Climbing the Product Value Chain
Xyte’s VP of Sales Andrew Gross sat down with Santosh Harakamani, Head of Service Development at Volvo Group Digital and IT to talk about how the shift to as-a-Service business models results in new revenue streams.
“Whether you're a manufacturer, a channel partner, or an end user – the question you’re asking yourself is: how do I increase my revenue streams while adding value to my customers?”
With that question, Xyte’s Andrew Gross opened a fascinating TechTalk discussion at Integrated Systems Europe in Barcelona with Santosh Harakamani, the Head of Service Development at Volvo’s Digital and IT division.
Andrew and Santosh focused on what Andrew called “the final pillar in digital transformation” – the shift to as-a-service business models. And despite the perception that as-a-service is only relevant to software or computing, they explained how the paradigm is already being profitably applied in major multinational manufacturers, too.
How exactly is this shift helping manufacturers and their channel partners climb the product value chain and deliver new revenues? Let’s dive in…
What Can Manufacturers Learn from Other Industries?
Andrew outlined three changes that manufacturers should emulate – which have been the drivers for the success of the shift to as-a-service revenues in mobile communications and other industries, namely:
Move from one time sales to recurring sales
Andrew suggested that manufacturers “give customers an excuse to come back to you for new products, for new services, for new delivery mechanisms of the outcome that they looked to achieve when they initially purchased that product.”
Santosh supplied a strikingly simple example of how this could look for manufacturers – a LED light bulb. Customers no longer buy a branded GE or other lightbulb. They buy an outcome. “If you sell me a lightbulb that lasts 60,000 hours – I’ll see you maybe in a couple years when that bulb needs to be replaced. But if you sell me an app that comes with a bulb, which allows me to optimize my energy consumption, turn lights on and off automatically when I enter and leave the house, or adjust the light level based on my mood - that is value for me. Buying the bulb is not the value for me anymore. I need my room lit up – the goal is not to own a black box. It's to own the outcome that that black box delivers.”
Focus on service-centric priorities
Andrew noted that “it's about time that we leverage high technology to benefit ourselves by delivering products that only get better over time.” This means that manufacturers need to offer their dealers and channel partners a way to leverage service based outcomes by using the product as a delivery mechanism.
Shift to data-driven
Andrew stressed that today, with everything online, manufacturers and channel partners have a unique opportunity to better understand – in depth – how customers use and interact with their products. “Whether you're an enterprise IT manager wanting to understand how your conference rooms are being used, or a manufacturer wanting to know which products fail more often than others, the data is key,” he claimed. “And by delivering a service centric business around the hardware as the medium, you’ve got that type of value constantly at your fingertips.”
What’s Driving the Manufacturing Paradigm Shift?
As part of the paradigm shift towards service-centric business models at Volvo, Santosh offered a unique perspective on what’s driving this sea change.
Firstly, he believes that business viability is key. Volvo (alongside Tesla and other forward looking equipment and automotive manufacturers) found that the shift to service-centric business models simply works. Customers are asking for it. Partners are embracing it and growing their revenues. The proof of concept stage is far behind them.
Second is the evolving perception of value on the part of customers. Customers, Santosh claimed, want green and safe products, of course. But they also want predictability – “moving from CapEx to OpEx to gain control over their cash.”
Another driver for manufacturers is the chance to gain direct access to customers. “Traditionally, there were a lot of intermediaries in the value chain, a lot of hands,” Santosh said. “Now I have the ability to connect with my customers via technology. And not only the customers, but also the products.”
Andrew explained that this ability is not a threat to channel partners – quite the opposite. “It's not about going around or eliminating the current value chain. It's actually about empowering the value chain. As a manufacturer, you can gather data not just about the product and the customer, but actually how your resellers are selling devices. This helps everyone.”
Santosh echoed this sentiment. “Now, we have the ability to bring a lot of different types of value-added partners in the channel, then cross leverage what they can do and add value into the entire ecosystem. Everyone wins.”
The Bottom Line
Both Andrew and Santosh agreed that the shift to as-a-service is “really changing the dynamics of how we have done business in the past. Today, you can focus on the product and the outcome totally differently because of how customers are able to purchase and engage with the product.”
“It’s a huge mindset change, and it demands a strong business model and revenue strategy, alongside a strong emphasis on customer service and support,” noted Andrew. More specifically, the shift from traditional sales to subscription-based services demands that a number of critical elements be put in place. These include a flexible and scalable infrastructure that can adapt to customer needs, data-driven decision making for strategic choices, competencies in subscription billing and management for recurring revenue streams, and enhanced digital capabilities to deliver products and services digitally.
To meet these challenges, Andrew and Santosh encouraged organizations - manufacturers, channel partners, or end-users – to embrace change by seeking partnerships to successfully navigate the shift toward subscription-based models.
Clearly, as-a-service models are driving a fundamental change in how businesses approach product value chains. Embracing these changes will empower organizations to build strong customer relationships, access new revenue streams, and thrive in the digital era.
Click here to watch the full conversation.