Product as a service platform. Design for service, not just for serviceability, not just for manufacturing and maintenance. It’s the new trend in manufacturing that neatly ties together the product lifecycle with innovation.
What is your response to the commodification of your product, to its inevitable journey over the top of the product lifecycle and onto the late majority/laggard downslope? There are several knee-jerk responses available, depending on how many knees you have. The most obvious response is to join the low-cost producer battle. Drive costs out of your product design, out of your manufacturing processes, out of your supply chain.
You likely knew this was coming, though, from even before you launched your beta version to the trial market. But unless your overarching business model is in fact low-cost production/operational efficiency, this response will have two primary drawbacks. First, if product innovation, quality, functionality or customer service is your chosen value discipline, marketing to the low-end/low-cost segment of the market likely hurts your brand image. You can’t be all things to all consumers. ‘Luxury subcompact’ is pretty close to being an oxymoron and can’t help but detract from your quality message. Secondly, while it might help you avoid losing, it’s not a winning game for your chosen business model; it’s not differentiating. The best you can hope for is “me too” among a host of other low-cost copy cats. The imitation may be flattering, but it’s also costly.
With your other knee, you could double down on quality and functionality. Not a bad reaction in many cases. As I discussed in this previous post (“Innovating for the Numerator”), this is the second of Clayton Christiansen’s innovation categories, ‘innovation for sustainability’ (the first category, alluded to in the previous paragraph, being ‘innovation for efficiency’), going from ‘good-to-better’, the product extended with new features, functions and improved performance and quality.
This approach has the benefit of protecting your brand reputation, and as I pointed out in “Coolhunting”, it also matches with the quality expectations of the late majority. It does little, however, to directly address the cost issue, that kicked-in-the-teeth feeling you get when when one of your long term customers invites you to participate in a reverse auction (as I previously discussed in “Hybrid Strategy Management”). Furthermore, higher quality and increased functionality has become part of the same “Dealing with Darwin” phenomenon as low cost production - every product has its own Moore’s Law expectation, just with varied exponents for the doubling ratio. Unless quality is the foundation for a conscious customer-intimacy value discipline, it can also end up as just another “me too” strategy.
Which leads to a third approach – the product as a service platform. As with my primary thesis, this service theme can likewise be broken down into three basic components.
The first approach to baking services into the product would be with up-front implementation services. I won’t dwell on this too much, as it seems to ignore if not exacerbate the fundamental reason we got into this mess in the first place – product commodification and cost. But properly done in conjunction with a quality or customer service focus, it could serve as a profitable differentiator. There are any number of products that I can find cheaper on the internet, but without a plumber’s or electrician’s license I’d be hard pressed to install them successfully.
The second approach would be after-market services. For many companies this is already the driving business model, where after-market services drives 30-40% of the revenue and 40-50% of profit. Sectors such as aerospace or heavy industrial equipment can experience a 3X after-market revenue factor, where the expensive airframe or equipment frame outlasts the almost-as-expensive engines or hydraulics by several multiples.
But the approach that is getting all the buzz is not the “before” nor the “after” market, but the “on going” services. The realm of the Internet of Things (IoT), of sensor data and connected devices and smart devices. The feature/functionality/quality of the product/device becomes secondary to “What services can I get on this thing?”, right now and in the future. Smart phones and mobile devices are just the beginning of what is likely to become the IoT decade.
- What can my smart-refrigerator tell me about its current nutritional content and meal options?
- What can my contact lenses or my smart-clothes / e-textiles / wearable technology tell me about my health and fitness?
- Is my home entertainment system going to become my home educational system?
There is already technology available that distinguishes the separate electricity profiles of each connected electrical device in your home, which of course can be harnessed for both lower energy costs and improved living convenience. Who knew your electric meter could be such a smarty pants?
While the technological aspects of smart devices expand exponentially, it is the business models that are playing catch up, just as they did during the growth of the internet. “What is your internet strategy” is being replaced with “What is your smart device strategy”? What is your product-as-a-service-platform strategy? We can create the value, but how do we monetize it? And just as the explosion of the internet was interrupted with the dot.com bust, I fully expect similar false starts when it comes to building sustainable business models around the IoT.
On the other hand, I don’t doubt that someday in the not too far future your facial tissue will be able to indicate if what you have is merely a cold, the flu, or strep. I have joked, with some pride in my children, that I am the fifth smartest in a family of five, but now with the advent of smart devices and textiles I fear falling to sixth, seventh, or even further. My fallback plan was to get a dog, but I’ve been warned that beagles can be pretty smart too, so it might come down to a hamster or some goldfish.
By Leo Sadovy, EPM Channel Contributor, from: http://blogs.sas.com/content/valuealley/2014/01/21/are-you-smarter-than-your-sweatshirt/
Leo Sadovy handles marketing for Performance Management at SAS, which includes the areas of budgeting, planning and forecasting, activity-based management, strategy management, and workforce analytics, and advocates for SAS’ best-in-class analytics capability into the office of finance across all industry sectors. Before joining SAS, he spent seven years as Vice-President of Finance for Business Operations for a North American division of Fujitsu, managing a team focused on commercial operations, customer and alliance partnerships, strategic planning, process management, and continuous improvement. During his 13-year tenure at Fujitsu, Leo developed and implemented the ROI model and processes used in all internal investment decisions—and also held senior management positions in finance and marketing.Prior to Fujitsu, Sadovy was with Digital Equipment Corporation for eight years in sales and financial management. He started his management career in laser optics fabrication for Spectra-Physics and later moved into a finance position at the General Dynamics F-16 fighter plant in Fort Worth, Texas.He has an MBA in Finance and a Bachelor’s degree in Marketing. He and his wife Ellen live in North Carolina with their three college-age children, and among his unique life experiences he can count a run for U.S. Congress and two singing performances at Carnegie Hall. See Leo’s articles on EPM Channel here.