Reconfigure the enterprise and ecosystems to deliver solutions as a service
Big Opportunity One
There has been no shortage of claims to disrupt or uberize any industry in recent years, and electronics is certainly no exception. While “disruption” and “uberization” have been so overused as terms that they mean little any more, there are nuggets of truth under all the hype.
Differentiating an electronics product is increasingly difficult based on the merits of the hardware product itself.
Most products are built from standard components. Anyone can buy product design, manufacturing and logistics as a service. It is perfectly possible today to have two smart guys and a dog in a garage in Shenzhen run a successful consumer electronics company. When that’s the case, it shouldn’t come as a surprise that established giants from adjacent industries (think Amazon) can enter the electronics industry and take a sizable chunk of the pie with relative ease.
Practically all electronics products today run at least some amount of software, and software has been the primary way to differentiate your product in the past decade. However, even that differentiation is rapidly going away. Standard software has, for the most part, become so good that creating something unique is more likely to deteriorate the user experience than to improve it. Think tailored versions of Android — most of them are slower and less intuitive than the vanilla version.
So how do you create meaningful and sustainable differentiation today and tomorrow? The three keys will be data, AI and services. The data that you own or have access to will determine how smart your product can become. Your AI capabilities will determine how well you can make use of all that data and turn it into something that’s meaningful for the individual using the product. And your ability to package everything from physical product to software to data and AI into a service that’s easily consumable by the user will determine adoption.
Starting to make data, AI and services as integral parts of your offering will inevitably lead to a realization that you can’t possibly go it alone. Some of the data that you would like to use is going to be owned by someone else. Your company is very unlikely to own the strongest AI engine out there. And building all of the service capabilities you need most likely won’t make a whole lot of business sense either. It will take an ecosystem of business partners. You don’t need to own every piece of the puzzle, as long as you have access to them when you need them. An ecosystem approach allows you to partner with the industry leaders that can provide the best possible components to your offering.
Samsung Mobile’s launch of a ruggedized B2B tablet is a great example: Samsung Mobile launched a tablet offering targeted for businesses that operate in industrial environments. They worked strategically to build a wider partner ecosystem for extended functionality through collaborations with leading industry players, such as IBM, ECOM Instruments, Gamber-Johnson, Ram®Mounts, iKey, Otterbox and Koamtac. Together with the ecosystem, the offering is much more than just the physical tablet device: the ecosystem is providing everything from ruggedization, explosion proofing, portable keyboards, barcode scanning and professional grade vehicle mounts on the hardware side to built-in asset management and work management capabilities on the software side. The B2B buyer doesn’t need to figure all of this out for themselves, but can get everything from soup to nuts from a single source.
Finally, let’s look at some of the role specific actions that you should be taking to ensure your competitiveness in the future of ecosystems.
CEO: This is not just another product, but a massive cultural shift that you need to drive personally. Most of your leadership team probably got to where they are because they are very good at some aspect of a product focused business, be it developing great new hardware features or driving a super efficient supply chain. Going forward, all of that will still be necessary, but it will not be sufficient. The focus needs to be on the user and his/her experience, and everything else — from product features to business models — will follow.
CMO: You need to set the strategy for new business models. Products will still be purchased in the future, but growth will be in as-a-service business models and new revenue streams based on data. You will also be instrumental in identifying and partnering with the best companies and positioning your company well in an evolving ecosystem. Another critically important change is that in an as-a-service world, you need to start looking at customer acquisition and retention differently. Once you’ve acquired a new customer, you need to retain them for a period of time — often at least a couple of quarters — before you’ve made up the acquisition cost and that particular customer becomes profitable. You need to win the customer over every month (or whatever your billing frequency is), which may well require a shift of some of your efforts from new customer acquisition towards existing customers.
CTO/CIO: As-a-service business models and particularly the pervasive use of data will require a change of mindset throughout the organization, and you need to drive that. There’s value in using more data within the current organizational structures, but the real goldmine is in leveraging data across the entire organization. You will need to create the means and the culture to bring teams closer together and collaborate around data. It is also important to understand that everyone in the organization is not equipped to effectively deal with massive amounts of data, nor should they be. The role of a data scientist will become increasingly important in every part of the organization, and you need to champion that role as integral in every department. Finally, the data that you’re starting to amass is valuable intellectual property. You need to work with the business to protect that IP and to understand the threats.
CFO/COO: As-a-service business models, subscription services, etc. represent a fundamental shift in how — and particularly when — your company earns money. In the past, you built your product, sold it, and got paid in full at that time. Going forward, you will build your product, sell it, and get paid incrementally over a longer period of time. An important consequence of this is that while you will hopefully earn the same or more over the lifetime of the product, there will be a substantial short term dip in your revenues as you shift from up-front payment to payment over time. You will need to find ways to deal with that — although if you’re shifting your portfolio gradually, the impact to the business overall may not be all that dramatic.
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