Assuming a service orientation if your company background is a "traditional manufactiring industry" can be a difficult journey...
Servitization: A Difficult Journey
A not too common word “servitization”, however, it is a headache for many product centric companies who are trying to shift their business models away from being reliant on core product sales to increasingly offering services as a way of creating value.
Many product centric companies have a rich and long history of selling their core products at margins, which have been sustainable in the past but are no longer so due to globalisation and the commoditisation of their products. Revenues and profit have to sought elsewhere and additionally customers are increasingly looking for the in service life experience of the products rather than the product ownership per say. As products become more and more alike, levels of differentiation are decreasing – so value creation has to be sought elsewhere. A means of differentiation is to offer services.
Many product centric markets are also cyclic and rely on real economic growth and or government incentives to drive sales. Services on the other hand are less prone to the woes of the market and usually weather the economic uncertainties better – they produce steady revenues and profits, which is another good argument why it is important for companies to pursue a service orientation.
The result is that many product centric companies are therefore on the march to become service orientated, however, the journey is not as easy as first imagined. Some firm’s find that they are deeply rooted in the traditions of their core product (culture, processes and behaviour) – what was seen as a great tradition and history can turn out to be a hinder. What was once a great heritage for example of product development is now problematic? Development life cycles, market approaches, technology, culture, entrenched internal processes and a workforce lacking diversity (in the worst case they are all predominantly engineers of the same age coming from the same background) all contribute to a stubbornness and lack of understanding of the need to “go service”.
Add to this the fact that services are intangible, there arise conceptual and belief problems: how can we earn money from selling services – they are not even proper products is the retort! Many firm’s start by establishing a small organisation, whose job it is to establish a “service bridge-head”, however, this is hardly easy as they are not only battling with the market but their own organisation back at home too. There is almost a “David meets Goliath” syndrome.
One way of getting on board the wagon is to start to offer services that support the product, this sounds like an easy route to take, and it has proven popular, however, the effect is that the traditional product developers have to build in a service mind-set into their product plans. Some product plans and development life cycles stretch out for years. One does not design a new aero engine, train or commercial vehicle overnight – development life cycles may stretch over 7-10 years. On the other hand creating a service may take a matter of months: how to reconcile this chasm is not easy. “Yes” is the reply you can get your new service, when the new gearbox design is ready… “in about 22 months time”! Not many customers will stand around waiting for that particular product. When the whole company is geared for development life cycles stretching out for years and the new service team wants action in a matter of months a lot of frustration can arise.
Service development is customer centric, whereas product development receives market intelligence and customer input (when a product takes years to develop how customer centric can it be?). So services require an outside in approach and traditional products use an inside-out one (albeit with some external input) for their product plans. To suddenly open up the company to a new way of receiving customer requirements and to have a listening voice can be a culture shock for some. Cross-functional information sharing is not easy, especially when the new kid on the block demands a greater say in the product plans. Power struggles between the old guard and the new service organisation can result. As the dimensioning of the core product organisation is invariably much bigger and as many of the company processes are build to support it, there is unfortunately in many cases only one possible loser.
So creating a tentative and careful service product plan is sometimes the answer for many management teams, however, ever loathe to damage “real” product sales the investments prove many times to be too little, too late and they lack any substantial management commitment.
Another approach is to create services that support the customer, but which are not necessarily connected to the product or there is a very slight connection. This is another way to go, as these types of products can be developed independently from the core product. However, the issue then becomes how to sell and deliver them, as the normal sales and service channels have mostly been designed and developed to deliver the companies core products.
How to tackle the issues above, and there are more, is definitely causing a headache for many companies? For some firms the capability sets are not there and a radical rethink is required. However, for those who are willing to think in new channels and who are prepared to challenge the old ways and to implement new ones the rewards are there for the talking.
The journey is one of change and renewal and requires persistence and belief. The tangible benefits of assuming a service orientation need to be constantly communicated and the levels of support and commitment from the management team cannot waver, as in all new things, new fledglings need mothering and a protective wing to survive!
We at SMQC are interested in hearing reader’s different opinions on the subject. If you have any questions with reference to the above please feel free to contact us at http://www.smqc.eu by using the contact formula.