This past February in Frankfurt, Clayton Slagle, Business Value Consultant at Syncron, hosted an exciting workshop on the paradigm-shifting challenge of servitization with a passionate group of more than 20 service and parts leaders from cross-industry manufacturing organizations. Below is a recap of the great discussions that occurred over a two-hour period.
“It’s inevitable: selling products-as-services will become a major component of OEMs’ businesses over the next decade.” – Aly Pinder, IDC
The need for servitization is an inevitable consequence of changing customer expectations coupled with an array of new (and cheap) technological developments. As consumers, we expect continuous real time updates available on our devices, whether it be on the location of a parcel delivery, status of an upcoming flight, or the development to the latest breaking news story. These consumer expectations are taken with us to the workforce. As such, we now have the same expectations in our B2B relationships. And with heightened development in the performance of technology around remote diagnostics, augmented reality, artificial intelligence, gps tracking, ecommerce platforms and many others, the standards of B2C are much more accessible today to the B2B world than just a few years ago.
Servitization is the way for manufacturers to meet these new customer expectations. As products become more and more commoditized and interchangeable, it’s not enough to compete on product quality to gain a competitive edge. The battlefield has moved on to the overall experience of a product, and service accounts for a big chunk of that experience.
It’s interesting to note that the push for servitization itself from manufacturers differs; for some, it was driven by a visionary leader who wanted to be at the forefront of his sector; for others, it was playing catch-up to competitors who had already gone down that road; and for one, a Swedish manufacturer of refrigeration systems for trucks, it began from customers themselves, who requested a new relationship from their supplier.
Challenges of Servitization
However, from a manufacturer’s perspective, moving along the maturity model is met with a multitude of challenges. The basic foundation of building a servitization house is data. We hear a lot left, right and center that companies need to learn how to use the data they already have rather than try to acquire more data. As simple as that sounds, when you work in a traditional, global organization that’s been around for decades and whose business model is to grow through mergers and acquisitions and with no centralized ERP, data turns out to be quite bad. Databases are corrupted so it becomes impossible to make smart decisions. Many of those “smart decisions” rely too heavily on key individuals – and when they leave, that knowledge is lost because it is not captured or documented. And as teams work more and more remotely with a global scope, the cultural aspect of how to deal with data becomes an issue. As one participant put it, priorities can vary region to region.
There was general consensus that, to really get going with servitization, the key challenge was understanding the customer. This led to intense discussions. As the Swedish manufacturer of refrigeration systems said, “each customer will have specific requests so servitization cannot be standardized, it needs to be agile.” But in order to truly understand customers, you need to onboard sales, who has the relationship with customers. That also became an issue for many organizations, who could not make their sales team see the benefits of moving from a pure transactional business model towards an outcome-based model.
And the word “customer” itself is a broad term. Some participants came from organizations with a more direct supplied/end-user relationship, while others had a business model where their direct customers were not the end users, but distributors, service centers, resellers etc. As one participant asked, “what is my interest as a service center in a pay per use model?”
Syncron’s View on the Road to Servitization
Clayton explained to the workshop participants Syncron’s Servitization Maturity Model:
Syncron’s maturity model is a four-step process that will serve as the roadmap for manufacturers to navigate the necessary steps and changes required for the journey to delivering Product-as-a-Service (PaaS). And while operating two service models in parallel will most certainly be a balancing act, it is possible. Along the way to the full realization of delivering products as services, manufacturers will fall into several stages of maturity. Manufacturers must cultivate strong ecosystems of technology and consultative partners to accompany them on this journey as they invest in the new resources, technology and infrastructure needed to succeed.
The end goal is of course always the same: deliver a service. What changes as companies move along the maturity model from left to right is the customer’s experience on how that service is delivered. Clayton also stressed: “the importance on the left side is the best preparation for the right side”. Syncron also believes that optimizing today’s reactive, break-fix service is a prerequisite to the full realization of servitization.