Are we moving toward a future where everything will be offered as a service?
McKinsey research has pointed out that global goods trade has been declining for years, while services trade is going in the opposite direction. The research also points out that across different types of value chains, more value is coming from services. The software industry has led this trend for several years, enabled by the creation of cloud business models. Design, intellectual property, marketing, and aftersales services are well-established offerings. We have now seen distribution, warehousing, transportation, and other functions moving out of organizations to become specialized service providers.
Even in the manufacturing environment, service transformation is not something new. For a long time, apparel companies such as Nike have positioned themselves in R&D and marketing in the value chain, and contracted their manufacturing and distribution. Companies in the high-tech sector such as Intel operate with the same model using a virtual supply chain. Even though they don’t own the manufacturing, distribution, and warehousing assets, they have created a digital supply chain where they plan and control every node on the network.
What is different this time around?
Given technological advancements, we could imagine that in the future everything could be offered as a service.
Entire business models could shift from producing goods to delivering services. A compressed-air company would sell compressed air instead of air compressors. A car manufacturer or a dealership would sell transportation services instead of selling cars, like software companies have being doing. They are moving from selling software packages to selling Web services and renting storage space in the cloud.
For example, the next-generation enterprise resources planning (ERP) software SAP S/4HANA is available as a service, and even all the infrastructure is available by subscription. And you can have best practices from a variety of industries configured and built as a model company with relevant data. You get a running ERP based on a model company in weeks and can start running processes as a basis for your fit-gap analysis.
Back to the McKinsey research: In many value chains, value creation is shifting to upstream activities, such as R&D and design, to downstream activities, such as distribution, marketing, and aftersales service.
This is driving companies to assess where to compete along the value chain to determine whether the market forces are demanding a change to the business model. Companies need to continuously monitor where value is moving in their industry and adapt accordingly. That adaptation will require an agile adjustment in the business architecture, which in turn will demand system and technology changes. A modern ERP system will enable you to take advantage of market changes and innovation by rapidly enabling the changes in business. Is your ERP up to the challenge?
Explore the link connecting strategy and business models to enterprise architecture and the underlying technology that executes the strategy in the three-part “Strategy and Enterprise Architecture” series.