Oracle's Vikram Singla discusses the importance of servitization in the future of UK manufacturing.
How important is servitization in the growth and development of UK manufacturing?
According to a September 2015 McKinsey & Company article – Six building blocks for creating a high-performing digital enterprise – the average corporate lifespan has reduced from 68 years in 1958 to 18 years in 2011 and reducing even further.
A recent EEF study showed the manufacturing sector, with its 2.6m workforce and 10% of GVA, must innovate to ensure its relevance in the fast changing global world.
The servitization approach puts customers at the centre and ensures the systematic and ongoing evolution of the business in order to keep pace with the changing marketplace.
What value is it really adding to the sector?
Aston Business School’s Professor Tim Baines showed in a 2014 presentation that servitization can impact growth by 5-10% in services revenue in some cases.
Then, in an article for Raconteur in January 2014, he said profits can be 2-3 times greater than those in product sales alone.
The servitization approach looks at the complete customer lifecycle and aims to deliver a consistent and differentiated experience across all the stages.
This differentiated experience, derived from the manufacturer’s superior understanding of the customer, becomes much harder to replicate and provides ongoing competitive advantage.
How do you think servitization is set to develop?
Many companies start with product-centric services (e.g. maintenance and repair, installation etc.), mostly to compensate for the revenue drop in the product business.
However, the real differentiation will happen when servitization becomes part of the corporate strategy. The capabilities are then designed, priced and delivered with the entire customer lifecycle in mind.
The results are then radically different e.g. at The Manufacturer’s Manufacturing Services Annual Conference in October, former CEO of MAN Truck and Bus UK, Des Evans, revealed the firm grew its market share from 3% to 12% after adopting this approach.
What do you believe is driving the changes taking place within the sector?
The increasing sophistication of the customer is one of the mega trends of recent years. The customer now expects a capability that is clear in scope with defined cost and time to value.
The second trend is the increased rate of technological change and the associated specialisation, as well as the risk of product obsolescence.
As GE’s Jeff Immelt says; “Industrial companies are in the information business whether they want to be or not”.
What are the major barriers to manufacturers adopting a service model?
The barriers are classical and apply to most companies that see the shift in the marketplace as a threat, rather than an opportunity to grow.
- Not appreciating the pace and scale of change in market dynamics, posing direct threat to survival, let alone growth;
- Lack of strong leadership to drive the change across the organisation;
- Not having a well thought-through roadmap to deploy change.
How can manufacturers remain competitive when technology is constantly changing the landscape?
Manufacturers need to focus on the differentiation of their offer and leverage technology as appropriate.
The key is to be customer-centric and deliver superior customer promise consistently across all the stages of the customer life cycle.
This focus will ensure that technology is leveraged to build better product and service offers faster than others; run business processes much more effectively and efficiently; and enable people to be more productive.
What is Oracle doing differently to support the growth of UK manufacturers?
Oracle is moving towards a service (cloud) company and provides packaged software to run the business processes at a significantly lower entry cost, risk and time to deploy.
Even more importantly, this mode of technology deployment ensures businesses can keep pace with change.
From an operations perspective, we support the following business processes:
- Ideation to commercialisation
- Plan to produce
- Quote to cash
- Procure to pay
