Revolutionizing Manufacturing: The Digital Servitization Shift

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Today, we’re diving into a fascinating shift in manufacturing: digital servitization. It’s a concept that’s redefining how manufacturers compete and innovate in the digital age.

Image courtesy of interviewee. January 2, 2025

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In this episode of the Faculty Economics Podcast, host Lily discusses the concept of digital servitization, which represents a significant transformation in the manufacturing industry. Digital servitization merges digitalization with servitization, enabling manufacturers to offer advanced services alongside products, thus shifting from a product-centric to a service-centric business model.

The discussion highlights how manufacturers are now providing services such as real-time monitoring and predictive maintenance, with significant benefits including an average revenue increase of 15% and a 10% reduction in operational costs for those who have adopted these strategies. The driving forces behind this shift include globalization, competition, and technological advancements.

Challenges include high investment costs, a skills gap, and alignment of operations with new models. However, the rise of servitization-as-a-service providers is helping to make this transition more accessible, particularly for smaller companies. The podcast also presents a case study of Siemens Gomesa, a wind turbine manufacturer that has successfully implemented a digital servitization model, demonstrating substantial benefits.

Furthermore, the conversation touches upon the evolving relationship between manufacturers and customers, which increasingly resembles long-term partnerships focused on delivering ongoing value. Concerns regarding data privacy and job displacement are addressed, with emphasis on the creation of new roles in data analysis and customer success management.

The episode concludes by acknowledging the potential for similar transformations in other sectors such as healthcare and agriculture, underscoring that digital servitization is not merely a trend but a fundamental shift in value creation and delivery in the digital age.

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Here are 5 key points from the video about digital servitization:

1. **Definition and Shift in Business Model**: Digital servitization combines digitalization and servitization, representing a shift from a product-centric to a service-centric business model. Manufacturers are evolving to offer advanced services, such as real-time monitoring and predictive maintenance, in addition to traditional products.

2. **Impact on Revenue and Costs**: Manufacturers adopting digital servitization strategies have seen significant financial improvements, including an average revenue increase of 15% and a 10% reduction in operational costs, according to a Deloitte study.

3. **Technological Advancements**: The change is driven by rapid technological advancements, with companies recognizing that the real value lies in the data and services surrounding products rather than the products themselves.

4. **Challenges and Solutions**: High investment costs and lack of in-house expertise pose challenges for manufacturers transitioning to this model. However, the rise of "servitization as a service" is helping smaller manufacturers access these technologies, with the market for these services projected to grow by 25% annually.

5. **Changing Customer Relationships and Job Market**: The shift towards digital servitization is redefining manufacturer-customer relationships from one-time transactions to long-term partnerships. While some jobs may be displaced, new roles in areas like data analysis and customer success management are expected to emerge, highlighting the need for workforce training and adaptation.

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Here are some key quotes from the video discussing digital servitization and its implications for the manufacturing industry:

1. **Introduction to Digital Servitization**:
- "Digital servitization is the marriage of digitalization and servitization. It's about manufacturers leveraging cutting edge technologies to offer advanced services, not just products."

2. **Shift in Business Models**:
- "We are talking about a fundamental shift from a product-centric to a service-centric business model."

3. **Real-time Services**:
- "Now with digital servitization, they're offering real-time monitoring, predictive maintenance, and even AI powered optimization of that equipment."

4. **Impact on Revenue and Costs**:
- "Manufacturers that have successfully implemented digital servitization strategies have seen an average revenue increase of 15% and a 10% reduction in operational costs."

5. **Drivers of Change**:
- "Companies are realizing that in today's digital age, the real value often lies not in the physical product itself, but in the data and services that surround it."

6. **Use of B2B Platforms**:
- "B2B platforms are expected to facilitate 3.8 trillion in sales by 2025."

7. **Challenges in Transformation**:
- "High investment costs are a big one… the complexity involved in aligning internal operations with these new models."

8. **Emerging Solutions**:
- "We are seeing a rise in what's called servitization as a service providers… making it more accessible for smaller manufacturers."

