Why are industrial services not getting the attention they deserve?
Anders Jungar, Manager at PBI
Dr. Magnus Hellström, Senior Lecturer at Åbo Akademi University
What is the first thing that springs to your mind when you hear the words 'industrial services'? Here's our educated guess: words such as spare parts, technical support and maintenance delivered by the 'Service division guys'. There is no international standard definition, but for industrial services, or industrial service products to be precise, we mean a series of pre-defined activities that are delivered/performed during the complete lifecycle of any large industrial investment. Examples of these include feasibility studies, project management, engineering, system integration, transport and logistics, commissioning, installation support, construction management, i.e. services you would find in the scope of any larger industrial investment such as a container terminal, motorway, or power plant.
Manufacturing companies selling and delivering these large complex industrial investments have developed top of the notch hardware and software products for a global market. However, due to the commoditization of these products and in the quest for becoming so called 'solution providers', these companies have increasingly turned to industrial services as enablers for delivery of 'lifecycle solutions'. This is what is sometimes referred to as 'servitization'.
It's no news that industrial services can form a large share of the order intake and sold gross margin in large industrial investments. Still, our experience is that many organizations struggle with harvesting the full financial potential these industrial services bring: the sales departments are having issues with explaining the value that industrial services bring to the customer; there are issues with poorly defined scope and unclear deliverables; cost-to-serve as well as pricing models are not clear. These are just a few examples describing the challenges faced. In essence, it's a question of not-that-well productized services, as opposed to the more mature (hardware, software and automation) product offerings of the manufacturing companies.
The beginning of all wisdom is the acknowledgement of facts
So what should be done? We believe the first thing companies need to acknowledge and accept is that industrial services have a very important role to play. After all, it should not in the first place be a question about additional revenues, but about aggregated customer value. Secondly, we think industrial services deserve the same level of attention from a productization and commercialization point of view as the hardware and software products these companies are developing. In our upcoming blog posts, we will open up this topic in more detail by walking you through the process of harvesting the true value of your company's industrial services offering. Stay tuned.
Anders Jungar is a Manager at PBI within the strategic consulting workforce. His topics of special interest are industry logic and business models, productization of industrial services and solutions business.
Dr. Magnus Hellström is a Senior Lecturer at Åbo Akademi University. His research interest centers around service- and collaboration-driven value creation in the project business.