Imagine industrial robots in an automotive assembly line. Everything is smooth, fast, and efficient…
Think about Tesla’s Factory, for example.
What you now have in mind does not happen in most small and medium manufacturing enterprises (SMEs).
SMEs don’t compete with the same weapons.
Larger firms benefit from economies of scale and can afford different weapons. I like to describe the situation as bow and arrow vs. rifles and full-metal jacket bullets.
Robotic arms are paradoxically too sophisticated compared to what most SMEs need. As greater performance means higher price, SMEs cannot afford these robots.
In a white paper, PwC highlighted that there are important barriers to widespread adoption because of costs and lack of user-friendliness:
“Most small and medium-sized enterprises will need cheaper and more easily programmable robots.”
Why Are Robotic Arms So Expensive?
Industrial robot suppliers focus on the high-end of the market. They serve the larger companies because they are more profitable customers.
But these established companies are just the tip of the iceberg. A large chunk of the market remains unserved.
Not benefiting from robotic automation is a major problem for SMEs. And when there’s a problem, there are opportunities for new entrants.
For this reason, the industrial robot industry is changing.
Disruption Is Not What Most People Think It Is
When you hear the word ‘disruption’, you certainly think of Uber, Starbucks, and other companies that have transformed the competitive landscape in their industries.
See, for example, how FinTech businesses are transforming the financial industry.
In business ‘disruption’ refers to two competing concepts:
- A creative thinking method invented by Jean-Marie Dru (Chairman at TBWA\WORLDWIDE) in 1992;
- A strategy framework developed by Clayton Christensen (Professor at Harvard Business School) in 1994.
In this article, I refer to the phrase ’disruptive innovation’ as a way to describe the specific phenomenon highlighted by Clayton Christensen.
Defining the concept is not me being picky. It’s just that using the term accurately matters.
The disruptive innovation theory invented by Clayton Christensen helps managers predict what is likely to happen in specific competitive situations.
Applying the framework accurately is important if you want to succeed as a disruptive new entrant or to react when a disruptive challenger is emerging.
This Is Disruptive Innovation
Disruptive innovation describes a process whereby a competitor enters a market with an innovative product or service that most incumbents view as inferior.
In this situation, the established players keep focusing on improving their products and services for the most profitable and demanding customers. And, they ignore the needs of others—the segments that are less profitable.
A disruptive company—the disrupter—enters the market by successfully targeting these overlooked segments.
The overlooked segments are either low-end customers that are not fully satisfied because the incumbents only focus on meeting the needs of the most profitable customers. They can also be non-customers who were unserved or simply priced out of the market.
Initially, the disrupter makes it because its products or services are more suitable to the overlooked segments and often sold at a lower price.
Because incumbents are going after higher profitability focusing on more-demanding customers, they tend not to respond seriously to this initial threat.
What they do not anticipate is that the disrupter progressively moves upmarket. It starts delivering the level of performance that the incumbents’ mainstream customers want, while preserving the advantages that drove it’s early success—more flexible technology, scalability, lower price….
This is disruption. It occurs when the mainstream customers start adopting significantly the disruptive entrant’s products or services.
(For more details about disruptive innovation, I encourage you to read Clayton Christensen’s book: The Innovator’s Dilemma)
“Taxis can’t adopt the Uber model. Uber helped me realize that it isn’t that being at the bottom of the market is the causal mechanism, but that it’s correlated with a business model that is unattractive to its competitor. So yes, it is disruptive. That doesn’t necessarily guarantee Uber’s success but it helps us see why taxis can’t go up against them.”
Disruption theory is a theory of competitive response. It’s not a way to be innovative but a way to predict what is likely to happen in a “disrupted” industry.
How Disruptive Innovation Is Happening in the Industrial Robot Market
Having researched the robot industry and interviewed new players as well as industry experts, I believe that the ground is fertile enough for disruptive innovation to occur in this industry.
Let me dig a bit more into the details.
What Are the Incumbents Doing?
Large industrial robot companies innovate a lot. They focus on sustaining innovation.
Years after years, robotic arms become more and more reliable. They work extremely well on very specific tasks. You would be impressed to see some of the tasks that a robotic arm can accomplish.
As robotic arms’ performance increases, they become more and more expensive.
For three reasons:
1. They’re Focusing on Performance
The performance of industrial robots is assessed according to different parameters such as the number of axes—what are the motion possibilities, carrying capacity—how much weight a robot can lift, acceleration—how quickly an axis can accelerate, or accuracy—how closely a robot can reach a commanded position…
Incumbents work hard to improve the performance of these parameters. Large manufacturers always want faster and more accurate robotic arms. Productivity is how they measure success.
Besides, robotic arms must help them do more repetitive tasks. Think of very complex tasks that could not be handled by robots before.
2. They’re Pricing out Less Profitable Customers
Innovation has a cost. Price includes product development costs. And only manufacturing behemoths can afford a high level of performance.
To give you an idea, a standard 6-axis robot costs around €40,000. The price increases up to €80,000 with the integration. Then, you have to add maintenance on the top of it.
Incumbents focus on the more profitable customers. They strictly apply the Pareto Principle in marketing strategy.
“80% of a company’s profits come from 20% of its customers.”
What about the remaining 80%?
They are priced out or unsatisfied.
