Service & Software driven business model innovation for the electronics industry - a strategic viewpoint public

August 2014
Service and Software driven Business Model Innovation
for the Electronics Industry
Industry Disruption and Transformation for Growth
IBM Confidential and Proprietary – Thorsten Schroeer, IBM Global Electronics Industry
© Copyright IBM Corporation 2014 • All rights reserved
Page - 1
Thorsten Schröer
Director Electronics Industry Europe
+49 172 20 39 057
thorsten.schroeer@de.ibm.com

This presentation covers 4 topics
1
The why,
what and
how
2
Examples of
Success
3
How to get
started
4
Final
Comments
Page - 2

The electronics industry has a very different maturity level within the different
electronics sub segments when it comes to product to service integration.
Semiconductor
Suppliers & Mfg
Services
Power & Automation
Equipment
Office Products &
Computers
Medical Devices
Examples: AMD, AMAT,
EMC, Flextronics, Intel,
Murata, Nat. Semi, NEC,
Renesas, Solectron, ST
Micro, TDK, TI, TSMC
Examples: ABB, Toshiba,
Schneider, Rockwell, GE-Fanuc,
Siemens, Cooper,
Eaton Electric, Emerson,
Invensys, SMA Solar
Examples: ADC, Alcatel,
Avaya, Cisco, Ericsson,
Lucent, NEC, Nokia,
Motorola, Nortel Networks,
Sanyo, Sharp, Tellabs
Examples: Eastman Kodak,
Guidant, Medtronic, Moeller,
Olympus, Omron,
St. Jude Medical, Zeiss
Examples: Apple, Casio,
Electrolux, Fuji Film,
Kodak, LG, Miele, BSH
Nintendo, Sanyo, Sharp,
Thomson, Whirlpool
Examples: Apple, Canon,
Dell, Epson, Fuji-Xerox, HP,
Konica Minolta, Kyocera,
Lenovo, NEC, Ricoh, Sharp,
Xerox
Consumer Electronics
& Appliances
Network Equipment
Providers
Semicon developed fabless business models with design services without any product manufacturing
Power Automation Equipment players are at an early stage integrating products with remote preventive
maintenance
Medical device manufacturer working on highly innovative solutions for personal care
End Consumer Electronics leading the race with well developed integration of products and service e.g. Apple, Xerox
and others.
Whitegoods OEM’s are still in early stage trying to find value from services and software.
IBM Confidential and Proprietary – Thorsten Schroeer for the Electronics Centre of Competence
3 Page - 3

The global market for electrical appliances is sizable, but still fragmented. Growth
is driven by BRIC and a product centric mindset.
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Retailers are friends and enemies at the same time....what is the future of
the classical retail/wholesale value chain?
85%
of transactions
trackable by retailer
to an individual
name
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In summary, there are many reasons why companies are adding services and
software to their offering portfolio in order to drive industry disruption.
…and provide other significant
benefits to the vendor:
Total System Cost – Hardware Focused End to end solution with improved customer
System Cost
Installation
loyalty
Higher margins in a less commoditized
Solutions shift the value
equation away from hardware…
Total System Cost – Product as a Service
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6
Service
Spares
System Cost
Installation
Service
Spares
Operating Cost
portfolio
Usage based pricing for long lasting and
predictable revenue flow with faster buying
decisions
Analytics information capture with new
opportunities for value add

What if one OEM finds the right disruptive model? – Learn from Mobile Phones!
7 Page - 7

1
The why,
what and
how
2
Examples of
Success
3
How to get
started
4
Final
Comments
Page - 8

Case Study IBM: Segment shift from hardware to services and software builds
foundation for IBM’s business success since late 1990s.
Source: IBM annual report 2013
9 Page - 9

Case Study Xerox: Printing Copying has been of the first and most
thoroughly transformed B2B segments in just 3 years from 2008-2011
From Product
– Printer
– Toner
– Service
To Managed Print Services
56%
58%
75%
50%
Managed Print Services Huge Growth
(Represented by the Number of MPS programs announced)
# New MPS Programs
'04 - 1
'05 - 1
11
2
– Price per page
– Everything included
– Apps analytics delivered
in cloud
25%
0%
1% 2% 3% 4%
14%
45%
2004 2005 2006 2007 2008 2009 2010 2011
'06 - 1
'07 - 1
'08 - 10
'09 - 31
'10 - 11
'11 - 2
10 Page - 10
MPS program growth
1
10
31
1
1
1

Case Study Philips: Accelerate! Business Model Innovation on Service and
Software plays vital role in global transformation program to revitalize the
Philips brand.
Accelerate!
-50%rev. in 10 years
Source: Philips annual report 2013
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Product centric
No innovation

Case Study Philips: Software and Managed Services gain share and margin
MRI hardware vs imaging software
Repeat sale in 7-10 years
Sell light bumps vs sell light
One time
product only sell
- competitive
Repeat sale
1-2 times per year
Sell hours of light in a stadium
12 Page - 12

Case study Google/Nest – Programmable thermostat
$249 $25
10x price differentiation driven by software on the device and in the cloud.
13 Page - 13

Case Study Rolls Royce: Integrated solutions services business model with
pay by the hour of operation.
Rolls Royce shifted to a Smarter Product Platform Rolls Royce quickly went from “Out of Business” to #2 in
the jet engine market
Platform
Service
Global Backlog Market Share, Commercial Jet Engines
Analytics
Technology + Business Model Change
Shifted to a platform model with more complexity in parts, but
addresses a broader market
Sell operating hours not one time product purchase
Shifted business model from Razor Blades to total solution of
device integrated with service
Uses remote management, monitoring analytics to enable the
business model shift
14 Page - 14
Sources: IBM Research
Backlog Share – New Major Wide body Aircraft
RR now earn more than 50% of their revenue from integrated
services compared to 15% in the 1990s

58% of the total product value of a washing machine
will be 3D Printable in ten years – impact service
business!!!
$400
$350
$300
$250
$200
$150
$100
Washing Machine Unit Manufacturing Cost Curve
$368 $368
$336
$243
T0 Traditional T0 Digital T1 Digital T2 Digital
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$50
$0
FULL REPORT MODEL NOW AVAILABLE
ONLINE AND ON YOUR MOBILE DEVICE

1
The why,
what and
how
2
Examples of
Success
3
How to get
started
4
Final
Comments
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How to get there?
1.
Begin to engage the end customer in a meaningful way
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(direct vs retail)

How to get there?
2.
Figure out how your company fits into the emerging
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smarter home user experience.

How to get there?
3.
Develop robust systems engineering to enable remote
diagnostics, updates and control of appliances through
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“smart devices” in the cloud

How to get there?
4.
Ensure security to protect your brand.
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How to get there?
5.
Select proven partners with IoT breadth and depth.
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.

1
The why,
what and
how
2
Examples of
Success
3
How to get
started
4
Final
Comments
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The Role of IBM
Strategic Advisor
Design – Build - Run
Cloud – Analytics – Mobile - Security
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From strategy to execution
Global rollouts

From Product to Services/Software - final considerations
Talk to your end customers – they want to talk to you
Understand value of software/services and sell it
Own data and generate new value
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Be bold
Be disruptive
As premium brand go first

Let’s Stay In Touch
thorsten.schroeer@de.ibm.com
www.linkedin.com/in/thorstenschroeer
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www.xing.com/profile/Thorsten_Schroeer
IBM Electronics www.ibm.com/electronics

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