This article was originally published by Philippe van Hove, Zuora Area Vice President, in Industrial Management News
Developing, producing, and selling – a classic model for many companies. At Schneider Electric, this business model has been undergoing a fundamental change for several years now: Instead of ‘product first’, the motto is now ‘service first’ with the customer result at the center. This also means that subscription models must be adhered to.
Online communication, cloud solutions, artificial intelligence, blockchain, and the Internet of Things are the main technological drivers contributing to digitization in our society. It has an impact on business models in most industries and is leading to a rethink; the flexible use of products and services is often at the forefront today. This trend is called Subscription Economy – this refers to offerings in which monetization is achieved through additional digital services, flexible subscription models, or pay per use. This development began in the software and media industry. Offers in the form of Software-as-a- Service (SaaS) or streaming services for digital media content are now widespread. For these industries, the shift to new business models has been comparatively easy, as these are offerings that are digital from the outset and can, therefore, be easily distributed. The example of Schneider Electric shows that such new business models can also work for manufacturers of physical products.
Strategy for the Subscription Economy
In the past, the French company mainly produced electrical engineering components for various applications in industry and power engineering as well as for the building sector. The primary customer interest is to ensure that an electrical distribution network operates as smoothly and efficiently as possible and without unexpected interruptions. The communication capability of the components – for example of a circuit breaker – can help to meet precisely this customer requirement even better. In recent years, Schneider Electric has significantly expanded the digital range of products around its components. This consists of several layers: first there is an edge layer with a certain local intelligence on-site, in which communication is mapped. Since the standard Modbus protocol is used here, this layer is also open for the connection of hardware components from other manufacturers. From the edge layer, the data is transferred to a cloud platform based on Microsoft Azure. “Here the data is extensively analyzed and evaluated,” explains Marc Lafond, Vice President Digital Architecture at Schneider Electric. “Predictive maintenance based on machine learning is currently one of the most important applications at this level”.
The EcoStruxure Advisor software suite operates at the highest level. EcoStruxure is an IoT platform and architecture on which various applications are implemented that target different market segments. For example, the EcoStruxure Facility Advisor helps building owners or operators to improve the energy efficiency of small to medium-sized buildings, ensure smooth operation and optimize operating and maintenance costs. The system is in use in 480,000 properties worldwide, with a total of more than 1.6 million devices connected. The facility advisor works with cloud-based software that accesses data in the buildings in real time and evaluates it using modern analysis methods. The user receives information that supports him in operating the building with optimum energy efficiency. Besides the version for the building sector – the Facility Advisor – applications for other market segments are also available. For example, the Resource Advisor evaluates energy procurement in order to contribute to greater supply efficiency. The Machine Advisor is a cloud-based service platform for machine manufacturers. The worldwide connection of all installed machines and their remote control, for example, significantly reduces the cost of OEM service calls.
Together with partners and system integrators
“Even though these offerings are part of our transformation to a more service- and customer-result- focused company,” says Lafond, “we naturally cannot and do not want to provide all services ourselves. A large network of partners and system integrators, therefore, support offers for your customers based on the architecture of our EcoStruxure platform. The traditional maintenance business is also to remain largely with the existing service offices. The Advisor-Suite is a very good example of the Subscription Economy for the extension of business models by digital additional services. The individual solutions are available by subscription. Customers can flexibly adapt the software to their needs when they take out a subscription. “In the next step we will also offer maintenance and managed services as a subscription,” says Lafond. For users, this means a high level of operational reliability of the system without having to worry about timely maintenance themselves. In the final expansion stage, the customer will then receive everything in a comprehensive contract with usage-based billing: From the components to the cloud-based software and appropriate maintenance services. Customize systems
One of the important aspects in the transformation to new Subscription Economy business models is the adaptation of the business management systems of manufacturing companies. The traditional processes are based on a combination of classic CRM and ERP systems. They are fixed to the steps from offer, order and delivery to accounts receivable management. With modern flexible business models, however, classic ERP systems quickly reach their limits, as they are not designed for recurring sales with flexible subscription models. Companies, therefore, need a solution in addition to their ERP and CRM systems in order to be able to easily implement such new business models and react flexibly to customer needs. “We have been using Zuora for the EcoStruxure Advisor software suite of billing applications since 2014,” Lafond explains. Schneider Electric uses only one instance of Zuora and Salesforce worldwide, through which the individual country subsidiaries can handle all transactions. The internationalization of such offerings can be a pitfall. Different currencies and tax laws are good examples. “In Russia, the invoice amount must be shown not only in figures but also in text form – and in Cyrillic letters,” says Lafond. “But Zuora’s development department has also optimally implemented this requirement.”
For more insight into the Subscription Economy and how manufacturers can innovate and take advantage of new business models, read our Manufacturing Executive Playbook for Business Model Transformation.