Every business strategy must answer the question of how a company should compete in the business areas it has selected, e.g., by applying a cost strategy, a differentiated product or service strategy, or a niche strategy. In the context of AIoT, the business area usually involves physical assets, products, equipment, or appliances. This means that the role of the company will typically be either that of an OEM or an equipment operator, or a combination of the two ('hybrid'). AIoT as a new paradigm will enable both types of companies to create new, digital-enhanced products, solutions, or services. The OEM will become a Digital OEM; the equipment operator will become a Digital Equipment Operator. For Digital OEMs, the AIoT-enabled digital transformation is often about fundamental changes to the business model. Digital Equipment Operators usually focus more on the digitalization of the operations model. For both, key questions include how to manage innovation and how to define a suitable target organization. Finally, platform-based business strategies have proven to be extremely powerful. Platforms can utilize AIoT to connect to physical products and assets in the field and create a value-added offering. The following expert opinion will shed more light on the AIoT strategy perspective.
Dirk: Laurenz Kirchner from mm1 consulting. Thanks for joining us. My first question, what is strategy and AIoT to you from the products and services perspective. Do we actually need a business strategy or a dedicated digital strategy?
Laurenz: I think both! Or let us say: In this decade -- in the 2020s – business strategy cannot exist separated from a digital strategy. When we talk specifically about an AIoT strategy, I believe it is absolutely necessary for any company that either manufactures stuff or operates many assets. These companies will only survive if they transform into organisations that are able to manage connectivity, data and digital services across the stack.
Dirk: Okay. So, how do you manage the required innovation at this level?
Laurenz: You need to sync your transformation activity on three levels, or three ‘plays’ as we have shown in the Digital playbook. I believe you always need to start from a business strategy play, rather than from a technical perspective. So put the business perspective first: what are the priorities for my AIoT transformation? Do I focus on smart products or on automating asset operations? Which critical business capabilities will benefit most from AIoT-based decision-making, etc.? Second, you need to look at the execution play. What are the new roles, tools, responsibilities I need to put in place, such as a data governance organisation? How are ‘classical’ corporate functions -- such as sales, operations, legal, and so on -- affected and what is their contribution? How do business models, revenue structures and so on change? The third AIoT transformation play is the technology execution level. It is here that you need to think through architectural questions, make or buy decisions, define the right development approach such as for example the agile V-model.
Dirk: So, is this more about mastering technology and innovation potentials from technology? or is this more about business model innovation?
Laurenz: Definitely both! Or rather: The business innovation side interacting with the technology side in a dialectic way. Think ‘yin and yang’! A typical situation that we see in client organisations is a lot of push on the technology execution from IT, and this push doesn't really get anchored into the business perspective. Think of a typical use case such as metering: clearly you have to find the right wireless connectivity technology to connect a power meter in the basement of a concrete building. But you also have to think through what is the digital service I want to offer? What is the offering structure? For which part of my service delivery do I actually get revenue? So these things have to work together and you cannot do the one without the other.
Dirk: So what about the organizational side? How do I get my organization to support this? What's the target organization? How do I get there?
Laurenz: We tend to recommend following a top-down and bottom-up approach. For top-down, you need to enable top management to understand and define the possibilities and the overall objectives that the organization has to pursue, and this takes a lot of education and evangelization at the top level. There's a lot of stuff where executives do not know what they don't know yet.
Dirk: Good thing we are writing a Digital playbook...
Laurenz: Exactly. At the same time, you need to define real world showcases and real world use cases; this is the bottom up approach. So you need to find a team -- a team of convicts, a team of evangelists -- in your organization that are willing to work a little bit, bend the rules and work across functions to make something happen. This can be pure showcase in the beginning, but later on, we recommend truly defining the real business critical use cases to make things happen. This is typically the easiest way you can make an organization follow along and pursue the AIoT transformation.
Dirk: Last question, do you see different strategies? Depending on whether you're looking at this from the OEM or product perspective versus the operator perspective?
Laurenz: These are definitely different perspectives. What are the challenges of this transformation for a classical OEM? For example, for a maker of power tools, forklifts, or even a maker of cars? Although I do not say the ultimate goal for every one of those organizations is an Equipment as a Service model, the big challenge is still: how do my revenue streams change over time? When I'm used to selling a thousand heavy machinery pieces per year and I know that maybe in ten years I will be selling tens of thousands of microservice digits a week, how do I adapt to this new business model? So this is a typical question for a digital OEM. For a digital equipment operator (let us say a railway operator) clearly the questions are much more: how does this affect my cost base? How will I deliver a certain service or manage my assets in the future? How can I build in things such as connectivity costs and data center costs in the future? How do I arrange for those changes in my own cost base? So very different approaches are needed.
Dirk: Thank you.