Digitize your product first, not your company

In the plethora of studies, white papers and keynotes on digital transformation, the actual aim of the “digital transformation exercise” is sometimes overlooked: using digital technology to improve your product and the processes behind it. I am always amazed at how digitalization projects are wildly thrown around the existing project. While the core of the product should remain the same as it has been for the last 20 years. However, companies that are really successful in digitalization generally focus on their product.

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Software-based products

Apple led the way with the iPhone: they took the buttons and keys out of the phone. They have replaced hardware with software. That’s what you basically have to do too. Yes, it’s that simple. This is the first step into the digital age of your company. Your digitalization strategy can be summed up in one sentence: “In the medium term, we will replace hardware-based products with software-based ones. We’ll see what comes after that.” (Ok, two sentences…)

Hardware is expensive and inflexible

Hardware has considerable disadvantages: it is expensive to produce and design. It is generally high-maintenance. Hardware has to be replaced in the event of defects. The more moving parts your hardware has, the worse. And hardware cannot be adapted to new requirements. Cannot give you feedback.

“Role model” Tesla

Tesla has shown how this works. They copied Apple’s concept of hardware reduction and substitution by software. Instead of developing an entire dashboard, engineering, purchasing and testing hardware parts, they have implemented as much functionality as possible using software. This means that almost all of the car’s features can be controlled electronically.

Digitization offers a whole range of advantages:

Over the Air (OTA) software updates

We know this from other manufacturers. The car has to go to the workshop for software updates or repairs. This is tedious and expensive. What is much worse, however, is that the car’s software cannot be continuously developed further. The part that could be developed further is left behind. At Tesla, new updates are available every 3 to 6 weeks. You launch them like on a smartphone.

Tesla is thus able to improve the car at a later date. Many of these updates are trivial. À la “there is now an improved map view”. But there were already some that improved the basic functions of the car. For example, at the very beginning of the launch of the Model S, an initial brief rollback of the car when starting off on steep roads was fixed within days by means of an OTA update. What is certainly better known is that Tesla improved the acceleration values in selected models by means of a software update.

Cost benefits

A software-based product is always superior to a hardware-based one across all processes. This is because as soon as troubleshooting and improvements can be made remotely, much lower costs are incurred. Further savings result from cheaper hardware engineering. On the other hand, there are higher and new costs on the software engineering side.

Product added value

As soon as you have set up your product on a software basis and it can be accessed remotely, you can create added value for the customer relatively easily. Today, access to the product via an app is standard. Let the customer control the product, send the customer information about your product. The use cases are practically unlimited. Not everything makes sense. However, in discussions with customers, we always find at least two or three features that really represent significant added value for the customer.

Ecosystem

With a software-based product, it is also much easier to build an ecosystem. Providers who offer complementary products and services can be integrated into your product comparatively easily. This has the advantage that the customer benefits from the combination. On the other hand, you can “attract” users of the complementary product to your product.

“Quick win”?

To speak of a “quick win” in connection with software-based products is rather presumptuous. It’s not quick, nor is it easy to develop a fundamentally new product. But it is quite a “low hanging fruit” (great those buzzwords!). Because the concept is tried and tested and already understood and accepted by the customer.

So you have to ask yourself why many traditional manufacturers fail to take this most obvious step. The German car manufacturers, for example. It is understandable and to a certain extent legitimate that they thoroughly botched their entry into electromobility. But that they failed to realize by 2009 at the latest that a software-based car offers radical advantages. You don’t have to understand it. They will pay the price for this in the future.

Start-up raw material

There are many traditional products that have not yet been converted to a software-based concept. How long have we been talking about the digital fridge? It took years for Samsung to take the plunge with the Family Hub. Although the appliance is still extremely expensive and only available in the USA, it comes pretty close to what you could want from a refrigerator in 2016.

For me, this armada of analog products is something like start-up raw material. Being successful with such a transformed product is quite likely. After all, the concept behind it is not revolutionary. Nevertheless, the impact on the market can be huge. Especially because software-based products will become cost leaders in the long term.

Wish list

Coffee machine, lawn mower, washing machine, tumble dryer, dehumidifier, meeting tables, air conditioner, heater, oven/steamer/microwave/stove… You don’t have to think long to come up with a long list of possible candidates. However, I find the B2B sector more exciting: countless machines, some of which are quite complex, are still based on an analog concept. There are very good starting points for market leaders in particular to develop further and offer customers significantly better products.

Digital transformation “from the inside out”

Starting the digital transformation with the product doesn’t feel intuitively right at first. Changing or even redesigning your own products is certainly the most difficult “discipline” of digital transformation (keyword: “Won’t we cannibalize ourselves as a result?”). However, I believe that you should generally tackle the most difficult problems first. And yes, that is not human nature.

But it’s what you should do, because Apple’s Blueprint has made it conceptually quite easy to digitize a product. It’s probably hard, but not as hard as you might think. Moreover, yes, of course this doesn’t apply to all companies. But probably for most companies that produce an analog product.

One advantage of such a transformation from within is that the organization learns intuitively how to handle new processes and methods with a new product. There is probably not much that is better accepted by a workforce than a product that is enthusiastically received by customers. In other words, you kill two birds with one stone.