Servitization and future trends forthe wholesale channelProf. Carlo Alberto Carnevale Maffè

Three key questions

1. Wholesale what? It’s not really“whole”, it’s no longer “sale”.How about “integratedservitization”?

2. What are your customerslooking for? And yourcustomers’ customers, theirinfluencers and decisionmakers?

3. How will your organizationaland service models change inthe future?

Wholesale is a process of supplyServitization is a model of demand.

Wholesale of electrical supplies hasbeen the organizational answer tocomplexity and interdependency oftechnical components for downstreammarkets.

Supply today is getting moreaccessible, both for data and logistics,more competitive and increasinglydeflationary…

Understanding the Threats of Deflation

B2B E Commerce explodesaccessible supplies morethan cheap informationshifts demand outwards…

…and the equilibrium price falls: deflation

Quantity

Price

P1

P2

S1 S2

D1

D2

Scarcity used to be on physical availability of supplies.No longer. Scarcity is shifting to services.

The Earth of Warehouses isno longer the center ofuniverse.

Today, selling is incidental.

Expressions such as “pre sale” and“post sale”, referred to services,are ptolemaic concepts...

Easy QizzyWhat are the meanings of these phases of supply chain?

P CD

PP

P PP

Push, push, push. Discount, discount, discount. Confusion…

P C?DP

PP

P

“Bargain Deal”?

Proposal, Dialogue, Context

P CD

The product is an organizational curtain.The service is a house of glass. With your people inside

Owning a car is highly inefficient.Welcome to the “inclusive economy”

The global shift to services…

Services now account for the majority of GDP and employment in the west…

• Service sector accounts for over 70% of EU’s economic activity• Nearly 70% of EU’s workforce are employed in service sectors

Source: University of Cambridge Service Alliance, 2013 150

The evolving nature of services in a connected context

Source: University of Cambridge Service Alliance, 2013151

In a service-oriented market, wholesale is a “line” function

Servitization, i.e. The Factory of Growth

• In advanced economies, services represent 70-85% of GDP and contribute to 80-95% of its growth.

• In USA, 80% of productivity improvements over the last 20 years has been deriving from services.

People-as-a-Service

• In a service economy, every person is on the front line with respect to the market.

153

Past

Present

Future

Products arethe Value Product Related

Services are theValue

Customer BusinessRelated Services are

the Value

Service trends in the electrical distribution industry

154

Product RelatedServices

• Offering is ‘’simple & small’’• Technical capabilities are key• Decisions at operational level• Vendor relationships• Effort driven cost structure

Customer BusinessRelated Services

• Offering is ‘’broad & complex’’• Process and customer knowledge is key• Decisions at boardroom level• Strategic partnerships• Decoupling of effort and value

Time/volume

Product related services versus customer business related services

Time/volume

155

Service trends in the manufacturing industry

ProductRelatedService

CustomerBusinessRelatedservice

Drivers

Service Field management

Drivers

Risk for commitmenton the outcomeCustomer businesscompetences

Manage

Technology (Internet of Things IoT) providesmany opportunities for equipment suppliers: theability to monitor machines while in use at thecustomers site. Performance data can helpintroducing new services “customer related”and can help the design of new products takinginto account serviceability.

1. People on Field as a sensor on Customer tocapture needs not adressed

2. Standardization of Service Processes andOffering Portfolio (from sales to delivery)

R&D serviceability

Price (spare parts, services)

Manage Spare parts availabilityand on time delivery

Service trends in the manufacturing industry

Evolution of service propositions

Speed of Repair

Reduce Cost

Product Quality

Reduce Product RelatedRisk

Improve Efficiency &Compliance

Custom

erVa

lue

Product RelatedServices

Customer BusinessRelated Services

Improve CompetitiveAdvantage

Preventive Predictive ProactiveReactive

ProcessOptimisation

BusinessTransformationBusiness

Optimisation

Warranty

Time &Material

PreventiveMaintenance

AvailabilityServices

Implement StrategicChange

Prod

uct

Service

Relatio

nship Value

Proposition

ProductRevenue

Service LevelAgreements

OutcomeBased Services

Invoice Time& Material

Pay per Use

BusinessModel

PM Contracts

ManagedServices / BPO

PreferredSupplier

Vendor

SolutionProvider

Trusted AdvisorStrategic Business

Partner

Type ofRelationship

Maturity level

Low Basic Medium Advanced State of the art

Do you happen to sell anything “cyborg”?

In “Blade Runner”, Roy Batty’s inception date was January 8th, 2016.(We’re a few months late…)

All these years spent in keeping electricity “isolated”…Now, the challenge is “hybridation”, contamination, integration

You will no longer focus ondistributing wholesale electricalsupplies.

You will be building organizationsbased on integration between:

• Demand and Supply• Analog and Digital• Human and Robotic

158

In the Internet of Everything, new industries are innumerable.

