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Smart, connected products to add up to $685 billion to manufacturing revenue by 2020NEW YORK, June 21, 2018 /PRNewswire/ -- A new report by Capgemini's Digital Transformation Institute reveals that the global manufacturing industry could expect to see between $519-$685 billion in value-added revenue by 2020 through the development and sale of smart, connected devices.1 The report, "Digital Engineering: The new growth engine for discrete manufacturers" highlights that while the potential returns are significant, manufacturers need to invest in digital continuity and digital capabilities to benefit. Manufacturers estimate that close to 50 percent of their products will be smart and connected by 2020, a 32 percentage point increase from 2014. In fact, 18 percent say that they plan to stop manufacturing products altogether and move to a pure service-based business model. A move in this direction will make the shift to a service-based model a business imperative and will require enhanced capabilities. "We want to bring value to the market by shifting our business model toward service-based and cloud-connected architectures. It is a key way to differentiate our value proposition in the market of pure hardware players," says Antoine Destribats, Vice President – Industrial Operations at Schneider Electric. Manufacturers have responded enthusiastically to new technologies and are already rebalancing their IT investments accordingly. Around 50 percent of manufacturers aim to spend more than 100 million euros in Product Lifecycle Management (PLM) platforms and digital solutions in the next two years, while the proportion of IT budget earmarked for maintaining legacy systems has dropped significantly, from 76 percent in 2014 to 55 percent in 2017. Unlocking the opportunity As a result of this tension, the use of model-based system engineering, data continuity, and virtual simulation within the industry is low; only 16 percent of organizations are fully implementing Digital Twins2 while 45 percent are not beyond the pilot stage. Similarly, despite being responsible for 58 percent of global research and development spend in 2017, less than one-in-five (19 percent) of discrete manufacturers featured in the Forbes' list of the most innovative companies 2018, highlighting the 'anchor' effect of legacy products and the need to rethink current approaches to product and services innovation and engineering. Investing in digital capabilities and a digital ecosystem will be key "We assess the competencies of our staff very frequently with an emphasis on digital skills," says Jan Willem Ruisch, Senior Director - Head of Product Management at Signify (formerly Philips Lighting). "We develop and implement training programs to ensure we stay up to date with the latest technologies." Manufacturers are struggling to tap data from products and customers to drive innovation Despite the growing importance of data and the technology through which it is garnered, the report finds that only a quarter of manufacturers are using data to deliver actionable insights for product innovation. In terms of new product development, only two in five manufacturers indicated they are using AI technologies to analyze customer data. These findings suggest that a significant proportion of manufacturers are missing an opportunity to leverage data in their design and development processes. Manufacturers are also facing multiple challenges when it comes to leveraging product data and partner ecosystems to drive product innovation. The research shows that 54 percent of organizations have established programs to foster collaboration with start-ups, third parties and suppliers. However, less than a third have leveraged such programs to co-develop products with their partner ecosystem. As products shift increasingly towards connectivity, manufacturers will also need to integrate software capabilities into their product design processes. Product cycles will need to be adapted to meet the demands of frequent upgrades — a common phenomenon in the software world. The research shows that manufacturers consider the role of software and IT in products as one of the top three factors affecting their businesses, along with maintaining digital continuity and shifting from product to service-based business models. Jean-Pierre Petit, Head of Digital Manufacturing at Capgemini said, "With the significant potential gains of smart, connected products and digital continuity predicted in the next two years, the requirement to invest in new technologies is too large for manufacturers to ignore. However, the road to getting there is a challenging one. Manufacturers must balance the priorities between sustaining their core businesses while investing in digital acceleration. They must make investments in digital skills, ecosystems, tools, roadmaps and new ways of working. It will be a lot of work, but for those that get it right there is a sustainable leadership to gain." A copy of the report can be downloaded here. Research Methodology About Capgemini Visit us at www.capgemini.com. People matter, results count. About the Digital Transformation Institute
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