Why service is the new cash cow

We live in a world of ‘service as a something’ – and it’s the turn of the service department to get automated, connected end-to-end and energised with its analytics.

Traditionally, manufacturer service departments have been the Cinderella of most large organisations. They’re usually one of the last parts of the business to get modernised, or can be viewed as an afterthought by different parts of the organisation. In fact, you could argue that that service as a line of business is even a bit late to the whole “as-a-service” bandwagon.  

And you’d be right. But unlike other lines of business that are already benefitting from this model, service is itself becoming a rich new revenue stream, and even an entire new business model for manufacturers.

Instead of selling a piece of industrial equipment to a buyer, manufacturers might loan it and then charge for repairs, monitoring or maintenance. Simply making something and selling it is now seen as positively old-fashioned.

>See also: SaaS, Paas, XaaS, and more: looking behind the acronyms to the service opportunity

Manufacturers are seeing increasing customer demand for managed services. If you then throw the Internet of Things into the mix in the longer term, this will take things a step further with sensors and devices connected to the internet to maintain communication among users, manufacturers, products and service providers for pro-active maintenance before something breaks.

Product-as-a-service is proving a win-win for customers and manufacturers alike. Customers get the assurance of a consistent service, the expertise to maintain it, and avoid a large upfront capital expenditure, while manufacturers get a recurring revenue stream, and visibility into any product ‘hot spots’ before they happen.  

With most companies struggling to grow new equipment sales on a global scale, savvy business leaders are finding their service departments can be much more profitable than ever before. This is one of the reasons – the servitisation of companies as a new revenue model – that’s making CEOs look at their service departments in a whole new light with a service income mindset.

Over time, understanding will increase for the concept of a service being a product, but it will take time. There’s been a prevailing business model based on putting a lot of effort into just optimising profits from sales. Everything after that, including service, has been about minimising costs.

The shift now is towards an outcomes-based business model, with service providers committing to providing predetermined service levels and prices aligned with customer requirements.

This involves longer-term thinking and defining outcomes and relationships, which can be seen in more and more industries as people begin to explore how they can move to outcomes-based models. The market has started to question the idea that perhaps the old ways aren’t necessarily the best option anymore.

Of course, for this to happen there must be certain components in place. Businesses need to understand the people, the processes and the terms of the outcomes, as well as the system that can accommodate that.

Sony is using ServiceMax as its field service management platform for 24 countries across Europe, supporting its move to an outcomes-based model of recurring revenue – not to mention business benefits of more than €1 million to Sony and its customers through early detection of potential hot spots in product service requirements, increasing speed of resolution, and streamlining end-to-end service processes.

It also means Sony’s technicians can have a 360 degree end-to-end view of customer relationships, including insight into products, contract management and past history, as well as fostering better customer interaction and standardising processes.

For manufacturers, this is a longer-term view, but it is happening now all around. As the business landscape has changed, so too have customer requirements.

By way of example, Sony is now selling business solutions to a much wider range of customers than ever before, such as corporate education, healthcare for remote 3D surgery, and digital cinema.

In many cases, the engineering skills required to maintain some products are simply not available at the customer end. The company is now expected to deliver this expertise and do so with a much more customer-centric approach than simply providing equipment.


Sourced from John Cooper, GM, service and support, Sony Professional Solutions Europe

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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