Why IoT is democratizing Servitization

Jun 13, 2019 • Featuresfuture of field serviceIoTServitization

The prevalence of IoT within field service, has put servitization within the reach of smaller companies and those that embracing it are capable of disrupting their sectors writes Kris Oldland...

“The world once seemed simple; manufacturers made things and services companies did things for us. Today, increasing numbers of manufacturers compete through a portfolio of integrated products and services.”

This is how Professor Tim Baines, someone I consider to be something of a mentor to me as well as a friend, and who also happens to be one of the worlds leading academics within the field of servitization once described servitization to me, having been asked to do so in basic terms that I as a lay person could comprehend.

Of course servitization is much more than simply adding services to existing products within a few large multi-national companies as Professor Baines went on to explain. “It’s about viewing the manufacturer as a service provider that sets out to improve the processes of its customers through a business model, rather than product-based, innovation. The manufacturer exploits its design and production competencies to deliver improvements in efficiency and effectiveness to the customer.”

In context of the traditional product-centric viewpoint of manufacturers, this is of course a radical and seismic shift. A fact that Baines himself can never be accused of underplaying, often referring to us as living through the fourth industrial paradigm - the previous three coming via mechanisation and steam power, followed by the mass production line, and then computing and automation.

The fourth paradigm that we are currently adapting to is a world of cyber-physical products. Or to put it in more familiar terms perhaps, a world of IoT and connected assets. If you have spent anything more than 5 minutes talking about servitization, then you will most likely already know that as the inventors of ‘powerby-the-hour’ some 57 years ago, Rolls Royce are something of a Poster Boy for the movement.

But wait! I here you cry. If Rolls Royce managed to pioneer their own brand of servitization so long ago, when we hadn’t even established an internet, let alone one built literally just for ‘things’, then how can you say IoT is fundamental to servitization? It is of course a hugely valid point.

Servitization has been demonstrably proven to be possible prior to the age of IoT. However, there are a few core factors shared amongst Rolls Royce and the other early pioneers of servitization such as Caterpillar, Alstom, and MAN UK. Firstly, there is a layer of innovation within their leadership and organisational DNA. This is true of all pioneers, some companies are prepared to take the greater risks and push boundaries past what is the current normal. However, in many cases, those servitization pioneers also had strong other revenue streams that gave them the opportunity to fail if needs be without sinking the whole business.

It is certainly a luxury that not all companies have but cross sector organisations such as Swiss heavy manufacturing giant ABB, have proven to be an excellent example of how to leverage reputation, cross industry learnings but also how having the additional breathing space of being a multi-vertical, mutli national organisation allowed them to drive their own servitization strategies.

But the one thing that almost all of these companies in the early vanguard of servitization also shared, was that they were relatively advanced in telematics and that they could see not only the potential value of the data they were able to take from their assets but also, more importantly how they could take that data and build it into meaningful insights for their customers.

Crucially, they understood they could utilise the information on how their assets were performing to help guide their customers to a far more effective understanding of their challenges, and then step in to offer further, more complex solutions that were specifically in line with their customers’ desired outcomes. They were able to take the data and become integral partners within their customers’ business ecosystems rather than just one of many transactional relationships - and whilst I am by no means an expert on the topic myself, I’ve spent enough time with Professor Baines and many of his academic peers over the last few years to understand that this is at the core of why servitization is such an attractive proposition for supplier and customer alike.

Deeper relationships provide greater output, stability and effectiveness for the customer and deeper customer loyalty, greater profits and longer term contracts for the supplier. And now as the IoT, and even more importantly it’s enterprise equivalent the Industrial Internet, begin to mature into something more meaningful than connected toasters, and as we begin to see companies start to at least acknowledge, if not yet truly harness the potential of IoT, what we are seeing is the democratization of servitization.

"Servitization has been demonstrably proven to be possible prior to the age of IoT..."

It is no longer just those companies who can afford to be innovative, that can now embrace servitization. It is not just those companies who already have access to, or deep enough pockets to be able to invest in connected assets that can explore the numerous advantages of adopting an advanced services strategy. It is also not just manufacturers either. In fact, the rapid rise of IoT has enabled many smaller, third party service providers to capitalise on gaps within original equipment manufacturers, or in some cases even utility providers, service offerings.

This has allowed them to carve out service-centric businesses that were frankly, missed opportunites for the slow to react enterprise organisations whose sector they disrupted. For example, there is the French start-up who were able to make significant inroads into the Liquid Petroleum Gas (LPG) hospitality sector by offering to fit their clients gas tanks with cheap but effective sensors so they could offer guarantees of uptime instead of the old model of a restaurant always buying surplus to avoid running out of gas mid shift. Or the company that provided sensors for heavy industrial bins, which allowed them to disrupt the refuse collection in their local market by offering a collection service based on need rather than schedule - again a start up that utilised outsourcing, innovation and IoT to disrupt an established market. Or the third party service provider that specialises in coffee vending machines that was able to create an additional revenue stream for their organisation by identifying buying trends within specific store locations and translating that data into insights for their customers who could in turn leverage local population preferences with focused promotional campaigns.

Each of these examples, were driven by use of and an understanding of how IoT can offer additional value to the end customer. Each of the above examples is also a demonstration of a company identifying the additional revenue for advanced services beyond the traditional scope of the service provider.

The essence here is that they are all based on an understanding of the desired outcomes of their customers. So whilst field service companies should absolutely be looking to explore how best they can improve the efficiency of their service delivery through IoT, the real gold is in understanding how you can improve your effectiveness in helping you customers achieve their goals.

That is in a nutshell is servitization and that is exactly where the greatest value of the IoT will surely exist.