Realizing “Blue Ocean Strategy” through Digital Twin
Digital Twin Program Mgr. / Global B&PS CTO Industry 4.0
Digital Twin Lead / Head Industry 4.0 - Germany and member of the Scientific Community
Posted on: February 10, 2020
The fourth industry revolution (Industry 4.0) is set bring sweeping technological changes in the IT landscape in the manufacturing industry. However, most businesses do not recognize that these changes due to digitization are an effective instrument to optimize cost or increase revenue, and will act as a game-changer in offering new business models.
Offering new business models is all about demonstrating clear value differentiators among peer companies. The Digital Twin is an effective instrument to apply Industry 4.0 principles through a top-down business approach on baselined business challenge or KPI. Through this approach one can establish a closed-loop relationship between virtual and physical world to constantly improve performance through inputs in the real (physical) world. Hence talking about technology gaps with businesses while undertaking digitization should be kept out of the discussion.
Industry value curves have constantly been under pressure due to diverse influencers such as globalization, personalization, time to market, cost, and shifting innovation towards suppliers. In braving these challenges most organizations have struggled to show value differentiators against cutting costs. Such companies are said to be operating in “Red Ocean”, referring to industries operating on the same value curve and competing against each other.
The Digital Twin can help industries move from "Red Ocean" to "Blue Ocean" domain, which can empower them to identify and add value differentiation in addition to reducing cost. By identifying business influencers and relating them to data sources and establishing semantics between digital threads (Information Technology and Operating Technology) across the product value chain, organizations can help bring transparency and capture business best practices. For example, this could involve a wind renewable industry product value chain range across original equipment manufacturer (OEP), engineering procurement construction (EPC), supplier, independent service providers (ISP), the owner/investor, and beyond.
Based on our experience while working with ISPs we realized that operational KPIs of wind turbine are offered based on availability of asset, mean time to repair (MTTR), or the mean time between failures (MTBF), for example. Globally, most ISPs across this industry are rewarded or penalized based on one or more these KPIs. Which means competing against same value curve and struggling to bring down cost.
The Digital Twin of a wind farm and turbines has been able to shift business strategy from "Red Ocean" to "Blue Ocean" by bringing one or more differentiator in value curve. Most significant is that digital twin has brought data transparency helping our customer to take a well-qualified risk by changing business model and embarking on unique value curve.
Year after year, our customer had been in the “Red ocean”, under a lot of pressure in managing costs and compromising on reduced operating margins. After digitization through Digital Twin, our customer moved away from “Red Ocean” to “Blue Ocean” by offering services based on asset availability and energy production rather than being measured based on standard KPIs. Being in the “Blue Ocean” has changed the playing field for our customer and help attract premium prices for the same service which they have been offering over several years.