‘Servitisation’ – Another buzz word or a reality worth billions?

News 20140513

Our industry does seem to have a habit of often using clumsy terms to describe elegant and revolutionary solutions – and the recent addition of ‘servitisation’ to the vocabularies of both the M2M/IoT and engineering sectors is an excellent example. Put as simply as possible, servitisation represents the application of new communications and IT techniques to eliminate the traditional divide between the actual manufacture and sale of a product and its subsequent servicing, maintenance and repair. This can deliver numerous benefits for manufacturer and user alike, and dramatically change commercial relationships, business models and revenue streams for the better.

Alun Lewis
Author – Alun Lewis

With recent reports from consultancies like McKinsey estimating the global impact of this shift in trillions of dollars over the coming years, it’s no surprise that many manufacturing specialists are now moving into this area. One of the most recent – and significant – developments here was the acquisition at the end of 2013 of US-based IoT platform specialist ThingWorx by PTC, the international engineering technology company, for around $112 million. Already supporting over 28,000 businesses around the world with a range of solutions across the whole design, manufacture, supply and service lifecycle, PTC’s acquisition is targeted at helping its customers bring smarter products to market more quickly, using streams of real-time operational data to improve their reliability and performance. In the process, this can also help manufacturers and whole industry sectors move to much more financially flexible and dynamic models of use and ownership, shifting overheads from capital expenditure to operational budgets.

M2M Now recently sat down with Thomas Svensson, senior VP at ThingWorx with responsibility for the company’s EMEA activities, to discuss how the manufacturing sector could exploit IoT developments and what PTC’s ThingWorx acquisition could mean for its customers.

Thomas Svensson ThingWorx
Thomas Svensson

“For someone who started their professional life as a mechanical engineer, it’s been fascinating to watch how the increasing use of networks over the last two or three decades has totally transformed the design-build-supply-service lifecycle,” Svensson says. “From the introduction of just-in-time manufacturing disciplines in the 1980s to the IoT and M2M strategies that we’re only now just starting to exploit, I’ve watched inefficiencies, waste, delays and overheads start to be eliminated across whole swathes of different industries, tightening the relationships between product designers, makers and customers to creating ‘virtuous loops’ that lead to better products and to better companies. From my original mechanical engineer’s perspective, you’re always trying to design friction out of a physical system and these new IoT principles now allow us to do that in innovative and creative ways, right across the whole value chain. You could look upon it as applying a digital form of WD40 to the whole product lifecycle!”

Like any fast emerging industry, the M2M/IoT world is seeing many new entrants appear, each often coming from a variety of different sectors and each with their own particular heritage and ways of seeing the world. For ThingWorx’ Svensson, PTC’s long history and experience across multiple engineering and manufacturing domains gives it a unique insight into how IoT solutions can best be integrated in holistic ways with a customer’s own systems and processes to both resolve current issues and create a powerful platform for innovation and strategic differentiation. Indeed, PTC’s recent acquisitions history shows a clear focus on service strategies over the last few years.

“Many of the supposed IoT solutions out there are, if you drill down, actually little more than sophisticated connectivity solutions,” Svensson observes. “Yes, there are important issues to be resolved in this part of the value chain when you’re dealing with different networks in different countries, ways of billing, service provisioning and device management, but these aspects will increasingly and inevitably become commoditised as the markets and technologies mature. It’s all very well being able to gather data from all the products and plants you might have deployed around the world – the important question is how you turn that into meaningful, appropriate and actionable information that can be displayed and shared in intelligent ways.

[blockquote align=’left|right|full’]Just because you can measure something doesn’t mean that it’s actually important in the broader scheme of things, and the blizzards of data that these systems generate must be integrated with all the applications, business intelligence, design, supply and other tools that the company is already using.[/blockquote]

Taking this approach to integration also means that manufacturers can start to offer products as a service which will give the customer the choice to buy a new product as an operating expense instead of a capital expense. Such an approach will change how we do business together in this new world….”

And what’s the view of the customers themselves of this new approach to ‘servitised’ offerings? Recent figures from Oxford Economics Research as part of a global project sponsored by PTC (http://www.ptc.com/topics/manufacturing-transformation/oxford-research/) suggest that over 70 percent of manufacturing firms are going to use service as a product differentiator by 2015, with over half establishing service as a profit centre in its own right. Complementing this are the findings that around 77 percent of C-level manufacturing executives say that enhancing service is a key factor for competitiveness.

For Svensson’s own role in EMEA, the research highlighted another interesting fact. “Apparently,” he sums up, “far more – 82 percent – of European manufacturers plan to focus on ‘product as a service’ offerings than those in other parts of the world, where the figures are respectively 67 percent for the US and 66 percent for Asia. There are also a lot of initiatives coming from governments and other bodies in Europe to drive innovation in this specific area and it’s going to be a fascinating journey for all of us as we begin to transform entire industries.”

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