We all like to buy things. Retail therapy has grown to become one of the biggest pastimes in developed countries like the UK. The irony of this pleasure is, however, that we often take more delight in the process of choosing and purchasing items than we do in the items themselves.
Business is travelling in the opposite direction. Companies doing well are a bit more logical than us individuals. Businesses are changing the way they buy things, and the change is fundamental. They’re still going shopping, but the products they’ve always bought are now wrapped in services. If you think about it, businesses are buying managed function, not simple product.
If you want to know why people are going on about “big data” and the “Internet of Things”, this is it.
Businesses want to focus on their core proposition, and how they specifically add value. They want all the undifferentiated things they do to just happen, while they themselves add nice things on top. These companies’ suppliers therefore need to capture, over the internet, enormous amounts of data from all the things out there that need monitoring.
For a long time, this has applied to utilities such as energy, water and even office space. But now it’s extending into IT and logistics. A fascinating example is aviation. It amazes me that airlines can afford a fleet of new aeroplanes, but then financing deals for long-established, high turnover businesses like BA or Air France are done in the billions. But now, airlines are rapidly moving towards buying function not product, paying not for assets but for service – as much or as little as they use.
This does not apply perhaps to entire planes yet, but certainly major parts within them.
Take Rolls Royce, for example. They don’t sell engines any more: they sell a service consisting of working engines. If an engine on a wing is going faulty, they know about it in advance from amazing amounts of telemetry data sent back to their operations centre. And from that they know to assign engineers, and allocate spare parts, all before the engine’s function deteriorates to a point where it impacts operation.
Similarly, Air France / KLM are now uploading data about fuel usage from all their Airbus A380s at the end of each flight. You’d be amazed what they can tell from this data, collected by 24,000 sensors generating 1.6GB data for every single flight. Stored and analysed in the cloud, using amazing new technologies like Hadoop, Mongo and Talend, this data provides the ability to take pre-emptive action before aircraft performance deteriorates. Data is increasing reliability, reducing delays and leading to happier customers.
Even the tyres on aircraft are now being sold as a service. Boeing recently announced a deal with Dunlop whereby every tyre on every C17 transporter plane in the world, no matter who operates it or where it is, is the responsibility of Dunlop to replace as and when required. This equates to a turnover of about 10,000 tyres per annum – none of them bought outright, but all used as part of a managed service.
All three examples illustrate how data is changing the way the world works. Companies need to collect and act on enormous amounts of data, and have worldwide service management capabilities. Capturing data is easier than ever and cloud-based, open source technologies are making it easy to store and analyse, too. It’s no accident that these technologies are, themselves, examples of what used to be products turning into services: online functions which are cheap, accessible, reliable and sold on a pay-as-you-use basis.
This is the road we’re on. Or perhaps I should say this is the flight path. It’s clear that today’s product manufacturers need strategies to deliver their goods as services, not widgets in boxes (servitisation as it’s called). Either that, or they’ll be left on the runway.
http://www.aviationpros.com/press_release/12032673/dunlop-wins-boeing-c-17-tyres-deal
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