Research by Rapaccuni c.s. among 193 executives from a diverse set of industrial firms in Northern Italy, the region that was hit first and most extensively by the COVID-19 pandemic, shows the rapidly growing importance of digital servitisation business models. The majority of the respondents stated that the pandemic will accelerate their innovation efforts related to new digital technologies and services. The graph below shows the areas in which companies accelerate digital innovation programs and to what extent.
By moving from selling products to delivering services, servitisation increases reliability, improves data analysis and lowers capital expenditure. It makes both providers and customers more resilient and less vulnerable to economic crises by spreading costs and/or revenues more evenly over time. With a mix of fixed and variable fees depending on usage (see e.g., Rolls Royce’s concept of ‘power by the hour’), the burden of economic downfalls is divided among both. No wonder that lease and rental business models grew rapidly during the Great Depression in the 1930s. Digital servitisation is in particular attractive when supply chains are interrupted as happened during the recent lockdown of entire regions and countries.
The survey was conducted between March and April 2020 among large companies (35%) and SME (65%) operating in a range of industries in Northern Italy and complemented with 16 in-depth interviews with executives and directors from large, global manufacturers. The far majority of the respondents expected a high to very high reduction of their product (-66%) and service-related (-49%) sales due to the pandemic and the imposed lock-downs. Most respondents, however, did not expect any or only limited decline of more advanced services that could be done digitally, such as remote condition monitoring, predictive maintenance, and data-based services.
Click here if you want to read the original article by Rapaccini c.s. ‘Navigating disruptive crises through service-led growth: The impact of COVID-19 on Italian manufacturing firms’ in Industrial Marketing Management
Figure from the article