Another year is drawing to a close and the manufacturing industry is closer than ever to maximizing its investments in digital transformation. Although the process started years ago, 2023 has seen a lot of technological advancement, business model innovation, and improvement of sustainability metrics.
Authors Lisa Hellqvist, Kris Odland, Radiana Pit
Photo: Freepik
As we reflect on the processes that defined 2023 for manufacturers, we can see how aftermarket services, sustainable practices, and predictive maintenance will continue to shape 2024. But not all is as it seems, and organizations need to focus their attention on consolidating their new process transformations for a more secure future.
1. Servitization: From Innovation to Profitability
Servitization has created quite a buzz in recent years and we’ve seen many organizations overhaul their business models to accommodate value-added services for their customers. In our events over the years, we’ve come across so many success stories of how industry players enhanced customer satisfaction and unlocked new revenue streams by providing added services that enhance equipment performance with remote diagnostics, predictive maintenance, and outcome-based offerings.
However, the question remains: is anyone making a profit from this innovative transition? While success stories exist, profitability remains a challenge. It is not enough to offer new services bundled up with your existing offerings and products. Organizations must also evolve their understanding when it comes to market positioning, customer needs, and service excellence to truly make those add-ons sell.
Lisa Hellqvist, Managing Director, Copperberg
“The wave of servitization and subscription modeling is undoubtedly a major trend on the horizon, yet our discussions at various events have unveiled the early stages of its evolution. As organizations delve into this transformative shift, it becomes evident that we are still in the embryo of understanding how to navigate this landscape. The challenges lie not just in conceptualizing the shift but in formulating clear strategies for going to market. The delicate balance between introducing new value-added services and potentially cannibalizing existing service revenue streams, especially in the aftermarket, remains a formidable decision for many organizations. It’s a journey of exploration and adaptation, and the more we converse about it at our events, the clearer it becomes that we are collectively shaping the narrative of this transformative journey, one that requires strategic precision and innovative thinking to unlock its full potential.”
Manufacturers should increase their focus on creating immersive and seamless experiences, by incorporating digital tools and refining their service-level agreements. In the coming year, we anticipate a greater emphasis on this refinement and consolidation process to unlock the full potential of servitization.
According to IDC researchers, by 2026, G2000 organizations are expected to generate 40% of their total revenue from digital products, services, and experience, suggesting that servitization is becoming a strategic approach for increasing profit, especially in challenging economic conditions.
One of the greatest drivers we’ve seen for servitization this year that could greatly contribute to an organization’s profitability is performance data. Analyzing data on equipment performance for predictive maintenance and remote diagnostics enables manufacturers to completely change the way they handle repairs, upgrades, and more. This not only helps them increase the lifecycle of their machines but also contributes to sustainable business practices by reducing the frequency of equipment replacement and improving energy consumption.
2. Value-Added Services: Understanding the Value
Based on expert predictions, it is fair to say that aftermarket services will become clear differentiators for manufacturers. Value-added services not only help unlock new revenue streams but they also create a competitive advantage for original equipment manufacturers (OEMs) who are transitioning to product-as-a-service (PaaS) models.
For instance, by leveraging augmented reality (AR) and virtual reality (VR) solutions, OEMs can perform remote troubleshooting on their equipment without the need to mobilize field techs, thus redefining the entire customer experience and saving costs in the process. However, quantifying and effectively marketing the impact of these services presented significant challenges in 2023. Although the industry witnessed a surge in the adoption of value-added services in recent years, manufacturers have yet to discover the secret to measuring and communicating value to customers.
Kris Oldland, Editor in Chief, Field Service News by Copperberg
“Having launched over 70 courses in the FSN Education platform earlier this year, it’s been really interesting to see which of the topics has resonated the most with the global service leaders in our audience. Overwhelmingly, the course on identifying where the customer perceives value in your service organization has been the one that we get the most feedback on.
It really is an area where so many leaders across the business can get lost in the weeds because so much of the customers’ actual perceived value sits under the waterline of what we think they want from us. Ultimately, it all comes down to risk; any service that reduces an element of risk within a business is inherently valuable, and this is where those who have successfully carved out value-added services have placed their efforts.”
The success of the aftermarket hinges on the ability to communicate benefits clearly and transparently. For manufacturers expanding their offerings with add-ons, 2024 should be a year of developing and executing compelling communication strategies that convey both the tangible and intangible value derived from these services. Customers need to understand how these offerings enhance their overall experience and fix their needs at different stages of the product lifecycle.
3. Sustainability: No Longer Negotiable
The heightened awareness of climate change and environmental impact has pushed sustainability to the forefront of manufacturing processes in 2023, although there is a long way to go before organizations can say they are truly friends with the environment. Field service organizations (FSOs) especially, increasingly turned to remote support, digital process automation, and visual assistance to improve service quality and reduce their environmental footprint.
