Industrial companies lead business model innovation

Manufacturers seeking an edge cannot rely on product-centric innovation alone. They must also develop business models (pdf) to create and capture value in new ways. Combining connected products, customer knowledge and the right ecosystem of relationships can place you in the most advantageous position in your value chain.

For decades, manufacturing business models have largely focused on incremental growth through product improvement or market expansion. However, stagnating growth, market disruptions and diminishing returns from process improvements are challenging manufacturers. In response, some leading firms are broadening their innovation efforts to include their own business models.

Business model innovation can occur on many fronts, including a company’s customer base or relationship model; offerings (e.g., a manufacturer expanding into services or experiences); commercial and revenue models; and core competencies. At their core, successful innovations involve a significant change in the way a firm captures, creates and exchanges value. Value can be more than financial; it may also include intellectual property, data, customer access, human capital, brand permission or other elements related to a company’s position in its value chain.

Manufacturers are in a powerful position to become leaders in their value chains.1 Connected products are generating data rich with potential insights that can drive new services and new business models. Every day, competitors from inside and outside the manufacturing sector are forming ecosystems to manage, and profit from, new ways to deliver customer value. To take their seat at the table, manufacturers must be ready to reinvent their business models — or watch from the sidelines as others take control of their value chains.