Being a solutions provider doesn’t make you special

Posted on 6 Sep 2013 by The Manufacturer

Past competitive differentiators are becoming normalised. Jane Gray blogs on the global race for servitisation and what companies need to consider if they want solutions provision to make a difference to their competitive profile.

Jane Gray, Editor, The Manufacturer magazine

“We not just a manufacturer, we’re a solutions provider.”

This slightly smug phrase is endlessly reeled out by manufacturers of all sorts in interviews with the press and in marketing material.

It’s an announcement which is usually followed by the litany of reasons why this strategic position differentiates the company from cheaper competitors – often in China – who are only interested in “shifting boxes”.

But is being a solutions provider really the competitive differentiator that so many believe it to be?

Perhaps it once was, but according to Professor Andy Neely at the Cambridge Service Alliance, the idea that providing services and solutions around your product, as well as just selling it, will make you stand out from the crowd if fast becoming outdated.

Since 2007 the proportion of Chinese manufacturers offering services alongside their products has shot from around 1% to 15% and is still growing fast.

In the same period, the proportion of UK manufacturers offering solutions and services has grown slightly, but remained largely stagnant around the 30% mark according to Professor Neely’s research. In the US about 55% of firms are what Neely would describe as ‘servitised’.

“For quite a while there was an argument that providing services offered a way for manufacturing companies in developed economies to compete, to differentiate themselves from low cost manufacturers in developing economies,” says Neely.

“But this is no longer the case,” he continues. “We are now in a global race where manufacturers everywhere have recognised the value in offering services; in providing outcomes that customers really want.”

Of course this absolutely does not mean that service and solutions provision are not important. In many ways it makes them more important.

As solutions provision becomes normailsed, customers will expect it as standard and, although being a solutions provider won’t make you stand out, it might keep you in the game.

But there is hope for those who have pinned their colours to the ‘We’re not just a manufacturer’ banner.

As Neely would tell you, “getting services right isn’t easy”. So there’s plenty of scope to differentiate yourself in terms of how good and how innovative you are in designing and delivering customer solutions.

Quality of solutions provision will be defined by a company’s ability to understand how becoming more ‘servitised’ will impact; their company infrastructure, technology requirements, cash flows, skills base, culture and, crucially, risk profile.

Mark Ager, CEO of stage automation manufacturer Stage Technologies before its recent sale to Tait, told TM earlier this year how growing the service and solutions side of his business had required a big change in perspective when looking at financial performance.

Industrial automation provider Festo has found that increased service provision has necessitated a massive increase in the amount of nuanced sales training required across the firm where 80% of roles are now considered to be ‘customer facing’.

Other firms may find that they need to revisit their insurance and risk management strategies. They may need to establish bespoke cover with carefully selected suppliers since research from Mactavish showed last year that the insurance market is largely behind the curve when it comes to understanding the impact that service provision can have on areas such as product liability and professional indemnity.

And then there’s the expanding world of technology to support solutions provision, like remote monitoring sensors, big data analytics and internet-based crowd and outsourcing systems. Deciding which ones could enhance your service offerings, who will own the data they produce and how to measure return on investment is uncharted territory for many.

These are just a few of the challenges that need to be carefully addressed if manufacturers are to gain competitive advantage through being a solutions provider.

Simply offering services will not differentiate.