With more than half of U.S. manufacturers continuously adding services to their business portfolios, it may seem like a no-brainer for your company to do the same and capture downstream opportunities for additional revenue. However, before you take the plunge, make sure your company is positioned to meet the new customer expectations and demands that will result from your service offerings, and that you can capture the data needed to develop the services that will add value for customers.
Why Manufacturers Are Adding Services
Manufacturers are adding services to their portfolios for additional revenue, protection against seasonality, higher profitability, brand differentiation and customer demand. According to an article published in the Journal of Service Research, there are two ways manufacturing companies go about adding services to add value: either as another “product” or output, or integrated as part of the customer experience. KONE® and IBM® have both successfully made the shift from manufacturing to providing services.
In fact, according to one 2010 report, both companies reported that revenues from services comprised half of total sales. For elevator and escalator solutions company KONE®, high raw materials costs, increases in wages and shrinking new equipment markets precipitated the company’s move toward building out their services organization. As the CEO stated in a 2008 report, “…development was particularly good in maintenance and modernization. I see good additional potential in these less cyclical service business activities during 2009.”
Today, the majority of KONE’s 450,000 customers are maintenance customers. To achieve this, leadership shifted the company’s strategy beyond selling elevators to creating “the best People Flow experience” and providing “People Flow solutions”. In the late 1980s and 1990s, after landing a few services contracts with clients such as Kodak®, IBM recognized it had the specialized experience to help its customers bring together technology and business effectively. IBM Global Services was then created, followed soon after by IBM Consulting Services.
These offerings integrated the company’s hardware, software, and services offerings, and elevated services to more than just a post-sale activity – it became a crucial piece of their business model. Today the company continues to develop new capabilities, some through acquisitions, but screens them as being true to the IBM core by asking questions such as “Does it build on or extend a capability that IBM already has?”
How The Factory Of The Future Plays A Role
In addition to manufacturers’ drive to foster continued growth to meet customer demands, increase profitability, and remain competitive in the industry, they’re also evolving into service providers as a result of IoT. Products such as pumps and compressors, which were traditionally outside the realm of the connected world, are now being produced as intelligent machinery that can collect, store and transmit data. IoT not only allows manufacturers operational visibility through connected devices, but it also allows them to expand their reach and revenue opportunities, and provide “smart services” to accompany their products.
For example, a manufacturer can now remotely monitor and control their products through their lifecycles, enabling them to offer a value-added service to extend their relationship with the customer, beyond the initial purchase. This shift extends manufacturers’ relationships with their customers for a longer period of time to address software updates, administration and support contracts. As the President of Harbor Research said at a recent IoT event, “Once a product manufacturer provides connectivity to the product” they enter into a “continuous relationship with the customer and the user.”
Are You Customer-Centric?
Becoming a service provider can be tricky for manufacturers. The service business is more complex than product manufacturing, with more unpredictable and varied demands. The speed at which it operates is also much faster, with customers expecting more immediate responses and higher levels of customer service. Some manufacturers often fail to take a customer-centric approach when adding services to their business models. In this context, customer-centric means taking an outside-in approach to business and basing business decisions on the wants and needs of customers, rather than the wants and needs of the business.
This strategy is critical for manufacturers to succeed with a services offering, because not only must they understand where service opportunities occur in the product/customer lifecycle, but also what is the perceived value of these services to the customer —not to the manufacturer’s CEO or the head of sales. To engender a more customer service focused organization, a shift needs to happen culturally, organizationally and technologically. It’s not an easy change, and it typically involves employee training, a reorganization of departments and an investment in technology to provide employees with the information they need to better support their customers.
How CRM Supports The Transition To A Service Business Model
Customer relationship management technology (CRM) is critical for manufacturers that want to add services. When it’s used company-wide, CRM makes it possible to collect customer data from all channels and touch points, so that a manufacturer can better understand its customers and the customer lifecycle. A manufacturer can then use this data to help shape its development of services.
CRM also links sales, marketing and customer service teams, so manufacturers can serve customers better, faster and more consistently over the span of the customer relationship. Most importantly, using CRM to collect customer data can help manufacturers anticipate customers’ needs, creating selling opportunities for products and services—as well as opportunities to provide insights and information that are key to nurturing long-term customer relationships and growing customer lifetime value.
In recent years, companies that have invested in CRM software have seen tangible ROI for their business. For example, Brentwood Industries, a Pennsylvania-based thermoformed plastic manufacturer, implemented Infor SyteLine, reducing the cost of manufacturing labor from 8.6% to 4.8%, while elevating customer service with a 30 percent faster ordering time and a 98 percent on-time delivery rate.
In the past, a Brentwood customer would call for status on a shipment, and its customer service people would have to hang up, go talk to someone else, run a few reports and then call the customer back with an update. Now they are able to enter their customer’s information into the system and give them an update almost instantaneously. By investing in this technology, Brentwood has maintained a healthy 45 percent growth rate for over six years.
Next Steps For Turning Products Into Services
Manufacturers are beginning to realize that products only drive profitable growth to a point, and services are the commodity of the future. In fact, services account for roughly 80 percent of today’s global economy – with all signs pointing to continued progression. So with this unavoidable customer demand for goods accompanied by services, how do manufacturers turn their product-based business into a service provider? First they must understand their role in the connected world to know what deeper need their product is addressing and its observed value. Secondly, they should take a customer-centric approach to recognize where service opportunities are present in their product/customer lifecycle. Finally, manufacturers must implement a CRM solution that will help a services-based organization succeed.