9. **Case Study - Siemens Gomesa**:
- "They now offer a suite of digital services that use AI and IoT to optimize wind farm performance… This has led to a 20% increase in energy production for their customers."

10. **Changing Relationships with Customers**:
- "Manufacturers are now building long-term partnerships with their customers… providing ongoing value through services and data insights."

11. **Concerns Over Job Displacement**:
- "While some traditional manufacturing roles might be phased out, new roles are being created in areas like data analysis and customer success management."

12. **Job Market Predictions**:
- "By the World Economic Forum, while 75 million jobs may be displaced by the shift towards automation and AI, 133 million new jobs are expected to be created by 2022."

13. **Broader Industry Impacts**:
- "We're already seeing similar trends in healthcare, agriculture, and even education."

14. **Conclusion on Digital Servitization**:
- "Digital servitization isn't just a trend. It's a fundamental shift in how businesses create and deliver value."

These quotes encapsulate the main themes and insights discussed in the podcast regarding digital servitization's impact on the manufacturing industry and beyond.

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Welcome to the Faculty Economics Podcast,

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where we break down the latest research in economics

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and discuss key concepts.

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I'm Lily. Today we look at digital servitization.

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It's not just a buzzword.

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It's a seismic shift that's turning the manufacturing

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industry on its head.

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Today we're diving into

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how this tech-driven revolution is redefining what it means

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to be a manufacturer in the 21st century.

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Wow. That's quite an opening statement.

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Can you break down what exactly digital servitization means

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for those of us who might not be familiar with the term?

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Of course. At its core, digital

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servitization is the marriage of digitalization

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and servitization.

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It's about manufacturers leveraging cutting edge

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technologies to offer advanced services, not just products.

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We are talking about a fundamental shift from a

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product-centric to a service-centric business model.

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So it's like manufacturers are becoming more like

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tech companies in a way.

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That's a great way to put it.

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Imagine a traditional machine manufacturer.

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In the past, they'd sell you a piece of equipment,

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and that was it.

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Now with digital servitization,

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they're offering realtime monitoring,

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predictive maintenance,

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and even AI powered optimization of that equipment.

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It's a whole new ball game.

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Hmm. That sounds like it could open up

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a lot of new revenue streams.

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Do we have any data on how this is impacting the bottom line

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for companies that have made this shift?

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Absolutely. According to a recent study

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by Deloitte manufacturers

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that have successfully implemented digital servitization

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strategies have seen an average revenue increase of 15%

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and a 10% reduction in operational costs.

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It's a significant impact.

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Those are impressive numbers,

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but I imagine this kind

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of transformation doesn't happen overnight.

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What's driving this change?

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Well, you're right. It's not an overnight process.

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The main drivers are globalization, fierce competition,

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and rapid technological advancements.

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Companies are realizing that in today's digital age,

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the real value often lies not in the physical product

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itself, but in the data and services that surround it.

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That makes sense. So

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how are companies actually implementing this new approach?

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One key tool is the use of B2B platforms.

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These aren't just marketplaces.

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They're entire ecosystems where manufacturers can connect

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with customers and partners in a collaborative environment.

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According to a report by McKinsey,

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B2B platforms are expected

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to facilitate 3.8 trillion in sales by 2025.

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Wow. That's a staggering figure,

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but I can't help but wonder about the challenges.

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What kind of hurdles do companies face when

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trying to make this shift?

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Oh, there are plenty of challenges.

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High investment costs are a big one.

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Implementing these new technologies isn't cheap.

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Then there's the skills gap Many manufacturers find they

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don't have the in-house expertise

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to manage these new digital systems,

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and let's not forget the complexity involved in aligning

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internal operations with these new models.

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Right. Well, that sounds like it could be a major barrier

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for smaller companies.

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Are we seeing any solutions emerge

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to address these challenges?

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That's a great question.

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We are seeing a rise in what's called servitization

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as a service providers.

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These are companies that offer the technology

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and expertise needed to implement digital

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servitization strategies, making it more accessible

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for smaller manufacturers.

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According to Gartner, the market

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for these services is expected to grow

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by 25% annually over the next five years.

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Interesting. So it's creating a whole

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new industry in itself.

