The Service Design Group created the category of service innovation and portfolio management. We recognized and responded to the trends of servitization, digitalization and as-a-service transformation that began with nascent cloud, mobile, social and IoT technologies in the 2000s and have been creating real outcomes for mid-market and enterprise B2B organizations since 2011.
While we originally expected many companies and industries to rapidly evolve and transform in the 2010s, it’s clear, now, that the 2020s present the perfect storm for companies to do something meaningful. Internet of Things (IoT), Edge computing, Machine Learning and Artificial Intelligence technologies – all powerful enablers of servitization and as-a-service business models – have hardened, scaled and integrated with other ecosystems over the last decade. Now is the time to act, yet few are acting. Many are still observing or dabbling, asking why should we embark on a servitization journey?
We offer a simple response: do you want your revenue to be a dot or a pie?
Revenue as a dot
Why would a business operate without a diversified revenue stream in the 21st century?
If you’re not generating revenue from services, and merely collecting revenue from product sales, what do you have? You have a dot!
Sure, you can create a nice visual picture of your revenue, with color-coded slices representing your various product lines and product portfolios and customer segments. Then, you can pat yourself on the back thinking that you are diversified and have a well balanced portfolio. But, if you’re asked to produce a graph that reflects revenue by revenue stream or revenue type, what do you have?
You have a single circle, in a single color. No slices. No diversification. A dot. Not so compelling. One might even conclude it’s nonsensical. Why would a business operate without a diversified revenue stream in the 21st century?
Revenue as a pie
As soon as you generate your first service-based revenue stream… it’s healthier because it’s diversified
Building service-based revenue is a path forward to move from a revenue dot to a revenue pie. But, this isn’t just a case of adding colored slices to your product revenue dot. Now, it’s a story about growth!
As soon as you generate your first service-based revenue stream you’re producing growth. Your pie is now bigger than your old dot. It’s also healthier and stronger because it’s diversified. And, it is much more capable of generating new growth and new revenue. Each “service slice” you add will create new opportunities with your current customers, attract new customers, and give you options to move into adjacent markets that were not possible when you only had product revenue.
Even better, your new revenue pie will be more stable (thanks to recurring revenue models from services) and higher value because recurring revenue receives a premium in Enterprise Valuations at multiples often 4x-10x product revenues. In comparison to the product revenue dot, the choice should be clear. If you’re managing a dot, time to start making a pie!
