Introducing the IDC Servitization Barometer

Jul 24, 2020 • FeaturesIDCWhite PaperDigital TransformationIFSServitization and Advanced Services

In a new series of extracts from an excellent white paper published by IDC and sponsored by IFS, we will explore the IDC Servitization Barometer which is designed to allow field service organisations to chart their path to new revenue streams. In part one we looked at the rapid and wide reaching change that is being faced by manufacturers in all sectors, in all regions. Now in part two we look further at IDC's Servitization Maturity Framework

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IDC strongly believes servitization will make or break digital transformation initiatives in physical value chains. As the concept is still relatively new to many organizations, it needs to be articulated and clarified.

To help organizations understand where they currently are on this journey and, more importantly, how to proceed to the next level, IDC has built the IDC Servitization Maturity Framework, identifying key dimensions and stages defining an organization’s readiness. In connection to this effort, IDC and IFS have cooperated for this first edition of the IDC Servitization Barometer, a data-based assessment of where companies around the globe find themselves in the servitization journey.

The barometer is fed by an IFS-sponsored survey carried out in July 2019, touching 420 companies active in the physical supply chain world. In this section, we will provide an overview of the tenets of the Maturity Framework, before deep diving into the results of the Barometer. For more detailed information on the survey, including demographics and background, please refer to the Methodology appendix. IDC believes an organization’s status as regards to servitization is defined by the five equally important dimensions described in Figure 3 below.

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IDC believes the servitization journey can be summarized in four key stages, as shown in Figure 4.

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The four stages can be described as follows:

  1. Splintered. The organization struggles under a myriad of silos that lead to disjointed, manual processes. Legacy, fragmented ERP environments provide little or no visibility on operational performance. The business model is on pure product, with challenges to profitability.

  2. Side-car. The organization has standardized the two chunks of the value chain (back-office and front-desk) but keeps them separated. The keyword in the company is efficiency and few add-on services are delivered. Field service is based on basic mobile capabilities and IoT stacks are at proof-of-concept stage. Growing the business is hard.
  3. Joined-Up. Front-office and back-office flows have been integrated in both directions and leverage the power of advanced technologies such as IoT to feed the core systems with real-time data. In some cases, Edge capabilities bring coordinated autonomy to local sites. A suite of digital services is fully available, and business model enhancements such as pay-as-you-use and outcome-based contracts are being explored.
  4. Borderless. Processes start and end outside the organization and operations and technology enable different elements of the value chain to connect. Co-creation, data-sharing and collaboration with customers, suppliers, partners from other sectors and in some cases even competitors are part and parcel of the business model.

Servitization - A Real Example

A few years ago, a global healthcare manufacturer was struggling with data silos and a balkanized departmental setup (Stage 1). It integrated all the systems and processes in the purchase-to-stock part of the chain and achieved a much leaner back end, allowing better forecasts. Early discussions on modernizing the support and customer front end were held as it reached Stage 2. This is where the company is now. Margins are improving, but the ability to grow is not.
The company decided to explore a new business model towards delivering its medical instruments to operating theater managers on a pay-per-use basis, enabling healthcare professionals to access new innovations without massive upfront investment. The objective of this manufacturer is to generate a competitive differentiation against low cost competitors.
New technologies and service ideas are needed to get to Stage 3. To achieve that, IoT connectivity at customer, field service management software allowing rich data capture and machine learning algorithms that shape both supply flow and product design based on customer data are needed. This will drive new revenue streams from after-sales service and parts, on top of pay-as-you-go capabilities.
Alongside this, the advantages of the business model change become visible to customers. Since losing patients on the operating table due to a lack of materials is a not acceptable, hospitals lean towards very large safety stocks, which generates high inventory costs that are absorbed by patients. By creating an intelligent data flow on instrument utilization, the manufacturer can ultimately make healthcare more accessible to patients.
The long-term horizon begins to appear. In Stage 4, the company will strive to create an adaptative digital workflow in which real-time data generated interlinked with suppliers of raw materials, sterilization companies, hospitals, and patients will drive higher levels of success in the operations room.

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