Servitization has for decades been a strategy for manufacturing companies to develop their businesses. Digitalization is an important enabler to accomplish more advanced services. A recent Nordic project has, among other things, explored current challenges and future directions of? the Nordic manufacturing industry in their digital service development; in this article we pinpoint some learnings.
Many manufacturing companies have for the last decades strived to enhance and diverse their offerings by adding services to their offerings. Some companies have even started to offer solutions instead of products, they have become servitized. Digital technologies have opened new routes for developing services, nevertheless many companies struggle with the challenges to develop successful and profitable services. This article focuses on the challenges with developing and implementing digital services for manufacturing companies.
”The Covid pandemic forced many companies to quickly develop new digital solutions to handle services on distance”
It reports some of the results from a collaboration project between Chalmers University of Technology, Center for Service Research (CTF) at Karlstad University, Danish Technical University and Aalto University funded by the Nordic council from January 2020 until March 2022. In the study virtually all companies used digital services, and more than 75% to a large extent. The Covid-19 pandemic starting in beginning of 2020 has also largely affected the manufacturing companies in the study. Interestingly, the Covid pandemic forced many companies to quickly develop new digital solutions to handle services on distance.
The use of digital services in B2B
In the study we identified four areas where digital services seem especially useful for manufacturing companies: Interaction, Availability, Utilization, and Configuration.
Interaction. One of the few good things with the global covid-19 pandemic is that it was a trigger for virtual communication using digital applications such as Teams and Zoom. It has been a forced learning experience for many B2B companies. Many also claim that they will continue to use more digital interactions post pandemic.
Availability. Services to help customers increasing availability for, e.g., preventive maintenance using digital solutions for remote control/supervision have been around for long. Due to the pandemic many B2B companies have been forced to quickly develop new digital solutions to remotely handle services on distance.
In some industries it has become, more or less, a hygiene factor to enable reporting of different KPIs such as ‘actual up time’, ‘time between failure’, etc. using sensor technology. A challenge is, however, still the ownership of the collected data, an issue often negotiated on a per site installation level.
Optimization. Beyond maintenance and supervision are services aimed at increasing customers’ effectiveness by helping them to better utilize their installed products. This also includes advanced services where suppliers can offer consultancy related to the customers processes. Digital technology is decisive for these types of services where, for instance, captured data of historical and current usage can be analyzed to optimize a machine or even a whole process. This can also be a vital input for suppliers and their future product and software development.
Configuration. Configurators has evolved during the last decades to ease design, marketing and sales efforts. Configuration services are not primarily offered to the customers. They rely on advanced technology, often AI, and online information on available components. Configurators can revolutionize the pre-sale activities, where sales people, or even customers, easily can configure a customized product.
Challenges in developing digital services
Ownership of data. In order to provide availability and optimization services the issue of digital data ownership must be solved. Many suppliers are stuck in a Catch-22 that could be described as: “for helping customers the suppliers need data access – the customers want help but do not want to expose their data”. Many customers are afraid of letting suppliers use their data for optimizing, as these improvements could also be used by their competitors.
Competence to analyze big data. Figures are worthless if they cannot be analyzed and given a meaning and being used for business actions. People being able to analyze big data sets are deemed as vital for unleashing the potential of digital data, however, they seem to be a rather scarce resource.
Translate into customer value. Introducing advanced digital services (e.g., optimization) require more than technology competence. It calls for a systemic view of the customers operation. This goes far beyond merely collecting data, it requires a thorough understanding of the customers’ situation (context and usage). A transformation from focusing on what the “product is” to what the “product can do” for the customers. This is indeed a competence missing in most traditional manufacturing companies, but decisive for offering advanced digital services.
The use of platforms in digital service development
Developing fully unique digital services for each individual customer would be very costly, and also imply long delivery lead-time. Hence, many manufacturing companies have a long history of adopting a platform strategy in their product development. This means that they use a common basis, the platform, for the different variants. Customized products are realized by small adjustment in some of the components. It is becoming more and more common that manufacturing companies, confirmed in our study, also adopt a platform strategy in their service development and service offerings. The platform strategy makes it possible for companies to offer services that are customized for fulfilling the specific customer needs, but the different service variants will have a lot of commonalities. A platform in a service context can be the use of a common process or instruction for developing and offering the different service variants, or the knowledge developed in a company of the customer needs in a specific market segment. Platforms can also consist of a number of service modules, holding different service attributes. These modules can be combined in different ways to fulfill individual customers’ needs in an efficient way. The companies in our study have gained benefits from their use of service platforms, for example shorter development and delivery lead-time, decreased development cost and improved quality. But it has also become easier to align service offerings across products and regions, and easier for the customer to grasp sometimes complex offerings.
Challenges in adopting a platform strategy
Even if the use of a platform strategy in the development and offering of services can give a lot of benefits its implementation is not without challenges. One challenge is whether a top-down or bottom-up approach is the best to use when defining and developing the platform. Taking a bottom-up approach implies being closer to the actual customers, and thereby able to easier map the different needs that the platform and service modules should fulfill. But, the risk with this approach is that it often becomes difficult to have one single common platform for the whole company due to that different customers, or markets, can have very different needs difficult to realize in one single platform. Hence, one solution is to develop more than one platform, this will however negatively affect the economy-of-scale. Adopting a top-down approach, on the other hand, implies a centralized development of the platform. Here it is usually easier to develop one single platform for the whole company, resulting in positive economy-of-scale effects. However, a challenge in this approach is to ensure to have customer involvement in the development, otherwise risking that the platform will just be able to realize parts of the service variety demanded by the customers. A third challenge identified in our study is that there are sometimes conflicting requirements from different organizational functions in the platform development. Conflicts that are not easy to resolve, or manage.
Managerial implications and conclusions
It is essential for managers to understand that digital services require more than technology competence. To unleash the potential of digital services, companies need to ensure sufficient competence for analyzing big data. Furthermore, the gathered data must be transformed into value for customers and suppliers, in other words, companies need to transit from a goods logic to a service/value logic.
Adopting a platform strategy is beneficial for developing, implementing, and offering different services and services variants fulfilling individual customer needs in an efficient way. However, companies need to work both cross-functional as well as to balance between a top-down and bottom-up approach in the platform development. This is a delicate balance between adaptability (many platforms) and economies-of-scale (few platforms).
This article is based on findings from a Nordic collaboration project between Magnus Persson (Chalmers University of Technology), Peter Magnusson (Karlstad University), Melanie Kreye (Technical University of Denmark) and Taija Turunen (Aalto University), funded by the Nordic council. To get a copy of the project report “Engineering Service Network – The future of research on services in the manufacturing industry”, send an email to firstname.lastname@example.org.