Part Two: Internal Drivers of Servitization
The Service Design Group are experts at helping mid-market and enterprise B2Bs successfully achieve servitization and as-a-service transformations. Over the years, we’ve identified some repeat patterns that drive organizations towards servitization.
We view these drivers of servitization as a pressure gauge or litmus test. Meaning, reviewing these drivers and understanding – for each – if you are or aren’t experiencing the driver – is useful in determining the level of urgency you are facing relative to a servitization, digitalization or as-a-service mandate. The more drivers you identify with, the more urgent your call to action should be; the less you relate to, the desire to servitize diminishes.
Keep in mind, of course, that not all of these drivers are created equal! While all are important, the level of urgency is significantly greater for some compared to others!
This article is part of a two part series. Part 1 covers the External Drivers of Servitization.
Internal Drivers, defined.
These drivers of servitization come from inside the walls of your business! Unlike external pressures, these items are controllable to a degree; however, as with external pressures, responding to these drivers is highly dependent on your capacity to move with speed, agility and purpose in the face of ambiguity. There’s also an extra premium placed on your ability to adequately set and manage expectations about vision, level of effort, level of investment and capabilities required.
Product innovation alone will not unlock your future growth!
The simplest – and most actionable – internal driver to servitize is a growth mandate. If you’re faced with a challenge to 2X revenue in 3 years or get the next $1B, don’t constrain your revenue growth and expansion strategy to just product. Product innovation alone will not unlock your future growth! When faced with a growth mandate, you have to give service innovation a serious look and put wheels in motion to design, build and grow service-based revenue streams!
Perhaps not as straight-forward as a clear growth mandate – but of equal pressure – is leadership vision (often tied to a new CEO). This comes in various flavors, but these days it’s typically around becoming more agile and customer-centric. Whatever keywords lie in the vision, there’s a very good chance the most credible path forward to deliver against the vision is to explore servitization and as-a-service business models. While the vision may not be “go servitize” (it rarely, if ever, is!), read between the lines and you’ll likely see a clear call to action around evergreen business models, customer centricity, predictable cash flows, and expanding enterprise value. These are all outcomes of servitization!
Active Digital Transformation and/or Customer Experience investment
Many organizations today are investing heavily in customer experience and digital transformation (we prefer the term modernization or enablement because 90% of these efforts won’t be transformative, i.e. creating a state change). Digital modernization and enablement are necessary, but it is our experience that many organizations don’t have sophisticated frameworks or understanding about how to value the return on investment for their spend. By recognizing this as a driver to servitization and new business models you create the ability to change the picture completely, and in a very positive way. If you can connect the investments already made with digital transformation and customer experience efforts beyond “today’s business” and use them to support servitization and as-a-service transformation, you’ll be a hero. Win-win!
New Intellectual Property
Not as common, and a bit specialized, new intellectual property (IP) can be a driver to servitization and usually happens in two ways.
The first is that the dynamics of your IP portfolio could be strengthened via service-based business models. Many companies hold valuable intellectual property that they don’t monetize or worse take any form of an advantage of; leveraging current IP assets within a new service via service level agreements (SLA’s) or wrapping a service layer around current products can trigger reuse of existing IP.
The second is when a combination of IP – say hardware + software – lends itself to a service-based or as-a-service solution offering. Your IP is weakened if released to markets as a product only, so why make that choice? Instead, servitize!
If you didn’t already, make sure you check out Part 1 of this article series that covers the external drivers of servitization.