At The Service Design Group, we’ve been helping mid-market and enterprise B2B firms successfully build and grow service revenue streams since 2011. Over the years, we’ve seen a number of misconceptions that firms hold when approaching servization, digitalization or as-a-service transformations. Whether you’re just considering getting started or in the thick of it, it’s helpful to be aware of – and address – these misconceptions.
“It’s only digital.”
A firm must explore multiple service types and service monetization models in parallel
In our experience, many firms approach servitization with an exclusively digital lens. They believe digitalization is servitization and vice versa. Or, at an extreme, they think they just need to make some apps or generate some data. Sure, today’s readily available, digital technologies are often critical components of servitization and as-a-service transformations and, likely, there is opportunity to create digital services and solutions. But, make no mistake, servitization is not only about digital!
To be successful with servitization and as-a-service transformation, a firm must explore multiple service types and service monetization models in parallel. They should look to monetize traditional services while optimizing existing services. They should also look at services that combine traditional and digital models together. And, yes, they should look at pure digital services, too. The key is to not constrain service innovation and servitization to just digital. If you do, you’re at risk of creating some apps that your customers don’t want or creating a pile of data that you can’t do anything with.
“It’ll be a quick sprint.”
Success with servitization and as-a-service transformations requires firms to recognize that designing and building service-based offerings and service revenue streams is no quick sprint.
Most firms have a clear understanding of the average time it takes them to move a product from idea to market. There’s often a New Product Development (NPD) or similar phase gate model in place with teams responsible for evaluating efficiency and finding additional ways to shorten time to market. Hurdle rate, or IRR (internal rate of return), and ROI or NPV guidelines are established. More importantly, the entire organization understands, appreciates and assigns value to the time necessary to take a product to market. However, when they embark on servitization and as-a-service transformation, often creating new-to-world offerings they’ve never produced before, most firms end up believing: “It can’t take that long! It’s only services, after all.”
Success with servitization and as-a-service transformations requires firms to recognize that designing and building service-based offerings and service revenue streams is no quick sprint. Sure, immense progress can and should be made quickly because many capabilities already reside in the organization, but it’s misguided to expect the design-develop-test-scale cycle of service innovation to be magnitudes less than that allowed for products. Yes, the teams responsible for servitization and as-a-service transformation should use agile methods and “best of” sprint methodologies, but these can’t be confused with a two week turn time! On average, servitization, digitalization and as-a-service transformations take three to five year to fully materialize in most organizations.
“It’s just a pricing tactic.”
Much of the storyline surrounding servitization and digitalization is intertwined with subscription-based pricing. This leads many teams and organizations to believe that as-a-service transformations are possible with merely a price or contract change. The thinking goes: what we sell today, we could sell tomorrow as a subscription. This couldn’t be further from the truth.
To be successful with servitization and as-a-service transformation, a firm must first become service-oriented and service-enabled. They must become customer centric in their thinking and actions and have the ability to deliver outcomes, measure consumption and utilization, and continually improve the services they place in the market. This requires culture change as well as: upgrading business systems, onboarding new capabilities and redesigning legacy business functions. Avoid the trap of changing “how you price and package” and make sure you have first created the groundwork to actually deliver a service that a customer will be happy to consume month-to-month.
