Industry 4.0 is changing the way goods are planned, produced, sold and used. Manufacturers are moving from traditional hardware-centric business models to new digital business models that leverage the value of software, data and services.

The reality – change is here.  The IoT software stack has arrived which changes company operations and opens up new opportunities for monetisation.  These best practices will help businesses prepare.

Best practice 1

What are your IoT monetisation goals?

Before you implement new models, a good practice is to take a step back and review your goals.  Here are some ideas to get started when incorporating digital solutions:

• Impact revenue growth. Ask how you can: monetise software, create flexible pricing models and add new features and services over time.
• Improve efficiency. Ask how you can: eliminate manual processes, implement remote monitoring/services/maintenance, increase order accuracy and reduce downtime/waste.
• Increase customer satisfaction. Ask how you can: provide a simple end-user experience, implement customer self-service and streamline end-to-end processes.
• Protect intellectual property (IP). Ask how you can: minimise unauthorised use, stop gray market abuse and improve compliance across the board.

Best Practice 2

Have you centralised software licensing information?

In a manufacturing environment, it is essential to know what software is running where. From a business perspective, it tells you who owns what and ensures you’re on top of monetisation. From a customer perspective, it helps manufacturers provide a positive experience of helping customers understand what they have licensed, number of users, renewal needs and more.  From a compliance perspective, a unified view helps guarantee compliance with highly regulated and controlled production environments and keep a high-security level by analysing software for vulnerabilities and deploying software upgrades and patches. Furthermore, support cost and field service activity can be reduced by enabling appropriate remote diagnostics and maintenance procedures.

A central entitlement management system will help consolidate your software licensing information as well as offer other benefits. You gain a unified customer experience, even if different products still use unique license generators as well as a smooth transition towards Cloud and SaaS offerings.  Other wins include a reduction in operating costs, up-sell and renewal opportunities, visibility into channel sales and overall insight into market dynamics.

Best practice 3

Is it time for “use rights?”

Selling “use rights” instead of a product is becoming more popular in the industrial automation industry. It’s a highly flexible model where the manufacturer retains ownership but can deliver different products through as-a-service models, including subscription, pay-per-use and pay-per-outcome (e.g., actual cars produced, scans taken).  Some manufacturers offer hybrid models by continuing to sell the hardware while applying flexible monetization models to the software only.

Best practice 4

Can customer satisfaction go up?

Because new monetisation models involve dynamic business information, manufacturers need to offer direct access, often called self-service, to customers for transparency and ease of use. For example, an intelligent device manufacturer who wants to lower costs by moving manufacturing to a 3rd party will need to understand their licensing to assess the impact.  By enabling self-service information, clients can see what they have, what they are using and react in the best way.

Best practice 5

Are there hidden operational benefits?

Using different software components in standard hardware speeds bringing devices to market quickly while keeping manufacturing costs low. Manufacturers can produce different products on the same hardware chassis by adopting the right licensing models, which eliminates additional production and minimises inventory. Innovation also becomes easier since the same foundation can be adapted with software to become a different product. Evolving customer needs can also be met without requiring a swap out of hardware or other disruptions of their operations.

A software infrastructure also offers the benefit of continuous software and firmware updates, which are crucial for security, compliance and efficient support processes.  It’s difficult to scale as you increase your customer base, the number of software products and versions or the frequency of updates. Without tight tracking of licenses, you also increase the risk of revenue losses up to 30% from customers receiving upgrades without maintenance, security issues from software vulnerabilities in older versions and high support and software development costs to support multiple versions and compatibility.

Best practice 6

Are there security gaps?

Security can be effective if it is designed into the product and applied in all the layers that make up the IoT. Since embedded software often uses Linux systems and 9 out of 10 IoT developers use open source code, it’s important to stay in compliance with open source licenses and manage vulnerabilities.  Steps include identifying open source and third-party components, creating a Bill of Material and implementing permission workflows to register any new components before use and shipping.

Implementing the right software licensing technology also protects companies that outsource their manufacturing processes to third-party manufacturing shops from grey market abuse.  For example, manufacturers can implement a “call home” to a cloud-based license server to obtain an activation license and make the device operational. If an illegally manufactured device tries to do this, it will not be granted a license and, in turn, will not function.

In addition to these best practices, it’s also important to prepare your organisation. Product offerings will change with a focus on digital solutions, data and outcome. There will be new pricing and product packaging. Culture issues will need attention to help employees embrace digital offerings, different compensation and new processes in sales, support, field services and engineering. Customers may have the option to pay in a perpetual licensing model or a new flexible way, which offers flexibility and decreases the impact on cash-flow.

With a plan to manage change and attention to these 6 best practices, manufacturing companies can experience the big gains in flexibility and monetisseation opportunities offered by IoT.

Written by Matthew Dunkley, Strategy and Product Management Director at Flexera