April 23, 2020 | 3 Mins Read

Socially-Distant Servitization?

April 23, 2020 | 3 Mins Read

Socially-Distant Servitization?


By Tom Paquin

The COIVD-19 crisis, among its many, many effects, has shown many businesses that their product categories and go-to-market strategies are much more fragile than they may have thought. To address this, many businesses are simply hunkering down, while others, like Munters, are finding new ways to do more with less. Another important consideration that Sarah touched upon last week is how businesses are moving to diversify their revenue streams. I wanted to take that concept and unpack it a little bit around a specific topic: Servitization.

Two years ago, when the thought of a global lockdown was as incomprehensible as a Microsoft phone running Android, I wrote about the macroeconomic threats leading organizations towards servitization. At the time, I was looking at the eroding barriers to entry in fields like manufacturing, distribution, and retail, and encouraged businesses to consider what it takes to set up a recurring revenue model—What it really takes to incentivize people to like you enough to pay you every month.

Given the current state of the global economy, businesses either have no appetite at all for any sort of business model adjustment, or they’re frantically looking for a way to do so (or they’re somewhere in the middle). With that in mind, servitization may not be the best priority to focus on right now, but for those not in a position to make the shift, it’ll be worth thinking about. For other businesses, servitization might end up being the existential lynchpin that keeps your business running.

Innovation in the wake of this crisis has been a rare moment of positivity and inspiration in a time full of uncertainty and tragedy. For businesses, this has frequently taken the form of service-oriented activities when product-oriented business has taken a hit.

The most obvious avenue that this has taken is through delivery, which has been the system that has kept many businesses solvent, and employees working, in traditionally product-oriented fields. Retailers, restaurants, and suppliers have in record time built systems for quickly delivering products to their customers, offering value and new experiences.

I’ve seen a few compelling examples of this. For instance, Restaurant supplier Baldor has pivoted to home delivery at an incredible pace. Delivery is of course a very small component of service, but when you’re pivoting from being a purchaser and supplier to making fast, frictionless consumer interactions, that functions as a crash-course in developing a service-oriented mindset.

I imagine that this has substantially decreased the size of the average order (a home chef is not cooking 27 beef wellingtons a night) while increasing the number of deliveries by equal measure. For a business to do this effectively, they need to very carefully manage their logistics planning. Sure, if you’re an Amazon, you can throw more drivers at a problem, but businesses that are not sitting on a trillion dollar valuation need to manage their existing workforce with care and efficiency. Fortunately, there’s some outstanding optimization options to ensure that you can scale your workforce appropriately. Alternatively, you can always try to draft contingent labor to support your efforts.

Building the business model that goes along with this is key, as well. I've seen companies begin to offer services via a waiting list that you sign up for, which offers a sense of exclusivity, and encourages purchases when customers reach the other side of the "velvet rope".

These are all simple examples, but they are things that businesses have been able to roll out in weeks. As time drags on and the nature of this crisis continues to evolve, more creative, complex, and revolutionary ideas will come, and for businesses that have been flirting with servitization, a bold move might be just what is needed in this moment. Think differently about how you can approach your customers, your products, and your addressable market, and be sure to think beyond this crisis. Smart ideas will keep you whole today, and set you apart for the recovery.