Servitization has come a long way - from Rolls Royce’s ‘Power by the hour’ model that supported the Viper engine on the De Havilland business jet back in 1962 to Philips’ ‘Light as a service’ model for Schiphol airport in 2015. It is becoming more omni-present across industries. Continuous commoditization powered by technological advances is forcing manufacturing enterprises to move toward servitization, while cloud computing is bringing to the fore subscription-based models in IT. Industry surveys suggest that 65% manufacturers globally will adopt servitization by 2020. According to The Manufacturer UK, 79% of UK’s manufacturers say digital technologies will help broaden their customer base via servitization.
The new Business 4.0 paradigm, combined with the changing preferences of businesses and consumers, is driving organizations to adopt growth strategies that are more adaptive and futuristic. The result: a seismic shift in growth strategies - from traditional fixed price to flexible business models such as sharing economy, gig economy, pay-per-use models, and subscription based services (rather than owning products).
What’s driving the boom in subscription led businesses?
The availability of higher computation power systems and growing adoption of big data are driving the advancement in technologies such as artificial intelligence (AI), machine learning (ML), business intelligence (BI), and the digital twin. This is turbocharging enterprises to offer intelligent experiences and digital services to their customers (who are now turning into subscribers), leading to the advent of digital servitization.
Take for instance, the evolution of products like Windows to Windows-as-a-Service, MS Office to Office 365, and TV shows and movies releasing on Netflix and Hulu instead of in the theaters. Servitization rules across industries today.
Four key focus areas for servitization success
For high tech and manufacturing enterprises looking to shift to subscription-based, as-a-service business models, focusing on the following four areas can help drive success:
1. Subscriber experience: Switching from a business model based on ‘selling products’ to one on ‘selling solutions’ requires a high level of commitment to delivering superior customer experience (CX). Even an occasional ‘less than perfect’ experience involving rigid offerings, pricey products, fault ridden patches or upgrades, can disrupt a recurring stream of revenue for service oriented enterprises. One way to avoid this is to conduct a complete touch point analysis across the customer journey, instead of focusing on specific products or channels. Two key enablers of exceptional CX: the ability to drive data-driven decisions and infuse intelligence at various customer touch points by building proprietary affinity engines that make relevant recommendations to customers. Done right, servitization will enable hyper personalization, allowing enterprises to move toward a ’segment of one’ and provide targeted value to subscribers.
2. Incessant scalability: Service scalability is another important focus area for subscription-based enterprises as servitization can be easily replicated by the competition. In order to gain and retain a distinct edge, it is important to continuously innovate by upgrading infrastructure from legacy to next-gen technologies and systems based on cloud computing and microservices architecture. Doing so can enable real-time feature additions and customer recommendations, and enhance the ability to scale operations as and when required.
3. On-demand services: On-demand services is an advanced form of servitization. It is a natural progression to the ‘as-a-service’ model. Why? A sharing economy ecosystem is required to optimally utilize and leverage the features and services available. For enterprises that operate in industries that are highly fragmented and not particularly known for great customer experiences, on-demand offerings act as a differentiator. Deploying a basic technology platform that simplifies service consumption and enhances customer experience is a good place to start. UK’s food manufacturers are collaborating with Siemens to cut wastage, reduce costs, and enhance competitiveness using the servitization model.
4. Orchestrate collaborations: Collaboration between different and often-changing players requires building and operating a platform that facilitates interaction and monetization, locks in stakeholders, and provides a focal point for an enterprise to thrive in the ecosystem. To disrupt the existing paradigm by leveraging technology, enterprises must adopt a clear vision and be extremely patient to work with partners who may also be new to the ecosystem.
Building and nurturing a growing model
The success of the subscription business lies in the depth and breadth of stakeholder contributions, backed by a visionary strategy. The powerful combination supports an ecosystem’s fast growth and the enterprise’s rapid adaptation in response to external change. Service diversity, on its own, can drive end user uptake, making it important to maintain diverse offerings even at the expense of efficiency. To arrive at the optimal service mix and ensure success, enterprises need to explore several options over time, and invest time and effort in shaping the selected options.