Service as a competitive advantage

"40 percent of local German industrial companies in China believe that their Chinese competitors will take over the innovation leadership in their specific business area in five years' time."

This quote comes from the study "Greater Shanghai Innovation Survey 2018", conducted by the German Chamber of Foreign Trade China, Tongji University and the consulting firm goetzpartners.

What does this have to do with the services of the future?

Not so long ago, German companies could still be relatively certain that they were bringing the most advanced products to market in terms of technology and quality. This lead has since melted away. The commoditization of products continues to increase, making it increasingly difficult to differentiate oneself technologically from the competition.

Companies must therefore focus more strongly on their customers and offer services with additional added value in order to survive in global competition.

Ever faster changing customer expectations are the real drivers behind the introduction of new services.

Services in the B2C sector have developed rapidly in recent years and this dynamic will continue in the coming years. The expectations we have of service levels in our everyday lives are increasingly being transferred to the classic B2B areas. And here too, the USA and China are already ahead of us, as their consumers and companies are more open to innovative business models and digital services. And this head start can also be used to position themselves as a disruptive force on the Central European market and thus attack established providers.

Furthermore, ever faster economic and innovation cycles are driving sales and sales volatility. Recurring sales in the form of services in particular can help to dampen the volatility of the new installations business.

What can companies in the manufacturing sector do to counteract this?

The answers are:
Create greater competitiveness and stronger customer loyalty through value-added and customer-centric service offerings. Customer service is becoming the new sales and marketing, especially in the manufacturing industry, and by building customer relationships based on partnership, it is able to generate long-term business with new products, different business models and high margins.

Why does service in particular have such high development potential?

In the "Fit for Service" study, the VDMA and goetzpartners identified fields of action and success factors that companies can use as a guide to expand their service business. With the "Fit for Service" approach, VDMA member companies can evaluate their current service business on the basis of key performance indicators and recognize where there is potential for sales and earnings.

This showed that the companies with the best service organizations generate 70 percent more turnover in service than average companies. At the same time, they are significantly more profitable. It is striking that the above-average performers are not only very well positioned in traditional customer services, but also offer new business models and focus much more strongly on the customer. It is precisely this new customer focus that is the key element of Service 4.0.

The aim is to put the customer at the center of attention and to create new service products and business models that significantly increase customer loyalty and satisfaction. The VDMA has established that the share of service in total sales has already risen from 12 to 20 percent in the last 20 years.
Companies are therefore moving away from Service 1.0, the classic after-sales, spare parts and maintenance business, towards solutions in which the actual product is only part of the overall offering for the customer.

From Service 1.0 to Service 4.0

The gradual path to Service 4.0

However, the transformation of the business model, the associated digitalization and the changes in a company's core capabilities can only take place step by step. In order to achieve complete customer centricity, the foundations must first be laid. To do this, certain conditions and prerequisites must also be met between the individual service levels.

At the beginning, the focus is always on knowledge of customer needs and the company's own products:

The organization must be set up in such a way that it creates its own performance incentives and independent P&L reporting in the new product areas in order to further develop employees, establish the technologies for digitalization projects and market the services more strongly as products.

Comprehensive knowledge and transparency about the customer is necessary in order to be able to offer truly advanced services and increase customer loyalty. The customer benefits and the use of the products should be precisely understood. Especially when the additional offers become more complex, such as "as a service" offers.

In order to actually be able to deliver these changes, the service organization, employees and later also large parts of the company must undergo an ever-increasing transformation. The more intensive use of digital solutions and technologies also helps to achieve this optimization. Digitalization is essential for new, more advanced business models.

The customer must be optimally integrated into the provision of services and usage data must be continuously evaluated and used to optimize products and services.

This is why companies that are evolving to Service 3.0 and Service 4.0 must focus more strongly on data-based analyses, IIoT integration, cloud solutions, AI-based automation options and the development of a platform ecosystem.