The Questions Industry Professionals are Asking about Servitization
Last week I hosted a webinar in partnership with Servicemax, looking at the strategic drivers and benefits to manufacturers of competing through services, and sharing examples and practical tips from companies that are doing this successfully.
At the end of the webinar I received some thought-provoking questions from the participants, that resonated well with the challenges and queries I see a lot of companies grappling with when considering this kind of transformation. So I thought I’d share my thoughts on these questions here, and point towards some further reading:
What are your predictions for the next 5-15 years; do you think all B2B manufacturers will move to an advanced services model?
I think there are some products that will continue to be purchased transactionally, particularly commodity items that have no differentiation and a short lifespan of use. They will be purchased online with minimal involvement with the supplier, so I do think there will still be an element of that. That said, in the webinar I shared the example of Goodyear, who have managed to servitize a tyre for B2B customers, so there is still scope to do this with some commodity products. As increasing numbers of manufacturers are having to find new ways to differentiate themselves, services become an important strategy.
Nevertheless, it’s with the more complex, expensive, longer lasting the items that we can be more confident of seeing much larger numbers of businesses going towards offering a ‘solution’ combining product and service.
In the webinar I shared a simple survey tool that you can use, which assesses your current market offering- and how you expect this to look in 5 years’ time- in terms of whether the focus is on competing on the basis of the premium product, the price, or a package of product and services. It’s rare that we do that survey with a management group and the focus on ‘package’ doesn’t increase to some extent- usually it’s quite significant. It’s unusual rare that we see a company that doesn’t envisage any growth by developing this kind of offering.
Servitization is a huge transformation effort; what are the biggest barriers to change?
There are many challenges along the way of course, but the single biggest barrier is the cultural and mindset shift in thinking that’s required. All of the technical- or process- based things like technology and financing, all of those things are surmountable. The most difficult thing is changing the ingrained way of thinking, away from being a ‘product’ company to being a service-based company that has products. There is a real risk of failure, or of being left behind, where businesses think it only impacts the customer-facing people. In fact, it requires a change in thinking throughout most, if not all, of the organisation.
One example is new product development people; in future they’re going to get real-time data of how the product is acting in the field; the data that can improve a product will be coming through on a daily basis rather than only from repairs, warranty claims or testing. It requires a very different mindset in product development to understand and use this data meaningfully to enable products to better support service provision to customers and it can certainly become a more expensive R&D route. My colleague Eleanor previously wrote about this in more detail.
So that’s what we see in the companies we’ve worked with, and I know the likes of Des Evans, former CEO of MAN Truck & Bus UK and one of our honorary professors at Aston Business School, would certainly say this is the biggest issue he faced.
Which departments and functions need to drive this transformation?
We frequently see the drive coming from service groups, but the problem there is that other people in the organisation think it’s just ‘more services’- more of the same of what the company’s already doing. So as an initiative it gets pigeonholed as ‘more service’ rather than changing the way of thinking throughout the organisation.
The greatest success I’ve seen is where it comes from the top- where the chief executive and the C-suite drive it from the top.
The marketing department also has a strong part to play because they have insight into the customer’s need, and a marketing group that really understands segmentation and customer requirements will be strongly placed to lead the strategic thinking of the business.
Finance is important, and we recommend finance people are involved early; the changing structure of the P&L and balance sheet can be quite significant and that determines how far and how fast you can go.
And of course legal departments also need to be involved to change contracts. But if I had to pick one department for service to work with, if you can’t get the CEO and the C-Suite yet, then I’d say getting the marketing group to work alongside the service group is the most likely way to gain traction.
What impact does the IoT have on the push towards advanced services?
It has a dramatic effect in that it enables manufacturers to see into their customers’ sites and gather data efficiently. Just as a factory is an efficient way to make a product by drawing lots of processes together, drawing information from multiple sites together using IoT and looking at using the machine algorithms allows you to be very efficient in monitoring your equipment in use around the world, and we see that with companies that have made investments there.
However, the other thing we’ve seen is companies that invest heavily in IoT infrastructure without understanding where the valuable data is or where they are going to be adding value- either for themselves or for the customer- by using that data. If you can’t articulate that, you’re adding costs to your product without getting any value. So, it’s an excellent opportunity but it’s a big risk if you just blindly pursue IoT without considering how the company will extract value from the data- i.e. by using it to design and deliver services or product innovation. As another of my colleagues Andreas puts it, the IoT isn’t about the data, it’s about what you do with it.
So those were some of my thoughts in response to the uncertainties and questions the webinar participants had, and I hope they will be useful. If you missed the webinar, you can see a full recording.