Servitization as a Source of Competitive Advantage

Competitive advantage, differentiation, unique value offering, great customer service.

For a long time now, these have been some of the main descriptors manufacturers would use to describe what makes their organization successful in the presence of growing competition. Essentially, if you made a reliable product that served its purpose and took care of customer grievances quickly and professionally, your organization would be able to acquire a loyal customer base and ensure long term success.

Recently, we have witnessed a change in this model. Everywhere, there’s talk about ‘growing customer demands’ – and some manufacturers are responding by adding additional features to their products in an attempt to further set their product apart from the competition. In many industries, however, this is simply not possible. This has forced many companies to increasingly compete on price.

As many organizations have realized, treating your product as a commodity where price is the only differentiator that matters is not a sustainable, long term strategy worth pursuing. Commoditized industries are more prone to being disrupted by new competitors entering the market that aggressively lower the price in order to establish market share. In order to protect their business from disruption and maintain stable growth, manufacturers are profoundly changing the way they operate.

What this often means is a shift to a service centered business model that focuses on selling a comprehensive service that includes the core asset along with services to complement the original product. Now a common strategy, servitization has been recognized as an effective strategy to add value to a product. Even further, it has been a useful tool for creating a more predictive demand since manufacturers can migrate from transactional to contractual relationships with their clients.

Any conversation about organizations that have used a servitization model to thrive in the digital age will inevitably bring up the likes of Rolls Royce or Xerox as the classic examples of organizations utilizing technological advances to enable this transformative strategy to be properly executed. It is worth noting that what often gets overlooked when talking about servitization is that this is not a business model reserved for industry giants or industry incumbents.

McKinley Elevator Corporation is good example of a smaller, family owned business with an effective service-based business model. Although the company already enjoyed a reputation for having great customer service and quality products, there is still constant risk of low-cost providers entering the market and reducing McKinley’s share by seeking to drive down the prices.

Important to note is that McKinley not only manufactures conventional elevators, but also accessibility lifts and car lifts for homes. This means that their products find their way into private homes, businesses and public facilities. The diversity of clients and product types creates a challenging environment for the organization when it comes to their maintenance agreements. Certainly, having a product malfunction is a headache for any company; but, for people who rely on McKinley’s products to execute simple daily tasks, an unreliable accessibility lift can prove to be much more than a simple inconvenience.

When it comes to measuring excellence in customer service, some of the main metrics in this industry are response times, downtime and first-time fix rates. These metrics are what allow companies to justify their pricing on maintenance agreements and become known for their quality work. However, realizing the importance of their products’ impact on the quality of life of their customers, McKinley Corporation decided to set an entirely different goal to aspire to when it comes to equipment maintenance. To separate themselves from the competition, McKinley started exploring technologies that would allow them to have zero downtime on their equipment.

The company created an in-house team that got tasked with integrating data-collecting sensors with existing lift equipment. These sensors would allow data to be transmitted back to the service operations office and enable the team to analyze and respond to it in real time. This technology allowed the company to have early detection of maintenance issues and efficiently allocate its field technicians – who were now informed on the specific issues they might face in the field.

The company’s commitment to implementing more IoT technology into their products is allowing McKinley to discover new opportunities for further visibility and efficiency improvements. Collection of usage statistics, access to accurate historical data, and records of past repairs allow the organization to find out more about how their products are being utilized – which can inform both their R&D efforts and their Sales efforts.

McKinley effectively aligned end user value with their company goals and found the appropriate way to take advantage of IoT technology. This enabled them to execute a transformative strategy that allowed them to grow the service aspect of the business and achieve noticeable efficiency improvements along the way.

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