By Dusty Weis, Association of Equipment Manufacturers

 

It seems counterintuitive. But if a potential disruptor is angling for a piece of your market share, sometimes the best response is to welcome them in and see what you can learn.

At least, that’s one takeaway lesson that Schneider Electric’s VP of Global Marketing Mary Beth Connolly shared with participants at this summer’s Smart Manufacturing Summit in Columbus, Ohio. AEM attended the event, organized by Chief Executive, to explore what AEM members could learn from manufacturers who have weathered disruption in industries outside the equipment realm.

In assessing how manufacturers can best take advantage of Industry 4.0 technologies, Connolly related the story of how her 120-year-old company is contending with the growing presence of fab labs in the industry.

Small-scale workshops offering digital fabrication tools to their members, fab labs provide an alternative source of products that could cut into Schneider’s €25 billion in annual revenue from energy management and automation products. But Connolly says the company has opted to explore partnership opportunities with these organizations in order to stay on the cutting edge of new technology.

“It’s an important running question of how do we engage some of these organizations that are going to help us be innovative, while we still have to make money,” Connolly says. “In the end, we’d rather disrupt ourselves than have someone else come in and do it.”

There’s no longer a question of whether or not companies should adopt Industry 4.0 technologies—the resounding consensus is that it’s “adapt or perish” time. In fact, a recent MIT study found that companies that have fully adopted digital technologies generally have margins about 15 percent higher than their peers, while companies trailing in digital adoption suffered margins 25 percent lower.

Instead, the question that many companies are struggling with is exactly where to start and how to proceed. To answer that question, here are four ways to begin disrupting your own business model:

 

Drive Disruption from the Top Down, from End to End

As an entity that’s been around about as long as the concept of commercial power itself, Schneider Electric faces the same organizational inertia as any heavy equipment manufacturer. So when the company embarked on its digital business model transformation a decade ago, Connolly says it was no small feat.

“This is a big deal for a company that is very old and very product-centric,” Connolly says. “It started with putting in place a mentality… It’s really been our CEO’s vision, and it’s clear to everyone in the organization, whether you believe in it or not, that this was the way Schneider Electric was heading.”

That same top-down mentality drives the disruptive attitude at Protolabs, another success case featured at the Smart Manufacturing Summit, even though its business model couldn’t be more different from Schneider’s. An “online digital manufacturer,” Protolabs uses injection molding, CNC machining and 3D printing for quick turnaround prototyping and low-volume parts production.

Chief Technology Officer Rich Baker says, in order to satisfy orders in a matter of days, Protolabs has needed to digitize its processes from end to end. That won’t happen overnight for most companies, he says, but he believes any effort to adopt Industry 4.0 technologies should include the whole scope of a manufacturing operation.

“To get started, you almost have to take a thin slice through your whole business,” Baker says. “Maybe the best way to do it is with a new product line. Figure out how to make that digital from marketing to sale, all the way through to delivery. Then scale up throughout your business.”

Connolly says that approach not only helped Schneider modernize its business model, but also allowed the organization to launch new products and tap into revenue from services.

“Marrying those different areas of domain expertise is where you’ll find value you never expected you could get,” Connolly says. “These are going to be new revenue models, and it’s going to have to be very collaborative.”

 

Find Technologies to Fit Your Use Cases, Not Vice Versa

Sometimes it’s tempting to try and work the latest bit of new technology into your business model just because of the “cool factor.” But Connolly says that, without a thoroughly-considered use case, this approach can completely derail the digital transformation. 

Such was the case, she says, when Schneider tried to incorporate augmented reality into its business model via AR-enabled iPads.

“But it’s hard for someone to hold an iPad while they work a machine,” Connolly says. “Sometimes a technology seems like a good idea, but when you put it into practice, you see the reality of the working environment.”

Connected sensor technology offers one of the best value propositions for manufacturers, Connolly says, because it turns products into data generators. When that data is collected and analyzed, it can enable manufacturers to offer customers predictive maintenance packages that warn operators to take corrective action before small problems become major breakdowns.

