Fusion Strategy by Vijay Govindarajan

Author:Vijay Govindarajan
Language: eng
Format: epub
Publisher: Harvard Business Review Press
Published: 2024-03-12T00:00:00+00:00

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If industrials expand deeper into customer operations to leverage their data and create new pockets of value, they cannot simply capture all the value for themselves; they must share it with customers fairly and transparently. For example, McKinsey estimates that the digitization of farms could deliver $200 to $800 of value unlocked due to yield uplift and cost savings per acre in U.S. vineyards.6 Accenture estimates that data-driven decisions could improve farm performance by $55 to $110 per acre, depending on the crop.7 However, most farmers and industrial buyers aren’t persuaded by average performance uplifts that depend on so many factors, many beyond the control of the decision-makers. That’s where datagraphs that develop actionable insights come into play.

In the early stages, when customers may need more clarification on the role and benefits of fusion services, consider unbundled pricing, where buyers pay for the fusion product as before, with no additional confounding clauses. Then, they could separately assess if fusion services based on data network effects and recommendations offered by algorithms are valuable. Prudent buyers will examine the relative advantage of third-party service providers versus the industrials with fusion services. It’s because pure-play service companies, ones that provide only services and are not tied to any specific product—such as Samsara—have taken advantage of developments in telematics, remote equipment monitoring, and worksite visibility to design and deploy a connected operations cloud capable of delivering competing services. Such pure-play companies can knit together the requisite functionalities without owning the physical equipment. Pure digital service companies add digital links to industrial products at customer locations post hoc, via telematics and software, to unlock customer value and directly compete against services historically provided by Deere, Caterpillar, ABB, and others. That Deere has partnered with Samsara to make its fusion services more compelling is not surprising. It’s prudent for industrial buyers to systematically compare the offerings to answer the question: Do fusion services companies, with their integrated tripartite digital twins, offer recommendations that the third-party companies can’t?

Bundled pricing, naturally, follows as industrials defend their integrated value proposition, which squarely rests on the veracity of the customer-specific recommendations derived from domain knowledge of products and services across multiple settings. The network effects enable fusion services to shine against challengers that try to develop heuristics based on general rules of thumb. The less complex a business process, the more customers will be willing to let industrials take care of their operations, ensure data integration, and play a value-added role. The more extensive and diverse the customer base to learn from is, the more confident the service recommendations are likely to be. Finally, industrials could also enter into contracts that yield no revenues but give them the right to collect additional data.

In many industries, including agriculture, there’s a greater appreciation that digitization could impact business performance. McKinsey’s 2020 study of over 100 companies across the agriculture value chain showed that only 30 percent to 40 percent would see positive gains from digitization initiatives.8 So although just simple digitization through

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