How “asset-light” organizations can thrive in the new data economyDownload the report
The rise of the data economy
The past decade has seen a meteoric rise in market value of “asset-light” companies that do more with less. They stand in sharp contrast to the “asset-intensive” electronics business model, which spans fabrication, factories, warehouses and more, with associated supply chains and inventories. While the original asset-light business models focused on outsourcing as a path to increased value, a new group has proven the attractiveness and sustainability of another model – platform-based businesses. These new asset-light organizations grew up digital, where they use the cloud, the internet and mobile technologies across ecosystems to create interactions and services that can be easily personalized and scaled, while remaining highly efficient.
The IBM Institute for Business Value examined the responses of 527 electronics executive responses from across the globe in the IBM 2017 C-Suite study, “Incumbents Strike Back,” to understand the impact of data and platforms on the industry’s future. We’ve combined this with new interviews, as well as current economic and stock market performance data, to create this research insight report.
Our analysis revealed an emerging desire among electronics companies to consider asset-light models, which rely significantly on combining data, services and commerce to create engaging customer experiences. Other industries have paved the way by connecting people to the things they want, such as an internet search (Google), a song (Apple Music), their friends (Facebook), even a TV (eBay, Amazon, Alibaba). These cloud-based platforms harness the power of the internet to differentiate the ways they work and demonstrate their worth to consumers. They allow nearly anyone to participate. In just a decade, some of these organizations have become “digital giants,” not only reshaping the concept of an asset-light business, but also transforming the marketplace as a whole. As such, it’s not surprising that over 40 percent of electronics industry executives note that these digital giants are leading industry disruption. Their efficient cost structures put pressure on asset-intensive business models, such as those common in traditional electronics organizations.
Nowhere is the contrast clearer between these approaches than in market capitalization. In the second quarter of 2018, only one device-oriented company, Apple, made the list of the world’s ten most valuable companies by market capitalization. Five are digital giants. These platform experts experience a valuation multiple of seven, while hardware companies have multiples hovering above 3, seemingly have to work twice as hard for their money.
It’s also worth noting that Apple is unique among electronics companies in the amount of services it delivers, enabling a predictable alternative revenue stream, reducing some of the market’s dependence upon hardware.
Platforms represent a data-driven economy. rather than a device-driven one. They enable a data economy that pivots an enterprise’s efforts to digitally delivered insight and services, enriched by artificial intelligence, and sent to interfaces that both the company itself and its customers can use.
Platforms engineer and orchestrate processes via apps, solving problems, enabling strategic business decisions, increasing operational efficiencies and driving new revenue growth. They facilitate innovative business models. Consider how unique the eBay marketplace was in connecting buyers and sellers when it was launched in the 1990s.
Meet the authorsReza Firouzbakht, Digital Strategy Leader, Electronics Industry IBM, Global Business Services
Bruce Anderson, Global Managing Director, IBM electronics industry
Cristene Gonzalez-Wertz, Electronics Leader, IBM Institute for Business Value
Edwin van Vianen, IBM Senior Executive for High Technology and Electronics
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