Welcome
This resource takes a closer look at one very real outcome of digitization, yet another '-ation' for your IT glossary: servitization.
Put simply, servitization is about using digital technologies to broaden traditional business offerings. This in turn allows organizations to provide additional services to supplement, or enhance, core products and services.
This newsletter unpacks the concept of servitization, and how it can be applied to industries like your own. First, it solicits guidance from the experts at Gartner to walk readers through identifying their true 'digital ambition'. Do you want to optimize existing revenue streams, or do you need to transform to find net-new revenue streams? If you find yourself falling more heavily into the latter category, then you might consider a new business model based on new services. To round out the review, we look at servitization in the critical context of key industries.
I welcome the opportunity to continue the discussion. Please connect with me @ https://www.linkedin.com/in/mark-anthony-brewer/
Mark Brewer
Global Industry Director, Service Management, IFS World
Digital Business Ambition: Transform or Optimize?
- Hung LeHong | Graham Waller
- 30 June 2017
When building and expanding a digital business, CIOs will benefit from being more specific about the ambition of the digital business strategy. Is the goal to transform the business model or to optimize the existing one? This document guides CIOs through this decision.
Key Findings
- Digital business transformation is a type of digital journey that has the ambition of pursuing net-new revenue streams, product/services and business models. It is favored by enterprises that must adapt to an industry in disruption, or ones that want to disrupt their industries.
- Digital business optimization is a type of digital journey that has the ambition of significantly improving existing business models through improved productivity, greater revenue generation of existing streams and improved customer experience. It is favored by enterprises whose industries are not going through disruption in the near term.
- Enterprises will tend to minimize the amount of change and risk by favoring optimization over transformation. This can be a risky course, as there have been some major misreads on industries being disrupted in recent years. Between the Internet of Things, platform business models and blockchain, almost any industry has the potential to be disrupted.
Recommendations
CIOs who are building or expanding a digital business:
- Determine your enterprise's mix of digital business optimization and transformation by looking outside your enterprise first. If your industry (or an adjacent industry) is going through disruptive changes, then you will have no choice but to set a transformation course yourselves. Read more
Servitization and the Case for IoT
Much of the talk of digital transformation can come across as lofty goals. This is especially true when we consider the realities of time and budget constraints, the quest for buy-in, and the absence of usage scenarios with business results. Here we summarize how servitization could be realized for key industries, with the help of technology platforms like cloud and Internet of Things (IoT).
Oil & Gas
These days much of the discussion in the oil & gas services forums is still on the hardships brought by current market conditions. Macro-conditions are slow to improve as the oil price is more unpredictable than ever before, yet demand remains high. Oil & gas service providers know that to remain attractive partners to their clients, to be able to win new contracts, to avoid further brain drain through attrition and layoffs, they must find new ways to tap into their information-as-assets in order to differentiate. Read more
They will soon differentiate through the internet of things (IoT), big data and analytics, and by generally being at the forefront of technology. Compelled by these new technology platforms, oil & gas service providers are enabling themselves to offer enhanced services to their clients, which may include delivering value and sharing risk. This is particularly challenging if the operational infrastructure, both operational technology (OT) and information technology (IT) is outdated. The winners and long-term stayers of the industry will be those who can deliver complementary and enhanced services that attract discerning clients.
Read the blog »
Manufacturing
As with other markets, the term 'servitization' is not new in manufacturing arenas. It has been around for a few years, but is just now going from a forward-looking discussion topic at big technology conferences to finally manifesting in real-life use cases that have delivered business benefits. Servitization is giving manufacturers a new avenue to differentiate themselves in an ever-changing world. Read more
With advancements in technology such as IoT, cloud, and predictive analytics, the options available for manufacturers to embed sensors into their products and then use this data to provide first-class service to their customers are huge.
While it may seem too good to be true, there are real challenges associated with these changes! For example, manufacturers will need to include Human Resources in the discussion if new service departments are to be created, and Legal will need to be consulted to check if any new compliance or regulations are to be met.
The foundations can now be put in place to move product-centric companies into firms that offer value-added services and solutions to customers.
Aviation and Defense
Despite their obvious differences, commercial airline operators and military organizations share a common goal: to optimize asset uptime and operating effectiveness. The lengthy asset lifecycles associated with both industries make it attractive for manufacturers to create ongoing after-market revenue streams while maintaining product innovation. Read more
OEMs and Tier 1 suppliers have recognized that to maintain a competitive edge and develop sustainable revenue streams, they must move toward a performance and availability-based business model by providing the right combination of products and services. Once again, we can see that Servitization is a reverberating answer. Within aviation & defense, this is often known as 'power by the hour' or performance-based logistics (PBL). This approach is vital in commercial aviation & defense as customer demands change, new industry challenges emerge, and data analysis becomes increasingly important. The benefits of the strategy speak for themselves: according to an impact study by the Aston Business School, servitization promises sustained annual business growth of 5-10% and reduced costs of 25-30%. Metrics like this demonstrate the possibilities that servitization can bring to product-focused industries that are evolving their solutions.
