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Should You Change Your Manufacturing Business Model?

Business-model

Does your manufacturing company do more than just make things? Historically, manufacturers have adopted a product-centric business model. Today, just making a good product isn’t good enough. That’s the word from Cisco, a leading manufacturer of networking equipment. According to the Silicon Valley giant, the service that happens after a sale is also important – and often represents a lost revenue opportunity.

What Does Your Growth Strategy Look Like?

In a recent study, 86% of the manufacturers that Cisco surveyed said that transitioning from a product-centric to a service-centric revenue model is a core part of their growth strategy. Yet only 29% of these businesses say that their service offerings will expand more rapidly than their product offerings. So what’s keeping manufacturers from realizing their service-related goals?
Part of the challenge is that more than just the business model needs to change. Manufacturing companies must undergo a larger digital transformation, Cisco explains, and that means investments in new technologies such as cloud computing, the Internet of Things (IoT), and analytics. Still, it’s not just about finding time and spending money. Effective long-term planning is essential for digital manufacturing to flourish.

Finding The Right Balance

Organizational capabilities also affect the pace of change. Cisco claims that digital transformation must start at the top, but innovate executives still need talented salespeople. Manufacturers struggle to sell services for a variety of reasons, and not all of these problems can be fixed by changing sales commission structures. Because time is limited, selling products and services simultaneously can be a challenge.
For manufacturers that do digitize, the potential rewards are significant. According to Cisco, the payoff for a $20-billion manufacturing company that digitizes operations is a profit of nearly 20% over 10 years. That’s fine for larger firms, but what’s the best way for small-to-medium manufacturers to adapt, change, and succeed in our digital world?
Image Credit: © Sergey Nivens/Dollar Photo Club

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