Why failing enterprise value creation might lead to rock music!

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When I was young, our home was adjacent to a furniture factory. In its heyday, the factory manufactured a Windsor chair, that sold particularly well. This factory had a long history as well, with operations dating back to around 1870.

Source: Tekniska Museet (Public domain). Photo taken in 1932 by A. Hegethorn

As a kid, I did not pay much attention to this factory. My parents always refrained from hanging freshly washed clothes out to dry if the wind blew in the wrong direction. The factory’s brick chimney released smoke and soot, that would quickly soil and ruin clean clothes. The issue of sooty clothing vanished in 1992 when the factory went bankrupt.

I had not paid much attention to this part of my youth until we began a research project called “How enterprises create business value through digitalization – A future of enterprise study, issue 4.1”. It was only after we began exploring the factors that drive and enable the creation and growth of business value that I started wondering what we can learn from past failures, like that furniture factory. It became clear to me that much of what we addressed in the report was likely not implemented by the management at this factory or at least not implemented successfully. Certainly, many of our insights are related to ICT capabilities that were not readily available in the 1980s and 1990s.

So, what actions could they have taken, and how does rock music factor into this? Before we delve into that, I believe we require a brief introduction.

Introduction

The idea of creating business value is not new, but the methods for achieving it are constantly evolving. Today, digitalization is revolutionizing the process of creating value in business. When integrated across operations, enterprise digitalization creates agility, advances operations, and boosts resilience.

While this digitalization has been going on for quite some time, data from our research indicate that the journey is far from over. The average company is only halfway towards reaching its ideal digitalization level, but more about that later!

When studying companies, it is important to recognize that certain aspects may function similarly across different types of organizations. Whether you work in a factory, supermarket, or office, the process of making a phone call is the same. However, other aspects can vary particularly in terms of how the value is created in each company.

Therefore, when studying a wide range of companies, it is beneficial to have a segmentation model that can categorize all types of companies. For this study, we decided to adopt an industry segmentation based on two key criteria:

1. Connectivity characteristics, which means aspects linked to the nature of the connectivity needs, and how they are shaped by the value created in the company. For example, a company with only one large site will have different connectivity needs than a highly distributed company.
2. Industry-shaping characteristics refer to factors that significantly shape or influence industries, such as regulation, type of production, or offered services. For example, a company primarily offering services will differ from one that manufactures physical products.

Using these two criteria, we were able to allocate each studied enterprise to one of the segments – see the illustration below.

Digitalization in the form of IoT use cases

This study aimed to gain a deeper understanding of the potential impact of three IoT-related use cases on the advancement of digitally-powered value creation across industry segments. The three use cases were:

• Asset monitoring: Using different technologies (such as positioning, sensors, cameras, and AI), to remotely monitor or assess the condition of different assets, such as machinery, buildings, vehicles, devices, or even people.
• Remote control of computers, machines, or vehicles: The process where experts remotely assist employees or customers, or where computers, machines, devices, or robots are remotely operated, by replacing the on-site users in dangerous or remote locations.
• Connected offerings: Any product, service, or solution that is connected to the internet and is used to collect, exchange, or aggregate data to give the user a better experience.

The quantitative insight from this research demonstrates significant potential for leveraging synergies between these three IoT use cases. 56 percent of the 4,500 decision-makers consider all three IoT use cases relevant and important to their business, while 13 percent say only one is relevant. Only 3 percent indicated that no IoT use case is relevant in any way.

In other words, virtually everyone thinks at least one of the three IoT use cases is relevant and important for enterprises.

These use cases are neither fixed in how they are utilized across the seven industry segments today nor expected to evolve in a completely harmonized way in the future. Therefore, we decided to describe these use cases and their future trajectories (see Figure 2), by depicting the interplay between the use cases, their technology enablers, and digital tools.

Figure 2: The interplay between IoT use cases, technology enablers, and digital tools in driving enterprise value creation

The technology enablers such as cellular and cloud solutions, as illustrated in the blue box in Figure 2 can be seen as core technologies needed to power these IoT use cases, today and in the future. Almost 8 in 10 decision-makers in the consumer industry segment say cellular connectivity is a key technology enabler for connected offerings. Just as many decision-makers in the infrastructure segment say the same thing for the remote  control use case. When it comes to cloud technology, the situation is quite similar. Some eight in ten infrastructure decision-makers say it is a key technology enabler for asset monitoring.

