Manufacturing companies that change from a product to a platform strategy and business model are breaking away from the competition with their newfound ability to accelerate core business growth, expand to new markets, and defend against competitors who focus on the customer experience as their primary value proposition.
Historically, manufacturing businesses have obtained a competitive edge by pursuing a product strategy grounded in economies of scale, with limited access and visibility to end-users. Their primary focus has been on making the highest quality products at scale and distributing them in the most cost-effective way. That business model is now at risk as innovative manufacturers and new entrants in the market are not just product-focused, but using a platform strategy that integrates all stakeholders in the value chain to provide the best experiences to end-users. These companies envision enhanced customer experiences as the next stage of growth, transcending their role as just a supplier. Their growth is driven by delivering additional value for all stakeholders across the value chain.
Product-Focused Business Model:
- One-time product purchases
- Revenue driven by Product Sales
- Growth through unit revenue increase and margin expansion
Platform-Focused Business Model:
- Continuous Customer Relationship
- Revenue increase with Solutions + Products
- Growth with Customer
- The first competitive advantage of making the shift to a platform strategy is manufacturing companies can immediately improve their core business metrics with the ability to serve their current customers more effectively and at a lower cost structure. By automating tasks that were once manual and removing internal and external friction points, manufacturing companies are seeing revenue growth and margin expansion well above their targets. The following example shows the advantages we’ve seen across our own manufacturing customers implementing a platform strategy.
Example 1: Customers optimizing core business performance
- Reduction in the touch points and time needed to fulfill and track an order.
- Resources have more time to focus on revenue generating and value-add projects and activities.
- Exceptional customer experiences driving loyalty and repeat business.
- Optimized inventory management/product availability.
- Centralized management to reduce system and application redundancy, errors, and overhead; while increasing security, scalability, and transparency.
- Revenue growth and margin expansion.
Companies BEFORE moving to a platform strategy:
Companies AFTER moving to a platform strategy:
- The second competitive advantage is the ability for manufacturing companies to expand to new markets and attract new customers. A platform strategy enables new solutions and customer experiences once not possible, resulting in higher ASPs, subscription models, or new revenue streams. The benefit of a platform strategy is that it both optimizes the core business (as previously mentioned), while also enabling manufacturing companies to expand and take their company to the next level.
Example 2: John Deere expanding its market and services by moving from a product to platform strategy:
- Expanding their focus from just product optimization to the end-to-end customer journey across the value chain.
- Transforming to a data-driven farm management and yield optimization business partner, offering intelligent solutions.
- Investment shifts to new areas including robotics, AI, precision farming, and third-party data.
This transformation is something that was not previously thought possible for a manufacturing company like John Deere, but them and other innovative manufacturing companies are making the change to expand the value they can provide across the customer experience, beyond just improvements to the quality, delivery, and support of the product.
(Source: https://www.deere.com/en/)
- The third competitive advantage of a platform strategy is being able to stop new entrants that do not have a manufacturing side of the business from entering the market. These new entrants are also accelerating the pace of commoditization for product-focused companies. A platform strategy prevents manufacturing companies from becoming a BOM, or just a component in a race to the bottom for another company’s customer experience and solutions ecosystem.
Example #3: Honeywell and Johnson Controls
- Once the clear market leaders with an insurmountable lead in the thermostat market with their product-focused strategy.
- Nest, a new entrant, overtook the market and extracted additional value with a platform strategy focusing on the customer experience, enabling new user experiences around how the home thermostat was accessed and managed.
- Revenue rapidly shifted from the previous product-only leaders (Honeywell and JC) to the platform strategy company (Nest).
- Nest continued to expand on its lead to become a home automation solution, further commoditizing multiple products beyond just the thermostat. Their growing platform currently includes solutions for: home management, energy management, security, entertainment, and even internet access.
(Source:https://www.honeywell.com/us/en,https://www.johnsoncontrols.com/,https://www.americanstandardair.com/, https://store.google.com/us/category/connected_home )
Imagine if Honeywell and Johnson Controls had moved to a platform strategy earlier and had become the leaders in the home automation market. What if they had grown their revenue, margins, addressable market, and customer base instead of Nest? Where would Nest be now? Would they even be a player in today’s market? Some interesting food for thought.
Forward-looking manufacturers already making the shift from a product to platform strategy have also learned from this case study and why it is important to maintain a competitive advantage not only in their current competitive environment, but also to stop new entrants, like a Nest, from entering their market. With the trend of most devices becoming digital and connected, manufacturing companies staying ahead of the curve by transforming to a platform strategy will not only accelerate their revenue and margins from current and new business expansion, but also protect their business for the long run.
In conclusion, manufacturing companies that embrace a platform strategy and business model are revolutionizing the industry and gaining a significant competitive advantage. By shifting from a product-centric approach to one that integrates all stakeholders in the value chain, these companies are able to accelerate core business growth, optimize customer relationships, expand market reach, and defend against new entrants. Forward-thinking manufacturers are recognizing the importance of adopting a platform strategy to not only thrive in the current competitive landscape but also secure their position in the future. By leveraging technology and enhancing customer experiences, these companies are paving the way for continued success and growth in the evolving manufacturing industry.
Ram ChandraSekar
Founder and CEO