Five stages of digitization on the way to the age of IoT

4. May 2020

Digitalization

Some manufacturers have already understood that the future of their products lies in service. Here we have described for you what servitization is and what it means for you. In order to be able to classify more precisely where your company is at the maturity level of digitization and servitization, we have created the following overview.

What are the five stages of digitization on the way to the age of IoT

On the maturity scale of digitization, the first level on the far left is made up of companies that have not yet followed the trend toward service for their things, products, devices, equipment, and so on. On the far right are companies that already offer new business models in the sense of anything-as-a-service. With the help of the following levels, you can classify where you stand with your company today:

  1. Sell & Forget
    The first stage of digitization on the far left describes the maturity level when manufacturers of e.g. equipment, have sold their products for decades and cannot say exactly where they are located. Fully reactive, they serve only a fraction of their installed base with basic services such as warranty and spare parts, so-called “basic services” according to Baines. According to the German VDMA, e.g. the German mechanical engineering industry only serves between 10 and 25% of its own installed base with services. This means that many companies are still at the very beginning.

  2. Fail & Fix
    The second stage of digitization describes manufacturers and service companies that respond when their customers contact them with concerns about their products. This means that they offer, e.g. maintenance and repair services, but not proactively. Often associated with this maturity level, we see under-digitized processes such as paper-based service reports or no existing ticketing system to efficiently process service requests around equipment. Spare parts and maintenance offers are also not yet offered via a digital service portal or similar.

  3. Digital Processes
    Companies at this level of maturity have focused on getting a handle on their installed base and digitizing all connected processes. This is where digital tools often come into play, making life easier for both office and field service staff. One example of this is (field) service management systems. The result is faster response times, high service availability, longer planning horizons for service work orders and the beginning of proactive offers in service, e.g., via maintenance contracts. Since good service technicians are hard to find, the main focus here is on increasing the efficiency of the company’s own team.

  4. IoT & Automation
    Many companies would like to skip the third expansion stage and move directly to predictive maintenance or similar offerings. In order to be able to offer digital services sustainably and proactively in the future, the necessary infrastructure must be created as a basis in stage 3 so that technologies such as the Internet of Things (IoT) can be used sensibly and clear business results can be generated in the process.

  5. Anything-as-a-Service
    The final stage of digitization and servitization is reached when the product is no longer sold, but offered as a service. This often involves so-called performance-based business models described as “X-as-a-Service”, where X nowadays stands for “everything”. As an example, a machine is leased to the operator as a service with a certain availability in order, among other things, to shift the risk of the total cost of ownership to the manufacturer (CAPEX to OPEX). Without having gone through the previous stages of digitization, manufacturers usually find it very difficult to offer this type of business model profitably. It is important to say that this expansion stage does not make sense for all products. However, it should be noted that if the respective customer segment wants such a business model, manufacturers and also service partners should be able to offer it.

On the way to the age of IoT and new business models, there are many different manifestations. The key is to establish a clear roadmap for the transformation towards the future and not to take too many steps at once.

A practical tip from us:
Always calculate the business case for your next move. Who will earn more money or save time or costs? Only if there is a business case should you invest in the next step or in digitization in service.

Do you want to lead your company towards a digital future? We would be happy to show you how we are already helping other companies with digitalization around their equipment today and how we can help you too.

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