Strategy & Leadership

How Industrial Companies Are Making the Shift to Services

For industrial companies, making the shift from products to services demands a different approach to people, process and strategy.

It’s a step into unknown territory, but one many are willing to take to remain competitive and to reap the rewards of new, sustainable revenue streams.

There are many decisions to be made along the way: Do you have a clear vision of what you want to do? What will be offered and how? What are the risks? How will you deliver value to your customers and your own bottom line?

Dr. Veronica Martinez and Dr. Florian Urmetzer, both senior researchers at the Cambridge Service Alliance, analyze the experiences of companies that have made the shift. Field Service Digital caught up with them before a recent webinar to discover the secrets for making a successful transition to services.

Their practical two-day course, “Making the Shift to Services,” run by Cambridge Service Alliance and IfM Education and Consultancy Services, work through the challenges, from service design and prototyping to managing the customers’ “emotional journey.”

What is the impetus behind the push toward services?

Dr. Veronica Martinez

Martinez: There are different reasons why organizations are shifting to services. One is to generate better revenue from existing assets, while another is the utilization of current assets.

Another important driver is to create and maintain leadership in the market. If you are bringing new innovations to the market every year, you know that every time you launch a new innovation it costs even more than the previous one — and it’s becoming more difficult to break the rules. For many companies, services is another avenue for them to develop leadership in the market.

What are the key design principles needed to make this shift?

Urmetzer: Most companies were set up originally to design products, and services offers a completely different value set. You need to make sure your service is aligned with the goals and the needs of the customers.For example, a company like Caterpillar can offer services around optimizing use of its machinery, or enabling customers to get better at using the machinery. It’s a logical extension.

This moves companies far closer to their customers, allowing companies to integrate into their customers’ business models.

There’s a big difference between selling products and becoming a service organization. So where do you start?

Martinez: Servitization is the journey to service, and organizations have different starting points for that journey. We analyzed seven years in the life of three organizations that started the journey at similar times. Those three organizations were successful, but began from very different starting points.

One began a company-wide process and said, ‘If we don’t go to services, we are not going to have a job in five years’, which opened their minds from being product-focused towards services.

Another organization knew it needed to sell services for several reasons: There was the push from competitors, their revenue was decreasing and they decided to make it a strategic objective.

The third organization started it bottom up. They identified that customers needed services and started to sell some services on the back of products with no formal corporate strategy.

One of the things you cover in your workshop is ‘service emotion.’ What do you mean by that term?

Dr. Florian Urmetzer

Urmetzer: You have to look at the journey of the customer, and emotion comes into this. If you are heavy machinery company, then your customers will likely be blue-collar workers who might come to your store wearing heavy shoes to pick up a part or to have a discussion. If you have a highly polished store that looks like a bank, it might make your customers feel uncomfortable.

What are the biggest challenges to adding services to your portfolio?

Martinez: People’s resistance to change is the top challenge. If you are an engineer and have been working on products, of course you are very proud of those products. So coming in and telling that person that products are no longer the main indicator of success will be tough. These engineers are passionate about products and they just don’t get the idea.

Urmetzer: One easy thing companies can do is to think about how much they actually earn in margins and revenue by selling products. With many companies, there’s far more potential to create revenue in delivery of spare parts, rather than the sale of the product itself.

By providing spare parts and services, you get a very different understanding of how the machine is actually been used. This information can bring great benefits to the people who are designing the products.

Are people, both internal employees and customers, the biggest challenge?

Martinez: Services are all about people, not products. It’s this shift from technology and products towards more people-oriented service delivery that causes most panic attacks for most organizations.

Urmetzer: Companies that are starting along the servitization path need to think very cleverly about service design to ensure that it will lead to not only a satisfied customer, but also an increased revenue stream. If you design it the correct way, you can make money and soothe pain points for your customers.

Click here for the full recording of Martinez’s and Urmetzer’s “Making the Shift to Services” webinar.

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