Part Two Capabilities to Servitize

Capabilities to Servitize – Part Two

The drivers and benefits of servitization, digitalization and as-a-service transformation are clear and compelling. Market-by-market and segment-by-segment, products, incremental innovation, and transactional relationships are being replaced by services and solutions that deliver relevant outcomes to customers. Those that make this transition are rewarded with diversified revenue streams and enhanced enterprise value.

If you’re missing critical soft skills in leadership it will make a credible start to servitization difficult.

At The Service Design Group, we’ve been guiding mid-market and enterprise B2Bs through the process of transitioning from product-based revenue to service-derived revenue streams since 2011. Today, we’re encouraged by the increased number of firms considering embarking upon servitization, digitalization and as-a-service transformation journeys; however, over the years, we’ve identified a number of critical items that – if missing – make it difficult to have a credible start.

If you’re considering a servitization, digitalization or as-a-service transformation, we encourage you to review our list of must-haves. While you can make do with gaps in some of these areas, if too many of these are missing, it may be implausible for you to start your journey, today.

This article is part of a two part series. Part One covered the hard, or technical, skills required for servitization while this article covers the softer skills around management and leadership.

Invested leadership

There’s a big difference between a leadership mandate and leadership commitment to innovation.

Do not confuse this one with leadership vision, drive or pressure. There’s a big difference between a leadership mandate of “grow our revenue” and a leadership team committed to innovation and willing to take the risks, make the investments, accept the ambiguity and take the short-term hits inevitable with servitization (in exchange for the future value of recurring cash flows). Without a champion in the leadership ranks, servitization approaches the impossible.

Clear understanding of desired customer outcomes

One could argue this one is the keystone of servitization. Doing as-a-service or service-based business models is all about delivering an outcome that your customer cares about, at a level of value, skill and/or expertise that the customer can not create on their own. If you don’t know what those outcomes are – or how to measure, value or deliver them – you cannot servitize. It’s that simple! (And this is why customer access, data access, field skills and process expertise (covered in Part One) are so important!)

Clear understanding of your current capabilities

A recurring misstep in servitization is a lack of honesty in a firm’s current capabilities prior to embarking on an as-a-service transformation.

If we were to pick a recurring misstep in servitization, it would be a lack of understanding, clarity and true honesty in a firm’s current capabilities prior to embarking on servitization or as-a-service transformation. If you don’t truly understand that which you do today and the value created (from your customers’ perspective) you cannot reasonably servitize. As an example, consider a firm that has technical service engineers that support product start up (aka troubleshooting). Now, consider that the firm thinks it can – because of this technical capability – offer uptime as-a-service. Imagine the delta between this firm’s current capabilities and the desired future state!

Belief in a “future state”

Just as important as a clear understanding of current capabilities is alignment and genuine excitement for a future state of servitization. In our experience, it’s difficult to achieve this in firms immersed in years and years of selling and delivering products. Belief systems such as “we tried that once before” or “we can’t charge our customers for service” often get in the way and cloud a vision of servitization. Left unchecked and unmanaged, these belief systems become powerful blockers in organizations that will prevent the necessary service-based innovations from progressing forward.

Resource Allocation

Servitization requires organizations to shift the “A-team” resources away from the core product business to make servitization a reality.

As with any project – particularly transformational projects – at some point, it’s no longer a dream, a plan or a vision. There’s work to do! And with servitization and as-a-service transformation, it’s a lot of work. A whole lot. Organizations will be pushed and tested to flex new muscles and build new capabilities, often before those functions and skills exist “at scale” in the organization (as examples, think about customer success management or solution selling). Servitization requires organizations to be fluid and dynamic and willing to shift and commit the “A-team” resources away from the existing product business to make the new service-based business come to life. Many organizations are not willing to make this choice, but it is impossible to servitize if you do not.

Realistic understanding of timelines and payoff

Our last must-have for successful servitization is realistic understanding of timelines and payoffs. This. Is. Not. A. Two. Week. Sprint! Servitization and as-a-service transformation is a rigorous process equal to, if not more complex than, product development systems. Don’t believe the hype in all of the agile play books floating around which contribute to fallacies that services are easy to produce. It’s akin to saying you can play in the NFL because you’ve thrown a football! Related, don’t fall into the trap of holding your new service innovations to the standards, processes and metrics of your product development pipeline. Service innovations will require new initial metrics and perspectives of value. As an external benchmark, consider that the journey to $100M in annual recurring revenue is around 7 years for the top quartile of startups that IPO. If you’ve only done product, don’t assume you can outpace the best-of performers who were born as-a-service!

In case you missed it, Part One of this two part article series covered the hard, or technical, skills required for servitization.

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