A galaxy of opportunities or a black hole?

The Harvard Business Review have postedĀ one of the best short analyses I’ve seenĀ of what the Internet of Things means to traditional manufacturing businesses, written by a man who should know: Stefan Ferber, Bosch’s Director of Communities.

He makes the point that, beyond the simple efficiency gains that the IoT enables (and let’s not underestimate those), the opportunities for using manufactured items to act as gateways for web based services look huge. And so do the challenges:

‘For “Old Economy” companies, the mere prospect of remaking traditional products into smart and connected ones is daunting. (My own company, for example, the Bosch Group, produces over half a million things each day across more than 1,500 product categories.) But embedding them into a services-based business model is much more fundamentally challenging. The new models have major impacts on processes at the corporate center such as product management and production and sales planning.’

The implications are profound for all aspects of corporate processes, and sets companies up for a collision of two galaxies – between their existing product-centric businesses and the new structures and processes that will allow for future, service based offering. But this collision looks like fertile ground:

A study undertaken by researchers from the Institute of Technology Management at the University of St. Gallen in Switzerland (Service Business Development: Strategies for Value Creation in Manufacturing Firms) concludes that these services are most definitely lucrative for traditional manufacturers. Considering the example of a papermaking machine, they note that the sale of the machine itself generates a margin of around one to three percent, while selling a related service yields five to ten times as much. The ratio is much the same for the sale of rail cars versus related mobility and maintenance services.

The good news is that no business has to do it all on its own, as a whole ecosystem of IoT suppliers and platforms is rapidly forming to work with companies making this transition. And as more companies go through this transition fresh light will be shed on what works, and what doesn’t, on the bold road to IoT based services.

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