ARCHIVE FOR THE ‘the-view-from-academia’ CATEGORY

Shaun West looks back on some of the key academic conferences and summits that have taken place over the last year.

In May Innosuisse awarded ZHAW the principle researcher and HSLU as the project management lead in a Smart Twins project (full name is “Digital Twin-based Services in industrial product-service system environments”). Dr Shaun West, Lucerne University, gives us an overview of the project...

Dr Christian Kowalkowski, Professor Of Industrial Marketing at Linköping University outlines how two of the biggest trends amongst manufacturers, digitalisation and servitization, are in essence two sides of the same coin and why digitalisation requires more, not less, service and customer centricity than ever before. 

The growing digital disruption is blurring industry boundaries and altering established positions of firms. While manufacturers are investing strategically in data gathering and analytics capabilities and in cloud-based platforms, many firms remain concerned about how to best address digital disruption and enable digitalisation.

Last year, General Electric cut expenses by more than 25% at its digital unit responsible for Predix, its software platform for the collection and analysis of data, which previously has been hailed as a revolutionary driver for Industry 4.0. This move highlights the difficulties involved in adopting digital technology in an industrial business. Having worked with B2B firms in diverse industries on designing and implementing service-growth strategies, I have seen both highly successful and unsuccessful cases of what I call ‘digital servitization.’

Why is it so that even many firms that run a profitable field service organisation struggle to implement digitally-enabled services?

Before looking at some key challenges, let us first define what we mean by digital servitization. As a start, we need to distinguish between digitisation, which means turning analogue into digital, and digitalisation, which refers to the use of digital technology to change the business model. A tech-savvy firm with a product-centric mindset may have little difficulty in implementing digitisation, as when record companies moved from selling LPs to CDs.

However, rather than embracing the new digital opportunities that changed the way we interact with music, most record companies then clung on to a product-centric business logic of selling CDs.

Instead of developing business models based on Internet distribution they promoted new physical media like the Super Audio CD. Ironically, their defensive stance—manifested in such things as copy protected CDs—forced many people to illegal downloading in order to conveniently access MP3 music, thereby undermining their product-centric model even further. Digital servitization, then, refers to the utilisation of digital technologies for the transformation whereby a company shifts from a productcentric to a service-centric business model.

Of course, digitally-enabled services are not new; for example, Rolls-Royce’s archetypal solution TotalCare begun in 1997 and BT Rolatruc (since 2000 part of Toyota Material Handling) created its software system BT Compass in 1993, to help its customers improve their performance. Digital technology can be a double-edged sword however. For example, many manufacturers have been carried away by the technical possibilities of telematics without having a clear service business model in mind.

Rather than crafting a compelling value proposition based on enhanced customer performance, it was tempting to give the service away for free with the hope that customers eventually would discover the value of data access and be willing to pay for it.

There are however at least three problems with such a technology-centric approach. First, as the connected installed base grows and the costs of collecting and managing data increase year by year, it becomes increasingly difficult to defend the model unless service sales start to materialise. Second, giving services away for free always reduce the perceived value of the offering in the eyes of the customer. Why should they pay for something that was previously free of charge and that competitors may still be treating as a commodity and giving away?

Third, customers typically do not have the time nor the skills to interpret and act on the data collected. The real value of Big Data only comes once it is processed. By collecting and analysing data from multiple customers, a supplier may know more about the customers’ equipment and operations then they know themselves, which creates opportunities for new advanced advisory services.

The digital dimension of service growth requires purposeful and coordinated effort. As we know, while manufacturing and conventional R&D activities can be centrally managed to achieve efficiency and standardisation, services require increased local responsiveness and closer customer relationships.

"The real value of Big Data only comes once it is processed..."

 

During digital servitization, however, the central organisation must take a more proactive leading role to ensure platform consistency and data quality, to provide the requisite data science skills, to support local units, and to address cyber security issues. The 2017 large-scale cyberattack (NotPetya) on Danish shipping giant Møller-Maersk, which shut down offices worldwide, illustrates the dangers of inadequately managing the latter issue.

