Unlocking Value: The Evolution of Manufacturing Business Models
Welcome to our exploration of value-creation strategies tailored for modern manufacturing in the digital age. In the past, there was speculation that the rise of IoT and “smart connected products” would reshape manufacturing into global SaaS software entities. However, experience has shown otherwise. It has not materialized.
I vividly remember a conversation in 2015 with the CIO of a major medical device manufacturer. I confidently pitched the idea of converting their potential $1 billion digital services into a recurring revenue SaaS platform, backed by solid data demonstrating the valuation multiples of SaaS companies. To my surprise, their response was a firm rejection, stating they would never pursue being a software company. This encounter shattered my hypothesis that manufacturing giants would be excited about the opportunity.
Today, with the emergence of AI capabilities, the tide of transformation is turning once more. Global manufacturing behemoths will surely take notice and likely embark on creating SaaS platforms capable of generating Annual Recurring Revenue (ARR) and maintaining high net dollar retention. Or will they?
Criticism is warranted when acknowledging the significant underperformance in this realm. The concept of physical products in a digital landscape isn’t novel; we transitioned from drafting tables to 3D modeling decades ago. While these shifts sparked various digital transformation endeavors, many needed to leverage shareholder potential fully. Why? Because the focus remained on operational efficiency, cost reduction, and speeding time to market, rather than nurturing nascent tech ventures within established OEMs.
In forthcoming articles, interviews, and personal insights, I invite you to engage in discussion as we delve deeper into the value-threading framework. This framework, inspired in part by the digital thread concept, aims to optimize digital business units’ value propositions by weaving together strategic, innovative, operational, and monetization threads. By aligning these threads effectively, manufacturers can cultivate new digital ventures poised for success.
There are four pillars of Value Threading. They are not equally weighted and differ by company. They are:
The Strategic Thread – market position, future growth, or addressing digital disruption.
The Innovation Thread – implementation of digital transformation for a differentiator.
The Operational Thread – Improve process and reduce cost
The Monetization Thread – How to charge and align value
As we develop the framework with examples, we will explore the core opportunity for digital transformation to be a foundation for a new, stand-alone, digital business for manufacturers.
Consider Tesla’s enigmatic market presence: Is it a traditional automotive company or a tech disruptor? On days when its stock soars, narratives of self-driving technology, data services, and transportation transformation dominate. Conversely, during downturns, concerns about production volumes, supply chain hurdles, and material costs take center stage. Tesla’s fluctuating identity mirrors the confusion surrounding many manufacturing firms across sectors like trucking, aerospace, and medical devices.
Stay tuned for future articles where we’ll explore topics such as leveraging the “Zone to Win” framework for manufacturers, the role of Azure and AWS in enabling SaaS platforms for manufacturing, the untapped potential of variable leases for OEMs, and strategies for monetizing big data in the manufacturing sector.
