Why service transformations are so difficult for the manufacturing industry

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Why service transformations are so difficult for the manufacturing industry

  • Nico Michler
    Nico Michler CEO, designaffairs

It’s a familiar story: hardware makers the world over trying desperately to find new services and solutions for their products. With digital transformation well underway, these companies are all attempting to reposition themselves away from their core hardware mission towards digitally enabled service solutions. 

Many ideas are being developed in this space  let’s call them “add on services”. But such companies have invariably discovered that these things hardly generate any revenue and that their customers hardly, if ever, use the services they’ve added on.

Take the automotive industry, for example ─ all those companies trying to sell things like parking apps and traffic-jam apps, and then acting surprised when they don’t fly. In an attempt to compensate for lower automobile sales, they are trying to sell “connected services” but can’t find the right way to switch users from existing services to OEM-generated services. The fact that today’s auto manufacturers are simply incapable of supporting services such as these in any real, value-added way is often completely ignored.  

I see a similar situation with the whole “smart home” concept. From my point of view, it won’t fly either ─ not in its current guise anyway. An oven is an oven; a light switch is a light switch.

Adding networked connections doesn’t really offer me any added value  only more effort and complexity.

Why do I think like this? Let me explain…

When I buy a car, all of its key functions are already installed. I can reach my destination without any app or service being added. I can use my free parking app from Apcoa and the payment service from Ali, WeChat or PaypalWhy on earth would I use a new OEM-added service when I already have one that works perfectlyIt’s the same with smart homes  as long as I can buy an oven that works independently of the add-on service and is less expensive than other models, I won’t use or pay for this service. I simply don’t need an app that monitors my smoke detector  it offers me no added value and is just frivolous 

The basic problem here is the business model. Manufacturers are still putting their hardware at the center of the process and then trying (desperately, some would say) to build new services around it, but without adding any real value. This has been the case for years now  if anything, their efforts are only getting more complex  and complicated.

In short, companies need to approach this challenge from a totally new angle.

Design agencies nowadays are being employed to develop new services and create blueprints. Even here, however, the balance sheet is quite meagre in the end. Things just don’t fly. This constant reinvention of the wheel with no discernible output just ends up costing time, effort and money. Returning to the automobile industry again, manufacturers are trying to sell more cars via new digital services and marketing algorithms. I am convinced that this will cost a lot of money and ultimately fail to have the desired effect. People still want to get from A to B as efficiently, cheaply and comfortably as possible. No software innovation will change anything for as long as the basic product fails to be adapted. This applies to all industries  we see the same mistake over and over again 

Everyone wants to emulate the success of an Apple, Tesla, Uber or an Amazon, but nobody seems to understand that it’s not about a single product. Instead, it’s about a chain of small successes and connected links that all stem from services and products developed specifically for the hardware, not vice versa. A good example is iTunes and its connection to the iPod – a perfect symbiosis. MP3 players were around before Apple, but only the ecosystem and the alignment between software & hardware, including service has lifted the potential and produced growth.

In my view, hardware companies need to transform themselves from creators to curators. 

Another good example of this is Sanifair, the restroom-facilities company here in Germany. Acting as a curator, it provides hygiene solutions for autobahn service stations, and has seen market growth of 20% or more in recent years. Instead of building better hardware, Sanifair has provides solutions focused on improving the user experience. The hardware is part of it, of course, but that’s not the main selling point. 

So what do companies need to do tget out of this one-way, dead-end street they’ve driven down? The idea of service in itself is not wrong, but the service must first be developed completely and independently via a value-added strategy. Only then can the hardware product be built for it  not the other way around. A product can become much easier and cheaper to deliver when a service complements the kinds of things a hardware product can only achieve with a huge amount of effort. This creates added value and unique selling points.

It is the symbiosis of services with hardware  not hardware with services.  

As a business evolves, new services are essential. But there will be little growth if our industry fails to learn from past experience and continues to invest billions of euro without significant gains in growth and sales. The problem seems to be that it is easier for companies to hold on to the old way of doing things than to think anew.  

despair at how how industries are, in effect, driving at high speed towards a wall. The COVID-19 crisis has shown us very clearly which industries have been asleep at the wheel. They were able to hide it in the past, but the current pandemic has made it visible to all. Whilst many of us here in Germany are guilty of having fallen asleep in recent years, we can still turn things around  but it will take courage, determination and a degree of pain to make lasting change 

We can alleviate that pain by prototyping our tangible product visions for the futureredefining the service from scratch and then verifying it with users. We shouldn’t attempt to create the blueprint on our own, but rather work together to collectively build the solution as a tangible experience. Only then will we be able to better understand what really matters to customers and work to ensure that the value proposition leads to added value. That’s what will bring change and growth. Everything else is just part of keeping the old world alive as long as possible.   

If we don’t embrace this paradigm shift, the services we are all seeking to develop will remain little more than empty shells and unfulfilled promises

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