In the emerging servitization-centered economy, where a growing number of companies are shifting from selling products to selling access to and the outcome those products deliver, manufacturers are redefining the way they do business
What is servitization?
Gary Brooks | Syncron
Please tell us a bit about Syncron and your role in the advanced manufacturing industry
Syncron is a cloud-based after-sales service solution provider focused on empowering the world’s leading manufacturers to maximize product uptime and deliver exceptional customer experiences.
More and more global manufacturers are placing emphasis on their after-sales service operations. In the emerging servitization-centered economy, where a growing number of companies are shifting from selling products to selling access to and the outcome those products deliver, manufacturers are redefining the way they do business and focusing on their ability to maximize the uptime of the products they offer. This shift is placing after-sales service businesses in the spotlight, as this function is critical to manufacturers’ ability to deliver maximized product uptime as a service to their customers.
This is where Syncron comes in. Our technology and our people help manufacturers accomplish just this.
What is servitization? How widely adopted is it?
In every generation, innovations and radical market disruptions have transformed businesses, industries, economies and livelihoods. While some businesses have chosen to cling to the past, resist the call for change, and failed to remain relevant, others—of greater vision, wisdom and courage — have embraced change and ultimately prospered.
Companies like Blockbuster, AOL and Blackberry are now irrelevant because more innovative leaders like Netflix, Google and Apple replaced them. Today’s original equipment manufacturers (OEMs) must ensure that history views them in the same lens as these leaders – as brands that innovated and adapted their business models and service operations to meet changing customer and technological demands.
In the fast-approaching servitization-centered economy, manufacturers will need to proactively repair their equipment before it ever breaks down. This increased focus on maximized product uptime is critical to success and in recent research from Syncron and Worldwide Business Research (WBR), only 33 percent of OEMs indicated they offer service based on maximized product uptime today, while 39 percent indicated it would be possible within two years. Clearly most OEMs still need to shift to a more predictive state to achieve “leader” status.
What are some of the challenges associated with the switch to servitization?
Servitization brings change – and we all know that no matter the circumstances, change can be uncomfortable. In this new era, the responsibility for ensuring product uptime has shifted from the end-user to the OEM.
It’s now the OEM who is responsible for ensuring that products deliver their expected output. Which is great – because the OEM is best equipped to ensure the products are designed in the best way to maximize uptime, and if the OEMs no longer make money on selling highly expensive spare parts, but rather that the equipment works and deliver its output – the whole business logic and incentive structure changes. This will not only increase cost efficiency in the whole value chain and reduce Total Cost of Ownership, but also bring more value to the customers.
Think about that – more customer value, delivered for less cost. That is the ultimate recipe for change.
How would a manufacturer best make the decision and start moving towards servitization?
At this point, there isn’t much of a choice. It’s not so much a matter of “if,” but “when.”
OEMs need to ask themselves where their customers are in this journey. Do customers expect a more subscription-based model today? Or, is that something that is three to five years down the road? Regardless, there are optimizations OEMs can make today that will set themselves up for future success. OEMs must map out their journeys to servitization, detailing a plan on how to get to a point where they can deliver subscription-based uptime service profitably.
What are some of things that makes changing from outright sale revenue and subscription revenue challenging?
A subscription-based business will completely change the focus of OEMs. Instead of focusing on transactional, product-based sales, sales will now be outcome-based – and these brands will live or die based on their ability to focus on delivering superior service to the customer. Long-term revenue growth will come from building relationships, instead of simply selling products.
This shift in thinking will be a change for large, global OEMs – companies that have been operating in the same manner for decades. However, the shift isn’t happening overnight. The complete realization of a servitization economy could take as long as 15 years, so OEMs must put resources and infrastructure in place today that will set them up for future success. They must invest in technology and business processes that evolve and scale as their needs mature over time.
What are some best practices for OEMs making the jump? What kind of organization infrastructure changes need to be made?
Some best practices include:
- Invest in training for the workforce. Most companies have a tendency to focus on the quickest way to onboard instead of comprehensive training. However, the companies that focus on continuous training and development will have a competitive edge.
- Adopt comprehensive service technology. Many after-sales service organizations unfortunately still rely on heavy manual efforts to manage their service parts supply chain. In the shift to servitization, however, OEMs must take a holistic view at their organization and invest in the right technologies that will help them take service to a new level.
- Always challenge, change and create. Ask yourself why you are doing something a certain way. Just because something has always been done one way, doesn’t necessarily mean it’s the right way today. Having people and teams in place that ask these hard questions is essential to success.
- Collect and study customer behavior. The servitization era is heavily focused on the customer. The best way to deliver outcomes that customers want and expect is to constantly study and survey their behaviors. Allocate resources (time, talent and budget) to the areas that matter most to customers and it will pay off in the long run.
- Invest now, reap rewards later. The biggest piece of advice I have is to start now. Even if it’s a small step, just start somewhere. For example, communicate your new goals with a small subset or dealers or distribution centers. Test and refine in a small market before a larger rollout. As I mentioned earlier, change won’t happen overnight, but if OEMs can identify smaller areas of improvement today, they will be more successful in the future.
Which industries are seeing the most success? Is it available in the green energy sector?
The aerospace industry is ahead of the curve when compared to their manufacturing peers in other industries. Rolls Royce first championed the ‘Power-by-the-Hour’ concept in the early 1960s, where customers pay a fixed cost per hour for uptime. We are also starting to see a heavy focus on maximized product uptime in both heavy trucking and heavy equipment.
For the green energy sector, in particular, we are starting to see an emerging trend referred to as ‘Comfort as a Service.’ In this model, HVAC customers pay a flat monthly fee for access to their heating and cooling system. Maintenance, repairs and upgrades are included in the cost. This model is a win-win for both business and customers alike. Customers have the assurance that they will always have a functioning system, and HVAC providers have a reliable source of income. This model also ensures that customers are using the latest in energy efficient technology – decreasing both their carbon footprint and utility bills.
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About Gary Brooks
As Chief Marketing Officer at Syncron, Gary Brooks is responsible for global marketing and focuses on enabling leading manufacturers around the world transform their after-sales service operations to maximize product uptime.
The content & opinions in this article are the author’s and do not necessarily represent the views of ManufacturingTomorrow
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