Microsoft Dynamics 365 Blog

Service isn’t a cost of doing business, it’s a part of your business
As a manufacturer, there is constant pressure to do something better, faster, or cheaper. But how often do you get a chance to differentiate your business by shifting or expanding your business model?
Historically, disruptive forces such as industrialization have given manufacturers opportunities to adapt business in pursuit of new profits or increased margins. Today, the disruptive forces of physical and digital innovation have created the opportunity for servitization—the process of generating revenue from services instead of discrete products.

Why servitization now?
While the possibility of selling services has always existed, it is only now that it has become profitable. There are three fundamental factors driving this new opportunity. The first is the ability to connect devices at radically lower costs through IoT consumables and cloud infrastructure. The second is the scale and power of data ingestion, management, and analysis capabilities. The third is the market desire to purchase a service rather than own a product, enabling customers to mitigate high total cost of ownership and primary responsibility for servicing devices.
Still, what makes servitization profitable is how it expands a manufacturer’s business model. The margin on discrete sales will always grow linearly—after all, you can’t sell half a device. By supporting value-added services around a device, manufacturers can increase the margins around each of those devices sold. On top of that, the servitization infrastructure that supports discrete sales also enables cross-sell of a la carte services, ranging from analytics and support to consultation and advising.

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Together, these capabilities enable manufacturers to differentiate themselves in a variety of ways for customers. Through additional asset services, managed services providing capabilities, and advisory or consulting services, manufacturers can focus on building a relationship with customers as a trusted advisor. The Microsoft vision for manufacturing services is not just as a profit center, but a generator of new business itself.

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