IDC has published an IFS sponsored whitepaper entitled “IDC servitization barometer: charting your path to new revenue streams”. It is based on research carried out nearly a year ago in July 2019 that fed into the IDC Servitization Barometer. The Barometer was a survey that studied 420 companies in the physical value chain world and their position on their servitisation journey.
Servitisation is important to firms. Revenue from services is expected to jump from 8% in 2019 to 16% in 2022 according to the survey. It is no surprise therefore that 82% of companies are moving to, or at least exploring servitisation. Where they are on that journey IDC categorized into four stages.
- Splintered: 14% of respondent organisations are characterized by siloed operations featuring disjointed, manual processes and fragmented business systems that offer little or no visibility on performance.
- Side-Car: 49% of respondent organisations have standardized their back-office and front-office operations, but are lacking integration between the two.
- Joined-Up: 39% of respondent organizations have integrated front- and back-office in both directions and leveraged advanced technologies such as IoT to feed the core systems with real-time data.
- Borderless: Only 3% of organizations are borderless. These are those whose processes start and end outside the organization and whose operations and technology enable different elements of the value chain to connect.
IDC links digital transformation to servitisation and its success. Those organisations that have implemented digital transformation have seen revenue grow by 4.5% and profits by 6.5% between 2015 and 2018 (CAGR). Those organisations that have not changed have seen a drop in both metrics of 5.3% and 5.8% respectively. The paper explores the relationship between servitisation and digital transformation. It states: “In most organizations, servitization is a critical element of the overall digital transformation.”
The Servitisation Maturity Framework
IDC proposes a framework with five dimensions to help measure servitisation.
- Digital Strategy: The creation and execution of a digital strategy across the whole organisation.
- Intelligent IoT Stack: The ability to leverage IoT Data for actionable insights.
- Back-Office & Supply Chain: The agility and flexibility of people, processes and systems in an organisation to adapt to change.
- Service Operations & Business: The ability to deliver data-driven services, that are connected through the whole organisation with mature field service management.
- Customer Engagement: The ability to measure and engage proactively with customers.
The framework is clearly aligned to the IFS product suite. Should it have the intelligent IoT Stack as one of the key pillars in isolation? A better choice may have been just data. Not all information relating to product comes through the lens of IoT. For example, the collation of social media feedback on product for B2C organisations is equally important.
The whitepaper cites several anonymous organisations throughout as illustrations of companies that have servitised successfully. This is odd. IFS has several customers that are advancing on their servitisation journey that IDC could have used. One example is Anticimex, which leveraged IoT to revolutionise its pest control services. It significantly reduced costs and delivered an improved service thereby increasing customer satisfaction by leveraging smart traps in Finland.
There are also some interesting findings from the barometer report highlighted in the whitepaper. Servitisation will not replace product revenues but it will become an important element of many businesses. By 2022, borderless organisations expect 20% of revenues to come from services, an increase from 13% in 2019. Even splintered organisations are expecting an increase though from 5% to 12%.
The report dives into the kinds of services offered by companies through their journey. These include:
- Spare parts and limited repair.
- Remote assistance and tiered maintenance contracts.
- Advanced support contracts plus financing and leasing.
- Data-heavy digital services (e.g., predictive maintenance).
- Partners in adjacent industries built services on our technology platform.
Predictive maintenance was surprisingly only flagged by a small percentage of Stage 2 companies. The sample size might have contributed to this as it is one of the key benefits of a mature IoT strategy. That only borderless organisations have the partners building services into their technology platform is less surprising. As Van Alstyne explained in his HBR Article (Pipelines, Platforms, and the New Rules of Strategy), platforms can leverage the network effect. Van Alstyne noted: “When a platform enters a pipeline firm’s market, the platform almost always wins.”
There is a note of caution on platforms though. In a later article (Why Some Platforms Thrive and Others Don’t) Van Alstyne says: “Network properties are trumping platform scale.” The inference is that it is not just about having a platform. It is having a networked platform that is both borderless and global.
Those that are approaching borderless are seeing the benefits as IDC highlights.
- One-third larger services revenue than peers’ as a proportion of total revenue.
- 5X more likely to accelerate top-line growth above 5% annually.
- More likely to show profitability improvements due to digital transformation initiatives.
Is a survey carried out pre-COVID-19 relevant today? Organisations are almost certainly under more pressure to deliver digital transformation today. They need to ensure that employees can collaborate. Services organisations need to limit travel and improve efficiency. This means the adoption of better technology solutions to protect their workforce.
Phil Carter, Chief Analyst IDC Europe commented: “The maturity framework outlined in this survey forms a roadmap for production-centric companies to benchmark their current situation and future aspirations. With the current crisis hitting, organizations that bundled products with services or offered their capabilities in a consumption-mode are already enjoying competitive advantage. Manufacturers engaging in this transformation should demand applications that are natively connected across the full value chain, from the shop floor to customer support and service.”
Hopefully, IFS/IDC will carry out the benchmark survey again, either this year or in 2021. COVID-19 has provided the fillip that many organisations needed to embrace more modern technological solutions as they look for new ways to solve problems in the changing environment.
Marne Martin, President, IFS Service Management Business Unit, added: “This survey confirms the current state of play as we have observed it among our product-centric customers, many of whom are employing servitization strategies to monetize their expertise and capture larger parts of their respective value chains. The IDC Servitization Barometer also lays out the key hurdles facing many manufacturing organizations, including the lack of internal know-how and the perennial problem of running legacy, disjointed business systems.”
Enterprise Times: What does this mean
This is an interesting whitepaper based on research that, while old, still has validity. The servitisation maturity model is interesting though light on detail as to how firms can calculate their maturity within it. The challenge is that every firm is different.
Arguably IDC could also have separated the supply chain from the back office operations. Supply Chain maturity is measurable independently of internal operations. There are interconnections, but then a borderless organisation will have interconnections between every dimension.
Supply chains also have increased importance during the pandemic, with their flexibility and length critical to many organisations today. For some that stretch across the world, the various lockdowns have had a significant impact. Backoffice functions such as streamlining order to cash and procure to pay that are cross-functional are separately important. It will be interesting to see how IDC evolves this benchmark in the future. Also, where will companies lie on the barometer in two years time?