Why manufacturers will turbo charge their service business
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In recent years we have seen a considerable shift in turnover from products to services at manufacturing companies. This trend continues and we see that the focus on service is only increasing. What are the main drivers for this growth? Noventum, Microsoft and HSO recently published a research report on this topic. Below we list the most important drivers: from a business, customer and market perspective.
Focus on service demands, vision of management and culture change
The research shows that there are various drivers for a shift from products (possibly supplemented with maintenance) to services that actually improve and support the business of customers. One reason that was often mentioned was risk diversification. Companies see the risk of declining sales and profitability on delivering products alone, and maintenance and services appear to be a stable source of sales and higher margins.
In addition, we saw often that a change in strategy towards service delivery was associated with the arrival of a new CEO. In his or her vision, (customer-oriented) service is the way to increase loyalty of existing customers and to distinguish yourself from competitors. This does require a change in the culture of the organisation. From R&D to Sales, teams will have to take ‘service’ as a starting point. Moreover, cooperation between the various departments is essential to continue to add value throughout the entire customer lifecycle.
Customers have increasingly higher expectations of product companies
An important outcome of the study was that customers of high technology manufacturing companies have higher expectations: “Today, customers expect suppliers to be specialists who understand their business needs and provide solutions to reduce their total cost of ownership…,” said a Business Development Manager, in Industrial Automation. So, manufacturing companies have to change to be able to deliver new services linked to their products, because that’s what customers expect.
Digitisation accelerates the market for new services
Technological developments such as the Internet of Things (IoT) offer manufacturing companies a wealth of opportunities to develop added value for customers with smart applications. Think of sensors in equipment or advanced software with which you, as a manufacturer, are connected to the user, enabling you to advise on utilisation, maintenance and so on. Many participants in the research indicated that they want to develop these services, but less than a third of the companies currently have an IT infrastructure that supports these business models well.