Podcast: The Future of Servitization - With Dr Parikshit Naik

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In the final episode of our three part series around servitization, Dr. Parikshit Naik, from The Advanced Services Group, joins me to look at the future of servitization, including where it fits in as part of your organization's digital transformation and sustainability strategies. Hope you enjoy it.

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If you've missed them, you can catch up with episode one here and episode 2 here.





Key topics covered (click to jump to the section)

  1. What is the future of servitization? 
  2. Servitization and the government
  3. Where else can Servitization be applied? 
  4. Where does Servitization fit into the digital transformation journey?
  5. Whitepaper: Is your sector ripe for Servitization?

Niall Sullivan, Senseye: In our last sort of part, I wanted to look into, I guess, look into our crystal balls and look into the future of servitization, which I'm sure, if you are in The Advanced Services Group, that's something you're doing, not standing still. It's what's coming next? So the big question is, the overarching question I guess to start with is, what is the future of servitization? And I guess also as a sub topic, how will it affect that end customer experience? Which from our conversation, it's clear that that's so, so important.

Dr Parikshit Naik, The Advanced Services Group: Mm-hmm (affirmative).

Niall Sullivan, Senseye: That's what it's all about, really, from my view.

Dr Parikshit Naik, The Advanced Services Group: We see servitization growing in the B2B sector a lot, in the immediate future. We see subscription economy in the B2C sector, in the consumer sector. But when we talk about advanced services and the outcome based business models. We do see that in the B2B sector. And businesses are warming up to the idea of offering these advanced services.

At the same time, there are customers who are warming up to gradually accepting them that this is something we would like to buy. And we see more and more examples of successful deployments of such services across the globe. We also see growth in technology providers being interested in supporting such initiatives just like yours, through predictive maintenance, through IoT suites, et cetera. And we also see financiers who are quite keen to work in this sector. We are also seeing government pushing servitization, and projects around it.

We ourselves have worked on ERDF funded programs that have supported more than 350 SMEs now, purely on servitization and advanced services. And that is just in the UK, in Birmingham, Solihull and Black Country area, in the West Midlands. And I would say a good measure of how far servitization has come, and how quickly it is growing, is if we were to go as Advanced Services, if we were to go to a company for a presentation on servitization, and we ask them how many of you know the word servitization? Now there would be at least twice or thrice, who... Yeah. At least twice more people raising their hands, than it would be five years ago.

Niall Sullivan, Senseye: Really?

Dr Parikshit Naik, The Advanced Services Group: It was probably one or two. So now it would be about, yeah, four to five people. But there are more and more who are now reading up on it, and understanding what is happening.

Niall Sullivan, Senseye: I guess a lot of it, it's down to obviously your work. I mean, for example, we attended it, your really good event in Birmingham, Servitization Live as well. So I guess events like that as well, also raise it, the public consciousness, I guess, as well.

Dr Parikshit Naik, The Advanced Services Group: Exactly. Yeah. And I was going to mention Servitization Live just now, that in that event, we were able to gather experts and industry representatives from almost the entire globe, to tell us about what is happening in terms of servitization in their area. And we had someone representing almost every big economy in the world, and everybody had something to say about servitization growing, catching it becoming more famous.

It is becoming even mature in certain levels, such as in countries, in Sweden and Norway, and Netherlands, and that area. It is very likely that a lot of people call it different ways. Some call it product service systems. So in the Scandinavian countries, that's what it's called. Some call it cyber physical systems. Some call the process service infusion, instead of servitization. But after all, it's all going in the same direction. It's about moving away from supplying just products, to becoming service providers that are giving bundles of products and services.

Niall Sullivan, Senseye: I was just going to pick up on your earlier point about where else it will it be applied. And you said about government, could you dig into that little bit more?

Dr Parikshit Naik, The Advanced Services Group: So government is sort of appreciating the value that servitization brings to the economy. We have seen that with the idea of programs. We are also seen that with our innovate UK programs.

Now we are on our second program with innovate UK, which is UK's innovation agency specifically focused on helping manufacturing and industry to tackle future challenges and such as made smarter, et cetera, a lot of these funding initiatives. So they do see the value of servitization and they are encouraging businesses to go towards a trip piloting it.

That is something that we are trying with our heat as a service program, is piloting that value proposition with some customers, that is also something that we did with the cool mill program of milling as a service where we piloted in China and in India, the India pilot is running very successfully as well. So government see value for UK businesses, for sure. Yeah.

