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To accelerate growth, manufacturers must innovate beyond products

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The famous American entrepreneur Steve Blank explained that a business model is how a company creates, delivers and acquires value. And for decades, manufacturing has defined its value through its ability to create, deliver and innovate products.

It is consistently high on any manufacturer’s list of core competencies. But how can we accelerate growth? As the world and markets evolve, their products should only be part of the story when it comes to the full value they can bring. Companies that focus on growth will look beyond products and become truly business model-centric, rather than focusing solely on features and functions.

room for improvement

I have work to do. According to a recent EY CEO Imperative survey, only 30% of manufacturing leaders see business model innovation as the top driver of growth and transformation, compared with technology (55%) and finance (38%). sector lags far behind. This limits our ability to seize new opportunities in an ever more dynamic market.

Ernst & Young LLP Principal Stephen Nyquist said: However, in today’s highly volatile geopolitical and economic conditions, sticking to this product-driven approach actually leads to inflexibility and slowness that creates risks to growth. ”

To mitigate this risk, manufacturers must be better positioned to react quickly to changing market conditions. This means building on your existing business model and considering how all the elements of your business can be arranged to add value to your company. Agility and flexibility, or “arbitrariness” as Nyquist calls it, are the new pillars of success.

It all starts with the customer

This shift to a more multidimensional approach begins with a true understanding of the value an organization creates, but without putting products and costs at the center of the discussion. Rather, companies should look at value through the eyes of their customers and, in doing so, start identifying buyer segments (and opportunities), not just those who sell their products.

For example, imagine a component supplier to an industrial OEM (Original Equipment Manufacturer). That supplier may view this relationship in a very traditional way. In other words, we provide the components OEMs need to create their own end products. But with a more customer-centric view, companies will begin to realize that components aren’t really the only way to deliver value.

Perhaps OEMs appreciate a supplier’s ability to distribute components to multiple plants in multiple geographies. In other words, the customer relationship goes beyond the product itself. When component suppliers identify their benefits, the value debate changes.

show me money

Finding these additional value creation opportunities is the first step, but the most important factor is finding ways to monetize them. So, looking at the same parts supplier from above, what would it take for that company to actually benefit from its distribution capabilities? implement.

Naturally, this new business model also requires new operational thinking and the right people to drive it. Nyquist said: In other words, true business model innovation also requires a willingness to reshape an organization’s talent and recruiting strategies.

Evolution, not revolution

Of course, moving away from the traditional product-centric definition of value means a big shift for most manufacturers. Many of them have built their companies on a legacy of efficiency, cost optimization, and product usability. Such a transformation may sound daunting.

So it might be better to think of it as an evolution rather than a revolution. This is not about getting rid of your current business model. Not even changing them. Instead, it’s about companies adding new business models that create new opportunities for revenue and growth. True step-function growth for entering new markets, rather than the incremental growth that tends to be associated with product innovation.

Going back to the previous example, perhaps that same parts supplier is developing capabilities around blockchain product traceability. Suppliers then follow the steps above to build a business model that allows them to bring this to market as a service. Entirely new value streams are created in addition to (but not in place of) existing products and distribution capabilities.

In fact, this is probably the most exciting aspect when it comes to moving towards business-model-centric innovation. Among the undoubted challenges of dynamic markets, opportunities abound, as do the potential ways to seize them. As Blank says, business models are how value is created, delivered and captured. is. If they dare to innovate beyond their product, today’s manufacturers have the chance to do it again and again.

The views reflected in this article are those of the authors and do not necessarily reflect those of Ernst & Young LLP or any other member of the global EY organization.