Manufacturers must move to service-oriented business models, leverage IoT: Cisco

Technologies such as the Internet of Things (IoT) can help manufacturers become more service-oriented, according to a new Cisco Systems study, and that they believe digital disruption will have a significant impact on their business.

The networking giant surveyed 625 senior manufacturing decision makers in 13 countries and found that 86 per cent of manufacturers view the transition from product-centric to service-centric revenue models as a core part of their growth strategies, although only 29 per cent believe services will outpace products, a disconnect Cisco has dubbed the “Service Dilemma.”
Respondents to the survey are recognizing that it’s no longer enough to manufacture good products; what happens post-sale is equally important. Cisco noted that some industrial machine builders are successfully leveraging services to drive new disruptive business models that allow them to charge for business outcomes, such as plant uptime, in the same way they currently charge for physical products sold as a capital investment.

Cisco predicts that companies that don’t harness services for recurring revenue will risk falling behind in a new, more dynamic marketplace, and its survey respondents agree, as 79 per cent believe this shift will seriously affect their businesses over the next three years. Many, however, are struggling with the transition to services.

There is a payoff to making the shift, according to Cisco’s economic analysis: an average $20 billion USD manufacturing firm that digitizes could see a profit upside of 12.8 per cent over the next three years, or 19 per cent over a decade. Meanwhile, manufacturers cited digital technologies such as cloud (37 per cent), IoT (33 per cent), and analytics (32 per cent) as having the greatest impact on production over the next three years, rather than technologies specific to industrial manufacturing.

One particularly mature use case highlighted by Cisco’s survey was connected machines: 33 per cent of industrial machine builders were already receiving telemetry from customers’ plant environments, and another 56 per cent were planning to do so. Only six per cent of machine builders have no such plans.

In terms of challenges, Cisco’s research found the primary concern of manufacturers was the complexity that comes from selling products and services simultaneously (23 per cent), along with achieving profitability in new lines of business (18 per cent), and finding ways to monetize customer data (15 per cent).