Successful Digitalization is Customer-Oriented

The challenge of the digital transformation is to think beyond efficiency criteria and leverage the value creation potential of data for a consistent customer-first approach. WEISS is guided by what is probably the most important principle of any digitalization strategy: following your own path.

 

For manufacturing companies, April 1, 2011, is an historic date. On that day, a project group with members from the private and scientific sectors spoke about "Industry 4.0" in public in Germany for the first time. They explained why many traditional sectors might soon be faced with obsolescence unless they radically reinvented the foundation of their production and logistics functions.

Their vision of fully digitalized and automated production processes left a mark on machine and plant manufacturing that is still visible today. Ultimately, the concept showed how crucial digitalizing and automating production are for making the sector future-proof. At the same time, the one-sided focus on this aspect has also had the effect of positioning digitalization among the majority of companies in the machine and plant manufacturing sector primarily as a means of reaching the goals of process optimization, efficiency improvement and cost reduction.

According to a 2020 machine manufacturing study by inform (in German only), 46 percent of responding companies in Germany were convinced that digitalization had only a small influence on product innovation or none at all. This means: Almost half of all responding companies are operating with tunnel vision when it comes to digitalization strategies. They have overlooked what is becoming obvious: the actual revolution is taking place with the products and business models, not in production.

The consumer market shows the way
The consumer market has understood this for a while. Amazon, Airbnb and Uber have shown how entire markets can be revolutionized without needing to own a single department store, hotel or taxi.

Of course, these examples involve purely digital companies that can scale their products as they wish without any significant investment in physical objects. But that doesn't change the fact that a "heavy metal" sector like machine manufacturing must increasingly generate digital added value. After all, mechanical technologies, hardware and process digitalization are increasingly becoming commodities and losing their power of differentiation. In the future, the development status of a machine will no longer decide which company acquires the contract. The decisive factor will be who can make the largest contribution to solving the problem.

Accordingly, machine manufacturers no longer have to focus solely on offering competitive machines at the lowest possible price. They need to develop digital solutions that go beyond the machine and offer customers as much added value as possible in quantitative and monetary terms.

Above all, digitalization means connectivity
To understand the importance of digitalizing products, business models and the business processes required to do so, it is worthwhile to look at the way the term "digitalization" has changed in meaning.

Originally, the terms digitization and digitalization were used interchangeably to describe the conversion of analog information – from text, images, electrical voltage values or status changes recorded by sensor – into digital data.

 

As the Internet, desktop PCs and smartphones became ubiquitous, the terms had to be given independent meanings. Today, "digitalization" means networked communication that is controlled by algorithms. The result of this global connectivity is an Internet of Everything (IoE) in which humans, machines, objects, consumers and suppliers interact with each other 24/7. The usage data and data from processes produced is the most valuable raw material of the digital transformation, since it can be used for ongoing optimization of digital products and services and of the individual customer experience.

Added value services: A growth market
Following the evolution of digitalization, the main challenge of the digital transformation for machine manufacturing has been to think far beyond efficiency criteria and leverage the value creation potential of data for a customer-centric digital and business strategy. Specifically, there are two areas in particular that could be key for competing in the market in the coming years: digital added value services and platforms.

In a cooperative study (in German only), the VDMA and business consultants McKinsey expect that IIoT platforms, added value services and IIoT services will grow by ten percent annually in Western Europe in the medium term. However, only around half of the responding companies had actual experience with developing digital product enhancements like condition monitoring, predictive maintenance or over-the-air (OtA) firmware and features updates.

As a "fast follower," WEISS has been working for several years to develop added value services oriented to customer needs that also take their level of digital maturity into account.

Currently, the services range from digital returns management and digital twins for most components to condition monitoring. Developing automation platforms for production digitalization and serial number tracking will be the basis for predictive maintenance and other services in the future. Added value services support users in planning, dimensioning and fast commissioning. They also ensure smooth operation and enable systems to be easily adapted.

 

To significantly expand these services in the future, WEISS is following a multi-stage digitalization strategy. For example, new ERP and PDM solutions ensure higher data quality and process efficiency, as well as greater transparency for internal and partner processes. The two systems and the business processes connected to them are also the backbone of all further steps in the product and service strategy. And to keep itself on track, WEISS has a simple agenda. "We prioritize what our customers and the market are expecting from us, and make data-driven decisions," said WEISS CCO Florian Kühne.

Preparing for the platform economy
This also includes improving the customer portal – WEISS World – which is being worked on in parallel. "Our goal is to set up a customer suite with many more customer-oriented services and personalized information," said Kühne. "Ideally, this will create a positive experience for customers, because they will find everything they expect at any given moment."

In perhaps five or ten years, however, customers will demand more than even the best company online portal, Kuehne suspects. "By then at the latest, we will need to be a visible participant in platform ecosystems and be a player there." Right now, Kuehne said, it is not clear which platforms will prevail. "However, it is important to us to lay the foundation for participating in any platform now through the systems we select and the processes we set up."

Platforms are a direct consequence of dynamically growing connectivity in the IoE and the main element of the digital economy because they efficiently bring supply and demand together. Amazon alone generated revenue of €329 billion in 2020 – almost twice as much as the Austrian state revenue. In comparison, B2B platforms are still a virtual developing country. However, in the wake of the COVID-19 pandemic, their number in the German-speaking region alone has grown by a solid 40 percent to over 210 now.

Clear added value despite currently low revenues
If and to what extent B2B platforms will replace classic sales and customer communication is pure speculation at this time. In fact, they currently represent only around 0.7 percent of the total revenue of around €850 billion in the European machine manufacturing sector. That doesn't sound like much, but it should not lead to the wrong conclusions. Although the biggest revenue streams are still generated by traditional means, new business relationships are being forged and customer loyalty reinforced on platforms today.

And the fact that digitally supported products and services are perfectly supplemented by digital sales opportunities should not be underestimated. This applies above all when sales take place on large, financially sound platforms. They can be scaled more quickly than smaller platforms, creating market transparency that offers increasingly digitally savvy purchasers an ideal environment in which to find the best offer for their individual needs.

Plus: B2B platforms for the machine manufacturing sector could play a key role in the provision, processing and monetization of digital services, which in turn would lead to the rapid growth of the number of participants.

Creating alliances for open platforms
In view of the possible "Amazon-ization" of the machine manufacturing sector, initially by platform operators that are not in the sector, many companies are considering forming consortia or partnerships with start-ups and competitors.

For example, in the cooperative VDMA/McKinsey study, around 80 percent of respondents indicated that they think forming alliances with the goal of setting up proprietary platforms is a promising approach. Alongside shared costs and investment risks, the process proximity and plant know-how that they contribute are positive aspects. Decision-makers in end user industries also tend to view manufacturer-specific platforms with skepticism. Many of them see greater added value in open platforms.

Florian Kuehne is also a champion of partnerships. "To me, communication and partnership are inherent to the platform concept," said the CCO of WEISS. "We cannot fight the digitalization battle alone. Together with the right partners, we instead want to look where joint ecosystems can be set up that can be further developed and scaled. The important thing about all these expenses is that the customer and the market dictate the needs, not the strategies theoretically developed on paper."

 

Contact Person

Sonja Aufrecht
Marketing & Communications Manager
Phone +49 175 5027689 
sonja.aufrecht@weiss-world.com