We want Digitalization of Our Products! Which Way should We Choose?

Goals and Planning

I think it's a waste to do digitalization just because everyone is doing it. That's why it makes sense to determine first:

What are the goals we want to achieve? What steps do we plan to take? With which partners? How much will these steps cost us?

When defining the goals, it makes sense to consider whether the future needs of the customers are really at the center. Because if the technology is in the center, then the innovation bypasses the customers, i.e. there is no business case. If the focus is on current needs, then it is more of a product improvement than a true innovation.

This means classical project planning, e.g. based on the steps below and in the next blog. Two points are important here: clear intentions, i.e. what goals we do want to achieve and a prompt adjustment of goals and planning as soon as there are new insights.

Business Models: Nothing Works Without

The most important question for digitalization is always: Who will pay for it? What should the business model look like? What customer problem can I solve at a price the customer is willing to pay?

There are a number of methods and literature for this. We like the Business Model Navigator and especially the IoT Business Model Builder best. The latter contains IoT-specific extensions for the business model patterns:

• Digitally Charged Products:
  • Physical Freemium: the physical product is sold with a free digital service (free apps, software software updates...); the assumption is that some customers will be willing to pay for additional premium services.
    E.g. a paid more detailed data logging for a solar system.
  • Digital Add-On: the physical product is sold very inexpensively, then customers can purchase or activate various digital services with high profit margins (software, additional functionalities...).
    E.g. app purchases in cell phones, but also cars and meters.
  • Digital Lock-In: the physical product is protected in such a way that only consumables, services, software and add-on devices of the manufacturer can be used (to limit compatibility, prevent counterfeiting...).
    E.g. printers in which only cartridges of the manufacturer work.
  • Product as Point of Sale: the physical product provides digital sales and marketing services; the customer can consume the content either directly or through smart devices (e.g. tablets, phones).
    E.g., any object with digital advertising, with QR code.
  • Object Self-Service: the physical product can independently place orders online.
    E.g., a heating system that can automatically and autonomously order oil to refill the tank.
  • Remote Usage and Condition Monitoring: the physical product can transmit data about its usage, condition or environment.
    E.g. all types of predictive maintenance, all "pay per use"/ "power by the hour" products.
• Sensor as a Service: it is not the data-generating product and the resulting services, but the data itself that is the key resource and primary currency in this pattern. Consequently, the measured data is no longer used for just one application, but shared and traded within the IoT ecosystem, enabling entirely new application and service opportunities.
  E.g., using location data from cell phones to detect traffic congestion.

If you want to apply the above models (or others) to your product, it is important that you include all user groups ("stakeholders") in your considerations. It helps to have an open list of those "affected by the product", which you can create in a brainstorming session.

But the next question is: How do I create the connection to my product? From the abstract business model to the product features? For this purpose, use the building blocks for the digitalization of your products:

Building Blocks for a Solution

Digitalization gives your products new capabilities that can create new benefits or save costs.

The thing can:

1. inform electronically what it is (type, serial number, version...): Identification
2. determine its location or position: Positioning
3. measure its own states or environmental values: Measurement
4. store states and measurements: Storage
5. process states and measurements: Signal Processing
6. operate actuators (motors, relays...): Actuation
7. generate energy for its needs: Supply
8. itself directly interact with the user, service technician... : User Interface
9. communicate, with the smartphones, with the tablet of the service technician...: Communication
10. communicate with with other things, the Internet...: Networking

The complexity and therefore the effort tends to increase from top to bottom, so for a successful implementation with as little risk as possible, it is best to start with the first capabilities, e.g. identification of products or spare parts with a QR code, and then build up the capabilities with more experience and feedback from the market.

More complex capabilities can also be built from the basic capabilities. The thing can:

• be addressed, configured and customized individually via the Internet: Addressing
• monitor its state or that of another Thing: Monitoring
• exchange measurements and states with other things and actuate actuators according to the results:
• ...

But... you will say that all this already exists. Exactly, and that's the good thing. You can digitalize your products step by step without any major technical risks: evolution instead of revolution.

Revenue: What does it Bring Us?

In the next step, you could start with the implementation, with technologies, prototypes, MVPs. Or wouldn't it first make sense to think about the revenue model again on the basis of the imagined product? To estimate how much the realized idea will bring in?

Basically, there are two types of revenue from such solutions. The most obvious is, of course, when we generate a benefit for the customer that he is willing to pay for. This can be a direct benefit or simply more comfort, better service... Less obvious are savings from optimizing our own processes, especially in production, service and support. Both have to be sold, either to customers or internally to those affected by the changes. And both should be compared with the development costs plus marketing, application, etc. for the digitalized solution.

And by the way: preventive maintenance, which is always the first example of digitalization, is one of the most difficult disciplines. On the one hand, it is not technically easy, on the other hand, it is the most difficult to achieve a return on investment (ROI).

If you now see that the digitalization step also makes financial sense, then think about the implementation.

Andreas Stucki

Do you have additional questions? Do you have a different opinion? If so, email me  or comment your thoughts below!

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