11 March 2013

'Tech is destroying the line between Manufacturing and Services' Fortune Article - Response from Andy Neely

Saul Kaplan’s article Tech is destroying the line between manufacturing and services makes interesting reading, but it rather misses the point. He says: “It’s hard to tell the difference between a manufacturer and a service provider and the distinction is limiting.” But the key consideration here is not whether you are a manufacturer or a service provider. It’s about how you create and capture value. Manufacturing firms across the world are embracing this challenge - innovating their business models towards services, powered by the latest technologies. They are doing it by focusing on four key issues:
  1. Innovating the value proposition by concentrating on the outcomes customers actually want. The old Theodore Levitt quote encapsulates this well – customers don’t want ¼ inch drills, they want ¼ holes.
  2. Innovating the value delivery system. Focusing on what they should do themselves, what they should ask others to do, who they should partner with and how they should pool capabilities to deliver outcomes.
  3.  Managing inherent risks. Taking responsibility for outcomes involves risk which must be recognised, accepted and carefully managed.
  4.  Taking account of the ecosystem – that is all the organisations able to influence the service provider’s ability to create and appropriate value. For example, by managing the ecosystem Apple retains far more of the sales price of its products than its competitors do.
The article mentions 3D printing, but this is only part of the story. Fantastic opportunities are emerging across diverse sectors, enabled by innovative technologies such as remote product monitoring, geo-positioning and big data. And it’s not just in new media organisations such as Google and Apple. BAE Systems, one of the world’s largest defence and aerospace companies, has steadily geared up the service side of its business, and today 50 per cent of revenue comes from service and support, maintaining assets and equipment with a lifetime of 30-years or more.

Recent weeks have seen big name brands Dell and Xerox announce a move from making products to providing services. This shift is inevitable in the face of falling product sales and margins. What’s needed is a clear understanding of the boundaries of your business, less focus on the enabling technologies and greater emphasis on the outcomes customers value.
Professor Andy Neely, Cambridge Service Alliance
Professor Andy Neely is director of the Cambridge Service Alliance, a leading partnership between global business and academics focused on understanding and developing service systems.

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