A few days ago we published an article by Michael Provost called “23 Lessons in Asset Management”. A couple of very astute readers pointed out that, in fact, the title was wrong. The article was not about Asset Management per se, but rather about what OEMs providing Asset Management services must get right in order to be successful. Consequently we have amended the article’s title to What OEMs must get right in Asset Management: 23 Lessons
Michael’s “lessons” are insightful and quite profound and OEM Service providers should heed them. After all, providing asset management services in some form, either bundled with products into solutions or separately is the declared strategy in many companies. So it might be useful, following Michael’s lessons, but not only, to look into where many providers go wrong. Because the “lessons” are not all that easy to learn and we know that many companies don’t, judging by both customer outcomes and financial performance indicators: In fact a majority of OEMs fails to achieve service revenue and profit objectives.
A transition from a product mindset to a service mindset is difficult. Many customers might want to buy the utility of the product rather than the product itself, for example many airlines want to buy thrust rather than an engine (power by the hour) while others want to buy ambient temperature rather than an HVAC system (energy performance contracts). Nevertheless many, if not most, companies want to sell the product -simply because it is simpler, it is what they know how to do and it deeply ingrained in their culture. A mandated change to a servitized business model therefore requires not only a fundamental change in the company’s operating system -given that it’s supply scope and risk situation changes -, but also quite radical cultural and organizational change to make this possible, including changes in the organizational importance of some functions, processes and skills relative to others. Something like this does not happen easily and many companies that underwent successful (or less successful) transitions were forced down that path by market and competitive circumstances (IBM, Rolls Royce, even GE) rather than own free volition. Servitization is often more difficult in country cultures with powerful manufacturing and engineering traditions (Germany, Switzerland, France) than others and, assuming servitization does take hold as a viable business model, companies with strong product market positions, but too powerful engineering cultures risk being left behind.