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From products to services: how equipment manufacturers can become IoT solutions providers

August 15, 2018

The proliferation of sensors and the emergence of smarter, always-connected devices are driving businesses across industries to embrace digital transformation. But how exactly can companies create a strategic competitive advantage and transform from original equipment manufacturers to Internet of Things (IoT) solutions providers?

The IoT is unleashing the potential of connected products and services. Combined with ever-evolving consumer demands and the need to remain competitive, this shift represents a huge opportunity for industrial manufacturers. While progressive organizations are taking advantage of technological innovation to stay on the leading edge, others may ask: Is it worth it?

According to Christine Billaud, Director of Business Technology at Volvo Construction Equipment (CE), connecting heavy machinery to the industrial internet brings insight and internal value that can cover the cost of investment.

From her experience, she makes it clear that the move from a product-focused mentality to a more service and solutions-focused one is not easy. “This type of transformation takes time, especially when you have a strong mechanical engineering culture.”

Billaud explains that getting top leadership on board is essential to starting an IoT journey. Adopting this top-down approach along with a bottom-up one is something that manufacturers might want to keep in mind. “Sometimes operational teams might not be fully on board, and so the top-down approach can create the right momentum. Sometimes it’s the other way around, so you need both. You need to consider how to transform your internal organizational structure. It’s important to challenge ourselves in those terms.”

This type of transformation takes time, especially when you have a strong mechanical engineering culture.

Innovation from several angles

While the path to becoming an IoT solutions provider may seem daunting, Billaud adds that the process is quite fascinating. Manufacturers can look forward to expanding on their capacity to pilot projects as well as on their capacity to engage partners. She adds that collaborating with external partners and not doing everything on your own may lead to big changes in a company’s culture and it is worth it to gain speed in delivering solutions that add value for customers.  

She notes that while companies may perform well in terms of innovation from a technology standpoint, bringing a business perspective to those innovations is something that organizations should also focus on. Developing and validating new business models for delivering and selling connected services and solutions is another necessary step to be successful.

“Running proofs of concept and, at the same time, a proof of value is the key. The main question to be addressed is: How can you deliver value that is expected and needed by the customer, and address their dilemmas with a much broader and bolder perspective?”

Monetizing the IoT

As far as the bottom line is concerned, Billaud cites one way in which the IoT can make money for a company. “Proactive maintenance is a very good business case. You save a huge amount of money on warranty costs, and it helps you to improve the quality of your products by incorporating feedback into the design of those products,” she says.

“Proactive maintenance also helps to manage the relationship with the suppliers and the whole supply chain, and gives insight that can be used to reduce costs, and improve internal efficiency and performance. In my opinion, the internal value you get from the IoT can already cover the cost of investment. And of course, the IoT enables the development of a totally different revenue stream by delivering solutions that add value to customers and distribution partners.”

 

Proactive maintenance is a very good business case. You save a huge amount of money on warranty costs, and it helps you to improve the quality of your products by incorporating feedback into the
design of those products

The way forward

For manufacturers that have already connected their equipment and have begun to combine data with, for instance, repair instructions and diagnostic information, Billaud suggests a way forward: They can move to proactive, predictive maintenance and proactive monitoring of their machines.

Such a move can generate a lot of benefits. “For customers, it means less downtime and a decrease in the total cost of ownership. For original equipment manufacturers (OEMs), it means that they will be able to commit to a certain uptime of their machines, which means higher customer satisfaction. It can also benefit the latter because they can proactively maintain their machines, which decreases warranty costs,” states Billaud. On top of that, manufacturers obtain insight, which product development and product maintenance teams can utilize – through analytics – to improve the components and the design of the machines.

Ultimately, the shift from being a pure OEM – distributing and selling equipment – to becoming a true solutions provider for customers involves going a little bit beyond the equipment itself. “Companies should look at how they can bring value at a much wider scope,” concludes Billaud.

 

Illustration: Riikka Uhmavaara
Text: Pauliina Männistö, Gino de la Paz