Manufacturers have estimated that close to 50 percent of their products will be smart and connected by 2020, a 32 percentage point increase from 2014, according to a recent report by the French professional services company, Capgemini.
Figure: Manufacturers need to invest in digital continuity and digital capabilities to benefit, as the potential returns are significant.
In fact, over 18 percent of the manufacturers said that they plan to stop manufacturing products altogether and move to a pure service-based business model, as per the report. A move in this direction will make the shift to a service-based model a business imperative and will require enhanced capabilities.
The new report “Digital Engineering: The new growth engine for discrete manufacturers” by Capgemini’s Digital Transformation Institute reveals that the global manufacturing industry could expect to see between $519-$685 billion in value-added revenue by 2020 through the development and sale of smart, connected devices. It highlights that while the potential returns are significant, manufacturers need to invest in digital continuity and digital capabilities to benefit.
“We want to bring value to the market by shifting our business model toward service-based and cloud-connected architectures. It is a key way to differentiate our value proposition in the market of pure hardware players,” said Antoine Destribats, Vice President – Industrial Operations at Schneider Electric.
Manufacturers have responded enthusiastically to new technologies and are already rebalancing their IT investments accordingly. Around 50% of manufacturers aim to spend more than 100 million euros in Product Lifecycle Management (PLM) platforms and digital solutions in the next two years, while the proportion of IT budget earmarked for maintaining legacy systems has dropped significantly, from 76% in 2014 to 55% in 2017.
“Digital technologies are reshaping the manufacturing landscape. Product-based business models are being disrupted by service-based business model, new skills are needed in a world of smart products, and innovation success depends on the effectiveness of a company’s open ecosystem,” said the report.
Jean-Pierre Petit, Head of digital manufacturing at Capgemini said, “With the significant potential gains of smart, connected products and digital continuity predicted in the next two years, the requirement to invest in new technologies is too large for manufacturers to ignore. However, the road to getting there is a challenging one. Manufacturers must balance the priorities between sustaining their core businesses while investing in digital acceleration. They must make investments in digital skills, ecosystems, tools, roadmaps and new ways of working. It will be a lot of work, but for those that get it right there is a sustainable leadership to gain.”
The research surveyed 1,000 senior executives from global manufacturing organizations across nine countries: Italy, India, China, Sweden, Netherlands, Germany, France, UK and the US. These executives were drawn from director-level or above, from a diverse set of functions, and were closely associated with their organization’s digital engineering initiatives. Of the organizations in the survey, 62 percent had global revenues of $2 billion or more.