Niall Sullivan, Senseye: Yeah. Are there any other areas where you expect servitization to be applied outside of that? Any that really stand out? I guess.

Dr Parikshit Naik, The Advanced Services Group: So we've mostly work with, as I said, we work with OEMs with originally equipment manufacturers because we see a lot of evidence of scope and potential, but more and more, we are seeing a lot of interest from the energy sector, specifically heating and cooling.

Now whether that is domestic commercial or industrial, that they still are interested in servitization. And we can also say that it is driven by sort of the need to quickly mobilize very expensive equipment for the sake of environment, because for example, heat pumps and alternative fuels and hydrogen and these different type of technologies, getting them out is still very expensive. It's not very affordable to consumers or industries either. So these business models like Advanced Services really help to make it more accessible, just like cool mill, try to do it with farmers.

This makes it accessible to industries and other people as well. So that is what is, I think, driving that transformation in heating and cooling industry as well, but in the utilities and energy sector, there is specific interest right now to get on servitization.

Niall Sullivan, Senseye: I guess that fits in. So we mentioned sustainability previously, and I guess that's another reason why these companies are sort of attracted to servitization as a model.

Dr Parikshit Naik, The Advanced Services Group: And I would also say that in terms of helping the planet itself, it has a lot of potential and with circular economy, models coming into place as well, there is always potential for more manufacturers getting into this and different partners collaborating to achieve that outcome.

Niall Sullivan, Senseye: And obviously well, at this very moment though, we've got the COP26 summit in Glasgow and I guess sustainability really does. And environmental facts really has to start well in most people's opinion from the government. So, I mean, I guess this is something, this is the model governments really should be encouraging as well.

Dr Parikshit Naik, The Advanced Services Group: Yeah. Yeah. We do think that governments should be encouraging. We have had some conversations as well with some government bodies about how policies and different laws and rules and regulations can help with these services, because that is quite a challenge because manufacturers have been selling products so far and now with selling services, the rules and the laws and the taxation, everything changes around it. So how can governments really help address those challenges? So manufacturers can focus on helping tackle climate change with high tech machinery and lower emission technologies.

Niall Sullivan, Senseye: Yeah. Again, it's something you mentioned earlier is about partnership. So it's not just one party, there's a number of different stakeholders that need to come together in order for this to be successful.

So what we have touched upon, and maybe not dived into too much but is around sort of the technologies that are going to be involved, obviously technology is involved now, but as we know, things like AI, this could be... It's only going to develop further and further and further down the line. So I guess my first question would be, how important will sort of predictive maintenance, analytics, IoT, B2B be to servitization in the future.

Dr Parikshit Naik, The Advanced Services Group: We see it almost as an inseparable part of servitization, especially IoT and analytics and predictive maintenance. A lot of academic communities now starting to talk about servitization and the digital transformation together.

And there is now a term getting called digital servitization, but there are very few examples of servitization without digital. So do we really need that term digital there? No. They're almost very similar and today, you cannot really do servitization without the support of digital technology like an IoT and predictive maintenance. So we do see that as definitely a big part of the future. And as an enabling system itself, it is crucial.

We also see other technologies like virtual reality, augmented reality, mixed reality. Again, I'll bring up the same example of cool mill that we've been talking about. So they have a virtual reality system where an engineer can put that on, go to the actual mill itself, the machine itself, and they can be on call with the lead engineer somewhere further down, somewhere else in the world.

And they can be giving them instructions and analyzing the data live. That is only when the predictive maintenance hasn't been able to solve the problem, which is going to be quite rare. This is on a level of escalation that something has really gone wrong and somebody has to visit it, but there are these technologies that can help as a... But apart from that, I think predictive maintenance, we've had technologies such as Microsoft Azure, Siemens MindSphere involved. We have had quite a few other open source technologies being used as well.

We have digital catapult in the UK that has been exploring ways of helping SMEs quickly experiment with technologies to get into servitization and see what works best without spending too much time and committing to large licenses of software. So yes. There is a big future, which is driven by digital technology. And I think if we think about servitization, if it becomes more popular and why it is becoming more popular is because digital technology is now cheaper and more accessible, and it is creating so many more insights that were never available before. So that is also why it is becoming a big enabler of servitization.

Niall Sullivan, Senseye: Yeah. I guess another reason is sort of the overall, when organizations look at their digital transformation, there's number of large manufacturers are going for that process. So where does servitization fit into sort of that digital transformation journey?

