Insights-driven Leadership

Escape from the commodity trap

What are the key success factors for a customer-focused use of new technologies? How manufacturers can escape the commodity trap to increase their competitive strength.

7 min
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Convert a Manufacturer to a Service Provider

Innovative providers use new technologies and stir up the market with digital business models. They are gradually replacing slow, sluggish companies that are stuck in the commodity trap. This trap is when companies mainly focus on their competitors and imitate their products. Companies can no longer differentiate themselves from one another. Their offers have become interchangeable.

Innovation cycles have shortened in almost every industry. The launched products are becoming more similar than ever. New technologies such as the Internet of Things (IoT), artificial intelligence applications, automation, or robotics are powerful forces that are changing both the job and the vendor market. They create more efficient processes, optimize and specify workflows, satisfy the needs more quickly and more conveniently.

In return, consumers increasingly dictate to companies the customer experiences they wish to have. Their expectations are increasing. When providers offer them convenient, effortless, and quick solutions, they expect the same from other providers. Great experiences are the new credo. Companies should know not only their customers' wishes and needs but also anticipate them. Companies should remain approachable and social and communicate with customers through all channels.

The highly dynamic market, along with the increase in customer expectations, is also forcing manufacturers to escape the commodity trap. In order not to lose touch with agile competitors, some seek to make necessary changes in innovation strategy. They create service offers that complement their products or completely new, service-oriented business models.

Reasons to create innovation strategies

  • Competitive radical innovations through new technologies
  • Increasing customer expectactions
  • Increase in competitive and margin pressure
  • Risk to fall into the commodity trap
  • Labor market changes

Requirements of Innovation

To unlock the potential for growth and innovation, executives need to have access and insights into their customers' wishes and needs (customer insights). Today's customers are looking for a complete package that solves their problems. A digitalized value chain is required to develop suitable digital services for all aspects of the physical product world - from the manufacturing process to the end consumer.

Driving innovation in a company can only be possible with the right talent. Employees and executives who are afraid of change slow down a company. The innovative power is, therefore, significantly influenced by the corporate culture.

Thus, there are three key cornerstones on which the innovative strength of a company is based.

1. Unlock Full Potential Using Customer Feedback

Gaining a deeper understanding of customer needs is vital to optimally develop service packages relating to a product. This results in better differentiation from other market participants and helps to increase competitiveness. Some companies rely on direct, personal contact between employees and customers. The problem with this is the following: The relevant information from customer feedback is often not systematically queried and played back. This means that they remain unused for the development and sale of suitable service offers.

Accessing and using information about customer needs is becoming a key success factor because it enables the customized use of digital technologies in the context of new services.

Tim Posselt
Supply Chain Services Expert

For companies, a systematic, continuous survey and evaluation of customer needs throughout the customer journey is essential for customer-centered development of new solutions. Targeted customer feedback provided during the most crucial points along the customer journey helps to identify areas with potential for growth. Conventional market research is only of limited use because it does not provide real-time insights. Short reaction times to changing customer needs and increasing customer expectations are essential to gain relevance faster in the market.

A continuous data collection and analysis process increases innovation speed.

Continuous data collection

2. Establish a Feedback Culture and Accept Failures

Innovation means making mistakes. This is why there is a need for a corporate culture in which failures no longer damage one's career, but are viewed as a learning opportunity. Knowing how to fail and get up again helps to keep trying new things. This requires courageous managers and forward thinkers with a high degree of learning agility. Shifting to such a mindset may be the greatest challenge for organizations. Even in management positions, some people have long-term experiences with established business models. Many employees resist or fear change.

Overcoming these fears and resistances is central to shifting to a more open mindset. Organizations that want to be more successful in this change process must establish an open feedback culture. To do this, they rely on continuous employee surveys to know the needs of employees and to be able to react quickly to trends.

Employees will then learn that their opinion and perception are essential and contribute to the success of the company. For example, you look at further development positively. This, in return, increases the acceptance for cultural change in the company.

People Feedback Bubble

3. Digitization of the value chain

To serve their customers with new services throughout the customer journey, manufacturers need to make significant investments in the digitization of the entire value chain. The digitized value chain provides data which, in turn, is used and exploited for innovative solutions, such as data-based services. This opens up new business models and revenue for companies.

Examples of Manufacturers with Data-Based Services

The world's most famous construction equipment manufacturer Caterpillar offers specific data from the remote monitoring of its machines. These serve as the basis for maintenance services.

Siemens goes one step further. The company provides its customers with the open IoT operating system (MindSphere), which connects the systems and machines of its customers. It enables extensive data analysis, such as predictive maintenance of the interconnected systems.

We have to get our customers on board. We can only implement digitization if we work together. If we don't take our customers with us, it won't matter how fast we travel. We have to go together.

Nadine Crauwels
President of Sandvik Coromant

The pressure on companies concerning digitization is increasing. The insights into essential customer needs, wishes, and expectations are central to a customer-centric use of digitization.

Key Takeaways

  1. To unlock the potential for growth and innovation, executives need to have access and insights into customers' wishes and needs. To do this, they collect and analyze customer feedback data continuously.
  2. Innovation goes hand in hand with an open mindset, such as a culture of tolerance for failure. Employees and executives who are afraid of change slow down a company.
  3. A digitalized value chain is required to develop suitable digital services for a physical product world - from the manufacturing process to the end consumer.