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Wednesday, 16 May 2012

The Future of Manufacturing and the rise of value constellations

I've had to tell this story so many times now that I think I had better blog it.

The start of the story is from the article
"Siemens beats Bombardier to Thameslink train order":

To begin, here are some caveats. I do not know the people in Siemens or Bombardier who have been involved in this. Neither do I know anyone in government involved in this. I do know of a friend who is working in Bombardier (not directly related to this) and we had a conversation on it which led me to this blogpost.

I am analysing this based on what I think is a good illustration of the future of manufacturing.

So here's what I think.

We are used to wealth coming from a world of making things because we have always thought of value as exchange. I make something and then give it to you and you give me money (for more on this, check out my paper on integrative framework on value). But that world is rapidly changing as more information is being digitised and things are being connected. Exchange is increasingly less the source of wealth creation and commerce. Outcomes (some would call it solutions but I hesitate - see my blogpost on the difference between solutions and outcomes) are now being prized and as technology enabled connectivity become ubiquitous, customers are becoming more demanding. This has a massive impact on manufacturing. The manufacturing industry has always worked on a basis of exchange and ownership. The mindset and the business model is that of selling and delivering things, not the use of it. If you ask manufacturers, they still think of anything after the sale of a product as 'value-added' or something (usually a service) wrapped around the thing they make. They still don't think of fundamentally changing how things are made so that outcomes are better achieved. They have not understood that the new frontier of manufacturing is outcome, and not exchange.

How does the article above illustrates this? Well, bombardier makes trains and in the traditional way, train manufacturers make trains and give it over to the customer for them to use and operate, perhaps adding some services before, during and after the train has been manufactured as 'added value'.

But the truth of it is that trains enable an outcome of people getting from point A to point B. Think about the use of the train. By the time you get on a train, the problem is usually solved right? The real problem usually is getting on the train. So, what you really want to know is which train you should get on, how many seats are available on which carriage and where you can put your bicycle/pram and if you miss this train, which one can you get after and can you connect further south/north/east/west? So .... the train value proposition for exchange and the train value proposition for outcome, is quite different. In fact, I would argue that this actually could warrant a redesign of your train. In fact, you might want to think about how your train value proposition could be digitised/dematerialised to create resources for people away from the train so that they can get on to the train. This is where you need to get creative because new materials for manufacturing trains and new ways of configuring and digitizing the train offering could come up with new ways to enable people to use trains. As a start, there are aspects of the train such as number of seats available, luggage spaces etc. where you could put in sensors to communicate information. It also means that the entire train design may need to be remodularised so that the design could be more efficient to convey various information about the train. And this information could result in very different types of payment and economic models as well.

So this is where I think Bombardier didn't get it. Siemens, on the other hand, is much more clued into the information systems and connectivity agenda which I believe they have leveraged for the Thameslink bid. As an example, I've just done a simple screen dump of siemens rail and bombardier rail websites.

It's not hard to see the difference. Siemens title of webpage is Rail solutions. Bombardier's is Rail vehicles, although they do use the word 'solutions'.

Siemens combines innovation with responsibility to deliver technologically advanced solutions ensuring journeys are punctual, comfortable and safe


Bombardier Transportation offers one of the most comprehensive rail vehicle portfolios in the world.
From mainline to metro, light rail to locomotives, our strategy is one of continuous development that provides the most effective and cost-efficient rail solutions today and in the future

You can form your own conclusions. Remember this is just an illustration and shouldn't be seen to mean more than that but I think it does say something.

I don't think Siemens fully understand designing and manufacturing for outcomes either because, from their description, I don't think they have yet understood the role of value co-creation and co-capability, but they are probably a few steps ahead of Bombardier.

Manufacturing is changing  - the Economist had a special report dedicated to it. It doesn't quite go far enough, but you can see that slowly but surely, legacy boundaries between industries are starting to crumble.

The future of manufacturing is embedded in the role of the material, social and technological in collaborating and resource integrating value constellations (i.e. value creating service systems). Some things may be half manufactured (remodularised), and finished locally or by your customers because they know their outcome use varieties better (3D printing to finish scalable material platforms?). Some things can continue to be updated technologically and digitally (like the iPad and the operating system) for the material to adapt to other contexts of use. There will be new interactions between new types of materials, the digital realm and the social use of the object the way it has never been thought of before. New economic and payment models will follow as micro payments and contextual and outcome-type revenue models begins to pervade markets because it becomes technologically possible to track and measure use outcomes. We will see convergence between industries but for us to scale, grow and be economically more progressive, we need to know why and we need to know how to do it again and again. We need lots of new knowledge, tools, frameworks and methodologies for this new world. If you haven't been thinking about going back to research, start thinking now.


  1. I was kind of surprised to read about the "effects on British manufacturing" related to Bombardier losing the contract. As I see it, looking from the technology point of view, there is great potential in developing intelligent manufacturing networks that would allow fast partner / supplier selection, reconfiguration and collaboration. The effects they mention happened also because supply chain integration techniques are so ineffective and therefore expensive, and the only way for SMEs to get in the game is to be supported by a large OEM. After this happens they are stuck with that particular OEM, so when Bombardier loses a contract the whole supply chain suffers. In a perfect world both Bombardier and Siemens would source in the same pool of suppliers, as the SMEs wouldn't be stuck with one or the other but completely interoperable...

  2. Irene, I worked with Siemens on an outcome based contract in services and have knowledge of their manufacturing and senior management. I agree with your views here, will discuss more when we next meet. Steve

  3. interesting. given that I know so many steves, is this (1) IBM/Steve (2) hawaii/Steve (3) RR/Steve?

  4. Your truly well-informed. I cant believe how much of this I just wasn't aware of. Thank you for bringing more information to this topic for me. I'm truly grateful and really impressed.

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