Servitisation: 4 things OEMs need to keep in mind as they make the switch
Servitisation – where companies shift from strictly new product sales to instead selling the outcome a product delivers – is an embodiment of change. And we all know that regardless of the circumstances, change can be unnerving. The manufacturing industry in particular has remained relatively unchanged for decades, but this new era of servitisation is requiring original equipment manufacturers (OEMs) to completely upend the status quo.
For years, the onus has been on end-users to absorb the brunt and costs of ongoing maintenance and repairs. Due to the boom in servitisation however, it is now the OEMs that must take responsibility for ensuring equipment is up-and-running as much as possible – leading to an increased focus on maximising product uptime and pre-emptively repairing equipment before it ever fails.
Increased uptime and preventative maintenance have obvious benefits for the customer, and the OEM is in the best position to ensure the products are designed and manufactured in a way that will best achieve these results. The servitisation shift also means that OEMs are no longer making money on the selling of highly expensive spare parts – but rather on the assurance that the equipment works and delivers its output. This means the whole business logic and incentive structure changes dramatically, and will require OEMs to redefine the way they operate.
Here are four key points OEMs need to bear in mind as they shift to a servitisation-centred business model:
1. Bring in far-reaching service technology
Many after-sales service businesses still manage their service parts supply chain efforts through time and labour intensive processes. In the shift to servitisation, however, OEMs must take a much more comprehensive look at their operations and invest in technology that can help them manage the real-time service needs that arise in a servitisation-centred world. This includes tools that allow for enhanced data analysis, as well as IoT and customer service technologies. The sooner OEMs put themselves in a position to adopt new technology, the smoother the transition to servitisation will be.
2. Consider adopting a subscription-based service model
In the future, many OEMs will no longer report on the number of new products sold, or even service parts revenue. In fact, they will follow the path many SaaS companies have taken, reporting on recurring revenue from subscription-based services. Customers will subscribe to their equipment much in the same way as they do their Netflix subscription, paying for output and value.
3. Always question
Why are we doing things this way? Are the processes we have in place delivering the results we need? Are they helping us to be in the best position to tackle the problems of tomorrow? These are questions that leaders at global OEMs need to be asking themselves every day. Just because a certain method has worked for years, doesn’t necessarily mean it’s the right way today – or especially for the future. Thinking critically and asking the right questions will enable team members to deliver creative and more effective solutions.
4. Invest in workforce training
A majority of companies have a tendency to prioritise speedy onboarding versus comprehensive workforce training. However, the companies that trade in hurried, one-off onboarding and focus on continuous training and development will have a competitive edge. People are a company’s best asset. So, taking the time to provide thorough training simply makes sense to help them feel comfortable, thrive and achieve the results that a company is aiming for through this new business model.
It’s fair to say the industry has been slow on the servitisation uptake, because the move from making products to delivering product-centric services is no mean feat – it means transforming both the organisational structure and processes. Particularly over the past few years though, the widening gap between customer expectations and after-sales service realities – in addition to the emergence of Industry 4.0 – has accelerated demand for the model, serving as the catalyst for manufacturers to make major changes, and ultimately, shift towards servitisation.
This shift brings with it many exciting opportunities, but that doesn’t necessarily mean the transition will be easy. Despite any apprehension to change, OEMs can begin taking small steps today to lay the foundation for a successful servitisation-centric approach, and most importantly, prepare their businesses for the next iteration of the manufacturing industry.
By Gary Brooks, CMO, Syncron