“Software is eating the world” is the rather apt slogan adopted by venture capital firm Andreessen-Horowitz. It also helps to explain the creative, cross-industry partnerships that are emerging, in what is fast becoming a digital revolution. But do these partnerships really work?
Having met with several capital goods and software businesses in recent months, we discovered a growing number of companies integrating a digital approach. This expanding digital universe is not only leading to the digitalisation of numerous sectors, it is also expanding routes to market, adding incremental sales channels and helping to drive the integration of new solutions (the cloud etc).
As a secular theme, industries ranging from oil & gas, chemicals and pharmaceuticals are now adopting digital practices to increase the efficiency and performance of operations. Product innovation is an essential driver of growth, but the formation of partnerships to help build structure and global scale is equally important. Fundamental drivers exist for various mash-ups, including ecommerce and healthcare (Tencent/Babylon Health), alongside industrials and tech (Legrand/Samsung).
Our analysis suggests companies are at different stages of embracing digital
Sector winners are clearly now beginning to emerge. These companies are benefiting from a coherent strategy that is focused on accelerating the digital transformation. One of the most noteworthy developments over the past 18 months has been the convergence between software providers and capital goods companies. As an example, the merger of AVEVA and SES (Schneider Electric Software), highlights a change in approach from management teams and business models. While it raises questions around value in the supply chain, it could also result in better productivity as part of the pursuit of growth.
In building the digital asset, innovation can bring challenges. In what could previously be described as a “deadly embrace”, successful collaborations have historically proved elusive. However, the realisation of recent success from investment has opened the door to a step-change in approach. At a recent oil & gas digital conference, 95% of participants confirmed plans to increase investment in this field. The biggest potential can be seen in improving the efficiency of assets, connected workers and remote operations. However, arguably the most exciting part of the expanding digital universe is the integration of the ‘digital twin’ concept.
The digital twin is a virtual representation of a real-world, physical asset, and can incorporate real-time data and analysis for simulation. Not only has Gartner identified this as one of the top trends shaping industrial and process manufacturing, but this is already seeing growing prevalence across different applications. To demonstrate an example, AVEVA recently showcased its partnership with ADNOC, the 12th largest global oil producer, where it helped create a panoramic centralised control centre that allows the monitoring and optimisation of performance across the full oil and gas value chain.
Our analysis suggests that industries are at different stages of embracing digital, which means different solutions can help remove obstacles to digital transformation. The increase in acquisitions and partnerships conveys a powerful message. While there is no shortage of digital opportunities, it's how companies approach digital adoption that is key to the size of financial improvements. A strategic partnership may be just one way, but evidence suggests it can be extremely lucrative to building attractive long-term future growth.
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