In a climate of digital disruption and global market pressures, many manufacturers want to differentiate with new service-oriented revenue models, especially those that rely on connected machines and machineas-a-service. In a Cisco survey of more than 600 senior executives in 13 countries—from both industrial machine builders and end-user manufacturers—86 percent said the transition from product-centric to service-oriented revenue models is a core part of their growth strategies.
However, the transition to service revenue models is not taking place fast enough. Executives know they need to do it, but they are failing. According to our survey, there is a disconnect between the size of the opportunity and how much is being captured—only 29 percent of respondents indicated services would grow faster than products in their firm.
Complexity and a lack of digital capabilities are holding firms back. The top inhibitor to transitioning to a service model is the difficulty of managing a “two-front war”—products and services simultaneously. However, their ability to capture significant value and leapfrog competitors hinges on accelerating to a service model.
To resolve this service dilemma, the services and digital journeys must converge. To unlock the full potential of the service model, while still improving products, industrial machine manufacturers and end-user manufacturers need to digitally transform their businesses.
Digital transformation must start with top-down leadership, and requires changes spanning people, process, and technology. With the foundational business process and technology 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.
Recent economic analysis by Cisco reveals the payoff for a $20 billion manufacturing firm that digitizes is a profit upside of 12.8 percent over the next three years, and 19 percent over 10 years.
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