over 100,000 employees in 150 countries had field workers who often needed to order materials for their clients that could range from cleaning supplies to HVAC systems. When they reviewed their workflow, it was apparent that the process was complex and inconsistent as it involved a mix of email, PDF attachments and phone calls. They defined a very clear metric, which was to reduce the turnaround time for a PO. Their solution was to replace the existing legacy system by developing a dedicated app that enabled the field worker to directly enter the relevant details, submit the request, and the manager to be alerted to approve the PO. By dramatically speeding up the PO process, not only has customer frustration declined, but cash flow has improved through faster invoicing.

 

But if we step back from these examples, what do we see? Companies are learning how to effectively use data and technology to improve their internal business processes. This journey is more cultural than technological. It is about companies and people not getting overly excited by technology for technology’s sake, but keeping their focus on the users and the business outcomes. Switch this same emphasis to their customers’ business, and they will be much better positioned to monetize the new technologies entering our everyday work environment at an exponential rate.

This change in mind-set is very real, even for companies that have already integrated data and intelligence into their own business model. For example in a recent FSN interview, Dave Gordon from Rolls Royce’s Defence business described how, even in a very sophisticated data driven business, the design of a fuel management app had a deeper impact on the business than he first imagined. The app itself came from a desire to better utilise the vast quantities of information being generated from their service contracts, which told them how efficiently their aircraft were being flown. Fuel consumption is a huge part of the total operating costs for all their defence customers, so designing a mobile app which ‘brought to life’ this data could help their customers significantly reduce their fuel bills. By using mobile app technology, they were able to work outside the existing IT architecture, which allowed greater creativity without losing out on security. Finally, the practical nature of the app caught the imagination of the Board of Directors, who appreciated the opportunities that data analytics and connectivity could bring to their customers.

 

The mobile app is just the tip of the iceberg. The amount of information and know-how successful industrial companies possess cannot be underestimated. One reason industrial brands are so robust is because they have delivered value, knowledge and outcomes over many years. For many businesses, the growth of digital services around mobile apps and IoT is a strategic imperative. Especially in industries that have complex supply chains requiring large quantities of technical information, the opportunity to gain competitive advantage through a knowledge platform that supports the supply chain ecosystem is significant.

 

In a recent Harvard Business Review article, Filippo Zingariello, Director of Global Strategic Development at SKF described how their SKF Insight programme is critical to delivering value to customers in mission critical applications. This programme has a specific goal, “Bearing Health Management will make it simpler and more convenient for customers to conduct condition monitoring and increase reliability, simplify maintenance, extend bearing life and cut total life cycle costs.” SKF has developed 45 different iPad apps that enable customers to access the data and intelligence of their assets. With over a half million machines connected to the SKF cloud, mobile apps are one of the enabling technologies for a new SKF business models based on outcomes and intelligence.

Through these examples, we have seen how mobile apps are initially used by businesses to connect their employees to their business systems so they can deliver value more effectively. As that insight into the customer’s business model grows, so mobile apps become an important enabler for customers to connect with its products and services. In this way mobile apps are not just an interesting little icon on a screen. Rather, they are an important enabler for mind-set changes that will enable companies to harness the power of the IoT and analytics technologies.

 

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