3 Steps to Overcome Common Obstacles for Successful Servitization

Servitization, outcome-based services and product-as-a-service are hot topics. However, we see little examples in the industrial sectors. Too often, there is a gap between the theoretical framework and the real practice. Here are 3 critical steps to boost the success of your servitization-journey.

Summary

We hear a lot about servitization, outcome-based services and product-as-a-service business models. However, we see little examples in the industrial sectors. Many manufacturers face serious challenges while developing and launching new service offerings:

• Clients do not see the value, have many objections and are not ready for it
• Lack of strategic support to invest in necessary capabilities and to develop their business model

3 of the root causes are:

• The gap between academic terms like servitization, outcome-based services and product-as-a-service and the practice is not being closed yet
• Poor definition of the critical business problems of clients which will be solved with the new offering
• The impact on the manufacturer’s business is not clear yet

In this article I share some of the best practices for designing advanced offerings which will help you to overcome these challenges:

• Build deeper and broader insights in your clients business challenges and pain points
• Focus on specific customer segment, based on their needs
• Approach your business models more holistic

The problem

Just as an increasing number of manufacturing companies, you may be looking for ways to thrive during disruptive change in your industry. This is an exciting journey of enhancing your business models with digital solutions and advanced services.

Some of the major trends that make this mission critical for your future success are:

• Digital technologies
• Digitalisation of clients’ operation
• New emerging business models
• Shifts in the value chain / ecosystem

The vision behind these innovations is:

• Develop advanced services and solutions to develop new and recurring revenue streams and increase long-term differentiation.
• Develop better performing and more efficient predictive maintenance services.
• Meet a broader scope of (latent) customer needs, beyond availability and condition of equipment like operational performance solutions.

Most service leaders and innovators, solution providers, academics and consultants use broad and abstract concepts to describe their vision, strategy, innovations and new offerings with container words like:

• Servitization
• Advanced services
• Outcome-based services
• Remote services

I often hear from service leaders and innovation teams that they struggle with challenges like:

• Clients do not see the value of the new offering or solution
• Clients see many obstacles and risks
• Clients are not willing to pay more for the new solutions
• Clients are not ready for the new solutions
• Lack of support from strategic stakeholders and other functions in their organisation

In essence, all boils down to the following 3 problems:

• The new solutions and services do not solve (new) critical business problem of the clients. The value or impact is not clear (other than potentially lower prices for the maintenance services).
• It is not clear how these services contribute to the overall business challenges and vision of the company as a whole.
• The service vision is too abstract for internal stakeholders to understand and endorse. Words like servitization, outcome-based services, remote services and product-as-a-service are too theoretical and do not clearly articulate a vision and strategy.

This is pretty frustrating, isn’t it?

The solution

In this article I share critical frameworks which many service teams miss in their service innovation strategies. These are:

• Build deeper and broader insights in your clients business challenges and pain points
• Focus on specific customer segment, based on their needs
• Approach your business models more holistic

Build Deeper and Broader Insights in your Clients Business Challenges and Pain-Points

To be truly outside-in and customer driven, you need to have a deep insight in the challenges and problems your clients are facing in their business. Deep customer insights should:

• Go beyond their requirements about uptime and maintenance of their assets
• Cover a time window of 3-7 years
• Be thought provoking eye-openers for your clients

You and your colleagues already have most information at hand. It is a matter of turning this information and knowledge into a compelling customer story, for irresistible advanced services.

You can read more about this in “Build a Strong Customer Story in 7 Steps and Launch Irresistible Advanced Services”

Focus on Specific Customer Segment, Based on Customer Needs

One size does not fit all. Different clients have different visions and strategies, different challenges and therefore different needs. When defining the (latent) customer needs for today and the near future, it is crucial to have some sort of segmentation of your important clients based on their (future) needs.

This segmentation will help you to develop a robust strategy which defines which customer segments you will target, with which new service offerings and which business models you will develop.

There are many ways to segment clients based on their needs, largely depending on the specific industry. I will share two generic patterns for customer segmentation which can be useful for you to take as a starting point. They are based on segmentations of innovative and successful manufacturers and service leaders.

Two often used patterns for customer segmentation are:

• Maturity – Willingness to outsource of a business
• Maturity – Complexity of a business

This could be a useful pattern in industries where many of your (potential) clients tend to do most functions themselves instead of outsourcing the activities (like maintenance of equipment).

Along the vertical axis you can separate segments based on the maturity of their core capabilities and processes.

For example, in the industry of metalworkers this could be:

1. Traditional craftsmen
   The entrepreneurs personally (together with their employees) manufacture the metal products themselves, love part of the manual work and working with their machines and tools. This is their pride. Little of the activities are put into structured processes.
2. High tech workshops
   The entrepreneurs have invested in state-of-the-art tools to improve quality, consistency and efficiency. Their main focus is still on the technical side of the profession. Probably there is more structure in the workflow and processes, predominantly organised from a technical point of view. From a more economical point of view, the structure is not efficient yet.
3. Lean manufacturers
   The entrepreneurs have a more economic view (or hired an operations director with economic competencies) and are working on efficient processes, workflow and organisation. They follow lean-six-sigma or similar approaches to optimise human resources, capital investment and materials.
4. Value chain optimisers
   These entrepreneurs have a broader scope and are looking to their added value in the entire value chain, partnerships, vertical integration or specialisation. They may also develop more advanced value propositions to their clients like inventory management and delivery of the components they manufacture in small packages in the production line of their clients.

This is a very brief description. You should probably also look into functions like sales, marketing, engineering, internal logistics, inventory management, tools management, financial management, human resources management etcetera. You get the picture.

Along the horizontal axis you can segment your market into clients that tend to do as much as possible themselves versus clients that outsource many functions which are not part of their core-process. Clients in the first category probably have various dedicated departments, competence centres or teams for functions like process optimization and maintenance.