How amazing would it be if you could get a real-time assessment of your products (industrial equipment), like how these assets are performing during regular operations, along with the ability to predict any technical failures, anomalies in machine feedback, and most importantly, the ability to turn the best value of edge data into smart product analytics dashboard? This is why most OEMs are pivoting to servitization.
This isn’t just beneficial for your organization; it also offers various options to build newer revenue systems through equipment as a service model. The latest study at Forrester found that 85% of firms in the industrial sector prioritize service-led and outcome-driven business models on top now. This business model goes beyond the traditional focus on product sales, pushing companies to innovate by integrating services into their offerings.
But what exactly is servitization, and how can OEMs harness its potential? Let’s explore this further.
What is Servitization?
To foster growth and improve revenue generation, OEMs are providing additional services to their clients, evolving from solely selling traditional products, which is called servitization. In a recent PwC Annual Global CEO survey, 40% of CEOs shared that they believe their businesses will no longer be financially viable in 10 years if they continue their current course.
Servitization is a business model transformation that enables businesses to create and capture additional value through extended relationships with their customers. They offer maintenance, repairs, operations, and even outcome-based contracts alongside or instead of traditional product sales, like insights into consumer usage routines and product performance. It reflects a strategic move from a transaction-based model to a relationship-oriented approach, emphasizing customer satisfaction and long-term engagement. It is helpful for better serving existing clients, expanding markets, and driving profitable revenue growth.
Why Do OEMs Turn to Servitization?
“Having greater access to data accelerates your learning and enhances your ability to deliver value to your clients.”
OEMs are increasingly turning to servitization for several compelling reasons. This model deepens customer relationships, providing OEMs with invaluable insights into product performance and customer needs, which can inform future innovations.
The primary driver is the pursuit of sustainable revenue streams. Unlike one-off product sales, services provide continuous revenue, enhancing financial stability and predictability. As the above graph shows, with a product-centric business model, OEMs can only focus on product sales, related technology value, feature-based solutions, and transactional models. Whereas the Service-Centric Model can help you focus on customer needs, boost user experience, provide usage-based solutions, and follow a subscription-based model.
“Being the first in your industry can position you as a leader and allow you to capture a significant market share.”
Additionally, servitization allows OEMs to differentiate themselves in competitive markets, offering unique value propositions that go beyond the capabilities of their products alone. If an OEM starts to adopt the latest service-based business model in the industry before its competitors, it can achieve higher revenue, capturing a greater market share.
Benefits of Servitization
The transition to a servitization model offers a plethora of benefits for OEMs, including:
- Enhanced Revenue Streams: OEMs can tap into new revenue opportunities and enjoy more consistent cash flow by offering services alongside products.
- Competitive Differentiation: Servitization enables OEMs to stand out by offering unique, value-added services that competitors may not provide.
- Customer Loyalty: Ongoing service relationships foster deeper connections with clients, leading to loyalty and long-term business growth.
- Operational Insights: Through continuous engagement, OEMs gain direct feedback on their products, allowing for rapid iterations and improvements.
The Challenges of Servitization
A recent study by Gartner revealed that 20% of CEOs from Global 2000 companies have shown a heightened willingness to take risks and have reported increased resilience, attributing these improvements to advances in modular business redesign.
Despite its advantages, enabling servitization brings its own set of challenges. Transitioning from an outcome-based business model to a service-oriented model requires significant changes in company culture, systems, and processes. OEMs must invest in training, technology, and infrastructure to support service delivery. Additionally, there is the risk of cannibalizing existing product sales, and OEMs must carefully manage this transition to avoid negative impacts on their traditional revenue streams.
Architecting Servitization Solutions with OEDC
The OEM Enterprise Domain Cloud (OEDC) approach provides frameworks and guidelines that can aid OEMs in navigating the transition to servitization. These include principles for digital transformation, innovation, and sustainable economic growth. By leveraging OEDC’s guidelines, OEMs can:
- Develop Clear Strategies: Define a servitization vision and roadmap that aligns with the organization’s overall goals.
- Invest in Capabilities: Build the necessary skills, technologies, and infrastructure to deliver high-quality services.
- Foster a Service Culture: Cultivate a company culture that values customer service excellence, operation excellence, and product excellence.
- Innovate Continuously: Use insights gained from service operations, like APM, ARM, Field Ops, etc., to innovate both products and services.
Conclusion
Servitization represents a significant opportunity for OEMs willing to embrace change and innovate beyond traditional product sales. With OEDC, an integrated solution that combines products with services, OEMs can unlock new revenue streams, differentiate themselves in the market, and produce stronger customer relationships. Transitioning to a servitization model requires careful planning, investment, and a willingness to adapt. However, by following proven methods and focusing on building the necessary capabilities, OEMs can navigate the challenges of servitization and emerge as leaders in their industries.
Nishant Puri, Co-Founder & CISO at IoT83
Nishant carries professional expertise in team collaboration and network security solutions. He excels at aligning the needs of key business stakeholders, including Sales, Marketing, and Product Engineering, with pragmatic and efficient approaches that meet both short-term and long-term strategic goals.
Before joining IoT83, Nishant held a leadership position at Cisco America Partners, where he led sales and technology solutions. He was also a frequent speaker for Cisco APO, showcasing his knowledge and experience in the field. Being a Cisco-certified Inter-Networking Expert in Security and Collaboration, Nishant brings a wealth of technical expertise to his role. He is also inclined to identify digital discontinuities and is adept at mapping out effective digital transformations.
