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Calling all Commercial professionals: Prepare yourself for Industry 4.0

May 31, 2017

The elements in what we are calling Industry 4.0 are converging – and already proving disruptive in a growing number of sectors. The impact on commercial practices, supply relationships and contracting will be enormous and those changes are coming fast.

Right now, the biggest constraint on business is probably the combination of legacy systems and legacy behaviors. But the elements of Industry 4.0 are now far more pervasive than most of us realise. Consider for example the shift away from sale of goods to the provision of services – with some 25% of external spend now believed to be buying ‘goods as a service’. Look at the pervasive influence of software as a service and the speed with which it has replaced the old licensing model. In manufacturing, the ability to remotely track products throughout their lifecycle is becoming common. Robotics, artificial intelligence, cloud computing, the Internet of Things, data analytics, 3D printing, mobile devices – all are manifestations of the digital revolution and what makes this so different is that they are increasingly being interconnected. Unlike past technologies, we are entering a world where interoperability is the norm.

So why is that significant to those who are involved in commercial policies and contracts? Quite simply because many aspects of our work will be turned upside down. Take issues such as customization. The digital world enables highly customized products to be assembled in units of one, at an affordable price. Take risk, where intelligent products start to anticipate their own faults and problems, where interconnected products themselves suggest ways that efficiency can be improved, based on their experience of use and utlilization. Take pricing models, where more and more products will be sold as services and where charges will be based on monitored use or demonstrated benefits.

Many of the things that we have historically viewed as unaffordable, impossible to monitor or too risky to commit will steadily become norms of business practice. And of course, the winners will be those who spot those opportunities first, who recognize the opportunities generated by interconnected systems, rich data flows and new relationships.

The elimination and replacement of legacy systems is certainly a challenge, but industries such as electronics are making rapid progress with embedded software transforming the role of machines and putting them at the heart of intelligent networks. The demands on aerospace and defense suppliers for more agility, for greater safety, are leading to rapid development of new commercial models (for example, this sector leads in the use of collaborative contracting models and procedures). The logistics industry is transforming as technologies such as blockchain capture up-to-the-minute data that can be accessed instantly by the entire network of related parties. Emerging economies, unconstrained by legacy systems and technologies, often stand the best chance of short-term transitions – for example in the delivery of health services. And business start—ups no longer face the challenge of developing vast infrastructure – they can instead buy scalable services, whether in technology or systems or physical assets and infrastructure.

Legacy behaviors are therefore in many ways a greater threat. Businesses and individuals are struggling with the question of when do they ‘throw the switch’, dispensing with old attitudes  towards functional specialism, controls, compliance and risk. There are few places that this will be felt more than in areas such as legal and contract management. Yet change they must, because traditional approaches will operate as an impediment to competition in the Industry 4.0 world. Market understanding, creativity, empowerment and opportunity enablement will become the hallmark of 21st century commercial competence – and that is why these are such major themes of IACCM training, research and conferences.

Therefore it is imperative that those who wish to prosper in this new world invest in better understanding it. Understanding the skills, knowledge and methods of the digital economy is the best way to become an adaptive, agile professional, capable of moving between the old world and the new, exercising judgment on which commercial models and values should be applied.

 

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