“This seems to be the one place where customers see value right away,” Connolly says. “We’re really starting to see gains in the 30-40 percent range around maintenance costs and reduction of downtime.”

But Connolly also notes that Schneider has clients who are using the technology more creatively to tap entirely new streams of revenue. She tells the story of one company that makes car washing machines, but also sells the shampoo for those machines. Car wash operators will very often buy cheaper generic shampoo instead, so this manufacturer began using connected sensors to track shampoo levels and conveniently restock when needed.

“They know when the shampoo level goes down, and they’re automatically shipping out shampoo to refill those machines,” Connolly says. “They’ve completely negated the cannibalization that was happening to one part of their revenue stream, and they’ve got a tighter relationship with their customers as a result.”

 

Collect Data Now to Fuel Future Advances in Artificial Intelligence

Manufacturers who are waiting for the day when artificial intelligence technology can transform their businesses are someday going to find they’ve missed the boat, says Rich Baker from Protolabs.

While AI and machine learning are advancing by leaps and bounds, he admits that the return on investment isn’t there yet for many businesses. But that doesn’t mean that manufacturers should ignore the technology altogether.

“You have to start collecting a lot of data right now, if you’re not already,” Baker says. “Even if it doesn’t mean anything today, you’re going to want that history to populate machine learning models that can predict things…things that the whole organization maybe can’t anticipate today. You will need to train these new AI models, essentially, to tell you what’s going on.”

That’s because the strength of machine learning is its ability to quickly pore over large troves of data, detect patterns across many variables and create predictive models to guide businesses in decision making. Connolly says it won’t solve every problem—but it will be critical in some areas.

“We’ve been collecting data with sensors for years, decades even,” Connolly says. “This isn’t new, but it’s now about how you connect it so you’re not just talking about operating efficiency, you’re talking about efficiency for a business problem.”

Baker says there’s no way to know when AI technology will turn the corner from a number-crunching analysis tool to an industry-driving vehicle for transformation. Ironically, he says that supercomputers have to achieve the adaptability of a “high school kid you bring in to sweep the shop floor.”

“To train a robot to do that would take hundreds of hours of engineer programming,” Baker says. “When someone cracks that nut and figures out how to get machine intelligence to do adaptive learning, I think we’re at a different level.”

 

Address Technological Blind Spots Through Collaboration

In the example that opened this article, Connolly noted that Schneider Electric is now turning to fab labs as a source for technology expertise, rather than treating them as a competitors.

It’s just one of the strange new realities confronting manufacturers as the Industry 4.0 transformation enters its middle stages. Staying on the cutting edge of new technological developments will be a struggle for some large manufacturing institutions burdened by organizational inertia.  

But with disruption inevitable, Connolly says manufacturers should look to pair their domain expertise with smaller, more agile sources of technological aptitude.

“This is a different world than our traditional manufacturing space—a collaborative world where different parties are going to have to figure out how to come together to extract value that maybe we never knew we could get.”

As a company that was an early Industry 4.0 adopter, Protolabs was forced to learn many lessons the hard way, Baker says. He jokes that companies which waited until today to explore the technology will have a much easier time finding outside solutions than developing them in-house.

“You’ve been smart to be strategically patient, and not to jump in early, because you used to have to write all that code yourself,” Baker laughs. “Today there are so many things you can just buy, software as a service that you don’t have to develop yourself. You pay as you go, and you scale as you see it making sense for your business.”

But Connolly and Baker say the implications are clear for manufacturers—disruption is coming, one way or the other, and the best course of action is to embrace it. 

“I think it’s actually pretty cool,” Connolly says, “because it’s transforming industry right now. We’re seeing new energy, new people engaged, and I think this is driving excitement in our space that hasn’t been there as much recently.”

 

Dusty Weis is AEM’s strategic communications manager, covering the impact that new and emerging trends and technologies will have on the construction, agriculture and manufacturing sectors. Email him at dweis@aem.org or follow him on Twitter @dustyweis.

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