Digital Servitization has caught the imagination of many researchers and thought leaders. Indeed we have featured articles recently on “THE COMPETENCES FOR DIGITAL SERVITIZATION: A SURVEY ON ITALIAN COMPANIES” recently presented at ASAP, as well a recent exploration of “What is Digital Servitization” in Field Service News by Dr Christian Kowalkowski.

So we thought we would share Si2’s take on Digital Servitisation based on an Executive paper which was accepted for presentation at the excellent Spring Servitization Conference run held this week at  Linköping, Sweden.  Unfortunately neither Harald Wassermann or myself could attend to present our ideas due to other business commitments, but here is our paper, which is a summary  of ideas we have been developing for the past 18 months in various articles.

DIGITAL SERVITISATION: AN EXPERIENCE BASED REVIEW OF HOW SUCCESSFUL INDUSTRIAL COMPANIES DEVELOP DIGITAL INFRASTRUCTURE TO ENABLE OUTCOME BASED SERVICERESEARCH MOTIVATION

RESEARCH MOTIVATION

The increased accessibility of digital technologies is accelerating the shift from product to service led growth strategies. Yet many leaders find it difficult to get started or are disappointed with the results of their digital investments.

Our observation is that much the thought leadership on digital service led has been undertaken by solution providers or ‘technology pundits’ with little understanding of the practical realities of making their visions real. This has led to an over emphasis on technology and jargon which has confused business leaders.

We decided to address this issue through an experiential programme of reflection and discussion with successful companies, as well as our own experiences as service business leaders. We wanted to see if there was a common theme in the thinking of practitioners who had successfully leveraged digital technologies to either create revenues or reduce costs.

CONTRIBUTION TO THEORY AND PRACTICE

This review, while not a robust research project, did produce extremely consistent results in two areas:

  1. Practitioners always start with a detailed almost obsessional understanding of the ‘Business Problem’. The same observation is true, whether it be for internal processes improvement or revenue generation.
  2. The digital solutions they develop are generally based on well-established infrastructure such as ERP, CRM, Service Management or IoT/Connectivity. What has really evolved is the use of analytical, storage and transmission capabilities that enable the significant integration and re-engineering of business processes or new routes to market possible.

This is a very different story from that of solution providers and indeed many policy makers, where the focus is on technology, platforms and skill sets. It indicates to us that to speed up the adoption of Digital Servitisation, companies should focus on creating organisations with a solution focused culture that have the creativity and nous to dissect how digital technology impacts processes whether they be internal operations, within the customer or at the interface between customer and supplier.

Slowly we are seeing thought leaders concentrating more on business problems as a start point, however the thinking falls well short of understanding value within the customer and industry supply chain. Without this change in emphasis, adoption of Digital and to a lesser extent Servitisation is likely to be disappointing.

KEY DISCUSSION POINTS

  • Mindset: We concluded that many leaders are being seduced by the language of Digitalisation and Servitisation, losing sight that the key to business success is to deliver value to customers that makes them or their customers more profitable. Finding the profit pools in the industry value chain that will pay for the investment is key to success. However, this is not the sole strategy. Successful companies also experiment with technology in small pilots, understanding the boundaries and evolving their thinking on value liberation.Indeed, our second observation is that many ‘successful’ businesses are further along the process of digitalisation than they believe but lack the vision and determination to take it a step further. Their key challenge is a lack of insight into how data impacts revenue and margin growth. Then the investment priorities into business systems and analytics tools to achieve results.
  • Reducing Back-Office costs: The vast majority of business have begun the Back-Office Digitalisationjourney to improve margins by deploying IT tools such as Service Management, CRM and ERP, that enable process automation. Generally, there are two aspects to consider in terms of system & process development:
    1. To enable Customer Management, making customer data transparent and so breaking down silos.
    2. Enable Business Process Automation: reducing cost and often leading to improved customer experience.

  • Increasing Margin and Service Revenues: In parallel, most manufacturers have realised the potential revenue that can be earned after the new product sale. They have begun the journey to develop operational infrastructures and products that are designed to produce data to be collected, analysed and actioned. They have begun the process of Installed Base Digitalisation. Generally, investments have been made in:
    1. Technology that enhances the product and company infrastructure to enableDigital Support, such as remote data collection, diagnostics or predictive maintenance.
    2. Capabilities and technologies in the organisation that enablesData Analytics, such machine learning, visual analytics and business intelligence technologies.
  • New Business Models: It is only when both Back-Officeand Installed-Basedigital infrastructures and processes are in place, can businesses deliver more sophisticated outcome-based services.
  • Success comes from identifying profit pools of opportunity. Then deliver targeted projects in an ‘agile’ approach to create infrastructure, service portfolio and cultural change that together deliver results.

Nick Frank & Harald Wassermann are both Founding Partners at Si2Partners