Servitization, digital servitization, pay-per-use models, consumption-based pricing- call it what you may but the shift from ownership to usership is an industry trend that you cannot afford to ignore.
In the last decade, the rise of digital disruptive technologies like cloud, mobility and IoT has enabled a set of capabilities that are redefining consumer expectation. The digital age has ushered in an era of flexible, consumer-friendly services that are accessible 24/7 along with the convenience of mobility. And this trend is growing at a rapid pace. The ELFF forecasts that managed solutions are on track to reach 22% or more of the total equipment leasing and finance industry volumes over the next three to five years.
Servitization is definitely not a plug and play solution. It’s a transformation journey that holds immense potential for asset finance and auto leasing companies. The post-pandemic world is more ‘digital’ than ever, and it’s a great time to start building strategies and transitioning to this new normal. Asset finance companies that succeed in developing the required capabilities to deliver customer-centric solutions will see more customer retention, an increase in customer satisfaction levels, and a certain edge over their competitors.
Servitization in Asset Finance and its Impact
Servitization is not a new concept, neither it is a mere industry hype. The concept had been around for more than three decades now. A study published by the Equipment Leasing & Finance Foundation credits the Xerox Corporation as the first to offer fixed-term financing contracts for copiers on a cost-per-copy basis back in the ’80s. Since then, the trend has spread to other asset classes, including technology, fleet services, and healthcare.
Servitization in asset finance provides flexible and consumer-friendly consumption models that enable customers to benefit from equipment/asset usage sans the related burdens and responsibilities of ownership, lengthy long-term fixed contracts, and paying for underutilized assets. It encourages companies to focus on delivering not just a product, but rather a more comprehensive customer experience based on usage/outcome and performance-based business models. It can include auto leasing services offered on a pay-per-mile basis, medical equipment such as scanning machines leased on a pay-per-scan basis, and robots on production lines offered as pay-per-pick.
Based on the product-service system ( PSS), these models can be broadly classified as:
⦁ Product-oriented offering: The customer buys the equipment and owns all risks and rewards with the option to add a service package at additional cost. These services include installation, after-sales, maintenance and/or repurchase agreements.
⦁ Use-oriented offering: Billing is based on the specific amount of time or ‘usage period’ (e.g. hours, prints, scans, mileage) on predetermined rates. The service pricing is often bundled together with the product, making it easier for the customer to gauge the predictable costs of usage.
⦁ Result-oriented offering: Also known as managed services where billing is based on a specified business result or output. Here the customer only defines the desired outcome/end-result irrespective of the product/configuration/means to achieve the same. The onus of delivering those outcomes lies with the Lessor along with the product- and service-related performance risks and rewards. Irrespective of the model that you adapt, any servitization strategy must have a digital transformation at its core. Paperwork-based processes or rigid legacy systems hamper the speed and dexterity that customers demand today. Without flexible and agile systems, these models will fail to yield the expected results.
Building better customer experiences
To adapt to this new shift, Lessors will have to rethink their core strengths and offerings, develop new customer-facing processes, and build a more customer-centric culture. Asset finance companies will have to rethink and reimagine the backend systems that form the backbone of their business processes and operations. Companies will need more than just basic asset management software, but systems that are truly agile, automated, and flexible.
To prepare your organization for this change you must:
⦁ Build agile and flexible systems: Servitization truly is a ‘digital’ concept. A successful servitization model rests on two key requirements- speed and agility, something that manual processes and legacy systems inherently lack. To deliver a superlative customer experience, there must be a seamless transition between your backend systems that support the customer-facing processes.
⦁ Move to the Cloud: A truly cloud-enabled and cloud-delivered business model enables Lessors to adopt to offer a high-level customer experience, increase operation efficiency, and provide 24/7 access and availability of information and services for customers and employees.
⦁ Focus on automation: Processes that rely heavily on manual intervention are time-consuming and prone to errors. Automation brings a level of sophistication to your everyday business operations, making processes faster, frictionless, and error-proof.
⦁ Rethink Pricing and Offerings: With consumption-based leasing, it is difficult to predict what portion of the fixed expenses such as tax, insurance and asset depreciation should get allocated to every customer. Lessors will have to find ways to predict asset usage to set their price and contract terms and conditions accordingly.
⦁ Increase cross-functional collaboration: Servitization is a model that requires multiple lines of businesses to collaborate and work without any friction. Before you develop any strategy, it is important to get all stakeholders on board, understand how the new system will impact existing processes and make changes accordingly. Bringing all key stakeholders and LoB heads ensures that everyone within the organization understands the requirements, implications and desired end-results of the exercise.
⦁ Make the internet of things (IoT) your best friend: IoT is an umbrella term that includes multiple technology concepts. However, for the asset finance industry, IoT is best defined as a set of interconnected assets embedded with sensors, software, and other devices that can communicate and exchange data over a network. IoT could be a game-changer for leasing or lending companies looking at servitization. It enables companies to monitor, meter, and track assets/equipment for more real-time pricing of services.
⦁ Leverage analytics and data intelligence: IoT enabled assets are continuously sharing a stream of real-time data that is a treasure trove of information. With the smart application of analytics, asset finance companies can analyse trends, gauge customer behavior, identify patterns, and predict asset usage. Companies can then use this data to make more informed business decisions and provide customers with more personalized service offerings.
⦁ Think value-added services: Asset finance businesses must contemplate how they can augment pay-per-use models with other offerings that complement each other. Companies must consider a smart use of APIs and application development capabilities that can help them enhance their core solutions. For example, an intuitive and well-designed customer portal can enable customers to self-serve, view their asset/equipment usage and invoices, get tips on how to maximize asset utilization, provide transparency over usage and billing, and options to make payments faster and easier.
⦁ Build a customer-centric culture: Perhaps the most critical and difficult yet overlooked aspect of servitization- developing a customer-centric approach. The shift from a product mindset to a customer-experience mindset requires a massive change in the way people work within the organization, the processes they follow and the end-goals that they try to achieve. Business and IT leaders must come together to provide relevant information, create awareness and provide necessary training in the new skill sets required in a service economy.
To begin with, companies need to evaluate their current technology capabilities and fill in the gaps wherever necessary. To remain competitive in the age of servitization, asset finance businesses need comprehensive asset management software that can help companies build the required levels of agility and flexibility.
Odessa’s asset finance software is an asset-based end to end management platform that tightly integrates with a host of complementary surround capabilities and a comprehensive digital transformation experience. To know how Odessa is working with some of the leading equipment and auto finance businesses in the world to build the next-gen digital companies of tomorrow and how we can help you embark on your transformation journey, click here.