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Manufacture or Industry? IT doesn’t have a choice!

Many businesses and branches are occupied with the theme of digitalization. If you give credit to suppliers of servers, storage and network technology, businesses can only change and develop in the course of digitalization as long as their available infrastructure allows them to. But is that more a manufacturer-driven approach to maintain their relevance in the (still) existing IT infrastructure? It’s indisputable that the digitalization of structures and processes in businesses poses a question. With it, the business models, IT organization and even the requirements of employees also change.

Digitalization breaks through all the established processes in that it introduces new ones, especially in IT organizations. The biggest digital value levers are not attached – as frequently assumed – to that technology or just to a flexibilization of production, but in indirect areas sometimes removed from the product like sales, pricing, planning, controlling and purchasing. Many cherished structures and work processes are simply too lazy for current requirements. The ‘freed business’ affects changes in the whole organization and concerns every person in the business. Digitalization means cultural change. It is about new skillsets and the ‘new gold’ – internal knowledge and information about the market and the customers.

Is IT slipping through the cracks?

On this point, lucrative digital business models and the ‘two-speed IT’ that is necessary for them are gladly discussed – and opinions are diverse. When a customer tells a business today what they want to have, then the business’s products and services have to be optimally tailored to these demands. Businesses have to have, on the one hand, core processes with high stability, performance and quality and, on the other hand, be able to react elastically to changing customer requirements and products. The real question that business IT has to answer is, can these requirements be satisfied? Or, put another way, manufacturing or industry? Or both at the same time?

Porter curve

Is IT slipping through the cracks?

‘It doesn’t work,’ the so-called porter curves tell us here: to want both means slipping through the cracks. IT offers either individual customer support or a price advantage by standardizing everything. Organizations have to decide on a business model! But is that really true?

In the framework of the second future project of the federal government, ‘Smart service work – internet-based services for the economy’ – representatives for science, economy, management, unions and associations are formulating a wake-up call: ‘To be able to keep up in global competition, smart service business models from Germany and Europe based on platforms need to be established and carried out!’¹

But one has to understand here that the really resounding business models like Airbnb or Uber don’t have as much to do with technology you’d expect. Initially it has far more to do with a concept that offers a service that is optimally tailored to produce a better way for participants. Through such services, savings are earned and through these savings, the margins for each business are skimmed.

‘It is already clear that such ideas can only be implemented in reality, when the necessary digital technology is already available and has been accepted but the core of these business models is not.’² Of course everyone can see today that the appropriate technological conditions are available. There is software, there is networking, there is mobility, and last but not least, there are tools for analysis that were not available a short while ago. What does that mean for businesses? Sales products but also (IT) services have to be increasingly adaptable so as to meet the individual usage situations of the customers the best they can.

This theme has been especially relevant to industry for a while now and has been solved by the framework of ‘industry 4.0,’ or to use von Frauenhofer’s coinage, ‘lean manufacturing’: industrial manufacturing, that is quantity: one, but with the quality and for the costs of industrial mass production! The typical production according to industry 4.0 should today serve both value contributions: the economy of scale and the economy of scope. That is how customer wishes should be considered and how even individual items can be profitably manufactured.

Individualising methods of software

Individual customer wishes are more often being realised with software. The firm Tesla shows a strong example of how traditional products work with digital enrichment. Tesla has developed an industrial platform according to the economy of scale, where functionality is first produced through software. To easily comprehend the idea it can be simple transferred to your smartphone: although there are very few platforms (IOS, Android), pretty much every person has an individualised smartphone. This individuality is created through the selection, collection and grouping of apps on each device by its user. For the so-called ‘smartphone on wheels’, it is a similar situation: the car of the future is based on a platform and can therefore be designed very individually. And IT can already deliver this individuality today: DevOps tears down the wall between development and business and creates a condition for a common, industrial-oriented focussing on the products and services of businesses. Stability and a slight risk in the core system of the business as well as a high change frequency! With DevOps, the relevant skillsets of the employees, best practice processes and an agile business culture create important conditions.

That all works in practice only when the business IT has the necessary elastic infrastructure for the development, testing and production ready. Digitalization-suited technology adapts to changes when the efficiency of the production operation and stability remain at the forefront.

The status of technology

In businesses with historically grown IT infrastructure, frequent extensive and expensive efforts are undertaken to optimise platforms and processes. Why do these businesses invest so much energy into this sort of industrialisation? Wouldn’t it be enough to optimise the control capabilities of internal and external service providers, tailored to the current customer requirements? So that in businesses not only a software defined data center (SDDC) but also IT (SM) factories with completely automatized preparation and offsetting processes, with which developer tools like Chef, Jenkins, etc, fully integrate. It might sound like rocket science, but many IT service providers and services will be bought out dynamically according to need. That is the status of technology.

DIT organisations in the future have exactly one unique selling point: they mediate and coordinate the requirements of the business and organize the optimal suited ‘performance packet’, comprised of internal and external service providers. It develops to a ‘business service provider’.

Platforms as ecosystems

Platforms as ecosystems… is this the future of IT?

Platform markets in businesses will be the mediating internal instance between end customers (from an IT point of view: the subject areas) and the providers (internal and external providers). Using these platforms, the available products will be connected to new products, which meet customer requirements as exactly as possible. They will resemble each other for all customers at the level of coordination, and with their always-available interface – often without their own hardware.

Today, the path to this platform still regularly overwhelms the existing business-IT. Leave the efficiency-reliant high utilization of the internal IT employees only a little bit of room for something new, so that such a transformation is about their own work place, their own existence in the business. New skillsets, processes, roles and a new business culture also means that in this position, the IT organization is more the effected than the initiator. It is, then, no wonder that the strong resistance comes especially from IT: no one wants this change. Instead, more investment should be made in the cloud and the ITIL processes should be optimized. That could be done better… the concerns of the affected parties as well as the argumentation is the reason that digitalization in a business can only work from the top down.

Summary

In the three intersecting fields of mobility, agility and elasticity we experience today developments that let us guess the future of digitalisation. The era of service providers is there: only with external support can business IT develop itself to a platform where the optimal service packets are used as a commodity and so become an enabler of the further development of the business. One thing is sure: digitalization concerns the whole business and relies on a technology that enables conditions to change flexibly. Digitalization is both a great chance for IT and at the same time the most challenging management task.

References

[1] Acatech 2016, Hrsg.: Smart Service Welt: Digitale Serviceplattformen – Praxiserfahrungen aus der Industrie. Best Practices, München, April 2016.
[2] Veuve, A. 2016: Digitale Zerstörung statt Digitale Transformation! https://www.linkedin.com/pulse. Accessed: 21.04.2016

Books by Dr. Peter Samulat:

Top-Down zum digitalen Unternehmen  Die Digitalisierung der Welt

“Top-Down zum Digitalen Unternehmen”, was released by Books on Demand Verlag, ISBN-13: 978-3739231211, available on Amazon. The new book, “Die Digitalisierung der Welt: Wie das Industrielle Internet der Dinge aus Produkten Services macht” will be released in January 2017 by Springer-Gabler, ISBN-13: 978-3658155100, available on Amazon.

Dr. Peter Samulat studied Electrical Engineering at the Bundeswehr Hamburg University and has a completed doctorate from the TU Berlin. He currently works as an Executive Consultant IT Strategy & Transformation at Elleta München GmbH where he focuses on the fields of Hybrid Cloud, IT Transformation and the Business Value of IT.

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