Three market trends drive collaborative value networks to the next level


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Three market trends drive collaborative value networks to the next level

  1. 1. By Greg Gorbach ARC STRATEGIES JANUARY 2011 Three Market Trends Drive Collaborative Value Networks to the Next Level Executive Overview .................................................................... 3 New Market Trends Drive Innovation in the Industrial Ecosystem ...... 4 Understanding the Emerging, Highly Interconnected Value Networks .................................................................................. 7 Collaborate Throughout the Design-Make-Deliver Value Network ....... 9 A Word about CMM and CVN .......................................................11 Conclusion................................................................................11 VISION, EXPERIENCE, ANSWERS FOR INDUSTRY
  2. 2. ARC Strategies • January 2011 2 • Copyright © ARC Advisory Group • The Coming Decade Will Be About Empowering Value Networks Business Customers Production Suppliers CMM Chain Operations Supply Two Complementary Models: CMM Highlights Plant-Centric Integration, while CVN Highlights Lifecycle and Value Network Dimensions of Collaboration
  3. 3. ARC Strategies • January 2011 Copyright © ARC Advisory Group • • 3 Now that the economy is recovering, it is time for industrial companies to take stock of their plant IT strategies in light of important new technology, economic, and demographic trends. Bottom line: These systems will need to foster even more innovation and external collaboration. Executive Overview Three global trends, under way for some time, have reached the stage where they are beginning to impact the industrial segment significantly. The accelerating global shift of economic power creates opportunities for new players, along with incentives to do things in new ways. Changing workplace demographics will open the door to many innovations as the old guard, with their entrenched ways and methods, yield to fresh and open-minded replacements. Rounding out the perfect storm, at this precise point in time, IT solu- tions have matured and next-generation architectures begin to offer more power and capability in a more accessible fashion. Importantly, these forces act on the whole of the business ecosystem, not just the industrial players themselves. This means that innovations throughout the ecosystem will force business process changes for industrial companies. To compete, companies will need to rely more on their value network partners, and the entire value network will need to act in a more flexible and dynamic manner. In industrial companies, these changes will trigger a re-thinking of the IT solution landscape as they adopt mobility, cloud, Internet of Things, and other technology advances. The traditional view, with layers of applica- tions that correspond to hierarchical business levels and are supported separately and integrated to some degree, seems likely to fall out of fashion as robust networks allow broad swaths of functionality to be delivered as services. Initially, a few companies will decide that supporting IT plat- forms and attending to IT security are not core competencies and can be accomplished better by others. But things may change relatively quickly throughout the industry when it is recognized that these companies not only benefit from lower costs, better capability, and better security, but can also react and change much more nimbly. For some years now, a primary driver in the plant operations software market has been the need to align plant operations with the business needs of the enterprise. This need has been felt across all manufacturing seg- ments: process, batch, and discrete. Already there is a subtle shift underway, as business needs place more of a premium on collaboration
  4. 4. ARC Strategies • January 2011 4 • Copyright © ARC Advisory Group • across dynamic market ecosystems and value networks. Aligning plant operations with business needs is becoming more important than ever, yet also more difficult to achieve. It is also important to consider another dimension of the maturation of IT capability. Processor power, network, and software advances increasingly drive functionality that was once the exclusive province of software appli- cations deep into production automation systems. As the automation systems become smarter, plant equipment and systems become better able to support the dynamic needs of extended value networks. Now that the economy is recovering, industrial companies should take stock of their plant IT strategies in light of important new technology, eco- nomic, and demographic trends. Enterprise, design, plant software, and automation systems will need to foster even more innovation and external collaboration. New Market Trends Drive Innovation in the Industrial Ecosystem The list of important market drivers has become familiar to many: global competition, aging workforce, increasing regulations, dwindling resources, increasing energy cost, water scarcity, recycling and disposal, climate change, social responsibility, IT security, and the need to be more respon- sive to customers and market dynamics. These are frequently cited as the impetus for production system improvements and are not trivial matters for industrial companies. The need to deal with them has led to many im- provement projects, including plant IT installations and upgrades. As 2010 draws to a close, it is becoming clear that some additional trends are just now gently lapping at the shoreline, but may soon develop into a tsunami that frames the resolution of all other trends. In particular, three developing trends already impact the industrial marketplace to some de- gree: the shift in global economic power, the increased accessibility and capability of IT, and the rise of the Millennials. Together, these forces will pressure industrial organizations to better understand and collaborate more effectively with their value networks.
