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Business and Technology Insights

Identifying and Overcoming Key Servitization Challenges

 
February 14, 2018

Servitization is catching on rapidly in manufacturing circles. Adopting it as a business model provides manufacturers with opportunities to boost both customer value and revenue. It enables them to offer their products as services, which makes a lot of sense. Many customers don’t want to purchase a product these days; they want the value of the product, and are willing to pay for that value by paying for it as a service.

Manufacturers that successfully shift to a servitization model are improving the reliability and uptime of their products, helping customers make operational improvements, selling new product capabilities, and increasing revenue. If you’d like to learn more about this, please read my previous blogpost Exploring Servitization And How It Can Change Your Business.

However, as exciting as it sounds, servitization has its own challenges. Here are the biggest ones I’ve seen:

  1. Core business dominance: A company’s core business model is to make and sell products, and functional heads often find it difficult to adopt a new model that completely re-imagines their business. To compound the problem, the foundations of servitization are built upon new and unfamiliar technologies such as the Internet of Things and Artificial Intelligence. To overcome this, businesses should conduct design thinking workshops that help executives see things from the customer’s point-of-view and better understand what they want and how to deliver it.
  2. The silo trap: Manufacturers, especially large-scale ones, typically run their different divisions in silos – be it design, engineering, production, or marketing. Soon they realize that each operates quite independently in planning for the future. A servitization model requires a manufacturer to run several functions as one big corporate machine. To overcome the silos, executives must have cross-functional discussions about customer value and team up to create pilot tests of service offerings that would be most attractive to customers.
  3. Channel resistance: The traditional manufacturing model allows sales, distribution, and service partners to earn additional revenues by providing after-sales support and maintenance. Since servitization prima-facie threatens such revenues, channel partners might resist it. To allay their fears, organizations must build proof-of-concept projects to show how they might continue to be valuable partners in the future.
  4. Customer inertia: Servitization will be new for many customers, and some will be hesitant to adopt it despite the many benefits of servitization. Manufacturers must educate customers about the value they would gain from buying a product as a service.

There’s no doubt that servitization can help manufacturers a great deal, especially in improving the customer experience and boosting the value they provide. Although there are challenges to adopting the model, the benefits far outweigh the challenges. To know more about how to adopt servitization at your company, read my article ‘What Happens When You Turn Your Products Into Service’s in our management journal, Perspectives.

Regu Ayyaswamy is the Global Head of the Engineering and Industrial Services (EIS) business unit at Tata Consultancy Services (TCS). He is responsible for creating value-based solutions and services to enable accelerated product development and integrated manufacturing for clients across the discrete and process manufacturing industries. Regu has varied experience spanning customer relationship management, program management, competency development, and people management. In the past, he also headed the TCS Cincinnati office and was responsible for developing key relationships in the region. An acknowledged thought leader, he is regularly invited as a speaker to major industry events and forums.