It’s Game Time: The Time to Shift to Servitization is Now
There has never been a more important time for manufacturers to drastically change the way the after-sales service side of their business functions. And, over the next twelve months, time management will be crucial – from the way it’s allocated, prioritized and spent – and the progress manufacturers make along the journey to servitization could make them or break them.
Recently, we sat down with academics, customers and industry leaders to better understand how manufacturers can capitalize on this major business opportunity ahead, which lead to the creation of our newest Orange Paper, 2019 After-sales Service Predictions: Powering The Journey To Servitization Through Maximized Product Uptime. Read on to learn more about how 2019 will be the year that manufacturers start to seriously acknowledge the time needed to accelerate their shift toward servitization and maximizing product uptime.
Retraining Service Muscle Memory
For hundreds of years, manufacturers have been focused on ‘repair execution’ – a.k.a. repairing a product after it has already broken down. This has created a sort of ‘muscle memory’ for manufacturers, where the focus has settled around how to make the repair experience better, rather than potentially non-existent. But, the real question manufacturers should be asking is “How can the repair – or the unplanned product downtime – be avoided, in the first place?” As of this year, 98% of customers indicate they want to see maximized product uptime prioritized in their manufacturers’ service agreements, when, in actuality, only 33% of manufacturers offer this today.
This widening gap is causing manufacturers to not only lose customer loyalty and lucrative business opportunities, but it’s also allowing them to remain stagnant in their innovation. But, it’s disruptive innovation, the process by which a product or service takes root at the bottom of a market, relentlessly moving upmarket to eventually displace established competitors, that’s the key to excelling during this industry-wide transformation.
“History tells us that, in every passing generation, disruptive innovations have transformed the status quo in businesses, industries and economies,” says Anders Grudén, Chief Executive Officer at Syncron. “In response, some have chosen to cling to the past, resist the call for change, and ultimately failed to remain relevant. Others — of greater vision, wisdom and courage — have embraced these radical market disruptors by making the leap from laggard to leader, and have prospered.” Read: those who take the time to retrain their manufacturing service muscles have a better chance at competitive success.
Take Tesla, for example: “Elon Musk has changed the game, no matter what people say. He’s transformed the business just by forcing disruption,” says Jay Johnson, General Manager of Daimler Trucks North America. Historically, not all of these kinds of market disruptors have been successful in implementation, but, it’s the idea that resting on your laurels is no longer acceptable. “It’s like the home delivery meals – they all sound good, but do they always get executed correctly? How about Movie Pass – it was a great idea, and now they’re going bankrupt,” continues Johnson. The point is, “there will be some crazy ideas, but what has spawned from this change is people doing innovative things all in the name of saving money for the customer.”
Revising the Idea of What Service Should Look Like
The reality is: today’s customers are moving from buying products to enlisting services, increasingly favoring access over ownership. “Servitization is not just a new name for the after-sales operation,” says Carlo Alberto Carnevale Maffè, Professor of Strategy at Bocconi University, “it’s a new way of selling and marketing.” However, despite this shift, most companies still view their business models as ones built to simply sell products.
That’s beginning to change, though, as subscription-based service contracts are epically changing service as we know it today. “We’re turning products into services,” says Kurt Ranka, Principle Director at Accenture, “and what we’re seeing is the advent of different business models that allow what was formerly a product, a fixed asset, to be changed into a service. Subscription over ownership is basically the bare bones of what servitization is ultimately going to become.”
In the future, OEMs will focus less on new product sales and more on recurring, subscription-based revenue. “Customers will subscribe to their equipment much in the same way as they do their Netflix subscription,” says Grudén, “and companies will subscribe to heavy machinery in the same way you subscribe to Spotify.” Ultimately, customers will view service as an arena to pay for outcomes, and that’s the value that will be transferred in the relationship.
Reinventing Old Service Models Through Modern Servitization
“Subscription-based models are like ‘servitization-lite,’ a low-risk way to get into servitization,” agrees Nate Chenenko, Manager at Carlisle & Company. “From a marketing perspective, subscription-based ownership is going to increase rapidly over the next five years, and subscription is a great opportunity [for manufacturers] to figure out how they’re going to do things they haven’t historically operated.” Ultimately, with subscription-based uptime models replacing more traditional product-based sales, testing servitization strategies through this business model can help manufacturers learn new ways to communicate with end-customers, interact with dealers, and actually take proactive steps toward servitization today.
The reason it’s so crucial to start this shift now is simple: time is the only constant – especially in service. It marches on every work week, reminding us that when it comes to staying relevant and effective, time waits for no one. When equipment failures aren’t resolved quickly, it can result in pricey product downtime, and that downtime often causes manufacturers to lose revenue and profits, subsequently resulting in lost customer loyalty and market share.
Want to change the game today? Below are some of the most impactful areas where manufacturers can invest time today to survive the transition to servitization:
1. Incorporate automation and machine learning.
“Replace historically manual activities with automation and machine learning, like in your forecasting, for example. If you can apply machine learning and [historically excluded] data, forecast accuracy can ultimately make a huge impact,” says Ranka.
2. Study customer behavior.
“Look at everything that’s not a value-add to your customers and decide if it’s a priority to you. If the customer’s not willing to pay for it, then you shouldn’t [spend time on it]. Time is the one commodity that you can buy, barter or trade, so the quicker customers can get to do what they want to do, the better. ‘Easy-to-do-business-with’ is more valuable than ever,” says Jon Dickinson, Director of Aftermarket Sales at Spartan Motors.
3. Challenge, change and create.
“I started in the business at Honda Motors and learned to always challenge, change and create. Go into things and ask why you do them that way; question it and try to create a new way to do them. Nokia lost their principle because they couldn’t execute this – they couldn’t transition into the smartphone industry and they got left behind,” says Johnson.
At the end of the day, it’s about taking the time to shift priorities toward a more collaborative after-sales service ecosystem that’s going to drive the most change. Time is the only commodity that can’t be recreated, and by taking control of how time is managed across the organization, manufacturers can make performance improvements of epic proportions straight away.
Download the orange paper today to learn how 2019 will be the year that manufacturers start to seriously acknowledge the time needed to accelerate their shift toward servitization and maximizing product uptime.
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