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Servitization: The Inevitable Future

As featured in Field Service News

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In November this year top-tier after-sales service solution provider Syncron will be hosting the inaugural edition of a new two day forum Innovate2019. Designed to be a first-of-its kind global leadership summit focused on facilitating conversations and providing insights for manufacturers exploring the inevitable shift to servitization: selling products-as-a-service.

To find out more Kris Oldland , Caught up with Syncron CMO Gary Brooks…

The manufacturing sector is facing a period of intense disruption and opportunity. Technologies such as IoT and AI are driving us towards a service-centric future faster than ever before. Across all industry verticals planning cycles for 2020 and beyond are already in full swing as the industry moves towards a future of servitization, advanced services and outcome-based service strategies. It is a brave new world of servitization we face, but the path towards this future is far from straightforward.

For all the talk around the topic, servitization remains something of an opaque concept for many manufacturers while for others, it is a journey they are already a long way down. What is clear though, is that with each passing day, the countdown to widespread adoption of some form of advanced services  appears to draw nearer.

“So many manufacturers around the world are embarking on a journey to sell products as services or to servitize their business model. It’s interesting how some companies are further down this path than others,” commented Syncron’s Gary Brooks when I caught up with him to discuss their forthcoming event focusing on servitization which is being held in Stockholm on the 13th and 14th of November this year.

“Historically, organisations in the aviation and defence sectors have been the leaders in this trend, but we see that expanding rapidly now. So many automobile manufacturers are catching up in this space and offering Mobility-as-a-Service, and we see it also across heavy machinery and numerous other industrial verticals as well.”

One such company in the automobile space that is embracing servitization is Renault-Nissan-Mitsubishi. Kent O’Hara, SVP Aftersales for the group, who is one of several high profile industry leaders speaking at Innovate 2019 commented, “we are at a tipping point in the automobile industry, and the race is on to meet the evolving needs of our customers and deliver products as services,” he added.

“Offering Mobility-as-a-Service will require OEMs to think differently and turn their businesses on their sides to develop and deploy completely new, 3-dimensional business models.”

“Capitalising on the opportunity to meet customers’ evolving needs and deliver products as services is significant, but it can’t be achieved by simply improving or replacing separate legacy business systems and processes. It will require a different way of thinking with business culture changes and process transformation,” O’Hara explained.

The delicate balancing act between today and tomorrow such as O’Hara defines is certainly one that sits at the heart of the challenge of servitization. Indeed, Syncron has firmly placed themselves within the servitization discussion by addressing this dual challenge with the introduction of new solutions explicitly designed to help manufacturers and service organisations tackle the many challenges of adopting advanced service strategies which sit alongside and complement their existing core capabilities which offer manufacturers the tools to optimise their existing after-sales operations.

Having held many such talks behind closed doors privately with their clients, they felt the time was right to now establish a forum for service leaders to feed off of each other as they drive their respective businesses along the servitization journey.

“We have the fortunate opportunity to serve a number of leading manufacturers around the world, and in conversation with them there have been various dialogues around this topic of servitization,” Brooks explains.

“However, the request we kept hearing was that these companies needed a forum where executives from diverse manufacturing sectors could come together to share thoughts, experiences and challenges about this journey to servitization.”

“I see the key questions that currently need addressing as being ‘how do we make this shift from traditional break-fix service, where we have such deep muscle memory? How we do we break that mould? How do we learn to do things differently?”

“With Innovate2019, we are bringing together people from all sides of the discussion – from industry, academia and management consulting. We’re bringing them together to identify some of the common answers as a community to not only these questions but also others that companies working towards servitization are facing today.”

Indeed, such questions are both complex and numerous.

As the highly respected industry analyst and regular Field Service News columnist Aly Pinder of IDC states “Making the shift from selling products to selling the benefits of products will require OEMs to completely redefine the way they do business. Essentially manufacturers will need to turn their current operations upside down to transform and shift their mindsets from product volume to product performance, durability and re-usability.”

It is a change of seismic proportions, and it is one that all companies who operate a after-sales operation must come to grips with sooner rather than later. As Pinder adds “It’s inevitable: selling products as services will become a major component of OEMs’ businesses over the next decade.”

