Twice a year Si2 Partners conducts a survey of Service professionals to gauge where the most important challenges and topics of interest lie and how they evolve over time. Here we’re presenting a summary of results from our previous survey conducted in Feb/March 2019.
Digitization is rated as the highest priority and the biggest challenge for Service leaders. This is probably due to recent developments in technology and the hype surrounding them. Surprisingly, Servitization (in the sense of increasing the amount of services and expansion of “product-as-a-service” offerings) appears to be less important although the two are strongly interlinked with digital technologies making product for service substitution and new types of offerings increasingly possible.
The survey is structured around two overarching challenges -digitization and servitization- and then encompasses five key management areas: strategy, sales and marketing, operations, finance and control, and, last not least, organizational development and human resources. It gauges the interest in various topics in each area.
Predictably, given developments (and hype) in the space, digitization is viewed as the current key challenge or “hot” topic by most Service professionals -with an average score of 5/6- far surpassing the others. And though the two are deeply interlinked (in the sense that the former enables the latter), servitization as a topic achieves a score of only 3.4/6. Presumably, managers are strongly focused on trying to understand both the technology itself (what it is, how to use it), while the impact it will have on the business is something that will need to be addressed in the near future.
Still, how to use digitization as a strategy tool, i.e. as a way to compete, is the highest rated challenge of all in the survey with implementation and impact of Machine Learning/AI on the overall Service business a close second.
As already mentioned, the challenge of Servitization commands fairly limited interest. While on average respondents deem being able to build a strategy to transition from products to services as the most important aspect of the Servitization challenge, the interest in key elements of such a transition, for example how to design outcome-based offerings or how to assess risks and price such offerings is relatively low -as is the interest in how to build servitization business cases. This may change in the future as the link between Digitization and Servitization becomes clearer, so we’ll be following this trend closely.
From a Strategy perspective, Service leaders’ responses appear to imply that priorities are centered on finding ways to grow faster. This may have to do with perceived (common) weaknesses in the existing business, a result of the current economic slowdown due to trade frictions and investment bottlenecks or a result of digitization. The three challenges that garner most interest include therefore how to strategize “beyond the product”, i.e. how to develop service strategies that do nor revolve around or are limited by a company’s products and product strategies, but are at least somewhat independent; Perhaps by either focusing on a broader range of products (for example, including competitor products), focusing on higher-end services (e.g. productivity or other value-added services, incl. product-as-a-service) or bundling existing competencies to offer something new. Another key topic appears to be how to better leverage a company’s installed base to drive business growth. This presumably derives from the fact that the installed base is often not well known or transparent to managers, and this applies particularly to larger and older organizations with diverse product portfolios, many product generations or companies that have been through a number of mergers and acquisitions. Finally, how to expand the Service business without making big investments in capacity building appears to be important, at least for some managers. This is an old problem for medium-sized or growing organizations with significant exports where it is difficult for service coverage to keep pace with the expansion of the installed base. This problem is growing more acute as the availability and quality of service are increasingly becoming a strategic differentiator and digitization offers new opportunities and potential solutions.
Interestingly, within the area of sales and marketing, Service managers identified at least two topics of importance that could also be under a Servitization banner, though the interest in the topic per se was relatively low: Using “design-thinking” to design outcome-based services and selling contracts and “product-service bundles”. The interest in service contracts is probably driven by the recognition that they help improve profitability (lower sales cost, higher revenue predictability, better resource allocation) and bind customers longer-term and the fact that not many companies achieve sufficiently high contract penetration; While the interest in designing outcome-based services has probably something to do with the recognition that it is actually not easy. Product-service bundles are integral parts of both. Finally, it is significant to see that pricing is starting to become an important issue for Service leaders. It can have a substantial and rapid impact on profitability but is something that has been traditionally neglected.
The interest in operations management was quite low with the (partial) exception of how to combat experience scarcity in field service as installed base experts increasingly retire, and this appears to be the case more in traditional industries. Why interest is low is not immediately clear, given the proliferation of digital tools to enhance productivity and effectiveness, both in the area of field service and spare parts, as well as in project-based service business. One possibility here is the absence of benchmarks and the lack of transparency as to how companies are performing relative to each other. Companies may think they are performing better than they actually are.
With the exception of monitoring and managing by KPIs, finance and control has traditionally been of less interest for Service managers. This may have to do with the fact that the Service business has been fairly straightforward. However Digitization, Servitization (Product-as-a-Service) and increased contracting (e.g. issues of revenue recognition) do mean that complexity will increase and learning to manage the financial and business control aspects as well as risks will become more important. It will be interesting to see how opinions here evolve over time
The two key challenges as Service Managers see them in the area of organizational development and HR is engaging the whole organization in becoming more “service-centric” (again rather in contradiction to the relatively low interest in Servitization) and building a Service culture. The latter could be interpreted in different ways for example, as opposed to a more rigid product culture or in terms of better customer service. Interestingly, challenges such as finding and engaging talent or hiring AI specialists and data scientists score surprisingly low given the significant changes underway and the strong interest expressed regarding digitization. The expectation is that this will change as we move from exploration of digitization to implementation.
We would like to thank all 80+ Service professionals from 15 countries who took the survey.
It takes approximately 10 minutes of your time and we’d like to ask both those who took the previous one and all Service professionals to complete it. Individual results are kept strictly confidential and aggregate results, in the future also how they change over time, will be published here.
Many thanks for your support.
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