With the journey to Servitization well underway for most service organizations, there seems to be one major challenge standing in the way of reaping its rewards: creating new revenue streams. At this year’s Field Service Palm Springs event, this challenge was of the most talked-about topics among attendees. Numerous times throughout the four days I heard a service leader ask, “How are you making money doing that?” Rarely was an answer offered.

Why is it that companies are struggling with creating revenue through Servitization? I think there are a few different reasons, but before we dig into those, let’s first discuss the progress that has been made in the industry.

A year ago, at this same event, Servitization was being discussed (mostly be vendors) as a forward-thinking notion. In that one year, so much has changed. Servitization is now being embraced as a concept by nearly all service organizations and in practice by many. Companies have come to understand that the path into the future of service is far different than the road that has gotten us to where we are.

Progress on the Path to Servitization

I believe there’s a common understanding among service organizations that truly the only means to achieve success from this point forward is to authentically achieve and maintain a customer focus. Organizations realize that customer intimacy and a deep, rich understanding of what customers both need and want is critical not only to be able to deliver competitive service in today’s landscape but to be able to ultimately develop those next revenue streams.

Organizations also accept the fact that Servitization cannot be achieved without operational excellence, and this means both streamlining and optimizing processes as well as investing in state-of-the-art technologies that are essential to meeting today’s pressures. Finally, companies are grappling with the idea that what has historically been a very slow-moving, often laggard industry needs to quickly transform itself to a more agile, innovative one. This means an evolution of strategic initiatives, business models and offerings, functions and roles, and for most an overhaul of the technology used to manage it all.

The Potential for Monetizing Servitization

While the evolution to Servitization isn’t exactly simple, it is inevitable. If that isn’t reason enough to embrace it, the potential it brings to grow revenue should be. For most companies, there are two primary opportunities to create additional or new revenue through Servitization:

  • Delivering outcomes. As companies move away from reactive, break-fix service and move toward predictive service capabilities, the value proposition for customers is immensely amplified. You are no longer providing a service but delivering an outcome. Getting to the point of avoiding the need for a customer to call you requesting a repair is a level of value that most customers would happily pay more for. It’s up to you to take advantage of the experience economy by repositioning your service offering as an outcome – a guarantee that your customer can remove that source of worry and work from their plates and just know that things will be taken care of.
  • Offering insights. Data has become the most valuable asset there is today. Service organizations with connected assets often default to thinking about how that data can help their service operation be more effective and efficient – from the standpoint of enabling that predictive service. However, there’s a whole new world of revenue opportunity when you begin thinking about how the data you are collecting (or can collect) can benefit your customers. Equipment usage data that helps you detect fault patterns and avoid failures can also provide valuable perspective for your customers on usage, consumption, peak times, and so on. Organizations that begin thinking outside of the box of what service they can provide and begin thinking about what insights they can provide expand the potential for revenue opportunities.
So, What’s Holding Companies Back?

This all may sound simple so far, but as I said at the beginning, the reality is that most companies are struggling to realize revenue gains from Servitization. If I think about why this is, a few barriers come to mind:

  • The concept of Servitization is a seismic shift for companies. We must recognize that the evolution underway in service is truly transformative and it takes time for companies to determine how to adapt. I think the first major barrier is that some organizations are having difficulty developing and articulating their vision around Servitization. In many cases, this stems from not having a great grasp on what those customer needs and desires are, and organizations must start here. This lack of vision can also be attributed to leadership that is more comfortable maintaining the status quo, which is a stance that needs to be fiercely challenged if a company wants to remain relevant.
  • Servitization success requires strong foundational technology that many organizations lack. You simply cannot deliver on the value of Servitization without having strong foundational technology in place. Many companies are struggling to modernize as quickly as they need to in order to progress with the pace of customer expectations. This goes back to agility being a new concept for most service organizations, and it’s important to work on being more nimble both in selecting as well as deploying the tools you need to deliver outcomes.
  • Change management remains tough to tackle. Change management is a topic that has been covered time and time again and in countless ways, yet it remains top of mind for service leaders. From the top down, this level of business transformation requires a lot of work on not only developing but articulating that vision and then re-creating a company culture that is more aligned to the new and future way of operating. Change management, while conceptually straightforward, remains incredibly challenging for companies to tackle effectively.
Companies lack confidence in their Servitization value proposition. At the end of the day, service and sales are now closely intertwined – and as a function that historically hasn’t had a major sales aspect to it, this is a struggle. I think that some companies have an offering that they could indeed monetize and simply aren’t doing so because they don’t know how to articulate their value proposition to customers. Ultimately, to achieve success in creating Servitization revenue, organizations must get comfortable and become confident not only in creating but also pitching offerings that they know their customers find value in (because they’ve asked).

Sarah Nicastro
Author

Creator, Future of Field Service