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Can you give us an example of

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how this plays out in the real world?

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Sure thing. There's a fascinating case study

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from the energy sector.

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A company called Siemens Gomesa,

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which manufactures wind turbines,

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has implemented a digital servitization model.

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They now offer a suite of digital services that use AI

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and IOT to optimize wind farm performance.

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This has led to a 20% increase in energy production

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for their customers and opened up new revenue streams

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for Siemens Gomesa.

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That's impressive. It really shows

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how this approach can benefit both the

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manufacturer and the customer.

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But I'm curious, how is this changing the relationship

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between manufacturers and their customers?

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Well, it's fundamentally redefining that relationship.

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Instead of a one-time transaction.

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Manufacturers are now building long-term

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partnerships with their customers.

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They're no longer just selling a product.

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They're providing ongoing value through services

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and data insights.

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This leads to increased customer loyalty

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and often higher profitability.

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Mm-hmm. That makes sense.

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But what about the potential downsides?

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Are there concerns about things like data privacy

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or job displacement?

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You've hit on some important points there.

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Data privacy is a major concern,

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especially when you're dealing

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with sensitive industrial data.

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Manufacturers need to be transparent about

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what data they're collecting and how they're using it.

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As for job displacement,

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while some traditional manufacturing roles might be phased

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out, new roles are being created in areas like data analysis

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and customer success management.

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So it's more of a shift in the types

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of jobs available rather than a net loss.

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Exactly. According to a report

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by the World Economic Forum,

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while 75 million jobs may be displaced

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by the shift towards automation

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and ai, 133 million new jobs are expected to be created

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by 2022.

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It underscores the importance of workforce training

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and development to ensure employees can

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adapt to these new roles.

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That's fascinating. It sounds like the shift is having

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ripple effects far beyond just the manufacturing industry.

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Are there any other sectors you think might be ripe

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for a similar transformation?

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Oh, absolutely. We're already seeing similar trends in

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healthcare, agriculture, and even education.

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For example, in healthcare,

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we're seeing medical device manufacturers not just selling

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equipment to hospitals,

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but providing ongoing services

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that include real-time monitoring

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and AI powered diagnostics.

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It's really changing the game across multiple industries.

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Well, it certainly seems like we're on the cusp

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of a major transformation in how businesses operate.

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Any final thoughts before we wrap up?

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I think the key takeaway is

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that digital servitization isn't just a trend.

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It's a fundamental shift in

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how businesses create and deliver value.

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As we move further into the digital age, the lines

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between product and service between manufacturer

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and tech company are becoming increasingly blurred.

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It's an exciting time,

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and I think we're going

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to see some truly innovative business models

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emerge in the coming years.

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That's a great point to end on.

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While I think we've given our listeners plenty

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to think about today, thanks for joining us

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for another episode of the Faculty Economics Podcast.

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Until next time, keep innovating.

Digital Servitization: Revolutionizing Manufacturing in the 21st Century

00:00:01 - Welcome to the Faculty Economics Podcast, where we break down the latest research in economics and discuss key concepts. I'm Lily. Today we look at digital servitization. It's not just a buzzword. It's a seismic shift that's turning the manufacturing industry on its head. Today we're diving into how this tech-driven revolution is redefining what it means to be a manufacturer in the 21st century. Wow. That's quite an opening statement.

00:00:37 - for those of us who might not be familiar with the term? Of course. At its core, digital servitization is the marriage of digitalization and servitization. It's about manufacturers leveraging cutting edge technologies to offer advanced services, not just products. We are talking about a fundamental shift from a product-centric to a service-centric business model. So it's like manufacturers are becoming more like

00:01:07 - That's a great way to put it. Imagine a traditional machine manufacturer. In the past, they'd sell you a piece of equipment, and that was it. Now with digital servitization, they're offering realtime monitoring, predictive maintenance, and even AI powered optimization of that equipment. It's a whole new ball game. Hmm. That sounds like it could open up a lot of new revenue streams. Do we have any data on how this is impacting the bottom line

Impact and Challenges of Digital Servitization

00:01:38 - Absolutely. According to a recent study by Deloitte manufacturers that have successfully implemented digital servitization strategies have seen an average revenue increase of 15% and a 10% reduction in operational costs. It's a significant impact. Those are impressive numbers, but I imagine this kind of transformation doesn't happen overnight. What's driving this change? Well, you're right. It's not an overnight process.

