Professor Andy Neely, director of the Cambridge Service Alliance describes the factors defining a shift to solutions provision across the global manufacturing industry.
The Cambridge Service Alliance
The Cambridge Service Alliance was founded in September 2010, bringing together the University of Cambridge’s expertise in service-science research, together with IBM and BAE Systems, to research new ways to provide, implement and employ complex service systems. In 2011 the Alliance was joined by Caterpillar Inc. as an industrial partner.
The Cambridge Service Alliance works out of the Judge Business School and the Institute for Manufacturing at Cambridge University.
Each year the Cambridge Service Alliance hosts Service Week, a series of events for industry and academia to progress research and understanding into the workings of complex service systems and how to leverage them for competitive benefit.
Service Week includes a day-long industry conference which will be held on October 1 this year. The headline theme is Successfully Making the Shift to Solutions. The programme includes case study presentations from Caterpillar and Finning, both of which will give insight into managing solutions provision for heavy assets in the equipment eco-system.
TM: You say there is a ‘shift to solutions’ in the manufacturing industry. What do you mean by this?
Andy Neely: Increasingly manufacturers are not just selling their products but worrying much more about the outcome their customers, indeed their customers’ customers want. This means thinking about providing solutions which may, or may not, be enabled by their products.
TM: In which sectors is this shift most advanced?
AN: Companies in capital intensive industries, like rail, are often well advanced down this road. For example some manufacturers have contracts to supply a specified number of trains to network operators per day for a set number of years.
Solutions provision doesn’t always appear in this contract format however. The pharmaceuticals industry is midway through a reinvention which will see more firms become healthcare solutions providers as opposed to simply tablet and drug manufacturers. In short pharmaceuticals manufacturers are helping their end customers to be healthy, rather than encouraging them to buy their products.
This creates a business model, which we see popping up in all walks of industry today that is not centred on products but on achieving the end that the product can deliver through a variety of different solutions.
It’s something of an irony that, just as we are starting to get to grips with rebalancing the economy, many manufacturing firms are realising there are benefits in becoming more like service firms.
TM: Is the shift to solutions an important trend for the competitiveness of UK industry?
AN: It is – but not because it is a differentiator as such.
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.
But this is no longer the case. We are now in a global race where manufacturers everywhere have recognised the value in offering services; in providing outcomes that customers really want.
In China the shift to solutions is developing quickly. In 2007 about 1% of the manufacturing base in China could be classified as what we [at the Cambridge Service Alliance] would call ‘servitised’. Today it is about 15% to 20%.
In the same time frame the British manufacturing sector has more or less maintained a level of about 30% servitisation.
TM: How does a company need to change in terms of infrastructure and strategy in order to deliver solutions effectively?
AN: Broadly speaking we see six steps towards servitisation which are split into ‘destination’ and ‘journey’ categories.
In terms of the destination steps: a company should first be clear about the context and rationale for solutions in their industry. Company leaders need to ask themselves why the shift to solutions is necessary in their industry and how is it going to improve their competitive position.
Secondly, a company needs to define its service domain. How far down the service road is it going to go? Will a firm completely take over some customer operations, or will it simply guarantee a certain amount of uptime from its products in order to allow the customer to complete those operations?
Finally, a company must decide how it is going to configure to deliver. What are the tasks and critical processes involved in delivering the defined solutions. Because delivering solutions often involves collaboration with partners, this is likely to require a joint assessment of resources and how they fit together in the value delivery system.
In terms of the journey steps to servitisation, the first area to consider is a large one. A company must define what skills, technologies, behaviours and culture are needed to create the service business it has outlined.
This means considering the role of sensors, remote monitoring and big data in delivering the services a company wants to offer. It means identifying what skills are required to leverage those technologies effectively.
Establishing behaviours and culture for service delivery can be particularly difficult for manufacturing firms where employees become afraid that the solutions business will cannibalise the product business.
This leads into the second ‘journey’ step which is about defining the implied organisational structure that flows from your solutions strategy. A company will need to work out whether it wants the solutions business unit to be a separate division, or whether it will be integrated within the existing business. There needs to be a plan around how employees will be incentivised to deliver on solutions targets and what the measures of success will be for solutions prevision.
Finally, leaders need to understand the consequences of their solutions growth on risk and governance. There needs to be an acknowledgement of how the new business model might affect existing and future business partnerships and mergers and acquisitions.
TM: The members of the Cambridge Service Alliance are all large firms – is this shift to solutions primarily a concern for large organisations?
AN: There are two angles to the solutions story for smaller firms.
The internet is opening up the potential for smaller firms to be much more ambitious in terms of the services that they might offer.
For the example, the US-based firm Threadless, a t-shirt manufacturer, has used crowdsourcing technologies on the internet to effectively outsource market research and design.
It invites customers to design t-shirts and posts the designs on the website. Other customers then vote for the designs they would like to see enter production. When a design gets five votes it is considered to be popular enough to have retail potential.
In turn, Threadless also offers a market research solution to its customers. It sells its t-shirts at GAP, which as a high street retailer can be assured that all the garments it creates space for in its shops have a pre-assessed market appetite.
The other angle for SMEs to be aware of is that, as a second or third tier supplier you are increasingly likely to be called in to support the way in which larger firms are shifting to solutions.
If you appear not to understand the debate around the solutions transition and you cannot support them in achieving it, you may lose supply contracts to others who can.