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What is digitization and software-driven innovation?

For the past 30 years, innovation has been driven by hardware, with software playing an enabling role. Today, the move toward large-scale digitization reverses these roles, with software driving innovation and hardware increasingly commoditized. A new generation of smart systems will emerge based on software-based technologies such as the industrial Internet of Things, artificial intelligence, block chain and cloud computing technologies. Digitalization at its peak.

Digitalization

The rise of software (and digitization) as a driver of innovation has profound implications for the industry. Just as 3D printing offers entirely new possibilities for designing and manufacturing physical components, software-driven innovation offers companies entirely new opportunities to better understand and more quickly address customers' changing needs. New products, services and business models that are better aligned with market demand and delivered more efficiently are the result. The ability to use software to drive innovation is therefore an important part of any company's digitalization (digitization) strategy.

Speed of software-driven innovation

The shift from hardware- to software-driven innovation has far-reaching implications. The biggest difference is thespeed at which innovation occurs. Compared to physical components, software components can be updated almost continuously. Because software increasingly determines the functionality of a product, feature updates can be introduced quickly, problems resolved quickly, and the operational efficiency of systems continuously improved. For example, Tesla provides owners of its vehicles with multiple software updates per year,continuously delivering new and improved features and performance updates even after delivery.

With speed comes the ability to experiment and learn what the market wants. New product features can be A/B tested and revised or optimized based on facts gathered from end users. Spotify, for example, releases regular updates to its product andfocuses on functionality as a metric, measuring how different versions of a feature affect its use and feeding this knowledge back into development. In short, the speed with which software can be updated creates the potential for a previously unforeseen degree of customer intimacy and interaction.

Afocus on speed also yields improvements in development efficiency. The quest for a closer relationship between customers and engineers naturally leads organizations to constantly seek more efficient and effective ways of working. In contrast, a focus on efficiency alone leads to a more rigid organization that is less able to respond quickly to changes in customer demand.

Knowledge is power

Software systems are capable of generating vast amounts of detailed data about the services or products they enable. Such "big data" offers another way to better understand the performance of a product or to gain insight into customer needs, leading to increasing levels of customer intimacy, interaction and satisfaction. Data about an organization's operations can also be used to continuously monitor and optimize its own internal performance.

The emergence of the (Industrial)Internet of Things and Cloud Computing platforms provides a widely available means of collecting and processing data from potentially widely distributed products, devices or sensors, opening up the domain of big data collection and analysis to any organization.

But "big data" by itself is not very useful. It is the information that can be extracted from it that ultimately has value. Extracting information from big data requires the use of advanced software technologies, such as data mining and data analysis. Innovation comes from combining these software technologies with a company's own unique knowledge of its markets to create new or deeper insights into value creation opportunities.

Getting smart

Smart systems go one step further: they use information from data to automatically learn about a system and adjust its operation.Machine learning, deep learning and A.I. software technologies are driving innovations in the way the world interacts with us. For example, smart mobility aims to give usmobility-as-a-service solutions, such as autonomous vehicles that are available on demand. Smart health systems aim to proactively diagnose health problems and notify us of them. Again, software is the key to creating new, hitherto unimaginable products and services with the potential to disrupt your competitors and deliver game-changing value to your customers.

New business models

The ability to innovate based on speed, knowledge and intelligence provides companies with limitless opportunities to improve their competitive position. New or improved business models that are better aligned with your customers' needs become possible.Servitization- the shift from selling a stand-alone product to selling a product-service system that more closely matches customer needs - is already a clear trend that is expected to cause widespread market disruption. If this term is new to you, it simply refers to the shift from selling a stand-alone product to selling a product-service system that more closely matches customer needs. For example, car ownership is predicted to decline dramatically over the next decade and be replaced by mobility-as-a-service arrangements. For automakers, this means finding ways to sell cars as a service rather than a product.

In some cases, servitization has already risen to dominate different markets: the world's largest cab company, Uber, does not own cabs; the world's largest real estate rental company, Airbnb, does not own real estate. Servitization is a perfect example of business model innovation driven by software that sooner or later will affect every kind of business and touch every end user.

Ultimately, the collection of data, its conversion into information, and the application of smart technologies enables companies to understand their customers in unprecedented ways and to provide them with new or improved products and services that are increasingly tailored to their needs.

Strategy & Digitization

Digitalization and the rise of smart systems is a constant force that is disrupting every market it touches. It is only a matter of time before it reaches you.Succeeding in digitization requires a strategy that focuses on mastering it and developing new or improved business models. Winners will use speed and data to increase customer intimacy, interaction and satisfaction. Losers will joinKodak andNokia in the annals of history.

"It's more accurate to say that Nokia was, at its heart, a hardware company rather than a software company-that is, its engineers were experts at building physical devices, but not the programs that make those devices work. In the end, the company profoundly underestimated the importance of software, including the apps that run on smartphones, to the experience of using a phone."

Lakana

Lakana

Lakana Consulting helps industrial companies develop and implement a smart digitization strategy, using software to drive innovation in their business.

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