Servitization will transform the traditional product offerings into advanced service offerings and this will redefine the value propositions provided to customers. Servitization has an impact on the business & operating models and the SAP solution architecture.
An agile IT service management (ITSM) and enterprise architecture is required to quickly operationalize the new advanced service offerings. The following picture gives an overview of the servitization roadmap;
Figure; Overview servitization roadmap
The servitization roadmap helps companies to think big, but a company must start small. The best way is to define the Minimal Viable Product (MVP) and identify the most feasible Product (solution?) Market Combinations based on the business model analysis. The product manager should be responsible for the introduction of the new services.
Industry 4.0 technologies (e.g. IoT) provide capabilities to improve the servitization value propositions and is disrupting the relationships across manufacturers, customers, and suppliers. Tightly integrated eco-systems of companies will be working together to provide optimal value to customers
Industry 4.0 introduces many new technologies like; IoT for metric monitoring, AI for predictive maintenance, AR/VR for remote service support and 3D printing for services parts. Industry 4.0 also introduces new applications like; chatbots, Robotic Process Automation (RPA) and Field service crowd sourcing. The servitization businesses processes must be changed to integrate these new technologies.
Within this article the following topics will be addressed;
1. Impact of servitization on the customer service offerings
2. Impact of servitization on business model
3. Impact of servitization on operating model
4. Overview capabilities of the intelligent SAP CX architecture (C/4HANA)
5. Impact of servitization on the (CX) solution architecture
6. Impact of CX solution architecture on the agile enterprise architecture
7. Critical success factors for a successful servitization roadmap
8. Agenda of the VNSG / NAF CX workshop.
This article is the basis for the VNSG / NAF servitization workshop. The following presentations are on the workshop agenda;
- Overview of the servitization roadmap
- Impact C/4HANA on servitization roadmap and the SAP solution architecture (SAP)
- Impact of a global C/4HANA implementation project on the CX solution architecture
- Impact of the product and business model innovations on the CX architecture of Miele
This article and the VNSG / NAF servitization workshop is useful for;
- Business Process Owners (evaluate business impact of the Servitization roadmap)
- CX solution consultants (evaluate the required CX capabilities)
- IT management (evaluate the IT impact of the CX solution architecture)
- Enterprise architects (for integration of the CX solution architecture)
1 The impact of servitization on the customer service offerings
Companies like Amazon are penetrating many markets with low pricing and their efficient supply chain (commoditization). Manufacturers must utilize their core competencies and compete through a portfolio of integrated products and services. Servitization can be divided into 3 types of services;
- Product support (e.g. upgrades, field service and repair)
- Maintenance Services (conditioning monitoring, helpdesk, preventive maintenance)
- Usage Services (pay per use, fleet management, asset SLA based on availability)
Each service type extends on the risk and responsibilities. Manufacturers become service providers and transform one-off purchases into bundles of services with long term contracts and extended relationships with customers. There are 3 types of servitizations contracts;
- Product support services (Customer owns the product and has a support contract)
- Maintenance based services (Manufacturers owns the product and the customer pays an annual fee (subscription) for the use of the product or services)
- Outcome based services (Manufacturer owns the product and is responsible for the operation. The Customer only pays for the outcome)
The following 8 companies are already using services-based offerings;
An impression of the services-based offerings of signify for ‘light as a service’ can be found at the following link; https://www.youtube.com/watch?v=O9_AyPa5eTU
The industry 4.0 technologies enable the cooperation and integration (IoT) between manufacturers and customers and create ecosystems in which they can share product usage and market information. This cooperation can result in the following benefits;
- Reduce the TCO of the products and services
- Increase quality and sustainability of the products.
- Improve operational and supply chain excellence
- Create competitive advantage and overcome low cost competition
Shifting from a product-oriented to a service-oriented company has the following impact;
- Business model & operating model innovation
Servitization will result in new value proposition per market segment. The management team together with product management must prioritize the product / market segment combinations (PMC) and adjust the strategic business objectives and project portfolio.
The adjusted business models requires new CX and digital twin processes and capabilities. For example; pricing and contracts must be adjusted. The key design decisions and the impact on the business organization and reporting structure must be re-defined. Changing the organization and ecosystem will lead to internal resistance and OCM (Organizational Change Management) is required.
- Transparent investment management
The shift from one-time product billing to recurring annual services billing requires additional investments because the revenues will be received periodically. The transformation of the enterprise architecture will also require additional investments. The investment priorities should be aligned with the new strategic business objectives.
