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How digital transformation drives business model change

Kenny MacIver — March 2016
Digitalization is rewriting the DNA of business, argues Patrick Bass, CEO of ThyssenKrupp in North America.

The potential for digitalization to disrupt markets is forcing CXOs across all sectors to take a long, hard look at their existing business models. But while some are still reacting to the emerging opportunities and threats, others, such as Patrick Bass at €43 billion ($48bn) diversified industrial group ThyssenKrupp, are well into the implementation phase of a large-scale transformation and can already point to some dramatic gains.

As CEO for ThyssenKrupp in North America, Bass has been leading a global Internet of Things initiative at the German company’s  €8 billion ($9bn) elevator business. Within two years MAX, as it is known, will see almost a million elevators worldwide communicating details of the operational status of their many component parts to a global service cloud, enabling preventative maintenance that is already cutting costs dramatically and increasing customer satisfaction among the owners of many of the world’s tallest buildings.

For C-level executives, the evidence that their businesses have to change to stay competitive is inescapable, and has been for some time, says Bass in I-CIO’s exclusive Big Thinker video interview series.

“There’s a couple of things today that are making the opportunities of digital transformation for businesses more immediate.  The CEO today is surrounded by people using all kinds of devices, from wearables to smartphones, so the tangibility is there.”

“At the same time they see the rise of the likes of Uber and Airbnb, where you have basically massive IT infrastructure companies delivering historical services with virtually no assets, except for their know-how and the capability of connectivity within the Internet of Things. This is actually driving the realization that if that kind of disruption can happen in traditional industries such as hotels and transportation, it can happen in my industry as well.”

“Digital transformation means business model change: everything from a process standpoint needs to be focused on a digital capability.”

Such transformations differ from previous eras where innovation was about re-inventing the product. “Now we’re seeing it in regards to business model change,” he says. “So the C-suites are having extensive discussions around ‘how could we be disrupted?’ And that is a realization we went through in ThyssenKrupp — and are still going through.”

In the case of its elevator business, ThyssenKrupp quickly came to the conclusion that the intelligence resulting from IoT-fed data models could, if exploited by a competitor or a start-up, disrupt its business. “We either had to respond by preparing to react [as new threats emerged] or by being on the front end of this. And we decided that we wanted to drive it and be willing to take the risk of that journey.”

In essence, he says: “We realized we needed to protect the business model; we needed to go to the next generation of the business model.”
To the MAX

The result was MAX, launched in October 2015, a real-time, cloud-based predictive maintenance solution built in close partnership with Microsoft and running in an Azure cloud. Over an 18-month roll-out the company aims to connect some 180,000 of its one million units worldwide starting with pilots in the US, Germany and Spain but extending to 80% of all of its elevators under service worldwide within two years.

The machine-learning IoT solution significantly boosts elevator availability (see related article ‘Dramatically increasing RoI and customer value with IoT’) by reducing out-of-service situations through real-time diagnostics, the company explains. “MAX predicts maintenance issues before they occur, empowering elevator engineers by flagging up the need to replace components and systems before the end of their life cycle.
Commitment and credibility

The benefits may already be clear, but to get to that point CXOs need to appreciate that this is an undertaking that requires substantial commitment and well-judged application, Bass emphasizes. “You are talking about a double-digit million [dollar] investment for this type of project on a global scale,” he says, and that means translating intangible discussions about business model disruption into a solid business case for an application that will enhance business value considerably.

“You can get the board to pay attention and get a sense of urgency, but you still need to have them buy in to the business model change, to the vision, to the concrete return on investment,” he says.

And that means spelling out that digital transformation requires business model change. “It’s a transformation not just about digital data, it’s changing everything from a process standpoint to be focused on a digital capability,” says Bass.

• Photography: Matthew Stylianou
First published
March 2016
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About: Patrick Bass
CEO for thyssenkrupp North America, Inc, Patrick Bass is spearheading digital transformation at €43 billion ($48bn) German industrial group thyssenkrupp AG. Phase 1: IoT-enabling a million elevators worldwide to deliver dramatically enhanced reliability and lower costs.

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