The Digital Maturity Curve for Manufacturers – Where Do You Stand?
“Any customer can have a car painted any color that he wants so long as it is black.” – Henry Ford
This famous quote from Henry Ford largely describes the last hundred years of manufacturing. Mass production is efficient, cost-effective, and has revolutionized the way we produce goods. But as customer expectations shift and manufacturers look for new competitive advantages, the way things were is no longer good enough.
Today, customers want the ability to customize and personalize products. They want more in the way of services than just a simple manufacturer’s warranty. They expect that the products they use will provide them with real value, and they’re willing to change the way they pay for them in order to get this value.
The need to improve the customer experience has led to two new approaches to manufacturing – mass customization and servitization. Implementing these new approaches will force companies to adopt new technologies, operational processes, and business models. Digital transformation is essential to improving the customer experience and embracing the future of manufacturing.
Customers no longer want standardized, unified, and mass produced goods. According to Deloitte,36 percent of consumers have already expressed interest in purchasing personalized products, and this number should grow as more options become available. People want the ability to put their own unique spin on the products they buy.
Mass customization represents a major shift in the way goods are produced. It combines the flexibility and personalization of custom-made products with the cost and efficiency benefits of mass production. Leveraging new production methods, advanced robotics, and technologies such as 3D printing, it allows customers to choose unique features or components without sacrificing on cost or quality.
When it comes to the customer experience, manufacturers who are able to effectively implement mass customization options into their production process have a significant competitive advantage. There’s the potential to reach more consumers and differentiate from other brands who lack the ability to personalize their products. And even more exciting, Deloitte also found that more than 1 in 5 of consumers who expressed interest in personalized products are willing to pay a 20 percent premium for them.
By now, most of us are well aware of the Software-as-a-Service (SaaS) model that has revolutionized the software industry. This model changed the way people pay for software. Instead of paying for ownership, they pay for access. Essentially, they are paying for the outcome, not the product itself.
Manufacturing is beginning the make this transition as well, with the potential to completely transform business models. Instead of selling products, manufacturers are selling outcomes, value, and providing far more services than the standard warranty. Consider the potential impact this can have on the way you do business. Instead of selling a product once, the as-a-service model is recurring, subscription based, and predictable.
According to Oxford Economics, 44 percent of companies seen as high performers in servitization have seen an increase in their profit margins by 20 percent. Similarly, the further along a manufacturer is in offering services, the higher their margins. 85 percent of best-in-class companies achieve a margin greater than 10 points, compared to only 46 percent of companies who are lagging behind.
Digital Transformation Enables a Better Customer Experience
Both mass customization and servitization are revolutionizing the way goods are produced and the way customers and manufacturers interact. Instead of being paid once for a standard, mass produced good, manufacturers can access new business models based on recurring revenue and personalization.
Behind these new approaches will be the technology and systems that make them possible. Big data will play a major role in creating these new experiences, while the Internet of Things will be essential to collecting this data, enabling services, and increasing transparency across the entire value chain. The adoption of 3D printing and advanced robotics will create even more opportunities for customization without increasing costs, while artificial intelligence will allow companies to identify new business opportunities.
Digital transformation must start from the customer experience. And the customer experiences of the future are based on mass customization and servitization. Manufacturers must embrace digital transformation or risk falling behind competitors who do.
Remember, digital transformation is about more than new technology – it is about seeing new ways to do business. Contact Optimized Solutions to define your business model, understand how you are making money today, and anticipate how your business would be different in the digital economy of tomorrow.