7. June 2022 By Dr. Ainara Novales
IoT-enriched Digitised Products – How Producers Generate Internal Value
Digital technologies are becoming increasingly integrated in physical products. Smart cars, connected light bulbs and data-generating production machines are examples of previously “pure” physical products that have turned into “digitised products”. Digitising products offers a great many use cases for consumers that will hopefully persuade them to buy these products. Yet, as revenues from selling digitised products are expected to remain low and because of firms’ struggles to find use cases that customers will stick to, manufacturers of digitised products need to look for other sources of benefit. Producer-side use cases describe how manufacturers can benefit internally from the digitised products they make by enhancing the products, services and/or internal processes. In the Manufacturing Industry Management Consulting team at adesso we guide manufacturing firms and help them reap the internal benefits of such digitised products’ value propositions.
Internal Value Creation Opportunities with Digitised Products
Advancements in IoT and other information technologies (IT) such as cloud and mobile computing have fostered the digitisation of an increasing number of products. Digitised products provide a wide range of opportunities for digital innovation and offer potential for new use cases not only for consumers, but also for producers and third-party companies. For instance, “Audi Connect” connected cars enable consumers (i.e. drivers) to access new product features, such as infotainment (e.g. myRoadmusic). For Audi itself, product digitisation enables new business models, e.g. by servitising the car and offering sharing-economy-based mobility services (e.g. Audi Pool). Finally, a connected car also allows external third parties (e.g. insurance firms) to develop add-on services such as pay-as-you-drive insurance by collecting data about the driver’s behaviour (e.g. acceleration, braking).
When thinking about customer-facing products, it’s easy to “only” think about new use cases for the consumer of the product, especially in this age of “obsession with customer satisfaction”: How can digital technology within the product benefit the consumer? While being customer-focused is an important capability, producers should also consider the internal benefits of producer-side use cases, i.e. uses of digital technologies in customer-facing products that benefit not the consumers of the product, but the producers themselves.
The digitisation of products gives manufacturers the potential to:
a) Improve the product itself (e.g. by adding, complementing, extending, changing or integrating product features)
b) Servitise product features, i.e. by adding external-facing service offerings, or even fully servitise the product by offering pay-per-use contracting and product-as-a-service (PaaS) business models in which the customer no longer buys the asset, but only pays for its use or an outcome
c) Improve (e.g. inform, enrich and adjust) their internal operational processes (customer/aftersales service, maintenance, sales and product development processes) with data related to product use and performance.
Guidelines for Manufacturing Firms
In the Manufacturing Industry Management Consulting team at adesso we guide manufacturing firms and help them reap the internal benefits of such digitised products’ value propositions. We provide guidance to firms in three steps:
(1) by setting the status quo and identifying potential
(2) by prioritising use cases
(3) by defining a roadmap and the various steps involved in implementation.
(1) Setting the Status Quo and Identifying Potential
There are many ways in which producers can benefit from digitised products beyond selling more products that have digital features that customers find attractive. Thus, when building digitised products, companies need to consider these producer-side use cases, as they might provide a source of value generation. In this first step, we help firms set the status quo regarding their digitised products and identify potential use cases that can provide them with new sources of value creation.
(2) Prioritising Use Cases
Having a long list of potential use cases helps identify blind spots, but it also creates a challenge in terms of prioritisation, i.e. which use cases to focus on first. Companies are not expected to pursue all producer-side use cases. As implementing digitised products involves multiple challenges (e.g. dealing with the different clock speeds of physical and digital product development), we help companies to assess which use cases are most relevant for them to prioritise.
(3) Defining a Roadmap and Implementation Steps
In this final step we evaluate the resources, capabilities and competences of the firm in order to define a roadmap as well as the actions that companies need to take to successfully implement the prioritised use cases.