  5. 5. ARC Strategies • January 2011 Copyright © ARC Advisory Group • • 5 Global Economic Shift Emerging-market companies now make up about 18 percent of the Fortune Global 500, up from 4 percent in 1995, while developing economies make up half of the global output. The "BRIC" (Brazil, Russia, India, China) has evolved into the "Big 6," with the inclusion of Mexico and South Korea, and is well on its way to becoming the Big 10. Increasingly, economic power and activity transcends national and geographic borders, as multinational companies expand. This global economic shift creates new consumers with new expectations and needs, but also generates new sources of capital and powering many forms of innovation - in products, business processes, marketing, sales, and delivery. New R&D centers sprouting up in the developing economies, plus a broader willingness and ability in these populations to compete for a bigger piece of the innovation pie, also underpin this wave of innovation. More Players, Regional Economic Shifts, and Increasing IT Capability at Lower Cost Drive Increasing Industrial Ecosystem Complexity Powerful, Accessible IT Technology Microsoft launched Windows 1.0 twenty-five years ago on November 20, 1985. This is but one of many IT technologies that have grown in power and capability — and complexity — in the ensuing years. In addition, new technologies with demonstrated power to re-make the traditional IT para- digms have emerged. These include smart phones, the Cloud, and social computing. Advances in hardware, software, networking, communica-
  6. 6. ARC Strategies • January 2011 6 • Copyright © ARC Advisory Group • tions, and other technologies, as well as in reliability, usability, and stan- dards, have created an infrastructure expectation for business and consumers. New It Capabilities Will Drive and Enable Many Business Ecosystem Changes Taken together, these advances mean that organizations have increasingly easier and lower cost access to incredibly powerful information technologies. Businesses throughout the value network can create new processes based on analysis of data that was not previously available, monitor and interact in real time with far-flung facilities, collaborate in sub-networks or external competitive value networks, and reach out directly to customers. Advance- ments in IT capabilities continue apace, but arguably, IT has already reached a level of maturity sufficient to permit the disruption of existing relationships and business models by introducing innovative new ones. Demographics Two sides of the same coin — the aging workforce and the rise of the Mil- lennials — now drive changes in industrial companies. Concern about departing expertise and knowledge as workers retire has been one reason companies decide to implement new plant floor systems that can automate many business processes to help mitigate this affect. What is changing now is that the Millennials have different comfort levels with newer technolo- gies, and their needs will increasingly influence technology decisions. Another huge dimension to this discussion is that, in developing countries,
  7. 7. ARC Strategies • January 2011 Copyright © ARC Advisory Group • • 7 the proportion of young entrants to the workforce is much greater and their impact will likely be greater as well. Millennials Have Different Technology Expectations and Are Open to New Ways of Doing Things Understanding the Emerging, Highly Interconnected Value Networks The three trends — shift in global economic power, increased accessibility and capability of IT, and increased influence of Millennials — act together to create a world in which the rules of buying, selling, marketing, and com- petition will change markedly. To survive and compete, industrial companies will need to increase the breadth, scope, and character of their external collaborations. In some situations, they will need to take the lead to dynamically orchestrate distributed network agreements, execution, and transactions to ensure orders are fulfilled as promised. In other situations, they will need to let others take the lead, while participating profitably and strategically. As is always the case when significant shifts occur, it is difficult to see ex- actly what the landscape will look like on the other side. But it is possible to discern some important dimensions of the change already under way. For example, it seems certain that companies will benefit from using new technologies to collaborate more extensively with other value network par- ticipants in all phases of value creation — including product conceptualization and design, development of production assets, supplier acquisition and management, sales, distribution and logistics, and warranty support.
  8. 8. ARC Strategies • January 2011 8 • Copyright © ARC Advisory Group • IT Trends Throughout the Ecosystem Will Increasingly Drive Production’s Business Models (Example) Consumer Market Power and Collaboration Social media, mobility technology, and other technology advances now empower consumers in new ways. They can readily discover friends' opi- nions of a company's products, services, or brand. They can collaborate in ad-hoc buying groups to negotiate for discounts or other terms. They can discover competitive products and pricing. They can publish their own opinions and thereby influence a company's profitability. And they can find comparable products available nearby while shopping. We have just begun to see the way these emerging behaviors will influence the manufac- turing ecosystem. Crowdsourcing, Co-Production, Outsourcing, and Intermediaries Consumers can now also help design a manufacturer's products. This can take many forms, including "crowdsourcing," in which members of the ex- ternal community develop the design; or custom designs are developed by and for one customer, but made available to others. The idea of product and packaging design collaboration with customers, sometimes termed "co- production," should have a significant impact on competition. Greater con- nectivity and collaboration will also lead to more outsourcing of core activities, expansion of players in various parts of the value network into adjacent segments, and competition from new players that can leverage
