At the IAFN conference in London I was asked several times well “what do I need to do to move to servitization” ….which got me thinking that this would be a good topic for my next article.
It’s a big question, there is an enormous amount to do and I can only begin to outline where you start in this article. So let’s address those first baby steps….
Involving the right stakeholders will be critical to the success of the move to servitization. There are a wide range of departments who will need to be engaged at various stages. Importantly at the outset the finance community (Treasury & CFO) and senior leadership need to be involved. The first to understand the change from revenue recognition sale to an annuity model….better to understand the impact and have the impact do this a little at a time rather than in a ‘big bang’. Secondly and most importantly you need senior executive sponsorship and buy-in. You are going to need some budget, headcount and air cover from up high. If I was to say the single most important thing at the outset is the recognition from senior executives that they have to embrace this change, and they support the project wholeheartedly. You can’t go into the change to servitization half-heartedly, as you’ll fail.
Next depends on where your company is in the value-chain: are you a lessor, manufacturer; distributor or value-added reseller? Do you have a captive finance company, if you do it might give you a head start – but you may have legacy systems or resources that are inflexible, for example many billing & collecting systems are incompatible with variable billing. Clearly a subscription & Pay per use model will affect each organization type very differently. So the value chain position, Go-to- market and use of XaaS is critical to then set the strategy and direction of the project.
If you are a leasing or finance company then the opportunity size of this market change to servitization and XaaS is very appealing, especially when you consider the low leasing penetration rates in some industries. The challenge for lessors is different again, there are new risks to consider: performance; transfer; residual value; cancellation & usage risks, legal clause changes and omissions (consider: Hell or High Water, undisclosed/disclosed etc). Do you have the skillset for the solution architecting of the usage, so your company can achieves the required profit level? Do you have the legal documentation for a singular service agreement? Do you have vendor support and is their covenant sufficiently strong to be of value to the funder?
Ticket size is important, so is your customer demographic. They will both affect whether you have a simpler low touch subscription type for smaller ticket ‘flow’ business, versus a high touch more bespoke offering with flexibility or consumption models for larger transactions. Will you as a lessor offer more services or sub-contract them, will you prime deals or leave that to the value chain?
Lots of questions and many things to consider in the initial workshop, which is critical to assess ‘where we are & where we are going, who with and how”
KEY EARLY STEPS:
- SENIOR EXECUTIVE SUPPORT
- STAKEHOLDER BUY-IN & EARLY INVOLVEMENT
- VALUE CHAIN POSITION
- TARGET MARKET
- XaaS OBJECTIVES
If you want more information or need help with the move to servitization or a workshop then please get in touch.
Nick Feasey is Senior Consultant “as a service” at Invigors EMEA (part of the Alta group).
Email: Nick.firstname.lastname@example.org Tel: +33 760004618