How Industrial Systems Are Turning into Digital Services
16 September, 2015 / Articles
To some, ball bearings are boring, even though these small steel spheres are what keep everything from factory machines and wind turbines as well as cars, trucks, planes, and trains moving smoothly and safely. But to Sweden-based SKF Group — the leading company in the $76 billion global market for ball bearing systems — these objects are heroic, destined to become the “brains of rotating machinery” by transmitting data to boost performance, reduce downtime, and prevent accidents.
Yet even though SKF has a century-long track record of keeping the wheels of industry turning, this new vision of bearings with brains by no means assures that SKF will prosper in the changeover in technology represented by the internet of things, in which every conceivable object can become a node on the net.
So far, much of the attention around smart, connected products has been around consumer-facing goods like watches and thermostats. Industrial companies have tended to be among the last to create digital strategies that harness the new opportunities arising from the proliferation of smart products. That lag poses dangers. Tech titans such as Google and Amazon are working to connect more and more types of objects to the web by offering mobile interfaces for managing just about anything. If someone else designs the apps and software that allow customers to monitor machines, the ripple effects across value chains could force industrial giants into the role of being mere suppliers of commodities.
Building an industrial internet strategy. In this respect, creating an industrial internet of things is an even more urgent endeavor, because industrial systems represent huge capital expenditures, have longer lifecycles, and are placed in mission-critical and often hostile environments that can cause costly and dangerous systems failures. “In some offshore wind applications, changing the main bearing on a turbine is so expensive that it undermines the business case for building the turbine in the first place,” said Filippo Zingariello, director of global strategic development at SKF.
Such challenges, he says, require industrial companies to take a fresh approach to strategy. After all, the technology now enables a different kind of relationship with customers.
Recognizing this, SKF two years ago announced SKF Insight, a way to turn its industrial products into digital services. The first step involved hardware — installing tiny sensors into bearings that are powered by the kinetic motion of the machines themselves. Those systems can now transmit real-time data about the performance of industrial machines as well as the components of energy and transportation systems. Railway operators and wind farm owners were among the first to deploy the concept.
Turns out, data from all of these little things can make a big difference. SKF now provides 45 different iPad apps so managers can monitor the maintenance, speed, and reliability of up to 8,000 kinds of smart objects. This has led to new business models, putting SKF squarely in a position to provide “knowledge as a service” (KaaS), as more than a half million machines are already connected to the SKF Cloud.
The race toward new industrial business models. SKF is just one of many industrial companies adopting new business models based around the increased interactivity between smart objects. Companies like John Deere have launched new business models for selling digital subscription services to farmers and operators of construction and mining equipment.
By changing the basis of competition in old-line industries, smart, connected products are precipitating three strategic shifts that we believe will eventually transform virtually all companies that manufacture things:
- From selling equipment to selling outcomes. This is analogous to the shift to outcome-based business models taking place in other industries such as healthcare. You don’t buy a piece of equipment; you buy what that equipment can do for you. Bristol Siddeley (later purchased by Rolls Royce) originated the “power by the hour”model of selling aircraft engine uptime more than 20 years ago. Now, the industrial internet has enabled companies like GE, Cummins and Caterpillar to apply the idea across multiple dimensions. For instance, Caterpillar’s Cat Connectsolutions emphasize machine uptime, fuel efficiency, and increased safety.
- Designing solutions that transcend the notion of products and services:Instead of thinking of the world in terms of products or services, industrial companies need to create hybrid solutions. The provider goes in with a mindset of creating an integrated offering building on the value and decision making enabled through data analytics. For instance, GE’s Predix cloud platform is all about the performance metrics of water plants, gas turbine plants and other industrial systems, rather than the features of all the hardware and software that makes it happen.
- From value chains to value networks:New stakeholders and types of relationships are causing companies to think beyond current industry value chains to imagine new industrial ecosystems. This requires industrial companies to reevaluate the sustainability of their current position, the viability of expanding into new roles, and the set of organizations they see as “competitors.” One could argue, for instance, that ExxonMobil is now competing against Google in telematics. And while Daimler and Volvo want to create their own telematics systems, commercial vehicle fleet owners want integration across brands, challenging the notion of proprietary systems. Companies that want to remain focused on their core products need to watch out for organizations that are capturing customer mindshare through such new services.
These three big shifts are now playing out in nearly every industrial market, regardless of whether it is B2C or B2B, high- or low-asset intensity. The scope and speed vary, but the shifts are more fundamental.
