Three capabilities needed to move to a servitization business model
The buzz around the emerging trend of servitization has left many manufactuers wondering, “what is servitization and why is it important?” The definition of servitization is the shifting of priorities from simply providing a product to selling a whole solution to a customer’s problem.
Why is a Servitization Strategy Important?
We talked to a manufacturing expert and the Senior General Manager at Bosch, Raghuram Joshi, about his thoughts on the rise of servitization and the changing nature of the industry. “In the past,” he says, “revenue generation or turnover in the manufacturing industry was linear in nature—i.e. the more I produce, the more I am able to sell. However, the emergence of digital has enabled new non-linear business and revenue models, which is why manufacturers are reevaluating the way in which they serve their customers. Examples like subscription-based models, “pay as you go” or “pay as you use” are becoming increasingly practical and relevant. End users are demanding products as a service rather than buying them as capital expenditure (CAPEX).”
Not only does servitization satisfy the demands of customers but it can be extremely beneficial for the longevity of a manufacturer’s business. Shifting to this new business model allows manufacturers to build relationships with their end customers and thus secure recurring revenue streams with more opportunities for cross-selling.
Meeting the Needs of Moving to a Servitization Strategy
However, in order to realize these benefits, manufacturers must quickly become more customer experience (CX) focused, a transition that can prove to be a challenge since historically there has been less emphasis on CX in the B2B space, especially in such a product-centric industry. To build these relationships, manufacturers must not only change their business models but also consider what new tools and processes must be in place to support this shift.
Flexibility to Evolve
In making the shift to servitization, manufacturers will be adopting a new business model that will result in a necessary shift of organizational structures, processes, and technologies. As teams are added, new goals are established, and workflows get adjusted, it is critical that businesses are able to adapt quickly to changing demands. Stay ahead of future changes by implementing a digital architecture that can evolve alongside business needs—whether that is setting up an e-commerce site or building out new digital workflows, look for tools that will empower you to easily create and scale the digital solutions needed to serve end customers.Powerful Integration
As manufacturers add new technologies and tools to support a servitization strategy, they will also need to figure out how best to unite all their systems and applications to work well together. Integration with existing core technologies and newer tools can be difficult; in fact, it continues to be a significant technological challenge that hinders digital transformation. With successful integration, manufacturers will be better equipped to collect data. This capability grows in importance because connected data is the first step to better customer experiences.
However, with the average manufacturing site running on over one hundred software applications, it’s a tremendous challenge to make data both accessible and actionable when multiple disconnected business systems are present. Once siloed systems are brought together, data can be aggregated and shared through a connected ecosystem. For example, well-leveraged customer insights can help manufacturers know when a customer’s product needs a replacement, if a specific product is running low, or when a routine order hasn’t been placed. The potential for amazing customer experiences is greater when driven by a deeper knowledge of customer behavior and preferences. Integration not only applies to data, but also across the entire business ecosystem.
Joshi believes that having employees and suppliers that are connected to the supply chain, manufacturing site, and ultimately customers is what is needed to enable servitization. “Everyone wants to get into servitization, but the change is not happening at the pace people would expect,” he says, due to the fact that the entire stack is not enabled to provide products as a service. At the end of the day, servitization is not an isolated strategy and will not succeed as one.Equipping Sales and Service Representatives with Actionable Customer Insight
Further expanding on connected business ecosystems, sales teams can play a key role in servitization strategies, if properly equipped with data and insights to provide proactive offerings and field services. Enable these teams to shift from a product-centric selling mindset to a customer-centric one by providing a dashboard or mobile application to leverage customer insights. Automate insights with machine learning to trigger alerts when there might be an issue with an account. This ensures that reps know exactly when to check on an account and take action to save it. By providing the customer data that would be most valuable to Sales, these representatives can be empowered to act as consultants instead of just order takers.
Ultimately manufacturers must assess if they have the flexibility to adapt to an unknown future. Servitization is a seismic shift, but one that manufacturers have to determine for themselves if they want to pursue this new business model. However, with the right foundation and digital tools, businesses can enable servitization with confidence.