3. They’re Running on an Old Business Model
Incumbents rely on an ageing business model:
First, there is an audit that defines the best setup—type of robot, the level of performance, and tasks that need to be accomplished.
Then, a service provider—the supplier or a third party—has to integrate the robot. Once the integration is done, the robotic arm is dedicated to one specific task. The company needs to hire a service provider if it wants the robot to perform another task.
Disintermediation has clearly not happened, yet.
Is Disruptive Innovation Going to Happen?
It looks like a breeding ground for disruption.
The only thing we are missing are the disrupters who are ready to challenge the status quo.
What the Disruptive Entrants Are Doing
In that context, I found some new entrants who seem keen on serving these overlooked customers.
Among them, two major companies have emerged: Universal Robot (a Danish venture and taken over by Americans in 2015) and Rethink Robotics (founded by an MIT professor). Both offer standard 6-axis robots at a lower cost—around €20,000.
Their offers are innovative. But I’m sure you agree that it does not sound very disruptive.
A Disrupter in the Robotic Industry
Digging more, I found a company that seems to have a more disruptive ambition. It appears as the closest to being a disrupter.
It’s a French company named MIP Robotics.
1. They Are Building an Affordable Solution
MIP’s strategy is to target SMEs—the customers that have been neglected. And they want to do that with a well-tailored offer.
As many tasks do not require the standard 6-axis robot. MIP’s robotic arms only have 4 axis. The low-end customers do not have to pay for unnecessary performance.
From an average of €40,000 (+ integration cost) for a robotic arm, MIP aims at offering its Junior at €10,000 with almost no integration cost.
2. They Just Want the Right Level of Performance
Performance has been improved to suit specifically the overlooked segments. Remember, flexibility and user-friendliness are barriers to adoption for SMEs.
This is why MIP built a software that allows anyone to program its robots. SMEs do not need to rely on costly integration.
The new entrant also changed the traditional business model. Instead of relying on suppliers who sell expensive gear motors, MIP develops the essential components in-house.
Junior, MIP Robotics’s first robot, seems to fit the expectation of the low-end of the market.
3. They Are Focusing on Unserved and Low-end Segments
A low-cost product and a new business model allow MIP to target SMEs that need to accomplish repetitive tasks but have not yet been able to shift to robotic arms: the unserved customers.
Besides, MIP also targets manufacturers, which are already using robots for large series but still need more flexible and cheaper robotic arms to replace the remaining manual tasks: the low-end customers.
Here is what MIP’s CEO, Gonzague Gridel, told me about his view on the market:
“Some SMEs don’t even know that they could automate some burdensome tasks. Others use incumbents’ industrial robotic arms, which are oversized for them. Incumbents don’t focus on them but still serve them on the principle: “Who can do more can do less”. One of the reasons that small industries are not equipped is that current robot supply is not adapted to them.”
And here’s a video Gonzague shared with me to explain how the company wants to serve SMEs:
As you see, a fairly simple business model, which is often how disruption happens.
Disruption Is Coming…
You see that MIP Robotics looks like a disrupter. But, let’s not count the chickens before they’re hatched.
This is just the beginning of what appears to be a fertile ground for disruptive innovation to break out in spots.
When will it occur?
Hard to tell. Disruption takes time. That’s why I often see incumbents who overlook disrupters. They always start by addressing segments that are not profitable enough for bigger players.
Moreover, complete substitution is unlikely. There will still be rooms for ultra-sophisticated robotic arms.
Now, Let Me Ask You: What Would You Do…
…If You Were an Incumbent?
The incumbents are facing a challenging dilemma—what Clayton Christensen called the innovator’s dilemma.
Let me put your feet into their shoes:
Would you ignore these new entrants and keep putting emphasis on customers’ current needs?
Or would you pay more attention to the overlooked customers, even though the money you could get from serving them would not make a lot of difference on your bottom line?
You could create an autonomous subsidiary in charge of challenging these new entrants. This would require new hires with startup-like mentality who would be focusing on exploring new ideas.
You could develop deeper relationships with potential disrupters, making them partners and taking a minority share in their capital. But then, you need to be careful not to strangle them. I’ve seen too many large corporates being the reason for the death of their innovative partners.
Even though it sounds a little soon, you could just use your money power and buy them out. That’s a much more aggressive strategy and it often ends in killing the new entrants.
Would you take the risk of missing an opportunity that would give you competitive advantages over your competitors?
…If You Were a Disrupter?
Now, let me change your Berluti shoes for some startup sneakers.
As a French startup, would you focus on France first, then Europe, and then taking over the world? Or would you avoid French chauvinism and focus on international growth from t = 0?
Not going international quickly enough has been proven dangerous. It killed more than a few startups, especially when you miss an exponentially growing market like China.
Are there ways you could build better competitive advantages than technology, even though you’re leveraging years of R&D?
Technology can be copied, fast. But competitive advantages coming from a business ecosystem—networks of customers, partners, and developers—are much more valuable and sustainable.
Could you leverage software to scale before the competition catches up? Using an API? Organizing hackathons? Helping traditional manufacturing SMEs to benefit from the scale of open-source-like collaboration?
So what would you do?
If you’re neither in the industry nor an investor, you have two options:
(1) use this case as a way to inspire disruption in your own industry;
(2) pick a huge popcorn box and watch the others do.