How will servitization affect your people & culture?

Now that many conversations around servitization have matured from merely what it is, to how can the concept can be adopted, its potential impact on a business’ employees and culture is growing in relevance.

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When selling a product, additional service capabilities are frequently offered for free in order to help steer an individual sale to completion, or foster goodwill for repeat business.

This shift in tone was echoed in The Manufacturer’s recent conference on servitization, with many delegates offering their own experiences and insights, and in wider conversations within industry.

When transitioning to a services-based model, there appears to be several significant challenges businesses encounter, many of which centre around the training and day-to-day practices of sales members.

A number of senior manufacturing executives have described the difficulties encountered when their business has moved from selling a product – something sales members had been trained in and undertaking for their entire career – to selling an outcome.

Lost revenue 

There is a still a widespread practice among manufacturers that when selling a product, additional service capabilities are offered for free in order to help steer an individual sale to completion, or foster goodwill for repeat business. The disadvantage that subsequently places on a manufacturer can be great, particularly when applied to ‘long-tail’ products, i.e. those of low volume, high-value.

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The initial high cost of long-tail products typically runs concurrently with services being given away at no additional price.

The initial high cost of long-tail products typically runs concurrently with services being given away at no additional price; however, the depreciation of the product over its long lifecycle means the opportunity cost of that practice can be keenly felt by manufacturers.

To counter this, businesses must consider the value of products over their entire lifecycle, from ‘cradle to grave’, rather than just the initial sale.

An additional layer of complexity facing businesses concerns incentivising both internal team members and external clients when first embarking on a servitization journey.

Managing how existing customers react when your business begins to charge for a service it previously gave away for free can be proactively countered through effective communication and a clear demonstration of the added value being offered.

Similarly, communication between operations and sales departments is vital if sales members are to fully grasp the true value, and potential future opportunity cost to the business, of what they are giving away. Subscribing to the adage, you can’t manage what you can’t measure, one manufacturer has attributed a cost metric to each of the services currently given away, encompassing labour, parts, internal resources and utilities.

These were shared with each member of the sales team and included as part of their monthly key performance indicator (KPI) review meetings. To date, the method has proven successful, with a direct correlation between a drop in the number of services being offered for free and an increase in the revenue being generated by services.

It isn’t solely sales teams who need to understand the value of services, however, there is also an onus on marketing departments to understand the new proposition. It can be relatively straightforward to put together a visually appealing advertising campaign for a new product line, whereas representing a service through promotional materials can be far more challenging.

Get it right however, and successfully promoting and selling your business’ knowledge or capability, rather than a standalone product, makes it very difficult for other businesses – both domestic and overseas – to compete against you.

The Road to Customer Intimacy Through a Service – Centred Approach FCThis article is taken from the recent white paper The Road to Customer Intimacy Through a Service-Centred Approach, based on research conducted by both The Manufacturer and Aston Business School’s Advanced Services Group, and the insights gained from an exclusive servitization roundtable event which brought together senior leaders from across UK manufacturing.

The full white paper – co-created by The Manufacturer and Microsoft – discuss how servitization complements Industry 4.0 technologies, what impact adopting servitization will have on your workforce, mitigating the challenges associated with business transformation, and identifying where within your business customer value is created.

If your company has already made the first step, or is considering embarking on its own servitization journey, this is vital reading for you and your business’ decision-makers to question your existing processes and ensure you get the most out of your transformation journey.

Click here to download the full white paper.