Forklifts might be the best example of how technology is shaping the future of discrete manufacturing. Consider these two companies.
- Company A looks to increase profits by cutting costs and asking employees to find ways to make forklifts cheaper. It seeks to increase market share by offering steeper price discounts.
- Company B has asked customers, employees, and suppliers whether forklifts will be needed in the next decade. Should the company just be selling forklifts? Should it consider becoming a “warehouse as a service” provider instead, running warehouses for other businesses?
Which company is forward-thinking, recognizing that automation, smart products, and innovation will drive new business models? Which company is considering how to best provide the services that customers expect in addition to the products sold?
The answer is clear. For companies that recognize the pivotal role that digital transformation plays in driving innovation, the future is bright.
CIO role transforming with digital change
For CIOs, digital transformation changes their roles within organizations. The CIO of tomorrow must bring his or her skills and insights on new digital technologies to bear on the rest of the organization.
Instead of staying in traditional silos, transformative CIOs will lead engagements that bring IT departments together to collaborate deeply with other parts of the organization – sales, marketing, research and development, software development, manufacturing, and supply chain.
When successful, CIOs will help organizations rethink business models and business processes. Digital transformation will change how people are hired, trained, and deployed, leveraging the use of business networks and contingent workers to ensure companies are ready for the future.
While technology is enabling companies to reconsider their businesses, the fundamentals remain relevant: how companies can grow the business and improve efficiency. The difference is that digital changes are critical to that growth.
Automakers, high-tech companies offering services
Consider the automobile industry. Nontraditional competitors such as Google, Tesla, and Uber are causing consumers to ask, “Do I need to own a car?” Particularly in urban, congested areas, mobility is more relevant today. What’s important is optimizing the way to get from point A to point B. That demand means rapid flexibility and service. It may mean using different car models for different seasons.
Automakers are responding by thinking about services that eliminate or reduce the costs of taxes and parking. Connected vehicles are placing more emphasis on services rather than horsepower. Consumers, they realize, want services such as pre-ordered parking spots, gas station location services, or prepaid coffee in their favorite drive-through.
High-tech companies are leveraging the Internet of Things in two significant ways. Companies are producing not just hardware, but also pure or embedded software built into products. This means they can offer services in addition to or instead of just selling. For example, a printer company is now giving companies the option to purchase printing services instead of printers. The manufacturer owns and maintains the printers, using embedded software to detect needed maintenance, such as toner replacement, and replaces the printers as needed. It’s selling output, not the printers themselves.
Industrial machines, aircraft companies rethink business models
Similarly, in industrial machines and components companies, the business models are changing. One compressor manufacturer we work with is shifting its business to selling not air compressors, but air itself.
Customers purchase an amount of compressed air, with the company controlling costs via predictive maintenance software. Many call this shift Industry 4.0, allowing manufacturers to have more flexible manufacturing processes that can better react to customer demands.
The aircraft and defense industry has been at the forefront of digital transformation for years, using sensors to track and assess performance and improve safety. With such increased demand for new airplanes and passenger capacity, some OEMs are considering not selling aircrafts and engines, but rather the performance of those machines.
For the CIO of the future, a top-down approach is crucial. CIOs need to consider how to inspire and lead other C-suite executives to an innovative, connected future.
For more on how Innovator CIOs are reimagining business models to uncover new revenue, read the Digital Bridge report on Digital Business and CIO Innovation Imperative