As we move from a reactive, break-fix service model to one focused on maximized product uptime, we’re also entering a shift from the selling of products to the selling of service. This shift is otherwise known as servitization, and it’s changing the way manufacturers approach customer service as a whole.
At the 2018 Field Service USA event, hosted by Worldwide Business Research and attended by industry leaders like FedEx, GE, Ford, Oracle and Salesforce, the Syncron team led its annual workshop focusing on these trends and technologies and their potential impact on field service. The most popular topic of the workshop was servitization, which is becoming a common strategy for equipment manufacturers to improve customer satisfaction and grow profits in the manufacturing industry.
As subscription-based service contracts dramatically change field service as we know it today, the role of the original equipment manufacturer (OEM) is evolving, with consumer preferences shifting from “ownership” to “access,” and companies beginning to sell “comfort-as-a-service.” That’s why we created our newest Syncron original Orange Paper,” State of Emerging Tech in Field Service: Servitization, IoT & AI, Market Disruptors and The Road to Uptime,“ to help manufacturers redefine the way they do business.
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Servitization is completely reinventing the manufacturing business model, and with increasingly complex, high tech equipment, customers rely on their equipment dealers for service expertise now more than ever. Instead of focusing solely on selling a product, companies are redeveloping their strategy to match the increasing service needs of customers – all to sell an entire field service support system around a product.
This shift to servitization requires a new way of thinking that should be rolled out in phases, as it is a fundamental change in how manufacturers should approach customers. To move from strictly selling assets to an ongoing service model requires a whole new infrastructure.
Take Rolls-Royce’s TotalCare airplane engine program, for example: customers pay a set amount of money based on the number of hours the airplane is flown. In return, Rolls-Royce will repair and replace broken parts, as well as modify and monitor the engine remotely. This new package guarantees a long-term relationship with their customers, bringing in more than 50% of their revenue.
Then there’s Trane, the Ingersoll Rand® subsidiary of air conditioning systems, services and solutions. Their Trane PACT™ (Performance Agreement for Comfort from Trane) is a comfort-as-a-service offering that’s taking a historically inefficient technology and “servitizing” it through increased reliability and efficiency. “Companies like Trane, with its ‘comfort-as-a-service’ offering are ditching traditional all-encompassing energy performance contracts and instead offering nimble guidance that is flexible and modular,” writes Alex Herceg, analyst at Lux Research in a new report, Identifying Disruption in Advanced HVAC Technologies for Commercial Buildings. “They’ve seen growth of almost 30% this year for this new offering,” says Herceg, and it’s likely that other companies will follow suit as servitization continues to make its way to the mainstream.
But, despite servitization’s growing prominence, a surprisingly low number of companies who participated in the workshop actually have a Chief Service Officer. The companies with C-level service executives were predominantly Fortune 2000 companies, and mostly high tech and medical device organizations. However, there has been a dramatic shift in the past few years from manufacturing to service revenue; one participant even stated that, “for every $1 in parts we generate, we want $3 in service,” making maximized service revenue that much more of a priority to the C-suite.
One laser company in attendance has successfully moved from charging for products and services used – which was resulting in multiple (and unpredictable) invoices being sent to customers per month – to charging by number of laser pulses, increasing the company’s overall revenue. In this case, servitization was the cause for a predictable blanket cost, especially once customers could plan for how many pulses they will use per month, with all support and services included. Now, because they charge by each pulse of the laser, great sensor data ensures that they are maximizing their laser uptime, and, subsequently, their revenue.
Ultimately, when it comes to service leaders having a seat at the table, most attendees agreed that until their company had someone in the C-suite, their teams would be less willing to make any investments in servitization. However, the view of the service business is continuing to shift in the minds of the C-suite into a way to maximize profits through service investments. As more products are equipped with smart sensors, it will be more important than ever to shift from a reactive, break-fix service model to one focused on maximizing product uptime, and the best way to achieve this is to leverage IoT data to ensure parts are replaced before they fail.
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The shift to servitization is a fundamental change in how manufacturers should approach customers. Download your complimentary copy of our Orange Paper today, and start incorporating this new strategy in your field service organizations now.
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