The + Service opportunity for Industrial Manufacturing
Industrial manufacturing is typically a low-volume high-value long-term play. The potential high value of each sales transaction is counterbalanced by a generally protracted sales gestation period. And post commissioning, most of these capital intensive solutions have impressively enduring lifecycles.
Against these broad dynamics of the industry, the traditional focus of manufacturers has been on the sales & fulfillment process - clinch order, engineer, install. The post-sale service process commonly involved considerably abstracted warranties or AMC contracts, written more out of a sense of obligation than any real acknowledgment of commitment.
This conventional model of engagement is now coming under increasing scrutiny from both manufacturers and customers.
Customers are increasingly seeing the lopsided allocation of post-sale responsibilities, in terms of performance and business risk, as untenable. Manufacturers, on the other hand, are waking up to the immense value that they have so far been leaving on the table. For starters, stronger service relationships could yield valuable feedback that could be productively plowed back into product development or even sales pitches. Secondly, given the prolonged operating life of these products, the delivery of monetizable services to existing customers can open up new, recurring and predictable revenue streams. And finally, adopting a lifecycle model of engagement could not only enable manufacturers to keep their customers close but also keep the competition out.
All these expectations and opportunities are completely transforming the industrial manufacturing agenda. From a rather myopic manufacturing + sales outlook, the focus is now on a more strategic manufacturing + services approach that delivers quantifiable value to both sides. Or to put it more concisely, the servitization of industrial manufacturing is well underway.
And it couldn't have come at a better time, because the impending IoT revolution could potentially exponentially amplify an already substantial servitization opportunity. The manufacturing sector already leverages sensors extensively to monitor, manage and optimize various industrial processes. But with the IoT poised to transform every piece of equipment into a data emitting entity, manufacturers will now have access to a range of machine data that could be translated into a monetizable service experience.
In order to tap into the growth opportunity that is servitization, industrial manufacturers will have to restate their traditional core proposition of 'Engineered to Build' to reflect a more contemporary 'Built to Service' commitment. Conventional business structures, systems and processes will have to be reengineered to support the delivery of the new proposition. Most importantly though, manufacturers will also need to deploy a range of new tools, services and capabilities to convert servitization into a sustainable competitive advantage. I shall focus on that in my next post.