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June 22, 2016
On the offensive: Germany needs to play to win in Smart Services
By: Clemens Oertel

Germany is well known for its industrial prowess and as a place to buy some of the best production machinery in the world.

But what happens when the IT associated with that machinery becomes the best place to generate new business?

Indeed, this is where the manufacturing industry is headed: More and more B2B companies are shifting the focus of their revenues from traditional sources (e.g. the making and selling of machines) to sources of digital revenue, such as generating euros and cents with analytics capabilities that turn data into value.

An example: A company builds and operates a proprietary platform that not only connects the machines it has sold to its customers, but it uses the production data generated by those machines to help their customers run a tighter ship and shorten the R&D cycle.

Based on customers' data, it could alert operators when supplies are running low or a machine is not producing at capacity. The platforms offer services from the provider of the platform as well as third parties.

Generally speaking, there are four business models for Smart Services. These include:

  • owning a smart services platform

  • providing enabling technologies

  • providing platform operations or

  • providing products and services on a platform

I've written more about the business models in "Getting smarter: How smart services are disrupting the manufacturing industry." The one I find particularly interesting is the model of owning a smart services platform. This involves owning the "control-point" where data enters the system, which allows the company to decide which digital services to offer, at what prices and how interactive those services will be.

Owning the control point also puts a B2B company in a position to interact with the end customer in a very personal way, which is a whole new world for most B2B companies. The relationship with the end customer will help the company manage sales in the future and gain a stronger foothold in the market.

By owning the platform, a B2B company can make new value propositions that will be offered to customers by aggregating and combining products and services in creative ways. They are able to collect data, analyze it and sell it back to customers, in combination with products and services from third parties.

For German companies, this last point is often the hardest to accept. Most German companies still have the mindset that they should offer only their own products—not those of other companies and even potential competitors.

The problem here is clear: If a Siemens doesn't offer an open platform, a General Electric will. You get my point. A point also made in an interesting article in The Economist with the headline "Does Deutschland do digital?"

It’s time for German companies to up their game: Germany must play to win in Smart Services. Not play to avoid losing.

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