In the digital era, few companies are safe from disruption \u2014 even highly innovative organizations like industrial automation giant Rockwell Automation.\n\nThat\u2019s why, in the summer of 2021, Chris Nardecchia, SVP and chief digital and information officer, set about enabling a transformation that would change Rockwell\u2019s business before it lost ground to a new class of hungry competitors. To do so, Nardecchia and his team sought to incorporate \u201cdigital threads\u201d into the company\u2019s hardware and thereby expand its business model beyond manufacturing into software-as-a-service.\n\n\u201cWe knew we had to reinvent ourselves and that our business model wasn\u2019t going to be sustained with so many companies moving to software as a service. We had to become more like a software company,\u201d says Nardecchia, who kicked off Rockwell\u2019s business reinvention by establishing what he called an Enterprise Transformation Office.\n\nThe Milwaukee, Wisc.-headquartered company makes highly engineered hardware with embedded firmware that operates in hostile industrial environments for long periods of time. Its challenge was not the typical digital transformation from within, which was already under way at the time, but a shift of its product offerings from industrial control hardware to software-as-a-service priced with a subscription-based maintenance model its customers were adopting with other partners.\n\nBlueprint for change\n\nRockwell\u2019s transformation strategy was based on three pillars, the first of which involved evolving its focus from physical products sold in catalogs to business outcomes and experiences. The second pillar would require a wholesale change in customer experience \u2014 not only in the way Rockwell customers procured and used Rockwell\u2019s equipment and services but in a far more tight-knit relationship to make industrial controls in a SaaS environment. Finally, the third and most challenging pillar, Nardecchia says, was to develop a new business operating model and subscription-based services.\n\nOver the past few years, Rockwell and its traditional rivals, such as Siemens, Emerson, and Honeywell, have been up against formidable new competitors: the cloud hyperscalars themselves, including AWS, Google, and Microsoft, which has made available a slew of industry clouds and services tailored for manufacturing, among other verticals.\n\nFor Rockwell then, transformation wasn\u2019t an option, but a complex requirement for survival in the new competitive environment.\n\n\u201cWe had to establish a data-driven operating model mindset to expedite the transition to this customer-centric, data-driven, agile organization,\u201d the CDIO says, noting that cloud providers are aiming squarely for Rockwell\u2019s business. \u201cThey see the industrial manufacturing space as a huge opportunity because all of these companies are sitting on massive amounts, decades of industrial data, and everyone knows that if you can unlock it and create new insights into operations, there\u2019s a huge value proposition.\u201d\n\nConsequently, Rockwell set about growing its services arm substantially: It is now twice the size in revenue, as compared to before the move to the as-a-service model, with more than 40% of the company workforce having changed over the past three to four years as part of the transformation, he adds.\n\nIn its new as-a-service era, Rockwell now provides services both on the front end, such as partnering with customers on the design and development of customized hardware, and the back end, offering maintenance and cybersecurity of industrial controls, Nardecchia says.\n\nIn this way, Rockwell has transformed into a partner that accompanies customers throughout the lifecycle of manufacturing, he says. \u201cThere is much more personalization. It\u2019s a more intimate and sticky type of process now, focused on outcomes, and delivering the full experience customers want,\u201d he says.\n\nRockwell is also tasked with ensuring that customer outcomes and expectations exceed goals. In addition to providing cybersecurity for many industrial control systems, including those of competitors, Rockwell is also offering energy management and sustainability services, Nardecchia says.\n\nMeeting customers where they are\n\nMaking such a significant shift to a company\u2019s business model involves many challenges, according to Gartner analysts, but the rewards of offering subscription-bases services can be substantial.\n\n\u201cThe biggest benefit to Rockwell is the same as for all providers that have moved to a subscription model: an endless guaranteed revenue stream. In addition, unlike packaged software that is easy to replace, manufacturing automation solutions are both critical to their customer\u2019s production and time-consuming and expensive to replace,\u201d says Gartner analyst Rick Franzosa. \u201cThis gives providers like Rockwell a significant negotiating advantage over their customers when subscription renewal time comes around.\u201d\n\nBut not all customers favor the shift to subscription models. According to an August 2023 Gartner report, roughly 60% of technology buyers faced with a decision to renew or expand \u201cas-a-service\u201d agreements with vendors regret every purchase made \u2014 a 6% increase from 2020. When it comes to automation solutions, customers, accustomed to perpetual licensing, are particularly wary of subscriptions, according to the report. \u201cThey realize the result is significantly higher total cost of ownership,\u201d the report\u2019s authors conclude. \u201cThese solutions are often in place for 10 years or more, and the subscription pricing is usually based on a 3-5\u2013year life span.\u201d \n\nRockwell\u2019s CDIO agrees that the as-a-service model does not work for certain customers, so the company continues to offer products in a largely traditional way. But Rockwell is more than halfway to its goal of earning 10% of its revenue via subscriptions or annual recurring revenue, Nardecchia says. In addition, Rockwell is benefiting from an uptick in customer maintenance agreements to 100% of customers \u2014 compared to 40% in the past.\n\n\u201cWe\u2019re still on this journey and our customers are changing in how comfortable they are in adopting this more as a service,\u201d says Nardeccia. \u201cAt this point, very few [customers] are comfortable running manufacturing live from the cloud. But we\u2019ve given them the ability to design centrally from the cloud now and run it on premise. It\u2019s the best of both worlds.\u201d\n\nHere, Rockwell\u2019s underlying transformational ethos \u2014 to partner on business outcomes in an effort to overhaul the customer experience \u2014 is paying off.\n\n\u201cIt just depends on the customer and [it\u2019s] why we have multiple offerings \u2014 products, services, and business models \u2014 to meet our customers where they are at in their journey,\u201d he adds.