As we enter the era of the Internet of Things, a new and alternative services sector is evolving, called servitization – also known as outcome-based services

It’s based on the premise that by integrating services with products, you can create bundles that are of greater value than products alone. As manufacturers move from being purely product providers to becoming service providers as well, it adds value to their products and generates additional revenue. In other words, service-based outcomes take you out of competing on price alone.

From a consumer perspective, the arrival of IoT means life gets easier and more convenient. From a manufacturing perspective, life will never be the same again. It’s disrupting business as usual for product manufacturers globally.

As products become connected, servicing our machines, devices and appliances will move from reactive product insight to providing predictive alerts, triggering service technicians with the right skills to be deployed to the right place before a fault takes place with preventative maintenance, or in the event that something occurs. For instance, your washing machine may alert the manufacturer that its bearings are wearing thin and in need of replacement.

According to the Advanced Institute of Management, one third of large manufacturing firms are now ‘servitized’. In the US, that figure is nearly twice as high at 60%. And here in the UK, where 99% of business is generated by SMEs, around 40% of manufacturing companies are now thought to be servitized.

The reason for such wide spread adoption? It’s profitable. According to an Aston University study, servitization delivers sustained annual growth of 5-10%, and reduces costs by up to 25-30%. Adopting a service outcome approach is a game changer. It not only brings businesses closer to their customers, but also helps to effectively lock out competitors because companies have an ongoing service relationship with their suppliers rather than a single transaction. 

Major companies such as GE, Xerox, Coca Cola, Rolls Royce and Philips are well documented in their commitment to transforming their service strategies to an outcome-based approach, and in the next two to five years, I think it will become the de-facto business model for almost every business, regardless of size.

IoT and servitization lets many kinds of companies shift from selling products to selling services based on those products. Your decision then, as a business or as a manufacturer is not whether to adopt this model, as I believe it will become inevitable. Focus instead on how you can transform (or in some cases establish) your services department, empower your field service technicians with the right skills and field service management platform, and align your organisation with service outcomes, not simply products.

Mark Homer is Vice President Global Customer Transformation for field service management specialists, ServiceMax.