- Agile Enterprise Architecture
The changed Customer Experience (incl. services) processes and applications must be integrated within the existing enterprise architecture. An agile enterprise architecture is required to quickly adopt processes, applications and extend the ITSM procedures.
2 Impact servitization on business models
A business model describes the way how an organization creates, delivers and captures business value. The business model represents the core aspects of the business strategy including offerings, customers relationships (CX), product sourcing and profitability. The most popular business model framework is the Osterwalder business model canvas.
Business model innovation (BMI) analyzes the impact of new product & advanced service on the business model. Frequent and successful business model innovations can increase the organization flexibility and can become a competitive advantage. Many companies are running a business model innovation program because of reasons like;
- Changing industry trends and the need to adjust the product specifications
- Changing market conditions and the need to change the solution offerings per segment
- Changing economic climate and the need to adjust the business objectives and partners
- Changing governmental regulations and the need to adjust the operational processes
The following picture gives an overview of the Osterwalder business model innovation framework;
For example, the strategic shift from Philips to implement ‘light as a service’ could have the following impact;
- New marketing strategy to promote and sell the new pay per use propositions
- Implement new CX (e.g. service management) processes and applications
- Adjusted production to integrate IoT devices for usage monitoring
- Extend partner network with service partners to meet SLA requirements.
The business model innovation also defines the strategic business objectives (SBO) which should help to select the innovation projects and investment priorities. Examples of CX strategic business objectives (SBO) of Philips could be;
- Focus on customer centricity = Adapt business model to customer perspective
- Design SMART products = Transform products into intelligent data platforms
- Serving the segment of ‘one’ = Provide configurable and personalized offerings
- SMART SCM and factory = Flexible reactions to changes in demand and SCM
- Servitization & digital twin = Provide services bundles & usage-based billing.
The business model SBO’s have an impact on the operating model and the required CX capabilities. The operating model describes the level of centralization an organization does business today and is a living set of operating policy documents that are continually changing.
More information on business model innovation can be found in the following blog;https://www.linkedin.com/pulse/business-model-innovation-management-sap-environment-frank-luyckx/
3 Impact servitization on the operating model
The operating model describes how an organization operates across a range of End 2 End business processes (e.g. market to cash) based on the strategic business objectives. An operating model should contain;
- Business centralization and cooperation structure with strategic business objectives
- Integrated Business Planning (IBP) for the supply chain structure and monitoring
- Enterprise Performance Management (EPM) for financial structure and monitoring
- Business Process Management with key design decisions and required capabilities
- Reporting structure to align strategic business objectives with targets & KPI’s
- Enterprise architecture to integrate business capabilities with applications
When a company changes to a more service oriented operating model. The operating model could have the following impact on the required CX capabilities;
- Online product configuration supported by customer bots and integrated production orders
- Predefined service propositions to predict customer service requirements & service orders
- Integrated digital twins to design and manage the assets at the customer sites (pay per use)
- Collaborative co-engineering with customers with forecasts by omni-channel
The following picture maps these CX capabilities into the I4 business process architecture;
Every company has their own operating model. Every company will make their own CX capability mapping into the business process architecture. The CX platform (e.g. C/4HANA) should provide these required CX capabilities.
More information on industry 4.0 operating model can be found in the following blog; https://www.linkedin.com/pulse/impact-industry-40-enterprise-architecture-agenda-vnsg-frank-luyckx/
4 Overview capabilities SAP C/4HANA architecture
The C/4HANA cloud portfolio is an integrated offering which ties together solutions to support all front-office functions, such as customer data protection and profiling, marketing, commerce, sales and customer service.
The C/4HANA application suite leverages Artificial Intelligence (AI) to enable the workforce to focus on better relationships and better outcome. The integration with the back-office SAP processes is provided by predefined integration flows. The following picture gives an overview of the CX capabilities of intelligent C/4HANA and S/4 HANA;
The C/4 marketing application has predefined scenarios to integrate data from the CX eco system (e.g. Ads, Social, Mobile data providers) to better understand customer behaviors and to optimize the customer journeys. The intelligent marketing suite helps to predict the effectiveness of the customer value propositions for the different market segments.
The SAP analytics cloud application provides information on campaign effectiveness, pipeline forecast, customer success rates and the 360 view on the customer. The Customer Life-Time Value (CLTV) analysis can be used to analyze the potential profitability of the value propositions for each market segment. This information can be used within business model dashboard in the digital boardroom to continuously monitor the results of business model innovations.
