The global manufacturing industry is in the midst of a fundamental transformation and is being driven to change how it creates and services products by seven external forces – digitization, globalization, regulation, personalization, “smart” products, connectivity and servitization.
These major external forces are challenging traditional concepts about how and where value is created—across engineering, manufacturing, supply chain and service organizations. These same forces represent massive opportunity for manufacturers that can adapt their product offerings and business models.
This is the first of a three-part blog series which addresses why and how service is a growth engine for manufacturers, and what steps need to be taken in order to transform the way products are created and serviced.
Service is a primary source of revenue growth, profit growth, and competitive advantage. Because operational excellence and pure product advantage is now table stakes in today’s competitive climate, manufacturers are faced with the imperative to transform service into a revenue generator in order to carve out a sustainable edge.
Competitive advantage. It’s the lifeblood of any company and for decades, it’s been a hard-fought battle centered on product innovation and more recently, operational excellence, as on-going economic challenges forced reinvention around efficiency.
Yet transformative times demand transformative business change, and increasingly, it’s getting tougher for companies to achieve sustainable competitive advantage based solely on product differentiation or by cultivating the leanest, most cost-effective manufacturing and supply chain machine.
As the competitive landscape shifts once again, it begs the question where to focus attention next. Industry experts have identified service as the next great opportunity to carve out an edge, helping manufacturers forge tighter connections to customers while driving revenue and fueling profitability.
Service transformation. Without it, a company will fail to build strong customer loyalty and miss significant revenue opportunity. There are three distinct transformation phases for manufacturers:
- Phase One – A manufacturer that generates products and replacement parts. The company differentiates itself on product, and then generates replacement parts and associated revenue to drive profit margins as high as possible. In other words, service is someone else’s responsibility.
- Phase Two – This manufacturer understands that service can provide significant revenue and and profit and begins to extend maintenance and performance agreements. In addition, the manufacturer is also able to stay more connected to its customers.
- Phase Three – This represents a manufacturer’s move to deliver products as a service. Because there is no longer the sale of an actual product, and the use of the product is the revenue generator, the manufacturer and the customer are now on a level playing field and must keep in constant communication for both to succeed.
Next week we’ll look into the importance of service to the broader organization and the types of questions manufacturers are asking themselves when starting to think like a customer. It’s a paradigm shift, and when done correctly, one that can deliver stronger revenues and customer relationships.