Like many well-known industrial companies, John Deere is adapting its business and operating model in numerous ways to the wave of digitization sweeping industrial manufacturing \u2013 also known as the \u201cindustrial internet of things\u201d.\u00a0 In the past few years, the company has been investing in and rolling out digital platforms and \u201csmart\u201d machines, which capture and transmit data on their performance to users in the field and at base, via internet enabled devices like computers and iPads.\u00a0 The goal of these investments is at least two-fold: 1) to more closely bind customers to John Deere products and technicians by continuing to create differentiated value for customers, and 2) to keep pace with competitors like Caterpillar who are also investing significantly in connecting their machines to digital technology.\u00a0 The company\u2019s efforts appear to be paying off, at least in the sense that their service offerings communicate clear financial benefits to customers; however, the company will likely face additional challenges as they attempt to increase penetration of their new technologies and justify the investment going forward.<\/p>\n
To begin with, John Deere has rolled out several digitally enabled technologies in its products.\u00a0 At the most basic level, the company offers customers three benefits from these technologies: 1) machine optimization, 2) uptime optimization, and 3) jobsite optimization.\u00a0 One tangible example is their \u201cForest Sight\u201d system, which is embedded into new forestry machines.\u00a0 Forest Sight relies on the \u201cJDLink Machine Monitoring System\u201d which allows customers to track vital stats being digitally transmitted from their machines \u2013 e.g., fuel usage, maintenance requirements, part failures, etc[1]<\/a>.\u00a0 Customers presumably benefit financially from the Forest Sight system because they can better understand machine performance and improve metrics like capacity utilization and uptime.\u00a0 Better leveraging the data and analytics that their machines are constantly sending out allows customers to minimize costly wasted time and fuel usage.\u00a0 From a business model perspective, it therefore appears that Deere can defensibly advertise the positive impact of its new technologies and thereby drive increased sales vis a vis competition (at least against players who are not as advanced).<\/p>\n Additionally, a system like Forest Sight has the benefit of more closely aligning all the players in the Deere value chain \u2013 from Deere, to the service technicians who provide aftermarket maintenance, to the customer base.\u00a0 Put differently, having access to real-time data from machines is changing the operating models of these companies across the value chain.\u00a0 For Deere, with more robust information around how their products are functioning and where\/when breakdowns occur, it can tailor its manufacturing processes and R&D spend accordingly.\u00a0 Service technicians can improve their working capital and supply chain management through a more sophisticated understanding for what inventory they need and how frequently.\u00a0 And customers can better plan for when they will need maintenance and downtime.\u00a0 That is, more intelligent machines enabled by real-time data will minimize the impact of variability in supply chains, and lead times on product maintenance.<\/p>\n There are some potential downsides facing the various stakeholders in the chain however.\u00a0 For example, from my experience working with aftermarket parts distributors, the ability to provide immediate service and stock the \u201cright\u201d part, no matter how obscure it is, commands a price premium.\u00a0 As customers develop a better understanding of their maintenance needs (and which parts tend to fail), it\u2019s possible that this increased supply chain transparency will erode pricing power for the service technicians.\u00a0 In light of this challenge, Deere may believe that the ability to create value for customers is worth upsetting its service base.<\/p>\n There are also more opportunities for Deere to adapt its business and operating model to the rise of smart machines.\u00a0 Like Deere, Caterpillar has also been investing heavily in integrating machines with data technology.\u00a0 Unlike Deere, however, they have established Caterpillar Ventures, which invests up to $5M in new technologies \u2013 including energy, digital, robotics, and advanced materials \u2013 to ensure that the company stays at the cutting edge[2]<\/a>.\u00a0 This is a business model decision Deere should consider to stay competitive with Caterpillar.<\/p>\n To close, it remains to be seen how successfully Deere will move into the new pervasively digital age, especially when faced with competitors who appear to be ahead, like Caterpillar.\u00a0 Despite all the fancy ads the company puts out on its website, it\u2019s not clear how well these new technologies are penetrating the customer base, and how receptive all the players in the value chain will be.\u00a0 However, at the very least, Deere is modernizing to stay technologically relevant. (743 words)<\/p>\n [1]<\/a> John Deere, \u201cForestry Technology Solutions,\u201d https:\/\/www.deere.com\/en_US\/products\/technology-solutions\/forestry-technology-solutions\/forestry-technology-solutions.page<\/a>, accessed November 2016.<\/p>\n [2]<\/a> Caterpillar, \u201cInnovation\u201d, http:\/\/www.caterpillar.com\/en\/company\/innovation\/caterpillar-ventures.html<\/a>, accessed November 2016.<\/p>\n","protected":false},"excerpt":{"rendered":" What if your tractor was a transformer?<\/p>\n","protected":false},"author":2398,"featured_media":15946,"comment_status":"open","ping_status":"closed","template":"","categories":[2255,1479,1985],"class_list":["post-15942","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-forestry","category-industrials","category-tractors"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/digitization-challenge-2016\/","yoast_head":"\n