By facilitating real-time interactions between technicians and customers, remote support solutions have significantly reduced the need for travel, increased operational efficiency, sped up issue resolution, and boosted customer satisfaction. Likewise, digital process automation has streamlined workflows, reducing resource consumption and operational errors. Visual assistance, through remote diagnosis and troubleshooting, has not only saved time and resources but also contributed to long-term sustainability by minimizing carbon emissions associated with travel.
Lisa Hellqvist, Managing Director, Copperberg
“In the service and aftermarket sector, sustainability isn’t just a moral imperative; it’s a strategic advantage. The reduction of waste isn’t solely about minimizing our carbon footprint but also a direct pathway to bolstering our bottom line. With the wealth of data insights available today, coupled with the realm of predictive maintenance, utilization of refurbished parts, and the resurgence of re-localized warehouses, the industry is steering toward a more sustainable and green future. Efficiency becomes the backbone, not just for environmental responsibility, but as a driving force for economic gains. Embracing sustainability isn’t just meeting customer demands; it’s about future-proofing our operations and delivering solutions that align with both ecological consciousness and financial success.”
Kris Oldland, Editor in Chief, Field Service News by Copperberg
“The thing with sustainability initiatives is that they just are so deeply aligned with what best-in-class field service delivery is—that we should be following these paths anyway. I recall earlier this year speaking with Justin Konopaske of Syncron and Alex Brenner of BCG on this topic in an episode of the FSN Digital Symposium, and Alex summed it up perfectly:
It’s not just the right thing to do; it helps you to improve because it pushes the organization, it pushes decisions, and it gives a guiding North Star to all stakeholders.”
While green initiatives exist and the intent to embrace sustainability is prevalent in the manufacturing industry and has been so for a while now, companies face several challenges that prevent them from executing more viable strategies. According to the 2023 State of Manufacturing Report, three out of ten surveyed companies struggle to formulate effective strategies for sustainability.
The lack of a clear plan, inadequate information about environmental footprints, and insufficient funding and prioritization hinder progress. To address these challenges in 2024, organizations need to establish clear sustainability metrics, track progress, and leverage frameworks like the Global Reporting Initiative or the Sustainability Accounting Standards Board. Manufacturers should make it a priority to integrate sustainable practices into their strategies and operations.
This is not only good for the planet—it’s also good for the business. In the long run, sustainable manufacturing is expected to reduce costs and waste and strengthen brand reputation with both customers and the new workforce generation.
4. Predictive Maintenance: Meeting High Expectations
The predictive maintenance market was valued at $9.15 billion in 2023 and it is projected to reach $79.9 billion by 2033. For manufacturers, it has become a cornerstone of efficiency and cost reduction and it seems to continue this way for years to come. However, the integration of machine learning, AI, and big data analytics into maintenance management systems for predictive maintenance has led to high expectations that might not be as easy to meet as it may seem.
Companies are still working on consolidating their predictive maintenance processes while demand for minimized downtime intensifies and the volumes of data generated by the machines continue to grow. This creates challenges in managing data, supply chains, scheduling, and the mobile workforce. Considering the workforce crisis and the lack of skilled talent currently impacting the industry, organizations are forced to rethink their data collection systems, analysis, and reporting to measure the impact of predictive maintenance accurately.
Kris Oldland, Editor in Chief, Field Service News by Copperberg
“Honestly, I think now is the time that we start to see just how much more we can do with the vast oceans of data we are building every single day. That is also why one of the first white papers we have scheduled for 2024 is looking at how we can leverage tools such as IoT, AI, and AR in combination, leveraging them alongside each other to build a holistic approach to twenty-first-century service delivery.
These tools can, should, and ultimately will move us into an era of fully predictive maintenance. The interesting part is going to be which pressures will this alleviate, but also which new challenges will it create?”
The adoption of predictive maintenance technology will become more cost-effective in the coming years and is expected to lead to reduced spending on maintenance operations. Companies are expected to spend less on maintenance operations as remote equipment monitoring becomes a common practice. Additionally, predictive maintenance will become essential in expanding their offerings with outcome-based contracts and added services to upgrade legacy systems.
Future Outlook
The manufacturing landscape in 2023 witnessed transformative changes with the rise of servitization, a heightened focus on sustainability, the evolution of predictive maintenance, and the expansion of value-added services.
While challenges persist, the outlook for 2024 is optimistic, provided manufacturers strategically address their business models, lack of skilled talent, and communicating value. As the industry continues to innovate, process consolidation must become a priority in the new year to maximize the investments made in digital transformation over recent years.