A service manager at Toyota pointed out over ten years ago that service development “is very much IS/IT. Instead of sitting and discussing how to be able to quickly change oil in the truck, there has become very much focus on data.”

Viewing data as “the new oil” is a claim oftentimes heard. Like oil, data is a source of power. It is a resource used to power transformative technologies such as automation, artificial intelligence, and predictive analytics.

However, unlike oil, data also has other properties. We are currently seeing a shift from scarcity of information (data) to abundance of it. Data can be replicated and distributed as marginal cost, and competitive advantage can be achieved by bringing together new datasets, enabling new services. But this also creates new tensions between companies regarding the issues of generation, collection, and utilisation of data. If a customer is generating massive amounts of data that the supplier is collecting, once processed, it can be used for better serving also the customer’s competitors. In other cases, we are seeing completely new companies emerging and collecting data on behalf of their clients.

Digitalisation is beginning to have a profound impact on even the most stable businesses. Customers increasingly expect that a single provider will integrate the system of which the products are part, and that they will do so through one digital interface. Whether the platform provider is one of the established OEMs or a new software entrant might not matter. Competition may come from unexpected sources, as for example when one of the leading international standards organizations in the marine industry recently moved into platform-based services.

Oftentimes, the most formidable threat comes from disruptive innovators outside the traditional industry boundaries. An executive in a leading incumbent firm stressed that her main concern was not the competition from any established player. Instead, what kept her awake at night was the prospect of Amazon entering—and reshaping—the market. While many share the concerns of being overrun by new competitors, the threat is most imminent to those firms that lack service leadership and a clear road map for service growth.

To conclude, no firm can afford not to strategically invest in digitalisation. However, as firms compete in the digital arena, there is a risk that focus shifts too much away from service and customer centricity to new digital initiatives and units. Ten years ago, many executives sang the praises of servitization.

Today, digitalisation is the poster boy for business transformation. Given the rapid pace of innovation, it may be tempting to launch new concepts as soon as the technology is available, rather than waiting until the they have been properly piloted and customer insights gained. To reap the benefits, firms also need to understand the interplay between back end and front end, investing in both back-end development for enhanced efficiency and better-informed decision-making, and front-end initiatives to enable new services and closer customer integration.

Correctly designed and implemented, digital servitization provides benefits for companies, networks, and society at large. Successfully seizing digital opportunities, however, requires more, not less, service and customer centricity than before.

Dr Christian Kowalkowski is professor of industrial marketing at Linköping University, Sweden, and the author of Service Strategy in Action: A Practical Guide for Growing Your B2B Service and Solution Business. Find out more here. 

Servitization is becoming a huge topic in the field service sector as we see more and more organisations step on a path towards advanced services we must realise that they cannot do it alone, their customers must be prepared to come along on the ride as well...

Ross Townshend, EMEA Business Manager - Advanced Services & Data for Ishida Europe talks to Kris Oldland and outlines some of the challenges he has faced in building advanced services within his organisation...

The topic of servitization is of course highly complex and for those just starting to explore the area, it can be a daunting prospect to get one's head around. However, Ross Townsend,  Advanced Services Business Manager, Ishida has had been able to get a bit of a head start by not only arriving into an organisation that has already embraced the idea, but that is also working with the Advanced Services Group, headed by Professor Tim Baines, Aston University, one of the leading proponents and thinkers within the servitization movement.

Kris Oldland, Editor-in-Chief, Field Service News caught up with Townshend to find out how he is adapting to a world of servitization some six months into the job…

“Before I joined servitization was something I knew nothing about,” states Townshend as we begin our conversation.

This was one of the key reasons I was so keen to speak with Townshend in the first place.

Pleasant and approachable, Townshend is one of those people that you find it instantly easy to talk to. A very subtle hint of slight West Country burr to his accent adds an earnestness and integrity that could be perhaps lost in the international world of servitization, but for us here in the UK, it is noticeable and adds a natural ease to Townshend’s manner.

Certainly, what comes across even within just a few moments of speaking with him is that he has that key ingredient that all great service people have, he is able to communicate effectively and eloquently within a comfortable use of language that feels all the time natural, relaxed and honest. In my experience people with such a manner, often speak with authority in areas they know well and integrity and humility in areas in which they are slightly less surefooted.

