‘The Service Dilemma’: Only a third of vendors say services will grow faster than hardware

It’s something the PC industry has been banging the drum about over the last few years – but are services really the future?

86 per cent of manufacturers view the transition from product-centric to service-oriented revenue models as a core part of their growth strategies.

However, only 29 per cent believe that services will grow faster than the product aspect of their business, according to a Cisco study of 625 senior manufacturing decision makers across 13 countries.

Cisco is calling this ‘The Service Dilemma’, and say that good products are no longer enough.

"Today, simply making a good product is insufficient; what happens after the product is sold is becoming increasingly important," the firm said in a statement.

"Industrial machine builders that successfully leverage services, for example, are using them to drive disruptive new business models. This enables them to charge for business outcomes – such as plant uptime – just as they now charge for physical products sold as a capital investment. Companies that don’t harness services for such recurring revenue will risk falling behind in this new dynamic marketplace.

"Cisco’s survey respondents recognize this threat. 79 per cent believe that digital disruption will have a significant impact on their companies over the next three years. However, many manufacturers are either struggling with the transition to services or are not moving fast enough."

Cisco says the solution to the service dilemma requires digital business transformation. Cisco defines this as an organisational change through new business models and the use of digital technologies to improve performance. 

Manufacturers cited digital technologies such as cloud (37 per cent), Internet of Things (33 per cent) and analytics (32 per cent) as having the greatest impact on production over the next three years.

"Manufacturing executives need to move from short-term thinking towards long-term planning for the future," Cisco added in a statement.

"Their ability to gain significant value hinges on accelerating the transition to a services model. Economic research by Cisco Consulting Services reveals $383 billion in Digital Value at Stake coming from connected products, connected machines, and new service models alone. Manufacturers are currently leaving 76 per cent of the overall industry Value at Stake on the table.

"Venturing into this unfamiliar ecosystem can create daunting challenges. Based on the research, the number one concern is the complexity that results from selling products and services simultaneously (23 per cent), along with achieving profitability in new lines of business (18 per cent), and finding ways to monetize customer data (15 per cent).

"Digital transformation must start with top-down leadership, with changes spanning people, process and technology. With the right foundational capabilities in place, manufacturers will have greater business agility to leapfrog competitors, derive insights that will create organizational efficiencies and reduce silos, and build a new customer, partner, and organizational experience for the digital age."

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