How manufacturers blend products, services on the path to XaaS

A combination of rising connectivity and more sophisticated automation is transforming traditional businesses as they blend products and services in new ways. In product-led industries such as manufacturing, this trend first manifests itself in the growth of services alongside products. But it doesn't stop there.

As enterprises progress along this journey, they discover that selling services in a connected world fundamentally changes how they engage with their customers. They are no longer selling discrete products and services, but blending both together to satisfy a customer need. Welcome to the world of XaaS — everything as-a-service.

We promised some real-world examples in our opener to this series, A CxO’s practical guide to surviving the XaaS revolution. Here we'll explore what several leading manufacturers have discovered as they've set off down this path, which business academics often call servitization. Professor Tim Baines, an expert in the field from Aston Business School, says that many businesses begin by adding services around existing products:

Quite often it means moving first towards what we call intermediate services, which is prepare, overhaul, condition monitoring, help-desk, a bit of training on the side, those type of things.

Ultimately, it moves into these more advanced services, much more of the outcome-type contracts. They’re delivering the outcome, delivering the process, delivering the performance.

Changing the relationship

Organizations that are already delivering ancillary services can use today's more agile, collaborative technology platforms to make those offerings more engaging. Hewlett Packard Enterprise, the $50 billion revenue IT giant, retains a significant services capability despite spinning off its consulting and outsourcing business in April this year.

Adam Jones, Advanced Planning & Innovation Lead within HPE's technology services organization, explains how new technology and different expectations are changing the service organization's relationship with customers:

We’re seeing our customers wanting to be more proactively, pre-emptively notified of what’s going on. They want to be socially connected to resolve issues and indeed to solicit feedback on best approaches and also want us to understand their social profile and align our engagement with their needs.

In manufacturing, the ability to add sensors and Internet connections to products helps improve existing field service and customer service offerings, as well as add new outcomes-based services. One example is elevator and escalator maker Kone, which already derives around 45% of its $10 billion in annual revenues from its services business.

Proactive service culture

Kone has used technology to connect its 20,000 field service technicians, along with agents in its customer service call centers, at the same time as adding sensors to products in the field. Company CIO Antti Koskelin says this has opened the doors to a more proactive, predictive service culture:

If we’re able to get a better view of what kinds of requests customers will make, what their service needs are going to be and what types of issues they might face with their equipment, then we’re able to react better. And if a service technician arrives at a customer site with more information about the customer, its equipment and its contract with us, then they’ll do a better job.

But it goes further than that. We need to be very good at providing the services that customers say they need, certainly, but our goal is to provide the services that they haven’t recognized themselves yet and point it out to them.

New ways of working

In the mass consumer market, home and kitchen appliance maker Bosch is also shifting from one-off sales to a more connected, engaged customer relationship. It has pursued an Internet of Things (IoT) strategy to make its products connected, as a result of which it has to fundamentally change how it thinks about customers. This has meant learning new ways of working that are unfamiliar to product companies, says Stefan Ferber, VP of Engineering at Bosch Software Innovations:

The company has moved quite a lot over the past few years and with that we have learned what it means not only to be a producer, but also you serve the customer, you have a continuous relationship with your B2B and B2C customer. These are all things that are not so common to producers in that space.

The customer relationship is quite different, because when the product is connected, it means staying in touch with the customer. In the old product sales model, the manufacturer only heard from the customer if they had a problem, he explains:

The story starts when the customer for the first time is opening a box with your product in there. Then you build up a new connection, a new relationship with your customer. From there the real product story starts.

For traditional companies ‘success’ meant the customer got their product, had no problem, job done. If someone is calling, you had a problem. This mindset of course takes some time to change, you need different sales people, you need a different marketing approach, you need a different call centre approach.

Not just adding services to products

These insights from enterprises that have embarked on this journey demonstrate how much more of a transformation it is than merely adding services to the product set. The combination of connected technology and continuous service delivery opens up a new type of customer relationship.

In the next post in this series we'll look at other aspects of that new relationship, including the move to subscription and pay-as-you-go business models, and a more customer-centric service design ethos. Meanwhile, please give us your observations and reactions in the comments below or on social media using the #XaaS hashtag on Twitter or mentioning us on LinkedIn.