Digital servitisation means making money by creating digital services that are connected to your physical products.
Why consider it?
The world of building and managing goods is being transformed into a world of building digital services tied to goods. More and more products in the field are digitally connected through the Internet to the manufacturers who created them. Such smart, connected products essentially represent a new value delivery platform. The manufacturer/integrator/operator is always informed about the product's usage and this information can be exploited to create a new revenue stream from the customer or significantly reduce operational costs.
Essentially, the information about a product, some of which is created by the product over time, is becoming more important than the physical product itself. This is sparking a revolution: digital servitisation, i.e. making use of a new value delivery platform for all players in the value chain (e.g. OEMs, integrators, suppliers of consumables and customers).
Traditionally, delivering product-related services mainly depended on human intervention and resources. 'Analogue' servitisation only scales linearly with human resources and a local presence, either in-house or via an affiliates network, meaning that companies lose potential revenue by outsourcing to partners. Not only is the direct value distributed but companies also lose - valuable - direct customer contact. Additionally, more and more of the overall economic value goes to these services, which are sometimes provided by new players who break into the value chain.
With the advent of many kinds of digital technologies (IoT, cloud, mobile), companies are able to recapture this value without confronting the problems of traditional servitisation (e.g. scaling issues, knowledge dilution). Today, services can also be offered digitally. Digital servitisation allows product builders to deliver the same or more services on a global scale, with significantly less personnel and a greater centralised presence, while being more closely linked to the customer. The main reasons for product builders to engage in digital servitisation are high margins and a closer relationship with customers.
What does it involve?
To carry out digital servitisation successfully, companies need to overcome various challenges and master new skills and capabilities:
- Integrate connectivity into the product: The product needs to break out of its local connectivity and be able to interact (directly or indirectly) with the outside world.
- Establish a data mindset: To master the model of digital servitisation, you must truly understand how products are being used in the field, how best to maintain them and how best to deliver value over the products' useful life to those who own and use them. The infrastructure, collection and real-time analytics of (big) data have become affordable, even for SMEs.
- Design the software service: Digitalisation enables cost reduction, for example through remote monitoring, notification and action, and self-service and e-service options. Online software, mobile apps and other smart services create novel value propositions, service-type transactions and payment models. In a digital servitisation model, it is essential to master the software capabilities required for the robust and secure deployment of the software services. These software capabilities are of a very different nature to the 'embedded software' capabilities in which 'hardware-oriented' companies are typically already proficient.
- Re-engineer (disruptive) business and deployment models: The transformation usually goes beyond making a technological choice. It often also involves a strategy change for the company itself, which means using new business models to facilitate other revenue streams (e.g. CAPEX vs OPEX).
- Set out the legal context: The legal context in which the digital services can be delivered needs to be clarified, taking into account privacy (GDPR), data ownership, liabilities and SLAs.
Agoria can assist you with questions on legal aspects and standardisation