The transition from producing industrial products to outcome-driven services will create new opportunities for OEMs. Realizing the rewards of such promise, however, will require that OEMs not only re-orient their organization to a service focus, but do so at an accelerated pace.
The pressing need to quickly achieve the transformation is largely driven by several dynamics impacting the industrial market. Today, business-to-business customers are rapidly shifting to the purchase of experiences that provide outcomes rather than products alone—much like everyday consumers. This Product-as-a-Service (PaaS) trend reflects the business world in general as it increasingly moves away from an asset-based economy involving products to an outcome-based economy.
Moreover, as part of the shift, organizations will need to develop an in-depth knowledge of their customers’ businesses and how they make money to create a viable, outcome-based service that can support them. This includes having the right capabilities in place to provide such services on an ongoing basis driven by specific customer needs at the time and embracing ecosystem partners and suppliers in this new way of serving customers.
Instead of selling a product as a one-time item, many companies are taking advantage of the growing demand for PaaS offerings to fill the revenue gap. For example, a major tire manufacturer is offering customers the option of managing their tires as a service in addition to selling them. The organization is currently managing 300,000 truck tires of customers worldwide.
The journey to establish a powerful service-driven organization begins with developing a resilient service operation that can be flexible and agile enough to prevail in the current environment and act as a springboard to hasten service-related revenue. This two-phase approach involves several actions industrial companies can take to make the transition.
To ensure resilient operations companies need to:
· Make use of data from smart products, supply chains, and the market to help ensure outcomes will be achieved and risks will be mitigated.
· Adopt new digital technologies, such as connected products; cloud-based innovation platforms; and analytics for sensing, responding and managing to enable effective PaaS offerings and a thriving business as a whole.
· Create an operating model that is integrated with all business units across the enterprise, including independently owned dealers and distributors, and encourage collaboration as part of the organization’s culture.
· Perform robust scenario planning to help ensure service talent is optimally utilized and available to serve customers at exactly the right time.
To accelerate service revenue, companies need to:
· Innovate continuously to ensure that the immediate and changing expectations of customers are constantly met.
· Attract new talent and develop service-oriented skills to increase the organization’s focus on selling and delivering services versus traditional manufacturing products.
· Proactively originate demand for outcome-driven services with a focus on client value creation.
· Be nimble as a service-based business and hone the ability to anticipate, sense, and respond quickly to customer needs.
· Develop service platforms to deliver smart services such as predictive maintenance and remote diagnostics.
· Monetize access to service platforms, including data analysis, and insight services to customers and third parties.
These actions provide a robust framework for executing the transition and increasing services revenue. But industrial companies also should be prepared for ongoing challenges. These challenges include needing to clearly work out roles and responsibilities with independent distributors, changing the clock speed of the organization to get products to market quickly, and the ability to face a new set of competitors who behave different than traditional “product” competitors. Being prepared to succeed in a competitive environment that will only intensify as peers and new-market entrants vie for services market share will be critical.
Stabilizing the future
Digitization of the industrial sector has evolved from digitally enabled products to a focus on services, experiences, and outcomes that will help OEMs stabilize their business and spur growth in an unstable economic environment. Those companies that can re-adjust their organization to accelerate service offerings will be better prepared to capitalize on the shift to this next major stage in the industrial market.