Value chain

Why digitization and software are key to the value chain – The European Sting – Critical News & Insights on European Politics, Economy, Foreign Affairs, Business & Technology

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This article is brought to you through The European Sting’s collaboration with the World Economic Forum.

Author: Noel Nevshehir, Director, International Business Services and Global Strategic Partnerships, Automation Alley


  • Digitization has transformed business models, moving them away from traditional physical activities and assets and towards leaner ways of working.
  • A new evolution of software-driven production has left more room for innovation.
  • Further progress will be seen through the adoption of artificial intelligence and machine learning to intelligently decipher ongoing product and service improvements.

More than 10 years ago, Netscape co-founder Marc Andreessen wrote what turned out to be a pivotal commentary in the Wall Street Journal titled “Why Software Is Eating the World” and, incidentally, its value chain as well. Today, software is disrupting and transforming the value chain – or the cradle-to-grave lifecycle of a product – and the idea of ​​traditional industries, such as physical retail stores and manufacturing.

There are legendary examples in the retail industry: Borders and Blockbuster being summarily replaced by Amazon and Netflix, respectively. In the automotive industry, Tesla’s market capitalization reached $941 billion today, surpassing the value of the world’s nine largest non-electric car makers, even as the company’s physical assets and workforce Elon Musk’s business represents only a fraction of his total capital investments. . Software-based business models have brought efficiency and productivity while enabling companies to scale rapidly and seize new market opportunities, respond to changing consumer demands, and innovate at an accelerated pace.

So how did this all happen? And if the software-driven approach is all it claims to be, why aren’t business and industry leaders integrating it fully into their businesses?

Prerequisites for digitization

Digital transformation requires human transformation and a cultural mindset that champions continuous learning and experimentation. Musk was one of the few to recognize the importance of software in the value chain of hardware-based industries. However, the technological sophistication involved in electric vehicle design, the exponential increase in computing power over the last decade or less, and the overall complexity of vehicles with 100 million lines of computer code have somehow been overlooked. by established actors.

Electric vehicles, which are literally computers on wheels, have a complex technology stack of embedded code that powers vehicle touchscreens, navigation software, safety sensors, plugged-in smart devices, and vehicle-based updates. cloud.

So, as the lines between hardware and software have become blurred and even indistinguishable, mechanical engineers have taken precedence over software engineers.

Tesla’s success is also due to its online sales strategy, which relieved it of dealership and sales staff costs. Moreover, the organizational structure of the company leans towards teams at a level without hierarchical clutter, which makes the company as a whole more agile and responsive to changes in market demand and consumer needs.

But traditional manufacturers are often reluctant to break with their legacy systems and abandon a strategy or course of action because they’ve invested heavily in it, even when it’s clear it would be more beneficial.

think fresh

Software and the speed of technological change, coupled with changing customer demands, have allowed new businesses to emerge and leapfrog established players who relied on traditional business models without taking stock of new ones. realities that forced them to fall behind new technologies.

But historically, human ingenuity has relied on putting aside what we already know: using empirical evidence to solve problems and, instead, continually adapting to the contemporary world.

The rapid growth of innovative technologies such as machine learning (facilitated by big data, artificial intelligence and algorithms) could continue to provide solutions to future challenges. Software-building software, despite its Orwellian connotation and with attention to depolarization, is the key to wealth creation and a vast improvement in the world’s standard of living.

In a 2019 Forbes article, Peter Bender-Samuel observed that software may be eating the world, but services are now consuming software like prey.

Many manufacturers accustomed to working with the physical may not be set up to operate in a digitally defined world of services. But while service offerings are intangible, they create tangible results. Yet it is the lifeblood of digitization, as businesses substitute labor, physical assets, and legacy IT systems for software capital expenditures.

Additionally, companies are opting to use cloud-delivered software from their vendors rather than pumping money into software data centers. This paradigm shift as a service has proven to be more efficient and productive than owning the software, analyzing the code, and managing the complexity of enterprise integration. It also avoids distracting designers and engineers from improving quality and creating value.

This value is created by using algorithms and artificial intelligence to analyze more reliable data and telemetry captured by the network to make better decisions to improve network performance.

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Pivoting business models

Unexpectedly, services consuming software is actually accelerating software adoption due to the shift from a “licensing” business model to an “instant access rental” business model. the latter having much less friction and a much more seamless customer experience.

Software as a service has resulted in the introduction of software into all areas of a business. Businesses now need to build their in-house software talent and technology savvy to align tools with a long-term strategy and vision.

The software-centric approach can be seen beyond manufacturing. In agriculture, for example, Deere & Company, which has dominated the market for farm machinery equipment used to plant seeds, fertilize fields and harvest crops, has recently developed software to make its farm machinery more productive and efficient. .

The Internet of Things has helped the nearly 200-year-old company develop autonomous tractors that can plow fields on their own while deploying smart herbicide sprayers (with 120-foot vision-assisted booms by computer) that differentiate between weeds and crops. Imagine a high-speed seeder skillfully depositing seeds in precise numbers per acre of farmland at the exact depth of soil to optimize crop yields.

Doing more with less benefits farmers, consumers and the global environment. It also helps Deere generate more revenue by capturing previously hidden data that farmers can now access for a fee.

If software as a service and a cloud-based approach to data management sound familiar, pioneering companies that overlay a digital mindset on the physical world have led the way in that shift in philosophy that is essential to making in the face of future supply chain disruptions.

If software is eating up the world and services are accelerating software distribution, imagine what’s next for the Fourth Industrial Revolution.