Servitisation: Why we should all be selling outcomes, not productsby
Here’s a big wake-up call for you: Competing on price is no longer viable. (Globalisation commoditisation, shrinking product margins and diminishing returns from a product-centric approach took care of that argument). As we enter the era of the Internet of Things (IoT), a new and alternative services sector is evolving, called servitisation – also known as outcome-based services.
It’s based on the premise that by integrating services with products, you can create bundles that are of greater value than products alone. As manufacturers move from being purely product providers to becoming service providers as well, it adds value to their products and generates additional revenue. In other words, service-based outcomes take you out of competing on price alone.
From a consumer perspective, the arrival of IoT means life gets easier and more convenient. From a manufacturing perspective, life will never be the same again. It’s disrupting business as usual for product manufacturers globally.
HP is a good example. When my HP printer at home is running low on ink, the printer itself communicates with HP and automatically sends me more cartridges, delivered to my home so I have ink before I need it. In return, I pay a small monthly subscription, ink automatically arrives just in time, and I never run out. This is just one example of a product that is pre-empting our service needs, and will eventually predict its own maintenance and service requirements.
As products become connected, servicing our machines, devices and appliances will move from reactive product insight to providing predictive alerts, triggering service technicians with the right skills to be deployed to the right place before a fault takes place with preventative maintenance, or in the event that something occurs. For instance, your washing machine may alert the manufacturer that its bearings are wearing thin and in need of replacement.
In this new world of service, if a machine connected to an IoT platform experiences a problem – let’s say an MRI machine - the platform will analyse the data and determine if the MRI machine needs servicing. Field service management systems would create a work order and automatically assign the most qualified technician in the vicinity to the machine via their mobile phone or tablet. Once onsite, the technician can view all the diagnostic and performance information downloaded from the cloud about the MRI machine, and access advanced 3D modelling-based repair instructions if required so he or she can quickly restore the machine to its full performance.
According to the Advanced Institute of Management, one third of large manufacturing firms are now ‘servitised’. In the US, that figure is nearly twice as high at sixty per cent. And here in the UK, where ninety nine per cent of business is generated by SMEs, around 40% of manufacturing companies are now thought to be servitised.
The reason for such widespread adoption? It’s profitable. According to an Aston University study, servitisation delivers sustained annual growth of 5-10%, and reduces costs by up to twenty five to thirty percent. Adopting a service outcome approach is a game changer. It not only brings businesses closer to their customers, but also helps to effectively lock out competitors because companies have an ongoing service relationship with their suppliers rather than a single transaction.
Major companies such as GE, Xerox, Coca Cola, Rolls Royce and Philips are well-documented in their commitment to transforming their service strategies to an outcome-based approach, and in the next two to five years, I think it will become the de-facto business model for almost every business, regardless of size.
IoT and servitisation lets many kinds of companies shift from selling products to selling services based on those products. Your decision then, as a business or as a manufacturer, is not whether to adopt this model, as I believe it will become inevitable. Focus instead on how you can transform (or in some cases establish) your services department, empower your field service technicians with the right skills and field service management platform, and align your organisation with service outcomes, not simply products.
Mark Homer is vice president global customer transformation for field service management specialists, ServiceMax.