Dr Parikshit Naik, The Advanced Services Group: We see it in a way that if there's a digital transformation that is about internally improving efficiencies, that is not really their servitization plays a big role because it is not customer centric.

But as soon as the digital transformation leaves the gates of the factory floor and starts to look at customer environments, that is where servitization becomes a big thing. And there are then overlaps of well, are we using the digital technology to really create value for ourselves or with the customer as well? And as soon as you say, yes, we want to create value added services for the customer.

You are going through servitization journey, whether you deliver that advanced service or not is not the question, but are you going through that transformation? Yes. You are. You could end up with performance advisory services, which are not advanced, but they are still very high value for the customer. And that is still the process of servitization, MAN truck and bus went through it. It was servitization for them, even though it didn't create guaranteed outcomes for the customers.

Niall Sullivan, Senseye: I guess that also on the journey. So not just the manufacturer, but the customers also going on that digital, because they'll be going on their own digital transformation journey. So I guess it fits nicely into their journey as well.

Dr Parikshit Naik, The Advanced Services Group: Right. Yeah. It definitely does. It gets them adopting these new technologies and then they start realizing the value of this technology for their own business. Maybe they start some internal processes as well to align with the new manufacturing processes. Yeah.

Niall Sullivan, Senseye: So yeah. So it really does have the power sort of influence, lots of.

Dr Parikshit Naik, The Advanced Services Group: It does.

Niall Sullivan, Senseye: Areas of the supply chain, different parts. So I guess my next question is going to sound a little bit cynical because I'm big fan of servitization. You've explained it very well and the benefits, but I guess you were saying it's still infancy. Although you said when the last time you met, sort of groups of people, more people knew about them before, but I guess it's not widespread I guess, that's probably fair to say, but I guess the question is why isn't it widespread? What needs to happen in order for it to really take off? I guess when we were talking about governments earlier, that's probably one area that's important, but are there any other areas that are key to that, a bit going mainstream? Let's say.

Dr Parikshit Naik, The Advanced Services Group: Yeah. I mean, I think I blame it on the word. I think if it was simpler, people would catch up on it quicker, but yeah, jokes apart, I think it is a slow transformation. So you don't see it as often because a lot of manufacturers are still in the process of going through it and it can be iterative through the roundabouts and roundabouts taking the same turns again and again to get it right and polish it as much as possible. It can take really long. And we also should remember that this transformation runs in parallel with the everyday operations of that business, which is selling products. So they are selling products on the site. And at the same time, there's a separate business unit, which is also trying to transform and look at the future of services and trying to create a new business model.

And this is something in the research as well study a lot that how do these two business models run in parallel at the same time? Where does the board put all of its resources? Do they put all of its resources one way? Can they commit to some resources either way? And this is where a lot of successful businesses set themselves apart. A lot of the board decisions and senior management decisions sometimes mean that they decide servitization is the way to go. We have to commit certain resources and this group of people will work for the next four years only on servitization and making sure our future is guaranteed in this area. And that means they have very early buy-in and that means that they're going to be quicker at responding to these changes. So we haven't seen that many of such instances, but there are more and more coming up.

Now, there are more big companies committing their resources to it. And I would say digital technology is making it more widespread now. The more it is getting integrated into these business models, the quicker it is changing because it is helping businesses see big impact very quickly. And these partnerships with technology providers as well, help them to sort of not think about that extra resource. Well, you don't have to commit that resource because there's a technology provider who will think about it for you and that is really helping them quickly move. So the growth curve, I would say has been slow, but it is picking up pace very quickly. So hopefully, next time we speak, I can say, well, it is widespread now. You were talking about it. It's there now. We are there.

Niall Sullivan, Senseye: Well, at least we could both say we're ahead of the curve, I guess. That's one thing we can say but..

Dr Parikshit Naik, The Advanced Services Group: Yeah. It can be a little difficult, but yeah. We could say if we are ahead of the curve of it. Yes.

Niall Sullivan, Senseye: That's it. Yeah. It's interesting. So about what you're saying about technology providers and we often, the counselors talking to prospective clients about sort of building it internally, which a lot of the largest companies in the world would have it, but at the same time that obviously can take longer and the resources so I can see why it's yeah. The reliance but I guess it's also reliant on technology providers who aren't just stand alone, but they can also integrate with say an IoT platform. So predictive maintenance platform, IoT platform combining together. So the data's, it's just improving that data. I guess that's something else we haven't covered is how important that data is, I guess. To servitization.

