For manufacturers and service companies alike, the ability to sell integrated solutions requires completely new organizational structures and capabilities.
Some of the world’s leading companies IBM, General Electric, Rolls-Royce, Ericsson, and EDS among them — now compete by providing integrated solutions rather than making stand-alone products or selling services.1
Suppliers of products as diverse as information technology systems, trains, aircraft engines and telecom systems have achieved success with this approach by providing innovative combinations of technology, products and services as high-value unified responses to their business customers’ needs.2 For example, Rolls-Royce plc competes by providing airlines with “Power By The Hour” — selling the jet engines along with the services to maintain, repair and upgrade them over many years. And providers of services such as IT, telecom network management and technical consultancy now compete by offering solutions that incorporate products from a few select manufacturers. Electronic Data Systems Corp., the global IT service provider, has built the capabilities to manage and integrate different suppliers’ technologies and products as part of its business outsourcing solutions.
The shift has been underway since the early 1990s. Looking just at the manufacturing side, a growing number of manufacturers have begun providing services to finance, operate, maintain and upgrade an installed base of products — their own and, increasingly, those of other manufacturers. Services are attractive because they provide continuous revenue streams, have higher profit margins and require fewer assets than manufacturing. By the late 1990s, revenues obtained by servicing an installed base represented from 10 to 30 times the value of new product sales.3 For example, Ericsson estimated in 2001 that the costs of purchasing a mobile communication network represented only 6% of the total costs of operating a network over a 10-year period. Across a range of manufacturing companies, service revenues now represent an average of over 25% of total revenues.4 For some, such as Rolls-Royce and IBM Corp., services that add value to the physical product now account for more than 50% of their revenues.5
But customers are not paying just for an integrated package of products and services. They are buying guaranteed solutions for trouble-free operations. The onus is on the providers of integrated solutions to identify and solve each customer’s business problem by providing services to design, integrate, operate and finance a product or system during its life cycle.