00:02:12 - and rapid technological advancements. Companies are realizing that in today's digital age, the real value often lies not in the physical product itself, but in the data and services that surround it. That makes sense. So how are companies actually implementing this new approach? One key tool is the use of B2B platforms. These aren't just marketplaces. They're entire ecosystems where manufacturers can connect

00:02:44 - According to a report by McKinsey, B2B platforms are expected to facilitate 3.8 trillion in sales by 2025. Wow. That's a staggering figure, but I can't help but wonder about the challenges. What kind of hurdles do companies face when trying to make this shift? there are plenty of challenges. High investment costs are a big one. Implementing these new technologies isn't cheap.

Overcoming Barriers to Digital Servitization for Small Manufacturers

00:03:16 - don't have the in-house expertise to manage these new digital systems, and let's not forget the complexity involved in aligning internal operations with these new models. Right. Well, that sounds like it could be a major barrier for smaller companies. Are we seeing any solutions emerge to address these challenges? That's a great question. We are seeing a rise in what's called servitization as a service providers. These are companies that offer the technology

00:03:47 - servitization strategies, making it more accessible for smaller manufacturers. According to Gartner, the market for these services is expected to grow by 25% annually over the next five years. Interesting. So it's creating a whole new industry in itself. Can you give us an example of how this plays out in the real world? Sure thing. There's a fascinating case study from the energy sector. A company called Siemens Gomesa,

00:04:17 - has implemented a digital servitization model. They now offer a suite of digital services that use AI and IOT to optimize wind farm performance. This has led to a 20% increase in energy production for their customers and opened up new revenue streams for Siemens Gomesa. That's impressive. It really shows how this approach can benefit both the manufacturer and the customer. But I'm curious, how is this changing the relationship

Transforming Manufacturer-Customer Relationships in the Digital Age

00:04:50 - Well, it's fundamentally redefining that relationship. Instead of a one-time transaction. Manufacturers are now building long-term partnerships with their customers. They're no longer just selling a product. They're providing ongoing value through services and data insights. This leads to increased customer loyalty and often higher profitability. Mm-hmm. That makes sense. But what about the potential downsides?

00:05:19 - or job displacement? You've hit on some important points there. Data privacy is a major concern, especially when you're dealing with sensitive industrial data. Manufacturers need to be transparent about what data they're collecting and how they're using it. As for job displacement, while some traditional manufacturing roles might be phased out, new roles are being created in areas like data analysis and customer success management. So it's more of a shift in the types of jobs available rather than a net loss.

00:05:53 - by the World Economic Forum, while 75 million jobs may be displaced by the shift towards automation and ai, 133 million new jobs are expected to be created by 2022. It underscores the importance of workforce training and development to ensure employees can adapt to these new roles. That's fascinating. It sounds like the shift is having ripple effects far beyond just the manufacturing industry.

Transformative Trends: Digital Servitization Across Industries

00:06:23 - for a similar transformation? absolutely. We're already seeing similar trends in healthcare, agriculture, and even education. For example, in healthcare, we're seeing medical device manufacturers not just selling equipment to hospitals, but providing ongoing services that include real-time monitoring and AI powered diagnostics. It's really changing the game across multiple industries. Well, it certainly seems like we're on the cusp

00:06:56 - Any final thoughts before we wrap up? I think the key takeaway is that digital servitization isn't just a trend. It's a fundamental shift in how businesses create and deliver value. As we move further into the digital age, the lines between product and service between manufacturer and tech company are becoming increasingly blurred.

00:07:40 - and I think we're going to see some truly innovative business models emerge in the coming years. That's a great point to end on. While I think we've given our listeners plenty to think about today, thanks for joining us for another episode of the Faculty Economics Podcast. Until next time, keep innovating.

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Revolutionizing Manufacturing: The Digital Servitization Shift