As part of the Advanced Services Group, Ishida and Townshend will be working alongside the like of Prof. Tim Baines and Dr. Ali Bigdeli.In the context of this conversation then it would be interesting to not only hear his thoughts and gain his insights on how Ishida are approaching servitization, but also to understand first hand how daunting it was to leap into this baptism of servitization fire that few elsewhere have had the opportunity to do.

In Ishida, Townshend has arrived in an organisation that has fully embraced servitization, his former colleague Jason Smith is the only man I’ve personally met who has been involved within two separate companies moving to a servitized business model and as part of the Advanced Services Group, Ishida and Townsend will be working alongside the like of Prof. Tim Baines and Dr. Ali Bigdeli.

So whilst he may have to endure a baptism of fire to get him up to speed, he has some heavyweight support to help him get through it.

“When I look at the transformational roadmap that the Advanced Services Group have created, we have this cycle that we are going through exploring it and trying to work through it,” Townshend explains.

However, it has not been plain sailing for Townshend and the team at Ishida to introduce advanced services to their market - and the reluctance of the market itself is something Townshend thinks could be a factor, having arrived from an entirely different vertical that was further along the road in terms of acceptance of servitization and digitalisation.

Whilst that is a separate issue to the conversation around servitization in a way it does add some context to the arena we are working in“I’m not from the food industry most of my work was in automotive having worked with Bosch Rexroth for a number of years with a background in design engineering, product management,” Townshend explains.

“In terms of the digitisation side of things generally, I find the food industry is massively behind and that’s not just in terms of technology but also in terms of mindset to work with technology. Whilst that is a separate issue to the conversation around servitization in a way it does add some context to the arena we are working in. It can be a frustration even just to get the software adopted let alone the advanced services longer term,” he continues.

“In terms of why the business is diversifying into advanced services is another interesting point. I view this as a journey for a manufacturer and then also as a journey for a manufacturer within the food sector. The suggestion would be that we are a long way down the journey but I think we are still packing the car up at the moment – we haven’t even actually started on the actual journey yet.”

“A part of that is the fact that we are in the food sector, where the adoption of technology is somewhat lagging behind where it is in other sectors.”

“Also the food sector is the largest, it's highly profitable and its growing. We are growing double digit year on year so why would we diversify?”

Of course, the food sector is one which by the very nature of the products it generates will always remain transactional. There isn’t a service contract that can be sold on a packet of oven chips. You buy them, you eat them, then you buy some more.

I wonder if the fact that Ishida’s customers themselves will always have that transactional relationship with their customers is in part responsible for creating a mindset that is hard to overcome in terms of raising conversations around outcome-based contracts?

“I think it is,” Townshend concurs.

At the moment as part of our work with the team at Aston are trying to find pilot customers to establish a proof of concept and even that is proving to be a significant challenge“At the moment as part of our work with the team at Aston are trying to find pilot customers to establish a proof of concept and even that is proving to be a significant challenge. We have had conversations with a couple of parties where we thought OK, we’ve got a reasonable amount of equipment in there, you could argue that we’ve got a fair amount of ownership of the process which is quite critical when you're looking to establish this type of working agreement."

"They have five or six pieces of machinery in a line so we can really add some value there and take ownership of that process and work towards what we would ultimately be our vision of a servitized contract which internally we are terming pay-per-pack, which is the holy grail for us in terms of advanced services to achieve this pay per pack model. Securing a pilot has been very difficult.”

“We had a large manufacturer of salad that we were speaking to and they showed interest. We had a meeting with them and their senior directors and they could certainly see the mileage but as it is in the case of lots of businesses they are too busy to be able to really think about it and they don’t really need it at the moment.”

This is an interesting point here.

In the case of Rolls Royce’s power by the hour there was a strong customer pull from American Airlines. In the case of MAN UK there was a huge backdrop of hauliers and logistics firms struggling to make a profit.

