In an age of digital disruption, how one company is staying ahead of the game
2019 August 08, 11:46 EST
The following article appeared in the August 2019 edition of Mining Engineering.
by Chee Theng, Managing Technical Editor, Mining Engineering
What would you do if you are an industry leader and disruptive technology threatens to overturn your business model? Although bearings and seals are in little danger of being displaced in the near future, one company is taking no chances in an age of digital disruption.
“For SKF, digital transformation and the Industrial Internet of Things (IIoT) make this time right now arguably the most exciting time in our 100-plus years of history,” John Schmidt, president of SKF USA Inc., said during the SKF Technical Press Day in Philadelphia, PA.
The company is not merely integrating digital technologies into its products and services but is taking a forward-looking, strategic approach. “To be successful, legacy companies have to undertake a process called digital transformation. It’s not just an IT initiative but is really about upgrading the strategic thinking,” explained Michael D’Argenio, vice president of digital transformation and customer experience at SKF Americas.
Learning from those who went before
D’Argenio cited the examples of two companies that saw entirely different outcomes in the face of digital disruption. The well-known case is that of Kodak, one of the storied brands in history, whose business was disrupted by the advent of digital photography. Although it invented digital photography, Kodak decided to box it up and put it on the shelf because it was scared of disrupting its business in photographic film. Instead, it was disastrously disrupted from the outside.
Less well known is the case of Encyclopedia Brittanica Inc., publisher of the longest-running English-language, general-knowledge encyclopedia in the world. Sales peaked at 120,000 sets in 1990, plunging to 8,000 sets in 2012. In 20 short years, it saw not one but two massive digital disruptions. The first was in 1993, when Microsoft published the first digital interactive encyclopedia on a CD-ROM, called Encarta, priced at just $99. The second was in 2001, when a community-curated, free website called Wikipedia launched. Taking the opposite approach from Kodak, Encyclopedia Brittanica looked at its industry, its company and its customers through the lens of the new technologies, made a prediction about the future and, based on that prediction, took a bold move. Having identified its core value proposition as the delivery of reliable, high-value, verifiable knowledge, Encyclopedia Brittanica replanned, restructured and rebuilt its company from the ground up to deliver that same value proposition, only in a different way. It stopped producing the only product that it had known for 244 years and began producing digital products that it sold to educational institutions.
“There is a lot to learn from the Encyclopedia Brittanica case,” said D’Argenio. “The company embraced its market change, it embraced its customer change, and it rethought what it needed to do to be successful. Because it owned that disruption internally, it was never disrupted from the outside. It continues to operate today and is as profitable as it has ever been.”
Making the leap
For SKF, the path forward is clear. “The story here is that disruption itself is inevitable. The digital technologies are out there, they are influencing every aspect of our lives, and their influence is only getting larger as the years progress,” D’Argenio observed. “The real question is where the disruption comes from. Does it come from outside, or are you pushing disruption internally because it is part of your strategy? The forward-looking companies are doing the latter. They are looking at disruption as an opportunity to find new success and new customers, and creating value in new ways. And they are taking decisive action by applying really strategic plans, anticipating new market potential.”
Examining its five strategic pillars of business, SKF found the following: (1) Customers are no longer individuals but are interconnected in a large network, which requires new ways of interacting with them. (2) Data is a strategic asset, and companies need to break down legacy silos so they can see the data in a holistic way. (3) Competition used to be a zero-sum game between similar companies, but digital companies have come into the space that do platform creation, rather than just product creation (for example, AirBnB). (4) Innovation has historically been a big-debt, high-risk process led by senior leadership, but small experiments can now be created, allowing testing, learning and finding successes faster and at a lower cost. (5) Value needs to be dynamic and adaptable.
Driving the digital era are technologies such as real-time reality-based technologies, automated guided vehicles, at-scale sensor deployments, industrial robots, real-time asset tracking, edge computing and analytics, and functionalities such as 5GNR, URLLC (ultra-reliable low-latency communication), CoMP (coordinated multipoint), and TSN (time-sensitive networking).
Innovation is in SKF’s DNA. Established in 1907 on its Swedish founder’s invention of the self-aligning ball bearing, it has since grown into a global supplier of bearings, seals, mechatronics, lubrication systems and services, employing more than 48,000 people across approximately 140 manufacturing and operational sites in 32 countries. Its three business areas — industrial market, automotive market and specialty business — span more than 130 countries.
“Today, SKF is a powerful brand, we deliver high-quality products to customers worldwide. Like Encyclopedia Brittanica, we’re looking at our company, our customers and our industry through a new lens, and we’re identifying the value proposition that we’ve always brought to the table, and that value lies in the area of knowledge and insights,” said D’Argenio. “With 100 years of accumulating engineering expertise, we’re able to deliver products and services to customers that are as much about insights as they are about bearings and seals. To continue delivering on that value, we are investing heavily in the development of these new versions of technologies, we are developing new business capabilities that provide powerful insights, both internally and externally, to our customers, and we are deepening our relationships with our customers. We believe that success comes from the holistic embracing of all of those things.”
The SKF strategic approach to digital transformation has four prongs. Its centralized digital platform connects its products, its customers, their assets and plants, its internal systems and its external partners. Its unified data strategy combines customer data into a single profile alongside SKF business data, allowing it to create high-value, actual insights. Its ecosystem of connected products and apps allows it to create new levels of engagement and interaction with customers, and its results-oriented business model, called Rotating Equipment Performance, leverages its products, services and technologies in new ways that allows it to deliver maximum efficiency in a form that differentiates them from the competition, D’Argenio said.
Part of a journey
“This is a journey we have been on for 100 years,” said Schmidt. Since its founding, SKF has developed a number of life models that predict the life of a bearing. “About 30 years ago, we made some acquisitions and expanded our core competency beyond the bearing. Condition monitoring, sealing technology, lubrication, devices, whether connected or handheld, all of those areas expanded our competency, and allowed us to have an impact on the performance of rotating equipment beyond what we could have, had we just stopped with life modeling.”
Some digital-era technologies that SKF highlighted were its SKF Pulse sensor with mobile app to predict machine issues; fiber-optic sensing; lubrication management; and SimPro Quick single-shaft bearing simulation software for bearing development. Its Rotating Equipment Performance results-oriented business model brings its technologies, knowledge and insights together into a long-term program to deliver reliable rotations for a monthly fee.
“The SKF of the future is going to look significantly different from the SKF of today. We believe that through our ongoing innovation and our harnessing of digital transformation and disruption, it will be a powerful force in the new digital era,” D’Argenio concluded.
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SKF’s mission is to be the undisputed leader in the bearing business. SKF offers solutions around the rotating shaft, including bearings, seals, lubrication, condition monitoring and maintenance services. SKF is represented in more than 130 countries and has around 17,000 distributor locations worldwide. Annual sales in 2018 were SEK 85 713 million and the number of employees was 44,428. www.skf.com
® SKF is a registered trademark of the SKF Group.