Making the shift to a more services-oriented business

Smart, cloud-connected products are not only changing how the world works, but the way business works too. Traditional, product-focused business propositions are slowly becoming less dominant. They’re being replaced by new ones characterized by creative mixes of products and personalized service – often in cooperation with business partners.

Servitization – from chain to network

Such servitization delivers valuable economic and competitive advantages. Product sales are characterized by one-time transactions, while service supply leads to ongoing engagement and recurring revenue streams. Product-service models also create deeper customer ties and relationships. This, in turn, improves market insight, leading to more effective innovation cycles. In short, servitization unlinks you from a static value ‘chain’ and establishes a dynamic presence in a wider value network.

Reconsider needs and capabilities

But successfully making the shift towards servitization involves complex factors, and decision-making. It not only requires that you look at your customers’ needs, capabilities and business in a completely different way, but that you also reconsider your own needs and capabilities– and maybe even that of business partners.

Finding the value sweet-spot

A first key challenge is pinpointing what type of service innovations your customers need. Especially since it may be one that they don’t even realize they could really use yet. It’s not about ‘products’, but functionality. What are your customers’ daily ‘burdens’, and how could you help to remove them so they could work better or more cost-efficiently? It is of crucial importance to ensure that they – not necessarily you – perceive the service as high-value, and that it is one they will need on an ongoing basis.

Prepare for change

And as you work to identify what your customers would consider a high-value service innovation, you also must realize – and embrace – the fact that servitization will have a major impact on your organization. It may require adapting your products to make them more ecosystem-friendly. You will almost certainly need to acquire new capabilities and, depending on how far your ambitions go, better market insights and or presence.

Creating new ecosystems

Because of this, in many cases it can often be much faster and more efficient to collaborate with partners who already have such capabilities, insights or presence to create a new multi-business ecosystem in which you deliver a new service proposition together. This in itself presents challenges, as it requires unusually deep, open and transparent discussion between all concerned. What would your ideal shared ecosystem look like? What roles can you – or would you want to – play in it? And who should get what part of the business proposition pie? Such candid interaction is one of the more obvious examples of how the very rules of doing business are being transformed.

Rethinking your organization

But whether the involvement of partners will be limited or extensive, you must be prepared that servitization is going to change the structure of your organization, and most likely make it more complex. KPI’s – e.g. your ambitions on revenue or profit margin – need to radically change as well. And as your business processes transform, management processes may require modification too.

Current insights for smarter choices

All of this, however, can be done by almost any organization. Servitization as a concept has been evolving already for quite some time in many different business areas. There is already a significant body of information, market insights and best-practice examples to draw on in making the shift from a product- to a more services-oriented business. This, together with Enterprise Architecture support, can help ensure a transformation that is smooth and sustainable. And if you also make good use of dedicated IT and data analytic platforms, you can build in optimal scalability from the start, ensuring that you are future-ready to industrialize your service if it performs according to expectations.

Five levers to move from products- towards services business

Five levers to move from products- towards services business

Industry consulting, one of the key areas of expertise of Philips Engineering Solutions, has identified and fine-tuned an iterative, five-levered approach proven to effectively shift businesses from product to a more service orientation.

Working together in a hands-on, co-creative way, we help organizations explore potential business-model scenarios and crystallize optimal roles within them. This can also be done in group collaboration with your (potential) business partners.

The result is a viable business solution within a well-defined ecosystem and clear plans for getting from where you are to where you want to be. We can also provide valuable support in evaluating and fine-tuning existing service propositions that are not performing to expectation.

Read more about Innovation for growth, one of our services of our key area of expertise Industry consulting.

Related articles about this topic: