Why manufacturing companies must become software companies

Tesla factory

It does not matter how a company makes products. What matters is how valuable its products are to customers. For this reason I am against the term “manufacturing companies”. Companies are valuable because of the understanding what customers want. They can give them what they want in many ways: with manufactured products, services, content, software.

Below are three main benefits of “manufacturing companies” making software for their customers:

Get financing
There is probably more funding available for digitally disruptive projects than for manufacturing. Software proves that the company is following current trends and that it knows how to use its know-how in a more scalable way. There is no one better positioned to disrupt than a digital transformed “manufacturing company” that is already inside the industry, but unfortunately most “manufacturing companies” are stagnant and allow purely digital companies to easily enter.

Increase profit
Software usually has a lower revenue than manufactured products but it is far more profitable due to lower production costs. It will not increase revenue substantially, but it will increase the profit per customer and overall profit. More importantly it will offer more value to customers.

Directly access customers
The goal of marketing and sales is to be directly engaged with the customers and offer them value without anyone in between. Software makes the company directly accessible, more visible, more relevant, and more valuable to its customers. More data is collected by the company, more value is delivered to customers – it is a win-win relationship which can not be achieved with products or consulting only.

Conclusion is that manufactured products will be much more valuable when combined with software. The sooner a company makes the software for customers, the more competitive it will be.

Written by: Nikola Tosic
Publishing date: 7 Jul 2019