Perhaps the burning platform factor is a necessary element in the equation for creating an environment in which an approach to business that steps as far away from the traditional path as servitization does. It is perhaps far less easy to be a driving innovative force in an industry that is profitable and ticking along nicely.

As the old adage goes if it ain't broke…

I do think that the sector you are operating in is one factor in the ability to drive something innovative like servitization forwards“Whilst I absolutely won’t take anything away from the achievement that companies like Rolls Royce or MAN Trucks have managed, I do think that the sector you are operating in is one factor in the ability to drive something innovative like servitization forwards. Another area to consider within there success also is that they have complete control of the process,” Townshend says expanding on the discussion.

“In our industry and with our customers, at best there may be one significant chunk of a production line which is our equipment. If they are a major manufacturer they will certainly have other lines that are our competitors' machines or they will have a line with six different manufacturers equipment in them so certainly whatever we do needs to be scalable, unless we go in and basically say 'we will provide you with all the equipment for your factory'. Unless your in the lucky position to be on a greenfield site where you're in the right place at the right time that is very difficult to achieve.”

Signs of an emerging appetite for such advanced services are beginning to appear as Townsend recalls one such example.However, signs of an emerging appetitie for such advanced services are begining to appear as Townsend recalls one such example.

“A big dairy producer approached us within the last six months and they were looking for a supplier that could take on all of their quality control equipment, on every site across Europe. They were looking for one supplier to look after everybody's equipment service maintenance in the full acceptance that that is a very difficult job and while you're going through that period of changing out equipment it is going to be a difficult thing to manage.”

“But it is interesting that they were asking that and the reason they were doing so was that they didn’t want the hassle. Clearly they of course also wanted a good price but they accepted that this removal of the hassle came at a premium. Also financially to them, it would be more visible on their books versus the huge maintenance and hidden costs that they would have to deal with on a daily basis.”

“And they were going to several suppliers and there was a huge team of people set up to go and find the right supplier for this so they took this very seriously - it wasn’t just one person’s crusade.”

So clearly there is at least the seeds of some companies looking for servitization from providers within the sector“They’ve gone through the analysis at their end and decided that outsourcing this area of their business was the direction they wanted to go. So clearly there is at least the seeds of some companies looking for servitization from providers within the sector."

“This organisation is clearly looking to remove the headache of maintenance for them and the next logical step along that path would be some form of advanced services contract where maybe you go in there and say, yes, we can take on the entirety of your maintenance contracts and we can take all of our competitors machines out and put ours in but it will be on a cost per usage basis. It’s a big leap forward but it certainly follows that path."

However, until that one customer makes the leap that pulls the entire industry forward it is perhaps a wiser move to bring customers with you on the journey in a more incremental manner.

This is certainly how Townshend is approaching the task…

“The direction I am taking with the business is to start to bundle in certain value added functions and features to start to drive some customer pull and start at a lower level than pay-per-pack just to get the appetite there. I used the term holy grail and the problem is it is just that it is just too far away for our customers to grab. They get it and they go wow that’s good but they have no idea about how to move forwards to implement it.”

The move to advanced services needs to be a symbiotic relationship, it needs to be something that you go to your clients with and they come with you on the journey. Whoever leads that journey whether it be a customer pull or a client push you both need to be going on that journey at the same time.

 

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Faced with high fuel costs, congestion, driver shortages and changing delivery patterns, the UK road transport industry has to change radically to improve profit margins and survive. Servitization is the solution, recommends this report by Eleanor Musson and Dr Ali Bigdeli  of the Aston Centre for Servitization Research and Practice

The road transport industry is crucial to the UK economy; 68% of freight goods are moved by road according the UK's Department for Transport Transport Statistics 2014. But the industry faces the challenges of fuel costs, driver shortages, congestion and regulation. Moreover changing consumer behaviour in the UK is turning the industry on its head; 74% of adults bought goods or services online in 2014, compared with 53% in 2008, according to the Office for National Statistics, Internet Access in Households 2014, and the demand for flexible, fast delivery is growing rapidly according to the Guardian newspaper.  These are just some of the factors behind the low profit margins in the industry: 3% for operators , reports the  Freight Transport Association in its 2014 Logistics Report,  and 6% for manufacturers.