Dr Parikshit Naik, The Advanced Services Group: Yeah. From the angle of data, it is something that we see a lot of companies struggle with at the start, but it is something that they learn about a lot over the journey itself because it happens that we see sensors becoming cheaper. Okay. Let's put sensors on everything and just plaster the asset with a lot of sensors, gathering every single data point that we can. Is it really adding value? And that is where the main discussion is, that what to measure and how do I know what to measure? Well, if your outcome is really about guaranteeing the outcome, well, sorry. If your service is about guaranteeing the outcome of the product itself, then what do you need to measure that you have delivered that outcome? What do you demonstrate to the customers? How do you show that you have saved them money?

How do you show you have reduced their emissions and behind the scenes, what kind of data points would you have to get in order to achieve those outcomes, to get those insights? Manufacturers do commonly struggle with getting that answer, right? And that is the learning curve of servitization through that entire journey. It's not just getting the business model right, but it's getting that data point and getting the right kind of digital technology behind it as well. And the partners can help manufacturers through that to help them make those decisions. But it really comes down to the manufacturers to say, listen, I know what my customer really needs. Let's just focus on that to start with and then branch out and start adding more features and value added services. So data is a very debated topic in servitization, how important it is, that is of no doubt, but what really to capture when to capture is the big part.

Niall Sullivan, Senseye: Yeah. No. No. Absolutely. So I guess data and also the end sort of customer experience is the... Yeah. How that's affected. So I guess as we come towards sort of the end, I just wanted to sort of finish, I mean, just on a... Again, it's sort of looking into the crystal bullet a bit, but so what can a manufacturer actually do to make sort of servitization even quicker, easier, sort of bulletproof as well, and I guess it's... Yeah. It's also thinking about sort of the business case that's put in place for it as well, I guess. But how can they really make it a strong proposition for the future?

Dr Parikshit Naik, The Advanced Services Group: Yeah. I think something we see very commonly is structuring. So be very structured in your approach to servitization. It is important to understand the type of journey that lies in front of you. What are the challenges you expect?

There will obviously be things that are unexpected and pop up that is part of the journey, but to be prepared for a lot of these challenges in advance is very key part because it keeps momentum throughout the journey. Then secondly, customer first, that is absolutely critical in servitization and advanced services, getting that customer on board early, understanding their pains and gains. And when you talk to them as a supplier and as a manufacturer, not trying to immediately solve their problems with new products, but just trying to understand what really is, what are the really challenges in their own business? How can their business become more successful?

What's stopping them from becoming more successful and then regrouping and analyzing. Do we have any capabilities that can solve their problem? Don't try to solve all of their problems because no product can. Stick to your capabilities, stick to your key competencies and try and craft advanced services around those capabilities and those pains from the customer that you can really solve and add maximum value and prioritize those that this is where the advanced service is focused on. And finally establish an aspirational business model. So start working on those four quadrants, if you say of what value you are creating, how are you delivering that value? How are you capturing that value? And how do you gain a competitive advantage? Start to think about those four mechanisms early on. You won't have all the answers immediately, but it is important to identify the gaps of where you don't know the answers.

And this is where you start collaborating with people and start talking to customers early on as well. And that is what drives the transformation. And if you have that holistic view of the business model, it's easier to communicate internally. So it drives internal buy-in from the senior management and make sure that you maintain momentum throughout the transformation because very commonly, it happens that manufacturers get caught up in something else that has come up and they just abandoned the journey. And that's a lot of time and resource and money spent on it, which has gone nowhere and an opportunity lost. So that is something that you don't want to happen.

Niall Sullivan, Senseye: Yeah. It's easy to get distracted by other projects, I guess. No. So that's really good. Thank you and really goodbye, sort of end, but just before we finish, I think people would definitely be interested to know where can they find out more about the advanced services group?

Dr Parikshit Naik, The Advanced Services Group: Sure. Yeah. You can log on to advancedservicesgroup.co.uk. And if you want to know one more about how we can help you through this journey, you can send us an email at ask, A-S-K @advancedservicesgroup.co.uk. If you want to read some of the case studies we have, we have quite a few in the manufacturing industry around very common examples that we all know about such as the Virgin West Coast mainline, which is now called the Avanti West Coast, which was run by Alstom. So case studies around that, case studies around Rolls Royce, a lot of other industries such as mining, et cetera. So please do have a look on our website and feel free to ask any questions if you want to know more.

Niall Sullivan, Senseye: Fantastic. Well thank you, Parikshit, for your time today.

Whitepaper: Is your sector ripe for Servitization?

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