Servitization is not aboutcounting the “versions” ofIndustry, from 1 to 4.0

It is about bringing togetherand connecting every signal,every process, everywhere.

159

... to an integrated system ofinteroperable elements.

From a collection of sparse supplies...

Connecting markets

1. Think “ecosystem”:standardisation, interoperability,complementarity, positivenetwork externalities.

2. Educate the extended valuenetwork, both upstream anddownstream.

3. Integrate with your industrial &service customers processes.

Internet? It’s in the Things. Better, it’s in Everything

• Intelligent buildings (energy metering, homeautomation, wireless monitoring)

• TLC, POS and payment systems• Healthcare (personal area networks,monitoring of parameters, positioning, realtime location systems) and Pharmaceutical(smart labels and sensors)

• Retail, logistics, Supply chain management• Lean manufacturing, Product Lifecycle Manag.• Process Industries (Oil & Gas)• Environmental Monitoring & Ecology• Transportation of goods and people• Agriculture & Cattle• Media, entertainment & ticketing• Surveillance and Monitoring for Insurances

What & How

WHAT:Face the challenges in a market that ischanging:

• Business processes• Relationships with points of sale & installers• Dialogue with decision makers and final users

HOW:a. Competitive differentiation in services

and technical know howb. Avoiding “price wars” …c. …and the risk of becoming mere

intermediaries of commodities.

What do your customers sell? (And what would the final users rather buy?)

1. Electricity and its applications, of course.

2. Actually, Compliance to norms.

3. Oh, wait a second! There’sMaintenance andSpare Parts, too.

• It’s not about electricity, or cables, motors, sensors.• The service “is” the product.• To be precise, it is the management of power based processes

across time & space• In smart territorial networks, there’s a change in nature of the

contract with local stakeholders.

Your new job? ADC. Analog-to-Digital Conversion

It’s not just a change ofsignal.

It is extracting economies ofscale, scope, extension,density, network.

Better if deriving from “FiatMarkets” created byregulations

A model of primary demand, instead of traditional segments of supply

Which are the key factors determining thedynamics of demand, in terms of:

• Volumes• Values• Compliance to norms• Periodicity/Seasonality• Lifetime cycle & lifetime value,• Switching factors• Complementarity

And the macro drivers?

• Regulations• Industry & Technology Factors• Organizational and governance changes

166

We are still segmenting the supply side:

Installation materials 37%Cables & Management 17%Specialties 16%Lighting 15%Heating/Ventilation & A/C 9%Communication & Security 6%

With just a broad reference to the nature ofapplications:

• Residential• Industrial• Commercial• Utilities

The distributor’s new “tool box”

1. The “back end” for data management &logistics: becoming an infrastructure ofservices.

2. The “front end” for relationships withretail market (events, promotions,technical training, sales support manager).

3. The “demand management platform”and “service design” for primary clients,both retail and professionals (engineers,designers, installators, etc.)

From existing channels to “Fiat Markets”

Channels/sectors (global):

• Installers 57%• Industry 24• Service & Utilities 8%• Other 11%

168

“Fiat” Markets

Green EnergySmart CitiesSmart GridsDistributed Power GenerationDomoticsInternet of ThingsIndustry 4.0

We are rising a generation of opportunists

Designing the “demand chain”.

A tale of two markets

In the product market, we exchange objects with a welldefined set of technical functionalities.In the service market, we exchange a system of expectationand experiences.

Guess where you can earn (or loose...) more?Guess where there’s more customer lock in?

When the “nature” of the good sold changes, there are neweconomic and organizational implications.

Before selling services – and related products , you needto learn how to buy data.

171

- Real, good money is the least efficient mean of payment- Data are the perfect “bad money”…

Data is the New Money

Collective entrepreneurs of “Orgware”

•HW SW OW• Hardware in the supply chain andlogistics. They connect the atoms.

• Software in the IT Department.They connect the data.

• The challenge is designing andimplementing the “Orgware”.Connecting the minds.

173

The evolution matrix of service economy

174

P&L B/S CF

Hardware Sales of products PatentsExclusivity

IPRLicences

Software MaintenanceContractes

Industry Standards Lock in

Orgware Co production Critical mass ofadoption

ResilientEcosystem

1. Bring us customer traffic, notjust sales orders for stockreplenishment.

2. Help us to differentiate,improving service processesin a measurable way.

3. Keep us updated on marketevolution and customerrelationship management.

What should you ask to Vendors & Brands(from payables to receivables….)

Learn how to program the “perfect robot” for servitization: your customer.

The disequation of servitization

V * P < A * F * S

Volumes * Prices < Affiliates * Frequency * Subscription

Thanks!Prof. Carlo Alberto Carnevale Maffè

Bocconi University School of ManagementE-mail: carloalberto.carnevale@sdabocconi.it

Twitter: @carloalbertoFacebook: carloalberto.carnevale