CompetitionInsightsNew kids on the block

Data and analytics change the competitive landscape and new entrants aggressively challenge incumbents positions. What are the main features of this new competitive dynamic?

Data and analytics change the competitive landscape: New kids on the block

The multiplication of sensors capturing data every second has opened opportunities for new value propositions in BotB product or equipment markets. With Internet of Things technologies, manufacturing companies like Bosch, Siemens or Schneider Electric can move from a product-based business model to a service-based business model. Of course, the efforts and investments required are huge: building the technology stack, changing the operations, transform the culture, … The reward can be significant: more steady revenues, higher margins, increased loyalty of clients, …

I will concentrate here on one specific aspect triggered by the generalisation of IoT technologies and offers: the competitive landscape evolution.

Before, in these markets, the battle was usually structured around 2 fights:

  • a fight with direct competitors. They are pretty much organised the same way, face the same tradeoffs and opportunities but each implements distinctive strategies to defend a position in the market
  • a fight with suppliers on components cost and with distributors on their margins. These organisations are different but they need each other. The evolution of the bargaining power shaped the ability to capture value at one part of the value chain.

With Internet of Things technologies, as the value proposition change, the key resources and capabilities to master change:

  • Hardware
  • Automation
  • Software
  • Solution and services

To deliver the promises of IoT to the clients, a company needs to secure all this stack. Which means that new battles emerge and new competitors challenge incumbent positions.

To illustrate this, I will use the example of Siemens, as presented by the deputy CEO of the company in a recent video during the MIT Platform Summit. Dr. Roland Busch identifies 3 groups of companies competing with Siemens:

  • the traditional players (formerly “direct competitors”, ABB, Schlumberger, Schneider Electric, …). The competition is particularly fierce to master the IoT resources and capabilities either by internal development, acquisitions or partnerships.
  • the tech companies (e.g. Amazon Web services). These companies are organised differently, they do not leverage the same type of assets and they try to position as an intermediary to capture a fraction of the value provided by IoT to the end-users. They offer cloud solutions and platform technologies.
  • consulting firms and system integrators (e.g. Accenture). They offer integration services and technologies. In some cases, they compete directly with Siemens offer, in other cases, they act as a supplier of technology or service.

You can easily relate the types of companies competing with the technology stack required. The entry point differs but they share the same objective: capturing a fraction of the price paid by the end-users of IoT technologies.

What does it mean for strategy making:

  • IoT technologies change the nature of the value proposition in BtoB environment. From product quality and performance to service and global performance (from selling electric equipment to selling energy consumption reduction).
  • The competition intensifies: in addition to the direct competition layer, new layers of competition emerge (technology, solution, infrastructure, …). The companies competing do not leverage the same distinctive assets and do not face the same tradeoffs. Previous manoeuvres are less effective to control these new competitors. New entrants enter the market leveraging capabilities the incumbent do not master (service design, community building, platform architecture and management).
  • New resources and capabilities are required for the incumbents to thrive. Hence, the ability to build and maintain a distinctive stack positioning is key. Balancing cost and independence is one major question, make-buy-partner decisions are key.
  • Every company wants to position as an industry platform, but the platform gameplay is hard to learn. Platform business model is attractive but the code has not been cracked yet. A lot of incumbent express their difficulty to engage in this business model.
  • The jury is still out on which companies will capture the biggest part of the value: incumbents, technology providers, industry platforms or new entrants leveraging technology.
  • Leveraging non-digital distinctive assets and capabilities is crucial for incumbents. The strategy for incumbents consisting of mimicking the digital companies playbook requires to invest as much as they do in pure digital capabilities, which is in most cases impossible. Synchronizing non-digital assets and capabilities (brand, distribution network, client base, technical expertise, …) with digital capabilities is a more viable option as it builds a more distinctive position.
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