Digitalisation and servitisation: the competitive advantage?

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Broaden the horizons of your digital transformation to capture more value from your products

At Aston Business School, our relationships with over 100 manufacturing firms give us insight into the industry’s journey to digital maturity, transformation, and servitisation, adding value by reshaping products into services. When these businesses ask how to balance growth, competition, rising customer expectations and market forces, we recommend a methodical approach: reflect, analyse and then act.

Let customer needs guide your competitive strategy

First, understand how your business competes. Does it win customers because of its product leadership? It is charging a lower price than competitors? Or is it because of service packages that support the customer and improve the value they get from products? Then, think how this may change in the future.

To get a clearer insight into your competitive strategy, take a look at unlockyourinsight.co.uk. Here you will find a simple tool that analyses your competitive strategy. Don’t be surprised if your reflections suggest that services are of growing importance to your customers, and so represent the strongest potential for growth.

This growth in demand for services is very typical across industrial sectors in developed economies, and manufacturers are responding to this. In a recent industry report by Columbus, new business models supported by data and analytical capabilities and a data-driven business model were highlighted as key requirements to stay competitive during the Fourth Industrial Revolution and develop a future-proof ’Manufacturing 2020’ strategy.

Technology adoption – all that glitters is not gold

With servitisation, you need to develop an appropriate business model based on what the customer needs, adopt the right technologies to enable you to deliver your new offering, and bring about the (often significant) organisational change required to realise this opportunity.

After performing your analyses, it is time for action, which most often leads to an investment in technology. Remember, this should reflect the competitive strategy of the business. Manufacturers are tech-based businesses, they are rich in technology and often led by managers with backgrounds in engineering, science and technology, so it is easy to focus on technology first, but the key to success is to know your strategy and choose the right technology to help you implement it. This means your investment is much more likely to be successful.

Manufacturers need to master key technology trends that are most relevant to their overarching competitive strategy – those that help them perform better against their chosen business model. And those key technologies need to be prioritised based on those that fit well with their existing competencies; these will be easier, faster and less risky to adopt. There are a number of technology trends about at the moment, but it requires careful thought to determine what will work best for your business.

Digitalisation is a good start – but don’t stop there

Digital transformation in the manufacturing industry looks advanced, yet the scope of its application is quite narrow. Most manufacturers are, as I say, comfortable with technology, and digital technologies have been embedded within manufacturing for decades; digital simulations evolved in the steel and automotive industries in the late 1970s for example.

Yet few manufacturers are looking beyond the factory gate. Instead they are narrowly focused on initiatives where they can use technology to improve cost, quality and speed of delivery. They are in danger of missing opportunities to create and capture more value, opportunities that can be revealed using digital technologies to provide insights into how, when, and where customers use the products they produce. They need to elevate their thinking beyond the factory gate to consider how customer insights can lead to growth.

And, of course, some manufacturing organisations are missing out on existing technological opportunities. I believe systems such as customer relationship management and enterprise resource planning are, for most businesses, essential for efficient operations. So much so that they can be considered as hygiene factors for many. Manufacturers that start by optimising these fundamental technologies have better leverage to adopt new technologies.

The road to innovation is paved with services

We are transforming businesses through servitisation. The international research community has come together to define pathways for the successful adoption of a services strategy within a manufacturing organisation. We have rationalised this into a roadmap of the transformation process and are using this roadmap to guide the actions of manufacturers.

As manufacturing organisations look to add new revenue streams and hedge competition with a more service-focused offering, innovation will continue to rise, transforming the complete customer experience and manufacturing as a whole.

About the Author

Digitalisation and servitisation: the competitive advantage? TechNativeProfessor Tim Baines is director of Aston Business School’s Advanced Services Group and an international authority on servitisation.

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