The C/4HANA application architecture is based on 5 different clouds (mostly based on the SAP Hybris application suite). The following recent acquisitions complement these 4 clouds:
- Callidus cloud (Sales performance management, CPQ (Configure, Price, Quote))
- Core systems (Field service management & crowd services)
- Click tools (Voice of the customer and customer feedback analysis)
- Gigya (trusted personalized customer master data & customer identity management)
These applications are seamlessly integrated within the C/4HANA application architecture.
The SAP Leonardo platform makes C/4 intelligent by adding Machine Learning embedded CX use cases and provides trained ML services. SAP Leonardo also provides IoT enabled (connected) applications in the SAP cloud platform like predictive maintenance, Asset Intelligence Network and asset central (digital twin). These applications are bundled in the following predefined Leonardo use cases;
The for CX relevant SAP Leonardo use cases are; connected markets, fleet and products.
The C/4HANA application architecture also integrates with many additional (SAP) cross domain platforms for specific additional functionality. The following list gives an overview;
- Machine learning & data science platform (enabling (own) AI applications services)
- Global data hub (combining different systems and data sources into one data model)
- Extension (API) framework (Kyma) to integrate the apps of the CX eco-system partners.
- Robotic Process Automation (fully automated E2E business processes)
- Next generation user experience (UI based interaction based on voice, vision and bots)
- Chatbot conversation services (for customer service and customer management)
- Analytics cloud and intelligent digital boardroom (real time insights & decision making)
- SAP cloud platform for application interoperability flows and API catalog management
These platforms will be integrated into the C/4 platform via API cloud integration platform.
S/4 HANA for customer management
The S/4 HANA ERP back-office platform also contains CX functionality (sales and service) to support the customers who want to migrate from SAP CRM to the S/4 HANA suite. SAP has harmonized the data model between SAP CRM and S/4 HANA based on the ‘principle of one’. Within S/4 HANA the CX front-end and CX back-end ERP processes are integrated within one ERP platform. Organization could evaluate whether the on-premise S/4 HANA is sufficient to support their CX business requirements.
SAP activate implementation methodology 4 C/4HANA
The SAP activate methodology also support the C/4HANA implementation. No additional servitization best practices are included. The open SAP training platform is providing e-learnings to support C/4HANA projects.
More information on the SAP C/4HANA suite can be found at; https://webinars.sap.com/sap-user-groups-k4u/en/c4hana
5 Impact of servitization on the CX solution architecture
The E2E Customer eXperience (CX) business process starts with business model innovation dashboard and ends with profitability analysis of the sales and service orders. This E2E process uses several application platforms like C4 (C/4 HANA), ERP (S/4 HANA) and BI (Business objects). The following picture gives an overview of the E2E CX application architecture;
The CX solution architecture should integrate the; CX applications suite (C/4HANA), ERP application suite (S/4 HANA), the AI platform (SAP Leonardo) and the cross-domain platforms (e.g. RPA). The following picture gives an example of a CX solution architecture and the connections (SAP Leonardo) with the outside world;
This picture can help you to get an overview of the different CX applications and platforms used within your company.
The holistic business model dashboard should integrate the CX data coming from different platforms to determine customer profitability and the customer lifetime value. The actual marketing & sales activities and market share should be aligned with the market potential. Based on the business model analysis the success of the solution propositions per market segment can be determined and new value propositions / market segment should be defined.
Many companies are shifting from a SAP unless application strategy to a best of breed application strategy. The company (CX) solution architecture will become more complex because of the extending number of different types of applications and (cloud) platforms. The application integration between the (cloud) applications and industry platforms is getting more important and a standard API management platform is required.
To ensure the interoperability between the different applications an agile Enterprise Architecture Framework (EAF) is required to define methodologies and standards for Enterprise Information Management (EIM) and Enterprise Application Management (EAM).
6 Impact CX solution architecture on agile enterprise architecture
Business units are demanding new CX technologies to meet markets demands. CX projects are started independently from the IT organization, but sometimes the resulting applications cannot be integrated into the ITSM support organization because of conflicting or duplicated application platforms and high support costs. Therefore, IT architects should be involved in the start-up and closure of projects to make sure company standards are addressed.
The project closure procedure should validate the project documentation according to the company standards and integrate the documentation within the ITSM support procedures. Many companies want to quickly deliver projects and do not focus on the project closure procedures mainly because of the project delivery deadlines and management priorities.
