1) By the end of 2018, more than 50% of manufacturers will be building IoT technology into the design phase of their products
When you think IoT, is your first thought newly affordable, available sensors being added to products after they’ve been manufactured? I believe 2018 will change that perception as IoT takes a decisive step forward in its evolution. If we think of IoT as like a product’s nervous system, 2018 will see it grow from picking up signals at the periphery to being the brain of the product—constantly sending, receiving, growing, and gathering information from the center of the product throughout its lifetime and, in the process, enabling new services and revenue streams. Manufacturing is one of the markets most heavily affected by the IoT today. According to Global Market Insights, IoT in the manufacturing market was valued at more than $20 billion in 2016 and will grow at more than 20% (CAGR estimate) from 2017 to 2024. Current IoT endeavors and investments that are unique to the manufacturing environment are taking place in three major initiatives:
- Smart manufacturing to increase production output, product quality, or operations and workforce safety as well as reduce resource consumption
- Connected products to affect product performance, including the collection of detailed information on products in the field, remote diagnostics, and remote maintenance
- Connected supply chains to increase visibility and coordination in the supply chain, tracking assets or inventory for more-efficient supply chain execution
In 2018, we will see IoT being included as a part of the design process in all three of these IoT initiatives. Manufacturers are realizing that by engineering IoT technology into products and equipment already in the design process, you will be able monitor not only the equipment’s performance to predict when it needs repair, but also how and when it is being used—providing game-changing competitive advantages.
By the end of 2018, more than 50% of manufacturers will be building IoT technology into their products from Day 1—already thinking forward in the design phase and asking themselves what services and revenue a new product can generate throughout its lifetime.
In fact, where will our revenue be coming from in the next five years? It’s a good question. And it leads to my next key prediction…
2) Servitization speeds ahead: By 2020,most manufacturers will earn more than half of their revenue from services
With the manufacturing industry becoming more and more commoditized, the need to differentiate yourself is key to survival and profitability. We now see that a large number of manufacturers are shifting to a more service-centric business model—the buzzword is “servitization”.
Servitization is a way for a manufacturer to add capabilities to enhance its overall offering beyond the product itself. One famous example is Apple, which did this a few years ago when it had gained the majority of market share with the iPod and introduced iTunes to increase loyalty, differentiate itself, and generate more revenue. You may think that it will never apply to your business, but companies are now reaping the benefits of servitization across many different subsegments. For example, Philips provides Schiphol airport outside Amsterdam with “lighting as a service,” which means that Schiphol pays for the light it uses while Philips remains the owner of all fixtures and installations. Philips and its partner Cofely will be jointly responsible for the performance and durability of the system and ultimately its reuse and recycling at end of life. This has resulted in a 50% reduction in electricity consumption without the necessity of buying a lamp!
I see this development among IFS customers as well. For global furniture manufacturer Nowy Styl Group, servitization has been crucial to growth. In 2007, it announced, “(F)or us, chairs are not enough,” and started a transformation from pure manufacturer to world-class office interior consulting company. Another example is a customer that manufactures cleaning products and started to offer delivery and service dosing systems. The company understood that choosing the right cleaning products was just part of its customers’ main objective: keeping their premises hygienic. Applying the products in the most effective way, choosing the right accessories, establishing the right routines—all of these, too, were crucial to keeping premises clean.
Both of these customers realized that with technology accelerating as fast as it is, no matter how beautifully designed a chair or how effective a cleaning product, today’s luxury products turn into tomorrow’s commodities faster than ever, pulling prices down with them. With servitization, manufacturers escape the corrosion of commodification. Expert services built on years of experience provide a kind of value that customers will always pay for, regardless of technology trends.