  9. 9. ARC Strategies • January 2011 Copyright © ARC Advisory Group • • 9 cloud computing or other technology to quickly establish a presence and exploit underserved or especially profitable niches. Product and Manufacturing Process Innovation Another important aspect of value network collaboration involves collabo- ration and virtualization in both product and manufacturing process design. Suppliers are making much progress developing technologies that eliminate bottlenecks that previously added cost and time in moving new products into production. These advances can be seen in several areas, in- cluding product modeling and simulation, production process modeling and simulation, virtual commissioning, digital manufacturing, and digital automation. Collaborate Throughout the Design- Make-Deliver Value Network Today, manufacturers operate within one or more networks of companies that work together to provide goods and services to end consumers. To Today’s Manufacturers Operate within One or More Networks of Companies that Work Together to Provide Goods and Services
  10. 10. ARC Strategies • January 2011 10 • Copyright © ARC Advisory Group • compete effectively, better IT tools are being utilized throughout the value network to speed and optimize innovation, production, and delivery of goods and services. This trend will accelerate in the coming years. Design Collaboration opportunities in this area include co-production with customers, more integration with component and other suppliers during the planning and design process, and better integration with production operations, including outsourcing partners. In addition, there is room for better information sharing and collaboration in designing, building, commissioning, and handing over production assets. Make The developing economic and technical changes will drive the need for ad- ditional connectivity with distributed engineering organizations, suppliers, customers, outsource partners, and other entities in the value network. This will require more robust, modern plant floor systems than currently found in many tradition- al manufacturers' operations. This represents both a real threat and a huge opportunity for manufactur- ers. Things are already beginning to change, and this time around, it's not likely to be a slow, linear, incremental process. Those com- panies that have been investing in plant systems are probably in rea- sonably good shape to make the next steps, but it could be another story for those that continue to "wait and see." Deliver In some ways, the supply chain leads the way in collaboration. Players here have been among the early adopters of mobility solutions, cloud com- Manufacturers Stand to Benefit from Increased Collaboration with Other Players throughout the Dynamic Value Network Ecosystem
  11. 11. ARC Strategies • January 2011 Copyright © ARC Advisory Group • • 11 puting, GPS, RFID, and other technologies. The changing industrial value network ecosystem will present many additional opportunities for these players to take advantage of the lessons learned in supply chain collabora- tion to expand their business and better serve customers. A Word about CMM and CVN ARC's decade-old CMM model positions the plant as a node within a colla- borative value network. Much of the plant IT activity in the last decade centered on improving visibility into individual plant operations and better integrating plant and business systems. As a result, CMM was commonly invoked to help visualize the interactions of processes and systems within a single plant. In the coming decade, new trends will push manufacturers to improve collaboration significantly across the entire value network ecosys- tem. The CVN perspective complements and extends the CMM view to help visualize the Lifecycle and Value Network dimensions of collabora- tion. Business Customers Production Suppliers CMM Chain Operations Supply CMM Highlights Plant-Centric Integration, While CVN Highlights Lifecycle and Value Network Dimensions of Collaboration Conclusion Three trends — the shift in global economic power, increased accessibility and capability of IT, and increased influence of Millennials — will drive in- dustrial companies to ramp up the pace of innovation in products, business models, and manufacturing strategies and processes. Robust, collaborative
  12. 12. ARC Strategies • January 2011 12 • Copyright © ARC Advisory Group • plant IT systems will become even more important to enterprise success than they are today. Engineering and supply chain systems will also play an im- portant role in supporting the increasingly dynamic enterprise. Because they already invest in their plant IT systems, leading manufactur- ers have a good handle on how they can address and improve operating excellence and compliance. Going forward, manufacturers will need to re- visit these areas with an eye to increasing external collaboration and information sharing with consumers and other value network partners. Three Business Imperatives for Succeeding in a Changing Marketplace Be effective. Be proactive. Be responsible. This is the mantra for industrial companies in the coming decade.
  13. 13. ARC Strategies • January 2011 Copyright © ARC Advisory Group • • 13 Analyst: Greg Gorbach Editor: Paul Miller Distribution: EAS and MAS Clients Acronym Reference: For a complete list of industry acronyms, refer to our web page at BRIC Brazil, Russia, India, China CMM Collaborative Management Model CPM Collaborative Production Management CRM Customer Relationship Manage- ment CVN Collaborative Value Network ERP Enterprise Resource Planning GPS Global Positioning System IT Information Technology MES Manufacturing Execution System OpX Operational Excellence PLM Product Lifecycle Management RFID Radio-Frequency Identification SRM Supplier Relationship Management Founded in 1986, ARC Advisory Group has grown to become the Thought Leader in Manufacturing and Supply Chain solutions. For even your most complex business issues, our analysts have the expert industry knowledge and firsthand experience to help you find the best answer. We focus on simple, yet critical goals: improving your return on assets, operational performance, total cost of ownership, project time-to-benefit, and shareholder value. ARC Strategies is published monthly by ARC. All information in this report is proprietary to and copyrighted by ARC. No part of it may be reproduced with- out prior permission from ARC. You can take advantage of ARC's extensive ongoing research plus experience of our staff members through our Advisory Services. ARC’s Advisory Services are specifically designed for executives responsible for developing strategies and directions for their organizations. For membership information, please call, fax, or write to: ARC Advisory Group, Three Allied Drive, Dedham, MA 02026 USA Tel: 781-471-1000, Fax: 781-471-1100, Email: Visit our web pages at