Manufacturing as a Service: Achieving Growth in a Changing Economy

Manufacturers are finding a need to evolve the way they do business as expectations for improved service have increased quite drastically recently. Customer expectations for enhanced service that goes above and beyond the traditional service contract or the work order demand that OEMs evaluate their current service model and address these concerns. In conjunction with rising customer expectations, there is increased competition around who can provide service on equipment—manufacturers or third-party service providers, a choice that historically wasn’t an issue. OEMs or their preferred partners are no longer the only potential providers of service; third parties and independent service organizations now have the expertise and capability to service equipment or products they didn’t manufacture. Along with these external pressures to transform service business models, manufacturers are also finding that internal demands for growth are putting pressure on the service organization to generate new revenue streams and margins. Across manufacturing verticals, product commoditization is placing downward margin pressure; service seems to be a path to recoup revenues and discover new ways to deliver customer value.

Today, one of the most promising trends for manufacturers is servitization — the development of new service lines to complement their core product offerings. Software companies provide one of the most famous examples of this strategy. When they shifted from selling a finite product (software) to selling a subscription service, they changed the game. These “software as a service,” or SaaS, models shifted customer expectations. Now, customers are used to making regular, subscription-based payments to access services they find valuable. And it wasn’t just the customers that changed. SaaS companies highlighted new ways for those traditionally in the product business to drive consistent, profitable revenue. Now, businesses of all types want in. Sometimes called “everything as a service,” or XaaS, this trend is sweeping across the business landscape.

Manufacturing as a Service

This approach doesn’t just apply to tech companies. Business model innovation and Industry 4.0 advancements have unlocked new opportunities for manufacturers. Armed with these data and insights, manufacturers can join the many industries extending their value to their customers through new service lines. For many manufacturers, it might be as simple as offering maintenance and management support for the products they already sell. For others, it might include data management or consulting. No matter the approach, it’s clear that servitization is poised to serve as a major growth engine for the industry

The transformation that occurs with new service business models will impact not only customers and manufacturers but also the service technicians who will deliver on these promises. Often an afterthought in transformation, the field service team will see several changeswithin this transformation. For example, service technicians will be expected to engage in different types of interactions with customers in this model compared with historical break/fix models where they were primarily expected to close as many work orders as possible as quickly as possible. A transition from volume service work to a focus on enhanced and engaging interactions will require data aboutthe product, customer, and service history to be available to technicians in realtime. These technicians will also need to be more attuned to customer needs,which go beyond what’s on the work order, so that they can explore additional opportunities to deliver value within interactions.

Three Barriers to Embracing Servitization

Even with a great idea for a new service line, some manufacturers may still struggle with achieving success. Three common barriers include:

1. Weak Customer RelationshipsIn some segments of manufacturing, the customer relationship isn’t owned by the manufacturer. Often, it lives somewhere else in the value chain — with a distributor or systems integrator, for instance. In those cases, it can be hard to build the customer trust and relationships necessary to sell and scale a service offering. Or even if the manufacturer owns the customer relationship, they may have underinvested in customer service and suffer from poor perception and low net promoter scores.
2. Lagging Technology InfrastructureMany manufacturers rely on manual processes for items, like responding to data from a product sensor or scheduling a field service technician. Although that might work at a small volume, it can become a major hindrance to productivity and profitability when launching a service line
3. Inefficient & Clunky ProcessesRolling out a service line can be significantly more challenging than a new product launch. Often, the company’s existing processes are not built for that much two-way customer interaction, leading to challenges with meeting customer expectations or scaling service lines in a profitable way.

Four Ways to Succeed at Servitization

Whether you’re planning to roll out a new service line now or you just want to prepare for the future, there are some clear steps you can take:

1. Closing the Feedback LoopSucceeding at servitization means understanding what your customers need and are willing to pay for — and what they aren’t. As you build out your services strategy, you need direct insight from your customers. A great place to start is with the insight you already have. Your customer service team already receives, and could actively solicit, input from your customers. And that input is critical to building, testing and expanding service offerings. But just receiving that input is not enough. You need to make sure that insight gets back to R&D in an easy and efficient way.
2. Investing in Customer ServiceFor many manufacturers, the prospect of generating revenue out of the customer service line item is an intriguing one. But if you’ve been underinvesting in customer service because of its legacy as a cost center, you may run into issues. If you’re going to roll out new service lines, you need to have the resources and infrastructure to support them.Manufacturers should ask themselves: can my customer service function scale, or do I need to reinvent it first? If it needs reinvention, there are two potential paths forward:
   • Optimize your existing customer service offering. You may have the right people and foundation, and with some healthy investment in process and technology, you’ll have a high-performing customer service division.
   • Build out a new customer service approach for the new service line so it’s free of anything cumbersome or ineffective in the legacy business. With time, you can migrate best practices between the two functions, or consolidate them into a “best of breed” approach.
3. Improving Field ServiceProviding maintenance and aftermarket support is often the low hanging fruit for servitization. But, as with customer service, many field service functions aren’t quite ready for that step. If the goal is to leverage field service in a new aftermarket service line, you need systems and processes that can meet customer expectations and that can scale.
   This includes:
   • Allowing customers to self-schedule and view the status of their request.
   • Integrating customer service and field service offerings so the right hand always knows what the left hand is doing.
   • Optimizing the assignment process so you always deploy the right person based on skills, equipment and location.
4. Deploying the Right TechnologyIn today’s world, you usually can’t upgrade your business model without upgrading the technology behind it. This is especially true of a servitization initiative. To deliver services efficiently, you need full line of sight into your data and the ability to automate your responses to it. The IoT makes collecting and reacting to data possible, but many manufacturers rely on manual processes to interpret data from smart devices. Those manual processes can become major barriers to scaling service delivery in a profitable way. The right technology stack can connect and automate important actions in your service delivery workflow.

ServiceNow can help manufacturers ensure they have the right technology to deliver on new service lines – and that all that technology talks to each other. From integrating with enterprise resource planning (ERP) systems to upgrading key functions, the ServiceNow platform helps manufacturers achieve their goals.

MaaS has huge potential to help manufacturers thrive in a changing economy. By rolling out new service lines, manufacturers can deepen their customer relationships and achieve even greater levels of profitability.