New business instead of just new technology

Taking advantage of new technology can help companies to function under their old business models, but re-evaluating this approach might actually be more beneficial to the company. According to Kalle Kantola from FIMECC Ltd., an open innovation company, manufacturing companies shouldn’t just stick to their old ways – they should take their cue from start-ups and start moving towards new directions immediately.

Companies in the manufacturing industry are embracing new digital technologies, while business is turning more fast-paced and service-oriented. This does not necessarily mean that companies with the most up-to-date technology will be leading the race. According to Kalle Kantola, the business models of the industrial internet are based on immaterial value creation rather than purely technology-led operations.

“When talking about the creative possibilities brought on by the industrial internet, it’s essential to have a customer-focused perspective. The industrial internet is not progression focused solely on technology, and so it should be considered a phenomenon that is changing current business models. The new service business models are based on exact, reliable and automatic information”, Kantola argues and continues by stating that information is also what motivates the change.

“Precise real-time data from all kinds of sources, including machines, makes business processes transparent and shows how clients are using products. Smarter decisions, products, services and development programs are speeding up the transformation. Data on how markets are changing makes it possible to predict future client needs and offer solutions to suit these needs quickly.”

Kantola finds benchmarks for the manufacturing industry’s future business models in certain B-to-C companies.

“Spotify did not digitalize music, it only took advantage of the digitalization started a long time ago by electric guitars and techno music. The company changed the business process of purchasing and distributing music and made everything much easier than ever before. This allowed Spotify to challenge even the most established companies in its business environment. The same goes for Über, who is still using taxis to take people from place to place. The only thing that has changed is that a different business process makes paying and ordering easier – also increasing transparency and safety.”

By reconsidering their business processes, trying new things quickly and sticking to them while seeking new opportunities, companies in the manufacturing industry could expand into new market areas. This innovative approach, sometimes called the “quick and dirty”, is a common tactic in the start-up world where continuous renewal is a must. Kalle Kantola strongly believes that heavy industries could adopt lighter experimentation as part of their long-term R&D and manufacturing processes.

“Start-ups are rarely burdened by history, they don’t have the need to preserve their current business model. On the contrary, start-ups try new ideas and abandon them if they prove to be dysfunctional. Since start-ups usually have limited resources, they are eager to cooperate openly with other companies, which brings new business possibilities on the table.”

Industrial baby steps towards a new business model

In Kalle Kantola’s view there are actions that any industrial company could start with in order to transform its business model.

“The main point is to get started, even take some risks. The first steps won’t be huge leaps, but a lot can be achieved by taking them. If time is wasted while competitors are moving forward, taking the first step might start to feel like a huge leap.”

”The nature of the business determines what the first step should be. For companies in the manufacturing business, being able to optimize and manage their complete value chain would be a good first step. Understanding what kind of new approaches the customer is willing to pay for and focusing on those, is another good example. Optimization of the company’s processes is not enough if it does not come across as clearly benefitting the customer”, Kantola explains.

Kantola also highlights digitalization of the business process, market differentiation planning and enhancing user experience as concrete examples of moving in the right direction. He underlines that combining a progressive stance should be maintained when making decisions.

“Companies are usually afraid of the changing markets and the new competitors that follow suit. The situation should not be approached this way, but rather seen as a possibility. If everybody tries to defend their current business model, new possibilities will never emerge.”

Adopting new business models requires new abilities from the employees inside the company. According to Kantola, combining at least three areas of expertise would make a perfect blend.

“Currently half of the employees working for leading manufacturers of industrial equipment are usually IT and integrated technology professionals instead of engineers. In the future a steady foundation in engineering should be paired with IT capabilities and topped off with a strong insight on the customers’ processes, values and business. Rather than offering the customer bulk, companies should be able to predict the market better than the customer and find added value for its business.”

In Kantola’s view, connecting different expertise will not take place only within one company, as companies will form networks, ultimately forming new business models in the process.

“In the field of manufacturing, business models of the past were typically built on iron. It will become more common that a single company won’t be able to provide everything that a particular customer or market demands. Rather, individual companies will be surrounded with partner networks, or ecosystems, that allow open data sharing. The needed service capacity will be defined together based on customer demand.”

Kalle Kantola works as CTO at FIMECC Ltd

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