Digitalisation and servitisation: the competitive advantage?

Broaden the horizons of your digital transformation to capture more value from your products

At Aston Business School, our relationships with over 100 manufacturing firms give us insight into the industry’s journey to digital maturity, transformation, and servitisation, adding value by reshaping products into services. When these businesses ask how to balance growth, competition, rising customer expectations and market forces, we recommend a methodical approach: reflect, analyse and then act.

First, understand how your business competes. Does it win customers because of its product leadership? Price? Or because of service packages that support the customer and improve the value they get from your products? Then, think how this may change in the future.

Future-proofing your business is a never-ending process of analysis, development and improvement

To get a clearer insight into your competitive strategy, take a look at unlockyourinsight.co.uk. Here you will find a simple tool that analyses your competitive strategy. Don’t be surprised if your reflections suggest that services are of growing importance to your customers, and so represent the strongest potential for growth.

This is very typical across industrial sectors in developed economies. The challenge is to develop the appropriate business model, adopt the right technologies, and bring about the organisational change to realise this opportunity.

After performing your analyses, it is time for action, which most often leads to an investment in technology. This should reflect the competitive strategy of the business.

Manufacturers are tech-based businesses, they are rich in technology and often led by managers with backgrounds in engineering, science and technology. The key to success is therefore not only choosing the right technology but picking the appropriate moment to invest, and ensuring successful implementation.

There are a number of scientific frameworks that can guide decisions; it’s just a case of being aware of them and using their principles to guide your conclusions.

Manufacturers need to master key technology trends that are most relevant to their overarching competitive strategy – those that help them perform better against their chosen business model. And those key technologies need to be prioritised based on those that fit well with their existing competencies; these will be easier, faster and less risky to adopt. It is too simplistic to identify one technology trend over others, it requires deeper thought.

Digital transformation in the manufacturing industry looks advanced yet narrow. Most manufacturers are, as mentioned above, comfortable with technology and digital technologies have been embedded within manufacturing for decades (digital simulations evolved in the steel and automotive industries in the late 1970s).

Yet, few manufacturers are looking beyond the factory gate. Instead, they are narrowly focused on initiatives to improve cost, quality and speed of delivery. They are therefore in danger of missing opportunities to create and capture more value, opportunities that can be revealed using digital technologies to provide insights into how, when, and where customers use the products they produce.

And, of course, some manufacturing organisations are missing out on existing technological opportunities. I believe systems such as customer relationship management and enterprise resource planning are, for most businesses, essential for efficient operations. So much so that they can be considered as hygiene factors for many. Manufacturers that start by optimising these fundamental technologies have better leverage to adopt new technologies. Internet of things is different: it elevates thinking beyond the factory gate, and so can help provide the customer insights that can lead to growth.

We are transforming businesses through servitisation. The international research community has come together to define pathways for the successful adoption of a services strategy within a manufacturing organisation. We have rationalised this into a roadmap of the transformation process, and are using this roadmap to guide the actions of manufacturers.

As manufacturing organisations look to add new revenue streams and hedge competition with a more service-focused offering, innovation will continue to rise, transforming the complete customer experience and manufacturing as a whole.

Professor Tim Baines is director of Aston Business School’s Advanced Services Group and an international authority on servitisation.