Anything-as-a-service is spreading across manufacturing sectors

Prasanna Venkatesan, Director, Digital Transformation

Technology and demographic changes are causing massive upheaval for brands across industries. Consumers—especially younger consumers—are embracing a connected, mobile lifestyle that centers on ‘access via apps’. Businesses are not far behind either as they constantly look for ways to deploy their capital more efficiently while staying nimble enough to take advantage of the latest tools to enable faster innovation.

These trends are fundamentally shifting how consumers choose to interact with everything, from the brands they use to how they purchase goods. Many consumers, as well as businesses, are no longer looking to own products and take on the ongoing costs and responsibilities they entail. Instead they want to buy the capabilities of that product as needed.

Why deal with parking fees, insurance, and repair expenses of a car when you can hail rides through ride-sharing apps such as Uber and Lyft? For urban dwellers in particular, it all starts to add up to a smarter and less-taxing lifestyle.

This transformation marks the age of Servitization, or in layman’s terms, the age of Anything-as-a-Service. For established brands to survive, they will have to adapt to this new age. This could mean process and technology changes to execute new delivery models, new ways of pricing and billing, even designing new products that enable new types of services. At the center of this business model to deliver anything-as-a-service is the ability to leverage data, Internet of Things (IoT), automation, and advanced analytics powered by artificial intelligence (AI). These are the technical foundations of anything-as-a-service enablement for manufacturers, both behind the scenes (e.g. automation of personalized content delivery) and consumer facing (e.g. chatbots to relieve customer service departments of routine queries).

We can see servitization already making inroads across many different markets. Spotify, for instance, is the servitization of music. With this music subscription service, consumers simply purchase access to music for a monthly fee. There is no hard asset to purchase—just the service. TV cable cord-cutting is another example, with live-streaming services such as Netflix, Disney+ and many others providing access to content without the need of satellite dishes or cable boxes. A significant portion of people no longer feel the need to own “things.” They simply want to make use of products and services for as long as they need the—for even furniture and books. Companies such as Feather and Chegg are capitalizing on this growing trend, with furniture and book subscriptions respectively.

Now servitization is spreading to the business-to-business world as well. Industries of all sorts are moving from an emphasis on selling products to offering services.

On an industrial scale, Rolls-Royce no longer just sells engines to airlines; instead, it bills them on an hourly basis for the power the engines produce. It delivers “thrust as-a-service.” No longer do airlines need to purchase engines, operate them, maintain them, train personnel on repairs, purchase and store spares, and the other responsibilities that come with it. If an engine needs maintenance, the manufacturer takes care of it. If it breaks down, penalties are owed to the user as well! The airline gets to focus on its core business – moving passengers, while Rolls-Royce focuses on delivering a superior, reliable service for its engines.

Lighting manufacturer Philips offers a “light as a service” program called Circular Lighting and announced that it would provide this new lighting service in the terminal buildings at Amsterdam’s Schiphol Airport in the Netherlands. The airport pays only for the light it uses, while Philips remains the owner of all fixtures and installations and is responsible for everything from installation to maintenance to end-of-life disposal.

In the auto sector, Volvo is among several carmakers that are reinventing the business by offering vehicle-subscription services. In this model, customers subscribe to vehicles instead of buying or even leasing them—leaving the maintenance and service of the vehicle to the automaker. In return, Volvo gains greater customer intimacy and can accelerate the time-to-market for its newest innovations that meet the needs of its customers.

To be sure, the delivery of the anything-as-a-service model encompasses some potential risks, including for corporate branding, operations, and financial management. Consumers may realize that getting from point A to point B as efficiently as possible trumps the desire to drive a prestigious brand-name vehicle. Companies will have to rethink how their brands deliver value, focusing on experiences and services rather than just products to continue winning and more importantly keeping customer loyalty.

On the operations side, manufacturers will have to improve their analytics and maintenance operations to prevent costly fixes, since the burden of maintenance now falls on them and not the subscriber. That’s where technology such as AI-powered anomaly detection can play a role. Forecasting tools can further de-risk the balance sheet by helping manufacturers manage inventory and dispatch field personnel more efficiently. And AI-powered digital assistants (i.e., chatbots) can engage with customers in natural language to assist with routine queries, escalating issues to customer service personnel only when necessary.

Despite these initial challenges, by being a first mover in delivering their products as a service, established manufacturers can capture an advantage over competitors looking to enter the fray. The adoption of subscription business models also alleviates the gyrations in revenues as customers will continue to pay for services delivered as long as the manufacturer delivers a superior experience.

For businesses that undertake the transformation, it’s clear that servitization presents many unique opportunities. By delivering services instead of selling products, companies can add new revenue streams to supplement their traditional offerings as well as to differentiate themselves from competitors and strengthen customer relationships. By exceeding expectations on service delivery, businesses can create further opportunities such as upselling and cross-selling their offerings.

Moving to a servitization model requires the buy-in of leadership and a shift in corporate culture to adapt. Companies will be designing and operating service platforms rather than just developing products. To be sure, such transformation doesn’t happen overnight and being an early adopter is key to keeping your business—and your brand—relevant.