I am a big fan of Jeffrey Moore’s writing. It is hard to survive in Technology, SaaS, or software or do almost anything in Silicon Valley without applying his work. In his book Zone to Win, he provides a model for transformation and a roadmap.
In my view, manufacturing companies should use the same models as disruptive SaaS companies. Translating key points around setting your “horizon” and the size of the “Incubation Zone” requires alignment, but a wave of enablement is making this possible. This includes IoT, AI, and cloud tools that reduce the barriers to entry.
Zone Management Framework: https://www.linkedin.com/pulse/digital-transformation-geoffrey-moore-1c/
The primary focus of the discussion here is the “Incubation Zone” and measuring the untapped potential. The Value Threading framework can help you calculate that value.
I have seen three different Digital Services ownership models within the companies I have worked with. #3 below most closely reflects the “Incubation Zone,” while the others represent more challenging models.
#1 – Departmental or Single Product Company – This model applies to a single-product company that views digital services as part of the core offering. As such, the entire Product development organization is already aligned. Companies like Whisper or GoPro might work this way. However, this never works for complex products with integrated connected systems. For large manufacturing companies, this can only work to augment an existing product but hampers innovation.
#2 – The Cross Functional Team – is common in many global organizations. Several teams work together in this model to develop a digital services strategy. I admit I have seen some success here if leadership is well-aligned. However, this generally fails to meet the potential revenue and market capitalization opportunity. There are always business objective conflicts that prove challenging to address. Automotive and complex industrial product companies lean toward this approach, but most have failed to realize their full potential. There are many writings about the full potential of digital services for automotive companies. I think everyone would agree the potential has not been realized.
#3 – The Transformation Organization – is the path for those who see Digital Services as a revenue producer and having a positive impact on market capitalization. We have examples of companies doing this. Honneywell’s “Forge”, Schneider Electroic’s “Aveva”, and Toyota’s “Toyota Connected”. In my view, this aligns with the premise outlined in “Zone to Win”.
Editor’s note: Future articles will address the business model transformation challenges and options depending on whether you are B2C, B2B, B2B2B, or B2B2C.
In my view, the path forward is clear, and regardless of the potential friction, the recurring revenue of digital services and the impact on market capitalization are measurable. There is clear momentum helping this transformation. Cloud providers are investing heavily and making it much easier for global manufacturing to set up a SaaS business. AI and IoT are mainstream and accessible, thus reducing the time to potential value.