This industry has to change radically. There is little to be gained from piecemeal changes to products or pricing; the customer’s priorities and requirements must be placed at the heart of operational strategies. This is achieved through what we call advanced services, which are implemented in an organisation through servitization. Advanced Services are provided by manufacturers and technology innovators with an intimate understanding of the customer’s business priorities, and their difficulties in achieving these. They are a package of a product, and the services that go around the use of the product, consumed as a single offering, which help the customer achieve its requirements.

In order to understand how advanced services and servitization are being adopted in the road transport industry, we interviewed a panel of senior executives from within vehicle manufacturers, component manufacturers, operators, fleet management companies and technology providers, and we outline some of our findings here.

There are three categories of advanced service currently been offered in this industry: [ordered_list style="decimal"]

1. The first is vehicle condition and safety related services. Real-time reporting about the condition and performance of the vehicle helps the service provider (e.g. manufacturer, fleet management company) to see how the vehicle is being used by the customer, which mitigates the contractual risk and gives opportunities for service and product improvement. Data are used to help fleet managers monitor costs and identify problem vehicles, either by sharing the information with the customer, or by the manufacturer providing this function as a service. For fuel efficiency and safety, manufacturers test tyre pressure and tread depth, with real-time reporting to alert drivers to problems, and service operatives on hand to make repairs or replacements.
2. The second type of services is driver-related services. Through the use of telematics, the manufacturers and operators are able to assess how the truck is being driven, to examine any incidents such as harsh breaking, speeding and idling, and to inspect driving and rest periods. This data is analysed to identify training requirements and in some cases pay performance bonuses.
3.   The third type is route planning and delivery services. Real-time reporting allows operators to manage routes, taking into account live road conditions. Data on deliveries made compared to schedule and route information enable managers to identify opportunities for improvement.

Advanced services have a three-fold impact in the industry:[ordered_list style="decimal"]

1. Efficiency
   The greatest efficiencies are achieved by maximising the uptime of vehicles, planning routes efficiently, and processing orders. To illustrate:
   • The use of technologies and data by skilled route planning staff reduces mileage driven by up to 10%
   • Uptime is maximised by reducing roadside failures thanks to greater visibility of the vehicle, its condition and how it’s being used
   • Operators can expect at least a 5-15% reduction in vehicle maintenance and service costs as a result of condition monitoring according to telematics specialist Microlise
2. Safety and better image
   Driver-related services have had a significant impact on driving standards, and in turn the image of operators and the industry. In this regard:
   • Microlise reports customers see annual reductions in speeding incidents of up to 90%, and a reduction of up to 60% in the number of accidents.
   • The same report states operators are seeing a 5-15% reduction in carbon emissions as a result of optimised routes and better driving.
3. Cost Savings By enabling improvements in driving performance and better, more informed route planning, technology is helping to deliver cost savings in terms of fuel usage. According to the Freight Transport Association's Manager's Guide to Distribution Costs, fuel represents on average of 30% of the cost of a vehicle . The average unit costs £49,000 per year in fuel. Microlise reports an average 10% (£4-5000) saving on each unit’s fuel consumption being achieved by customers using driver management and training tools.

Recommendations

While the leading organisations demonstrate what can be achieved, our research demonstrated that advanced services are not being adopted universally or uniformly in this industry. In order to accelerate this, we recommend that manufacturers ensure advanced services are properly led and embedded. Servitization is a wide ranging, complex process that requires transformation and coordination of an entire organisation. In most companies, it doesn’t fit neatly within the realm of one department. Just like any other organisational change, servitization needs a champion to lead it and generate buy-in across departments.

Servitization provides an opportunity to ‘be closer to the customer’ which can also be facilitated by innovative pricing models which assure the prospective service user of the level of commitment, and create alignment of objectives between service provider and user. Selling and supporting services is a very different proposition to selling products, requiring different skills and reward structures. Manufacturers will need to invest in training their staff, and consider the incentive and reward structures that will generate the desired outcomes.

The full whitepaper report Delivering Growth can be downloaded here:

 

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