The Servitization Business Promise
Servitization has been around for years but has recently really started to get traction. The reasons are clear. For example, in many manufacturing companies, the profitability of services is estimated at 2-5 times higher than products, and analysts say that 75% of the companies expect that servitization will dominate their business in the future. However, only 30% of the companies have an active servitization strategy (*).
In this blog, we look at the threshold to full servitization from a billing perspective.
Servitization Transformation In 4 Steps
Frank Marks of Praetimus describes four steps in his servitization maturity model, and three transformations from one step to another.
1. Product manufacturer, only adding necessary services
The transformation from reactive to pro-active service offerings around products
2. Value-added services provider, adding life cycle services that enhance product performance
The transformation from the product to the usage of the product
3. Full-service provider, adding life cycle services, technical services, and business services
The transformation from the usage of the product to the outcome of the usage
4. Integrated service provider, adding operating services and outsourcing services (*).
The Challenges Of The Servitization Transformation Process
Many companies are on their journey to achieve benefits from integrated services. They are adding services to complement products and expanding opportunities with totally new business scenarios.
Adding life cycle services that enhance product performance is a logical move forward. This step already requires renewal of business processes and new pricing and billing capabilities considering the needed flexibility and scalability with the business model.
In the Praetimus’ maturity model, the third transformation step is the hardest part of the journey. Price-setting is often considered to be difficult and volatility in income is expected during the business model transformation. Moving from a fixed business model for uncertain future revenues is not an easy decision, and often lack of insight into future cash flows makes it hard to take this hurdle.
High-quality data and tools for simulating the different scenarios are needed to support the business transformation. This is why platform support starting from level 2 is important: it is a foundation not only for current business but also for future business capabilities. The ability to automatically set a price for each business scenario and service event is a key to both revenues but also profitability.
Agile Billing As A Key Orchestrator For Servitization
In our experience, a monetization platform such as Good Sign can create valuable operational insights to empower the transformation. By leveraging your existing contract and operational data, we can build predictive monetization scenarios. Our agile billing platform helps our clients to document detailed billing events over the life cycle of clients to come up with the right pricing and monetization strategies.
Take us to the test!
If you feel your servitization strategy will outgrow your current billing solution, or if you are just curious to learn how Good Sign does things differently, feel free to take us to the test! We will gladly take on your challenge and prove to you it can be done, and that the new world lies beyond just subscriptions.
(*) Source: http://praetimus.com/new2/wp-content/uploads/2012/06/Praetimus-Servitization-101-150512.pdf