As a writer that has commented and written about the movement towards servitization for just under a decade now, I would concur with Pinder’s assertion. Often-times, I hear analogies being drawn between servitization and the massive lean revolution in manufacturing of the Eighties. However, for me, there is something greater than mere efficiency and potential profit, driving the shift towards servitization. From the consumer view at least, the shift to service-centric business models is also a reflection of the current Zeitgeist.

There is a distinct societal element embedded at the heart of this change. Our very understanding of what being a consumer is has now evolved.

As Carlo Alberto Carnevale Maffe, Professor of Strategy, Bocconi University School of Management, who will be speaking at Innovate2019 comments, “prior generations took pride in owning products, but current and future generations are very different; they just want to use the product.”

This is particularly true of the increasingly powerful and important demographic of Millenials who according to research from Deloitte are the first generation to place concerns around issues such as sustainability and corporate responsibility ahead of the more fundamental factors such as cost and value.

As concepts such as the circular economy begin to hold increasing political, societal and commercial weight moving forward, the impetus for servitization merely increases further.

“There are so many drivers to servitization,” comments Brooks as we discuss this added dimension to the equation. “When we look at the predictability of cost and predictability of revenue, it is very attractive to OEMs, and it is also desirable to public markets and investors. So there are definitely financial drivers for the OEMs, but then there is also the way that consumers want to buy today.”

“The thought of even owning a car today is becoming less attractive.

Consumers, particularly the Millennial generation, are becoming aware that it is just not a great economic decision and so they are seeking more efficient ways of purchasing that same value which is mobility, not the actual car.”

“Then there is the circular economy. In a servitized world, when a piece of equipment fails, it doesn’t just end up on the landfill. That piece of equipment is designed to be refurbished; parts are designed to be reused in the development of new products. It becomes a really attractive sustainability message.”

Of course, perhaps the most significant challenge companies face when adopting a strategy of servitization is how to do so while not damaging their existing core business. In one sense, when facing what is increasingly looking to be an inevitable paradigm shift in the way we approach manufacturing revenue streams in the future, then choosing not to act could be fatal. To quote Steve Jobs ‘If you don’t cannibalise yourself, someone else will.’

However, it should also be understood that there is no giant switch that can be flipped to transform a service operation into an outfit geared up and ready to go in Industry 4.0. That’s before we even start talking about the external challenges of bringing your customers on the journey with you. “According to IDC, 40% of durable goods manufacturers have some form of IoT project on the way. Lots of them are also making servitization noises as well. However, we still can’t lose sight of the fact that there is a long-tail of disconnected products,” explains Brooks. “If you take a piece of heavy equipment from an earthmover that was sold some ten years ago, it will very likely be disconnected, but it will have another 15 years or so of expected use.

That equipment will still need to be serviced on a traditional break-fix model.”

“So what we have to bear in mind during these discussions around servitization is that manufacturers today are having two key conversations. Firstly they need to understand how they can optimise their existing break-fix service model.

This conversation, however, is now needing to be held in parallel to the second area of focus. They also need to be able to understand ‘how can I develop and test new business models that allow me to move into the direction of selling products-as-a-service eventually.”

“It’s something of a two-headed monster in that respect. How do I optimise and also how do I build out the new business? They are running in parallel, but one of them will then become more dominant over time. We have designed Syncron’s product portfolio to meet these two business goals. We are fortunate to be partnered with some of the largest OEMs in the world to help them optimise their service delivery, and we will be rolling out new products at Innovate2019 that will further accelerate OEMs’ journey to servitization.”

“We understand that they have a current need and a future need so have designed our portfolio of products to serve both business channels.”

This dual requirement is something that is also identified by another of the speakers at Innovate2019, Friedrich Baumann, President Aftersales/Alliance Management Navistar.

“By remaining agile in a rapidly changing environment, OEMs must meet the product and service needs of their customers; this requires investing in solutions that foster productivity gains as well as service capabilities enhancements to meet evolving customer expectations,” Baumann comments.

“Innovative OEMs focus on providing value to their customers by delivering products with embedded services which redefine the competitive landscape.”

The conversation around servitization is not only a profoundly complex one, but it is also becoming an increasingly crucial one as well. Against this backdrop the forum Brooks and his team at Syncron are developing in Innovate2019 is set to become an essential focal point within the after-sales sector’s event calendar, not just this year but for a long time beyond.