Top 5 Reasons to Servitize Your Business
The Service Design Group specializes in driving servitization, digitalization and as-a-service transformations in mid-market and enterprise B2B companies.
We do this because we love services. We love the challenges of service innovation. We love pushing the boundaries beyond product innovation and typical business models. Most importantly, we love the results delivered by servitization, digitalization and as-a-service transformations!
If you haven’t started a servitization initiative, or are frustrated by the glacial speed at which your organization may be moving, we encourage you to embrace these top reasons to do servitization, and, perhaps, rethink your approach in earnest.
1. Your customers want it.
Where businesses once thrived and competed via product innovation, they now wither and die on the vine of product commoditization.
Gone are the days of winning merely through product innovation, incremental thinking and feature-function comparison. Where businesses once thrived and competed via product innovation, they now wither and die on the vine of product commoditization. Your customers don’t want your next product or your next feature. They want an outcome. They want you to understand their business and the issues they face in their market. They want you to come to the table with complete packages and service solutions that deliver results and improve their business. They want services and solutions that give them a competitive edge and improve their operations. And, they don’t want to pay for products in traditional, capital intensive manners. They want flexible options that account for the natural ups and downs in their business and consumption cycles and they want pricing models, expectations and incentives aligned to their business outcomes.
2. Your board and executives expect it.
Boards, the C-Suite and Executive Leaders may not call it servitization, digitalization or as-a-service transformation, but make no mistake, this is what they expect and desire. When there’s talk of disruption, customer-centricity, agility, speed, transformation, evergreen business models, new business models, platform solutions, stickiness, recurring revenue or customer loyalty, it’s a call to action to do something meaningful with services. This should come as no surprise, seeing as how companies can double revenue and significantly improve EBIT within 3-5 years with as-a-service transformations. Not to mention, customers will pay a premium for complete solutions or service-based offerings, particularly if the offer is structured and priced in a transparent way using units of value aligned to outcomes that matter for their business.
3. Your shareholders demand it.
Whether right or wrong, if a company turns the tide from product-based to service-based revenue, the street likes it! There is a premium placed on enterprise value when a firm can demonstrate predictable, recurring revenue (or, at least, point to a plausible strategy to make the transition!). As with anything, results will vary, but many servitization, digitalization and as-a-service transformations come with a healthy and attractive 20% to 50% increase in Enterprise Value.
4. You’ll go out of business if you don’t.
Every industry, in time, will transition from a product market to a services market.
It’s amazing this is still a debate. Everyone thinks they are immune to the servitization or as-a-service trend until they aren’t. And when they aren’t, it’s too late. Every industry, in time, will transition from a product market to a services market. Every customer, in time, will require you to deliver a service or an outcome and not just sell them a product. If you’re an incumbent, you can choose to drive the change and reap the rewards or competitors you never saw coming will disrupt and displace you. There’s a reason phrases like “get Uber’d, get Netflix’d, and get Amazon’d” are gaining traction. It. Will. Happen.
5. You’ll be a hero when you do.
Believe it or not, there’s still plenty of runway to get started on a real servitization, digitalization or as-a-service transformation. Most mid-market and enterprise B2B organizations are still debating what to do and how to get started. If you can be the change agent and get the journey started, you’ll be a hero. You’ll deliver what your customers want, give your board and your executives what they expect, meet the demands of your shareholders and put your company in a leadership position in your respective market(s).