NSCG recently engaged Alec Gilbert, a Business & Services Growth Consultant – – to explore the organisational and leadership challenges associated with evolving from supplying products to a service-led model.
Servitisation refers to the shift from supplying products to the delivery of service-based outcomes – i.e. product as a service – a growing trend across many manufacturing businesses. Good examples include Rolls-Royce who contract with the airlines on a ‘power by the hour’ basis and Xerox who adopt a ‘pay per use’ model. Both organisations realised the value of providing through-life support, which generates significant income through aftermarket services whilst enabling them to form deeper, more strategic relationships with customers. Benefits to customers include increased reliability, lower overall cost/total cost of ownership (TCO), reduced operational complexity and improved cash flow.
Modern day equivalents include streaming services – i.e. Netflix and Spotify – enabling customers to access services previously delivered in product form, and servitisation is now being widely adopted by a variety of critical equipment suppliers.
Alec, who has developed a proprietary change model, described how “most manufacturing organisations start with their products and climb the servitisation ladder: Product > Reactive > Preventative > Proactive solutions > Business optimisation”.
The evolution relies on digital technology to generate data and the systems/knowhow to leverage it for predictive/prescriptive purposes but this only represents a small part of the challenge; the ‘Disciplines of Market Leaders’ (Michael Treacy), suggests that successful businesses need to focus on one of 3 core disciplines:
- Customer Intimacy – combining detailed customer knowledge with operational flexibility to create the best total solution for the customer
- Operational Excellence – controlling processes to effectively deliver best total cost to the customer
- Product Leadership – selling the best product on the market
However, servitisation suggests that you need to increase the focus on customer intimacy whilst retaining competence in both operational excellence and product leadership. Therefore, “the hardest part of the journey is the last 2 or 3 steps, which require a cultural shift as the focus of the business moves from ‘our product’ to ‘our customer’.
From a leadership perspective, Alec identified the creation of a clear vision and strategy, consistent communication and reinforcement, and leadership by example – ‘doing the right thing – as key considerations. The strategy needs to place significant emphasis on:
- Aligning the organisation around the customers’ needs, creating a customer-centric culture
- Upskilling the organisation capability to deliver a whole life solution and focusing on the customer benefits of the solutions
- Integrating the organisation to deliver a consistent solution to customers, not just fragmented silos of manufacturing and services
“This cultural shift requires organisations to develop new capabilities it may not have developed as a manufacturer. Successful outcomes also vary according to the strength of the customer relationship; deep trust, aligned goals and a basis for managing risk are important considerations here”.
Alec highlighted the following types of skills that need to be developed as an organisation moves up the servitisation ladder:
- Customer focus: seeing the world from the customer’s perspective; having a deep understanding of the customer’s business and being able to innovate improvements
- Teamworking: the ability to work across internal silos to create new solutions. Also, the ability to create effective teamworking with key customers in order to build trust and understand their business needs deeply
- Entrepreneurial curiosity to seek new opportunities that are driven by customer needs, not just the ‘internally focused’ approach of selling what is made
- Planning: moving closer to customers offers better visibility of their pipeline, which can reduce the demand ‘surprises’ that might catch out the business. However, the service offered will get more complex and ambiguous, and the customer pipeline timing cannot be fixed with certainty
- Proactivity: not being satisfied with the current performance; seeking ways to improve the business either for customers or internally; co-creating long-term plans with customers to drive shared value
- Digital Competence: All the servitisation pioneers have used information and connected technology to achieve a higher level of service delivery, tailored to the customer’s individual product needs. This is an important, emerging skillset.
Therefore, the real challenge is to deliver a business-wide cultural shift from a siloed, internally focused manufacturing organisation, into an externally focused, customer-centric integrated organisation that can use information better than its competitors or customers to deliver unique, value-adding solutions. Whilst data is an important enabler for the approach, creating new capabilities and behaviours in the organisation, in addition to new services and solutions, are the biggest hurdles to success”.