Group Chief Operating Officer at IFS. Passionate about accelerating time-to-value through technology and transforming customers' businesses.
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Whether it’s manufacturers making new products and goods or construction and engineering companies building and delivering assets, many leaders today are seeking out ways to pivot toward new, service-based revenue streams.
And it’s no wonder why: One recent PwC survey found 40% of CEOs believe their organization will no longer be economically viable in 10 years’ time if it continues on its current course.
Finding ways to monetize products and assets throughout their entire service lifetime, instead of relying solely upon their sale, presents significant opportunities. But it is not without its challenges.
This global industry shift toward service-based, or "everything as a service" offers, is now commonly known as "servitization." Servitized offers and business models reflect the growing realization by customers that subscribing to a product or service outcome is very often far better value—and offers a more flexible, tailored customer experience—than purchasing or owning it.
The New Subscription Playbook
In the consumer realm, we need only look at the widespread adoption of the subscription model. Like millions of others, my own household subscribes to TV and music content streaming services. The ink for our home printer is supplied automatically based on our (remotely monitored) usage.
The operating system, office suite and security software on my laptop are kept constantly up-to-date. The next time we look at changing our vehicle, I know car-as-a-service models from leading automotive brands can now offer me subscription-based vehicle use, inclusive of maintenance—and even options to replace it with the newest model release in course.
We’ve come a long way since IFS partner Rolls-Royce first pioneered servitization in the 1960s, renting its aircraft engines to airlines with a fixed, fully inclusive "power by the hour" cost. Today, the concept of "everything as a service" is quietly becoming a reality.
Remote, internet-connected sensors routinely gather data about product or asset usage and performance. With the help of artificial intelligence and machine learning, manufacturers can now better understand and monetize insights—especially in their ability to identify where design or efficiency improvements might be made.
Already we can see the emergence of "appliance as a service" ventures as Original Equipment Manufacturers (OEMS) look to establish more environmental, closed loop operations.
In Sweden, for example, IFS customer Electrolux now offers landlords appliances under a monthly subscription that includes installation, maintenance and repairs. The subscription includes replacement if needed, with refurbishment and recycling of faulty units and parts.
Essential Ingredients In The New Technology Mix
There is little doubt that to realize these new, diverse revenue streams requires significant business change. But what does it take to embark on this journey?
Firstly, it means leaders should be sure to implement products and assets that incorporate seamless connectivity. Internet-connected sensors, controllers and 5G-enabled wireless broadband support remote monitoring, reporting and control.
Secondly, many leaders are choosing to adopt an enterprise-wide platform solution with agile software technology. Such integrated solutions can allow organizations the ability to access, share and analyze complex data to plan resources, manage assets, automate predictive maintenance, orchestrate field service schedules and more. As a disclosure, my company IFS is one provider of such solutions.
Maintenance...Re-engineered
One of the most significant shifts heralded by new servitization models surrounds service and repair. At last, OEMs can move from traditional reactive and preventative maintenance, which accounts for the repair of equipment or assets when they fail through reliance upon time-based service schedules, to predictive maintenance.
Using data about a product’s condition and use to proactively plan timely servicing can significantly mitigate the occurrence of breakdowns. Moreover, since the maintenance is tailored to each individual piece of equipment, parts are not changed unnecessarily, allowing for reductions in costs, waste, unnecessary site visits and downtime.
To deliver such predictive maintenance, service operations must be able to analyze and interpret data quickly and at scale. By adopting enterprise software that embeds artificial intelligence and machine learning, organizations have the power to more readily detect performance anomalies, allowing the appropriate maintenance intervention to be made.
The most advanced automated systems also provide context behind intervention recommendations, presenting engineers and management with a full audit trail of decision making within the system.
Applications For Modular Business Models
Another way adopting integrated enterprise software technology helps servitization is by enabling so-called "modular business" capabilities.
Put simply, a modular composable environment is one that allows different functionality to be added, removed or amended over time, as and when required. The result is an organization that has the agility to innovate with new value chains that can constantly evolve over time. A recent Gartner report demonstrated that 20% of Global 2000 CEOs report an increased appetite for risk and improved resilience due to advances in modular business redesign.
Servitization: Out With Standalone Sales, In With Lifetime Relationships
There is little doubt servitization demands an entirely new mindset. Yet in a world of increasingly commoditized OEM offers, the strategic opportunity to differentiate through value-based aftermarket service and outcome-based agreements is clear.
Just as we as consumers have embraced the way service subscriptions can eliminate the need to buy products, so business users are seizing the advantages, too. In the current climate, enjoying access to new equipment and assets that are fully or partially funded as operating expenses, not capital purchases, is compelling.
I hope this article provides some valuable takeaways and strategies for manufacturers seeking opportunities through servitization to increase customer satisfaction, reduce churn and build lifetime subscription-based revenues.
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