In the second part of my ‘innovation brief’, I share insights on next-generation technologies and great digital transformation case studies, I’ll be focusing on two subjects: organising for digital transformation and the servitisation journey.
Grundfos, Atlas Copco and Hitachi all serve as great examples of how to transition to ‘as-a-service’ model and how to build company structure around it.
Grundfos: From pumps to water-as-a-service: leveraging digitalisation, rethinking the ecosystem, and organising for digital transformation
Why change? Purpose of Grundfos is to provide water. It’s a successful 75-year-old business and world’s largest water pump manufacturer with growing revenues, so why change? Users are buying less pumps due to the success of condition monitoring. Disruptions are retrofittable condition monitoring (IoT), and digital ecosystems (Alibaba are adding a digital layer to make smart cities, have to be on the platform to keep business).
Set a clear vision: Grundfos CEO set a clear vision for the transformation. “It is our ambition to make the smartest and most intelligently executed digital transformation of any industrial company. For others to learn from, and for us to leverage as a global industrial leader that makes a genuine difference in solving the world’s water and climate challenges”. Mads Nipper, Grundfos CEO & Group President.
Move from products to services: Grundfos moved from “in the future, pumps will order their own spare parts” to “pumps order their own spare parts” PoC in a 3 day sprint. They set out an ambitious master plan: Create the foundation (2018), prepare for scale (2019), scaling scaling scaling (2020). From pumps (one-off purchase) to data to networks to value creating services (recurring revenue).
Invest in radical innovation: As “digital+core” moved to “new core”, innovation funding moved from 100% incremental to 50% incremental / 45% differentiation / 5% radical.
Appoint ownership of your capabilities: Grundfos have identified five new capabilities: Digital Engineering, Data Analytics, Digital ecosystems & Partnerships, Go-to-Market and As-a-Service Delivery. Each have a Vice President to drive through the organisation.
ESADE: The final frontier – combining product, services & digital to achieve customer outcomes
How to begin servitisation journey: Atlas Copco started their digital transformation journey in 2007, both in regards to how to make products smarter but also make operations more efficient. They built the groundwork for services within the company before going full speed. From company structure perspective, Service VP reported to Product President, putting service division at a board level. It took them 4-5 years to transform from product to servitisation. The focus was to first have a vision and investment and independence to develop, then building relationship with product.
Taking the next step in Product-Service business: Hitachi is a good example of a company that went from train manufacturing to rail service and from predictive maintenance to maintenance as a service. They developed a 27 year contract to guarantee 27 train units to stay in service reliably. Deciding the price took two years and many lawyer fees. Risk was shared with financial partners. Behavioural risks were managed through sensors, which detected that drivers were more reckless as they were not accountable for not breaking the train anymore. They shifted to open innovation, risk management (price it or push it to the customer), data capture and analytics.