Servitization Requires Transformation

February 27, 2018 Focus area: Strategic Flow , Digital Transformation

No more beating around the cloud and get ready!

Good service is good business. Over the past decade this has hold especially true for the IT sector. How has servitization affected the sector and what can organizations do to keep up? Read on to find out. 

Development with paradigmatic impact

Servitization is booming  also in the IT sector. Within IT, this manifests itself in growing demand for end-to-end solutions. End-to-end IT solutions bundle technologies, processes and resources needed to deliver a specific business outcome while hiding technical complexity. Organizations no longer need to invest in hard- and software and tie all elements together, but instead make use of complete, scalable ‘service solutions’: a subscription per user or a pay-per-use model.

Graph 1: An incremental perspective on the servitization of products

Servitization -  (white background)

We are rapidly moving towards an IT market in which ‘service solutions’ are the norm - from software to infrastructure. This form of servitization involves much more than adding services to traditional product offerings – consider it a whole new economic paradigm: a shift from the now dominant system of value-in-exchange to a system primarily based on value-in-use. In other (buzz)words: big bang disruption!

Growing appetite for services, enabled by technology

Service solutions are growing because they meet a growing need for organizations to ‘unburden’ themselves in terms of labour, asset-intensive ownership and management complexity. An illustration of this transition is the pay-per-print formulas now adopted by most copier producers. Both supplier and customer are able to extract additional value.

  • For the supplier, data availability through connected devices combined with predictive maintenance technologies allows for further optimization of printer servicing. The pay-per-print service model provides an incentive to make use of this optimization, as they benefit financially of delivering a more effective, innovative service.
  • For the customer, this effectively means easy access to up-to-date solutions. Moreover, a pay-per-print model releases them of the risk of ‘overscoping’ and therefore overpaying for print capacity.

Other innovations have made the need for ‘physical’ products completely redundant. The emergence of cloud computing, for example, transforms the product of digital storage (hard disks) to a virtual service, such as Dropbox or Google Drive; and the range of products replaced by ‘x-as-a-service’ offerings is growing rapidly.

Looking through the transformation lens

BlinkLane tends to look at disruptive developments through the lens of organizational transformation. From the supply-side perspective, the impact of servitization is significant.

  • The service nature of these new solutions allows for more sustainable customer relationships and a more predictable source of income.
  • At the same time the business transformation required to keep up with these developments presents difficult challenges: the whole nature of products changes, meaning competitive advantages will come from different competences than before. Business model innovation on both the product portfolio and chosen pricing models is needed to stay both competitive and profitable.

The demand-side needs to adjust accordingly:

  • IT departments need to make radical changes in the way they’re organized. The management of end-to-end solutions creates a whole new dynamic with suppliers and requires a significant change in capabilities of management and staff (a shift in responsibility from the operational to the strategic level).
  • In the short term, most IT landscapes will become more complex, rather than simpler. Many custom-built products cannot be easily replaced. Therefore, organizations need to find ways to manage hybrid, multi-sourced environments, while they transition slowly towards a fully service-based system. This presents all kinds of new challenges - take security, compliancy and data quality, to just name a few examples.

Transformation in mindset: three key focal-points

To ensure the potential of the servitization development is captured, IT departments also need to generate a transformation in mindset. At the basis of this will be three focal points:

1.  Get comfortable with being uncomfortable: With these new, scalable services, it becomes a lot easier to get started fast and cheap - a major move from traditional, largescale IT projects. Organizations (and especially management) need to get comfortable with being uncomfortable: get started and try and learn, rather than working out all the details beforehand. Management needs to facilitate experimenting and accept both failures and successes out of it.

2.  Accept change as a constant: The development of new services is moving extremely fast. Solutions become outdated in weeks, days even. As such, solutions are never truly done – no versions 1.0. IT is in fact in a permanent unfreeze mode, which requires a flexible mindset: accept that the only constant within IT is change.

3.   Learn to be competitive: The accessibility of these new type of IT solutions, also means that business is in the position to side-step IT altogether and go directly to providers they feel can deliver faster/easier/cheaper solutions than their own IT organization. No more “you can only get this from us” in many cases. In other words: IT needs to learn to be competitive!

Servitization is happening because there is significant economic value at stake. This means it should not be considered a challenge, but an opportunity to all parties involved. However, the change in business model comes with a change in what constitutes a competitive advantage for both IT suppliers and customers. Anticipation is essential to stay in the game, as opportunities for new players are up for grabs. So, no more beating around the cloud and get ready!