Services already contribute an outsize portion to the global economy, a trend that shows no signs of slowing. Soon, companies will be known not for the things they make, but for the services they provide. But lingering product-centric mindsets can be tough to shake for companies with deep roots in manufacturing, says Christian Kowalkowski, associate professor of industrial marketing at Sweden’s Linköping University.
In Sweden, services now account for more than 72 percent of the country’s GDP — and it’s a similar story in the U.S., Europe and other countries around the world. It’s clear companies must adapt to service’s growing importance, but how? And how can they sell newfangled service offerings to customers who might not yet know why they need them?
We sat down with Kowalkowski, who will examine the challenges of service innovation in a May 11 webinar (register here) to hear more. Here are a few highlights from our conversation.
Traditional service companies don’t make products, so is there a role for them in this shift toward selling advanced services and outcomes?
Kowalkowski: They might have a very big role to play. There are differences between industries, but manufacturers, one way or another, work with partners. There are very few firms that do everything themselves. Caterpillar, for example, works with an extensive dealer network. In other cases, companies might rely on service partners or have some type of hybrid strategy working with both an internal service organization and outside firms. Pure service players in that broader service network might play a critical role.
Do pure service providers have any advantages compared with manufacturers?
There are certainly advantages for pure service companies. Manufacturers compete directly with pure service players, which can have the advantage of not being tied to a particular product or brand. And those companies might be smaller, and more flexible and agile — and they can look at this from another perspective.
The traditional manufacturing mindset is that they sell services to support the product sale. They want to sell as many products as possible, whereas pure service players might advise customers to buy products from different brands to improve processes, or to eliminate unnecessary brands.
Can you identify any common threads among the companies that are doing servitization well?
The ones that do it well have service champions. They have some unit that is really dedicated to this, combined with top management support for these initiatives — and not only with money. The softer cultural side is important, too. The successful companies have a culture of openness, of willingness to change. That’s very important because it’s hard to change, especially if you’re successful.
So, for companies that aren’t doing well, is it fair to say culture is often to blame?
Yes. Many times, managers underestimate the complexities and the time this change takes, which is a big problem. That’s understandable. If you’ve always been working with product development, service is quite a different animal. I’ve seen projects when there’s a great service concept, but it never takes off. Perhaps leaders aren’t willing to provide time or money resources. Then there’s executive resistance. These services are difficult to sell, and they might be difficult to deliver if the company doesn’t have the right infrastructure — employees, IT structure, etc. — in place.
Finally, companies must be willing to potentially cannibalize their own product business. If you define the boundaries of your business too narrowly, you’re vulnerable to disruptive innovations.
Implementing and managing this change is one thing. But how do companies market these new service offerings to customers?
Work hard to document the value of new services — pilot studies, documenting the effects that have been implemented with beta customers — and use that as marketing material.
Develop specific value propositions aimed at decision makers at customers (or prospective customers). Be clear and tangible. In the advertisement, ideally, tell customers that they will save $500,000 with the service, and if they don’t save that much in the first year, they get the money back. That’s an easy sell if the service only costs, say, $150,000.
It’s a risk to take, especially if you are unable to deliver. You really have to be sure about the value you can provide to customers.
How crucial is close collaboration between the service and marketing teams, which likely haven’t worked together much in the past?
There’s a common problem, evident in far too many companies, that the people nearest to the customers are not the ones responsible for marketing. The marketing department is detached from customers, and what they do is more advertising, brochures, events, etc. That’s not really the type of marketing you need for these kind of service initiatives.
Are European companies ahead of their U.S. counterparts in rolling out new advanced services?
There are many companies in the U.S. that are working through these issues. GE, for example, competes with Rolls Royce. In the elevator industry, you have Otis competing with Schindler and Kone. Caterpillar is quite successful compared to its competitors in the construction equipment industry.
So is it that European researchers are just more focused on advanced services?
European researchers have had, over the years, very close collaboration with industrial partners and also access to decision makers and executives who both share information and have participated in long-term studies. And in a country like Sweden, there are still large industrial companies that are the backbone of the economy, whereas in the U.S. you have many consumer firms. Naturally, there’s a lot of academic focus on the prominent industries in each country.
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