Lastly, the purple box in Figure 2, which represents the advanced digital tools and components, such as artificial intelligence/machine learning (AI/ML), extended reality (XR), and digital twins, is expected to extensively enhance the capabilities of use cases both in the short, mid, and long-term perspectives.

As seen in Figure 3, currently all three IoT use cases have a utilization level of approximately 50 percent, indicating that the average company has achieved about half of the full utilization for each use case. This aligns with the notion of being halfway through the overall digitalization journey, as previously mentioned in this blog post.

It is anticipated that utilization will surpass 60 percent over the next 7-10 years. It could be argued that the offerings and asset monitoring use cases are driving the overall digitalization level, while the remote-control is progressing at a slower pace.

As depicted in Figure 4, the utilization of use cases varies significantly between industry segments, both currently and in the future.

Currently, the finance segment has the highest utilization for asset monitoring, and decision-makers anticipate that it will reach a utilization level of 76 percent in the future. At the same time, society has the lowest long-term remote control utilization, with no more than 58 percent utilization.

The society segment demonstrates the highest potential for growth in asset monitoring, with a projected utilization increase of 52 percent over the next decade. The second highest growth is expected in the consumer segment with a 36 percent increase in utilization for asset monitoring.

The service segment shows the lowest growth, with no more than 8 percent expected growth of their asset monitoring utilization.

This expected increase in the utilization of these IoT-related use cases could be argued to be only wishful thinking on behalf of the decision-makers. However, our research also indicates significant current investments being made into these use cases. More than half of decision-makers report that their companies currently dedicate more than 10 percent of their total IS/IT budget on average across these use cases, and almost 1 in 5 invest more than half of their IS/IT budget.

As depicted in Figure 2, the use case trajectories are also influenced by how these use cases are expected to be enhanced by digital tools and enablers. As seen in Figure 5, AI, XR, and IoT enablers are expected to significantly impact all these three use cases.

Over the next 7-10 years, asset monitoring is projected to have the highest anticipated adoption of XR capabilities, while the connected offering is expected to receive the most AI capabilities during this time. Notably, there are significant additional IoT-related capabilities, especially within a 3 to 5 year timeframe, for both remote control and asset monitoring.

It is not surprising that these IoT enhancements are expected to happen fairly soon because evolution often happens in the form of rapid, incremental improvements to an existing functionality.

Decision-makers agree that these IoT-centric use cases lead to an array of values in almost all aspects of creating agility, boosting resilience, and advancing operations. According to the decision-makers, the top two values associated with asset monitoring, remote control, and connected offerings were “customer satisfaction” (83 percent) and “improving innovation” (82 percent).

Implications for a furniture factory

But what about the site-centric segment? What about the furniture factory? Our research tells us that for this segment, the top value associated with connected offerings is actually “improving innovation” (86 percent), but almost as important is the value of “customer satisfaction” (85 percent). Also, for the remote-control use case, “customer satisfaction” is the most important value for site-centric companies.

It is only for asset monitoring that we see a different value taking the top position: “Process scalability” with 88 percent of the site-centric decision-makers. When you manufacture furniture, you need to ensure that you can adapt to the changing needs of the customers and quickly scale up (or down), depending on shifts in the market. Being able to innovate to deliver what the customers need and ahead of the competition, as well as delivering the quality needed, is key for any factory.

Still waiting for the rock music?

So, if a company fails to create the required business value, doesn’t prioritize agility and adaptability, lacks resilience against market uncertainties, or overlooks the evolution of production and operations, it may find itself on a similar path as our furniture factory.

After they went bankrupt, part of the old factory building was turned into a place where teenagers could meet and have fun and there was even a disco there for a while. Another part of the factory was used as a rehearsal place for local bands. One of those bands was Backyard Babies - these days, a fairly well-known rock band – at least here in Sweden.

The takeaway from this narrative is that overlooking the factors that create value for your business can render it vulnerable, thereby becoming a stepping stone for someone else's success.

Learn more

Read more about our research insights in this blog post “The role of 5G for turning products into services”, authored by my colleague Jens Erler

Read the Ericsson IndustryLab’s report: “How enterprises create business value through digitalization – A future of enterprise study, Issue #4.1”

Take a look at Ericsson’s acclaimed 5G smart factory

Learn more about the future of enterprise across sectors such as automotive, energy, manufacturing, and more.