Case series: Industrial IoT in action

In this article series, we present five case studies of how companies with different value chain roles managed the competition over new value enabled by the industrial internet of things (IIoT) in their industries. The cases illustrate different viewpoints on the challenges in claiming a fair share of value pools from digital-driven and data-based services. These value pools are often focused on optimization and maintenance of industrial equipment. Some companies call it digital or connected solutions, some data-driven business, others servitization or X-as-a-Service.

In this case (#2 of 5 in the article series), we get to know Eclipse – an equipment provider in the food & beverage industry – and how they successfully navigated a large Outcome-as-a-Service business opportunity.

“In most industrial sectors we see players with different roles in the value chain competing for the same data-based and service-oriented value pools, which creates a lot of friction.”

Case 2 figure: Illustrating Equipment provider role aspects on IIoT competitiveness

Equipment provider role; Food & Beverage industry

Case 2: Eclipse

Eclipse's strategic pivot to Outcomes-as-a-Service

Eclipse, a leading equipment provider in the Food & Beverage industry, faced a critical business challenge: how could it avoid being reduced to a mere “steel bender” selling equipment as low-margin commodities? At the same time, Eclipse recognized the untapped potential from better using data in its market. Despite the availability of adaptable and remote machine controls, less than 30% of Eclipse's clients were optimizing their equipment. The company's clientele predominantly relied on default settings and traditional maintenance schedules. To trigger the company to act on the opportunities and address the threats, the CTO of Eclipse posted the “steel bender” question as a grand challenge for the organization to solve.

Gloria, a technologist and serial intrapreneur at Eclipse, conceived an idea that would reposition the company. Her brainchild was a born-digital machine that supported an Outcomes-as-a-Service (OaaS) model. The model would replace Eclipse's conventional capital expenditure (capex) approach where it sells products upfront to System Integrators or Operators and provides aftermarket services.

In itself, Gloria’s idea was not extraordinary. Digital-enabled equipment had been developed before by Eclipse and its competitors. Gloria’s solution however, was potentially ground-breaking. It encompassed more than just adding services atop connected products and creating subscription-type revenue streams for Eclipse. It would completely change how customers engage with Eclipse's products and create a fundamental shift in the intimacy of the customer relationships, especially with Operators. The solution was based around efficient and powerful edge devices tied to a robust backend platform. This setup promised substantial energy savings – a response to the sustainability trend within the industry. Moreover, the data-driven services held the promise of drastically reducing operational and maintenance costs across the customer’s entire production system.

Fact box: Food & Beverage industry

The Food & Beverage industry involves industrial machinery for the processing, preparation, and packaging of food and beverages. This includes equipment such as mixers, ovens, conveyors, pasteurizers and sterilizers, as well as full packaging and bottling lines. Example players in the industry are Operators: Nestlé and PepsiCo, Integrators: Tetra Pak and Krones, Equipment providers (in addition to Eclipse): Alfa Laval and SPX Flow, Component providers: Festo and Eaton Corporation, and Platform provider: Rockwell Automation and Microsoft.

Industry frictions

Upon prototyping and business modeling, it became clear that this innovation had disruptive potential, possibly ruffling feathers beyond Eclipse's direct competitors. Such a shift could introduce friction throughout the industry. Gloria foresaw three critical areas where Eclipse's handling of industry friction would dictate its market share and profitability:

  • Prove Outcomes-as-a-Service value for Customers: Demonstrating the superiority of the OaaS model over the capex model to traditional Operators. Including to prove Eclipse’s right to play inside the customer’s operations instead of the normal armlength relationship.
  • Integrator interoperability versus disintermediation: The OaaS model creates a dual relationship with System Integrators. On the one hand, it is key to ensure plug-and-play interoperability with system integrators that use Eclipse products in their complete production lines. On the other hand, the OaaS solution will disintermediate and Eclipse will take over the System Integrators’ direct relationships with Operators – and parts of their revenue.
  • Hinder commoditization of domain knowledge: Preventing the commoditization of Eclipse's domain expertise – especially when codified as software and derived datasets. OaaS can turn players with powerful digital analytics and AI capabilities (such as automation players, large software players, and hyperscalers) into competitors. If these players can obtain codified domain knowledge they reduce Eclipse's competitive advantage and may still reduce Eclipse to a 'steel bender.

To mitigate these challenges, Eclipse’s CTO recognized the need for IP StratOps capabilities within Gloria's OaaS development team. To this end, Eclipse engaged Konsert Strategy & IP to support architecting, developing and scaling the solution.

Fact box: Equipment provider role

Equipment providers design and manufacture the subsystems and modules that are used in larger systems. These subsystems can be equipment that performs specific tasks in the larger system (e.g. a production line), as well as electronic and software modules that perform specific functions within the complete system. Equipment providers sell these modules to system integrators or sometimes directly to operators, depending on the nature of the business and the complexity of the systems involved.

Creating and capturing Outcomes-as-a-Service value

As an integrated part of the OaaS team, IP StratOps resources led IP workstreams to make sure Eclipse positioned itself to reap the benefits and claim a large share of the profit when the OaaS business scaled. This integration created an effective two-way business planning dialogue on how to create new value with OaaS, and how to capture the value created.

In one direction, the IP StratOps team keep the strategic dialogue informed about how industry frictions proactively should be handled. Both in terms of how to architect the OaaS business play and its service evolution over time, and what frictions meant for positioning in the technology and data stack. In the other direction, by being on the inside of the business the IP StratOps team could effectively define IP value missions and build fit-for-purpose IP portfolios with speed and quality. The integrated approach made it easy to create the right IP with considerably low efforts needed from key OaaS development people.

Initial IP StratOps execution focused on fortifying the patent portfolio complementary to Eclipse's hardware-centric patents. Using a technology stack map with a business overlay, “friction players and areas” were identified and fit-for-intended-use patent portfolios could rapidly be established. Subsequent efforts continued the patent build-up and added complementary contractual, secrecy, and IT-based control measures. They also included preparing people. Sales teams were equipped with IP-backed sales arguments to win contracts, negotiation teams with ammunition to leverage in deal-making to reach wanted terms, and business and legal teams had playbooks prepared with ‘if-then’ scenarios to make sure they were ready to act fast when needed.

Looking ahead

Eclipse's shift to the OaaS model has the potential to revolutionize the company’s business and the whole industry. With the IP StratOps approach, Eclipse is geared to capitalize on the value creation while fending off the risks of commoditization. At launch, the CTO and Gloria could be confident that IP effectively protected their new big business bet and that Eclipse was strategically positioned to claim a substantial share of the industry’s service value pool.