The application life-time, TCO and agility of applications (RFC’s) is dependent on the availability of documentation, reuse of best practices and the degree of modification of the standard applications. Applications with documentation have a life-time of 10 years, without documentation a life-time of 2 years. Project documentation is also required to easily change outsourcing vendors and not be dependent on knowledge from external contractors.
An agile enterprise architecture framework is required to be able to quickly react on changes in the business operating model. An Enterprise Architecture Framework should provide the global application / data methodologies, standards and company best practices which can be reused. The project deliverables (like new solution offerings and CX solution architecture adjustments) should be quickly integrated within the enterprise architecture and ITSM support organization.
The EA framework from the ADM focus group is an example of an agile EA framework. The agile EAF should facilitate collaboration within the organization via a corporate website. The 3 main areas of the ADM EAF are;
1. Business Transformation Management; How can we improve the business models and customer value propositions, what innovation projects do we need to fulfill the business requirements and extend our capabilities and how can we sustain the results of these projects within the ITSM platform.
2. Enterprise Application Management; How can I improve the E2E (End to End) business processes to meet the business requirements, what applications do I need to support the required functionality and how can I integrate the applications with each other and the outside world (e.g. cloud)
3. Enterprise Information Management; How can I build a solid foundation of trusted (master) data, which will be the basis for improved speed and quality of business reports and decisions making. This enables real-time business performance analytics which can be input for the evaluation of the new business models
The following picture gives an overview of the ADM enterprise architecture framework;
More information can be found in the following blog; https://www.linkedin.com/pulse/how-can-enterprise-architecture-support-digital-business-frank-luyckx/
7 Critical success factors of the servitization roadmap
Within this article the servitization roadmap have been described, and this can support the product managers with the business transformation towards a service-oriented organization. A servitization maturity model can help to identify the current status and identify next steps.
Changing the organization and ecosystem will lead to internal resistance. OCM is required to manage stakeholders and provide for additional training and re-allocations. The biggest challenge is to change the mindset of senior management, they must accept the disruptive impact of servitization on their current way of working, work according to the servitization roadmap and be transparent on their investment decisions.
The critical success factors for a successful servitization roadmap are;
1. Define business model innovation scenarios to react to changing market conditions.
2. Integrated business planning to optimize resource utilization and increase profitability
3. The acceptance to incorporate the new business models and support disruptive start-ups
4. The senior management should accept new operating models and responsibilities
5. Transparency of the investment strategy and priorities based on future potential
6. Alignment of the mergers and acquisitions with the business model and SBO’s
7. Alignment of the strategic business objectives with strategic project portfolio budgets
8. Measurable and uniform project ROI calculations to optimize portfolio value
9. Changed company culture to optimize E2E processes and alignment across the silo’s
10. Aligned enterprise architecture to support application and operating model decisions
The manufacturers who are willing to take the risks and comply to these 10 critical success factors have the highest change to successfully transform to a service-oriented organization.
8 VNSG & NAF meeting; ‘The impact of servitization on the (SAP) enterprise architecture’
This article is the basis for the VNSG & NAF meeting; ‘The impact of servitization on the (SAP) enterprise architecture’. During this meeting the different aspects of the servitization roadmap will be discussed based on practical examples. The agenda will be the following;
1 Overview of the servitization roadmap
Presentation; Frank Luyckx – VNSG
This presentation will give an overview of this blog and introduce the next speakers.
2 Overview of the CX architecture of SAP (C4 HANA)
Presentation; Arnold Advocaat – SAP
This presentation will give an overview of the SAP C4HANA architecture with a focus on the integration capabilities with other applications and platforms. (see chaper 5)
3 Impact of a global C/4HANA project on the CX solution architecture
Presentation; Kim Zelders – Capgemini
The impact of a global C/4HANA template project on the CX solution architecture and enterprise architecture (see chapter 6,7,8)
4 Impact Miele product and business model innovations on CX architecture
Presentation; Eric Donker – Miele
The impact of the new Miele solutions on the business / operating model and the CX solution architecture (see chapters 2,3,4,8)
5 Round trip in the experience center of Miele
Rondtrip in the experience center of Miele to see new solutions propositions of Miele in action and to better understand the impact of servitization.
For more information see the link to the Miele experience center; https://www.miele.nl/c/miele-experience-center-310.htm?gclid=CjwKCAiAgrfhBRA3EiwAnfF4ttcwwwr7mSBnWyh8L-id65EDHwL95jMnjeOhdsQ-s6ozyKappRi7XRoCN5UQAvD_BwE#
Registration for VNSG members via the following link; VNSG ADM or send me a mail.
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