Better all the time

In last week’s post, I mentioned our framework describing the transformation that companies go through when going digital. I also discussed one of its four dimensions – the business model dimension. In this post, the focus is on the product upgrade dimension.

As shown in the figure, we’ve identified five steps or phases in the transformation from a traditional to a digital company. In the first stage, the company focuses on selling a physical product. It’s sold ‘as is’ and except for warranty issues, the company spends no time or resources on it once it has left the factory. The product may well include electronics and software, but these subsystems are treated in the same way as the mechanical parts.

As a second step, many companies set out to offer their product as a service to certain customer segments. This often starts as a mechanism to expand the clientele. Especially potential customers that don’t need the product all the time or that have issues financing the capex may need a service offering in order to become customers. In this step, the company often starts to offer periodic upgrades to the product software – predominantly to protect itself from unwanted downsides. In service contracts, there typically are service level agreements (SLAs) and software upgrades can be used to decrease the risk of violating these SLAs and avoid the associated penalties.