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May 02, 2016
A square peg in a square hole: Making sure the business model supports servitization
By: Mark Johnson

Many manufacturers are going downstream by adding services to their core products in order to lock customers in and competitors out. This is not as easy as it seems. The business model must support this move by ensuring that the organization and supply chain are aligned to generate long-term profits. Without this alignment, the customer can become frustrated, leading to the erosion of margin and eventual failure.  

Many firms struggle when deploying servitization. It may be that they think that services can just be added on to the product and require the same mindset as products, or they may believe that services are simple and that following the same rigid rules and hierarchy will be the recipe for success. Firms that successfully deploy servitization understand that the rules for services are different. They understand the need to be flexible when making decisions. They also understand that there is a need to be both customer-oriented and efficient and that the structure of the organization affects this. Successful firms also understand the need to have dual cultures to support this. They also acknowledge that they cannot do everything. The supply chain is a source of capability that must be managed to deliver customer and firm value.  

Services make money over time. Products make money straight away. Manufacturers find this difficult to reconcile and often do see the expected profits when first deploying servitization. In order to achieve profitability, firms need to understand the financial implications of the new business model and how this affects firm performance.  

Take, for example, a now highly successful exemplar of servitization that designs, delivers, and supports printing and photocopying equipment. When they first introduced their technology, they did not understand the financial implications of the new business model and were not making money from it. Once these were understood, they acknowledged that organizational design and culture play an enormous part in both customer orientation and efficiency and that neglecting them can lead to reduced customer satisfaction. These were then developed over a period of years. They next sought to segment their offerings, and this was where developing their supply chain came in.  

Is your organization on the path toward deploying servitization but struggling with organizational, supply network, and financial issues? In the courses Design Impacts of Servitization, Organizational Culture and Servitization, Service Networks and Servitization, and Profit Logic and Servitization, Accenture Academy shows how deploying servitization requires changes to organizational culture and structure as well as changes to the supply chain in order to generate long-term profit. The course will help you to recognize what these changes are and how to benefit from them.

About Accenture Academy

Accenture Academy offers proven, cost-effective learning solutions for a more versatile workforce and a more agile organization. We provide a flexible learning approach that helps your people be more versatile and your entire organization be more agile in the marketplace. Curriculum includes Supply Chain Management, Finance, Procurement, Analytics, Leadership & Management and Specialty Skills.

LEARN MORE ABOUT ACCENTURE ACADEMY 

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