If your business is focused on physical products then your traditional value chain is threatened to be crushed or rearranged by 3 megatrends sweeping through businesses all over the world: 3D-manufacturing, E-Commerce and The Internet of Things.
Traditionally raw material producers supplied materials to component manufacturers who in turn supplied components to finished goods manufacturers. Finished goods were sold through wholesale to retail and finally bought by consumers.
3D-Manufacturing threatens component manufacturers as finished goods manufacturers, wholesale, retail and even consumers may be able to produce the products they require “on-demand” at the right quality, quantity and cost.
E-Commerce threatens wholesale and retail as consumers may be able to buy the products they require direct from the finished goods manufacturers “where they are and when they want”.
The Internet of Things however may be the biggest threat to your value chain if you are a finished product manufacturer. In a recent article by Michael E. Porter et al.: “How Smart, Connected Products Are Transforming Competition” it is described how The Internet of Things threatens finished goods manufacturers by enabling “Smart Connected Products”
“The powerful capabilities of smart, connected products not only reshape competition within an industry, but they can expand the very definition of the industry itself. The competitive boundaries of an industry widen to encompass a set of related products that together meet a broader underlying need. The function of one product is optimized with other related products. For example, integrating smart, connected farm equipment—such as tractors, tillers, and planters—can enable better overall equipment performance.
The basis of competition thus shifts from the functionality of a discrete product to the performance of the broader product system, in which the firm is just one actor. The manufacturer can now offer a package of connected equipment and related services that optimize overall results. Thus in the farm example, the industry expands from tractor manufacturing to farm equipment optimization. ……
Increasingly, however, industry boundaries are expanding even beyond product systems to systems of systems—that is, a set of disparate product systems as well as related external information that can be coordinated and optimized…….
John Deere and AGCO, for example, are beginning to connect not only farm machinery but irrigation systems and soil and nutrient sources with information on weather, crop prices, and commodity futures to optimize overall farm performance…….
Companies whose products and designs have the greatest impact on total system performance will be in the best position to drive this process and capture disproportionate value.
Some companies—like John Deere, AGCO, and Joy Global—are intentionally seeking to broaden and redefine their industries. Others may find themselves threatened by this development, which creates new competitors, new bases for competition, and the need for entirely new and broader capabilities. Companies that fail to adapt may find their traditional products becoming commoditized or may themselves be relegated to the role of OEM supplier, with system integrators in control.”
How is your value chain going to be affected by these 3 megatrends and how are you as a BtB-manager going to react?
PSB-Management helps BtB-unit managers develop unique strategies that may increase the profitability by focusing resources on attractive segments where the company is able to fulfill important customer needs better than competition.
Contact PSB-Management to find out how we can help your company.