One of the hallmarks of the I-Cubed Economy is the fusion of manufacturing and services. A couple of stories in a recent issue of the Economist highlight this factor. First, there is this insightful comment in a story on the building hardware business — specifically elevators (lifts):
Lifts are not high-tech; the industry’s barrier to entry is servicing. New entrants might be able to make lifts but would struggle to compete with the comprehensive maintenance networks of the incumbents. Maintenance contracts generally contribute around half of the revenues of the big lift companies, providing steady income even when new orders head for the basement.
Then there was this comment in the “Schumpeter” column on Germany’s Mittelständler companies, which
typically have subsidiaries in 24 foreign countries, offering service and advice. Many get the bulk of their revenues from service rather than products. Hako, which makes cleaning equipment, generates only 20% of its revenue from sales of its machines.
Both articles stress the importance of linking service activities with manufacturing activities. In fact, these companies are successfully competing in “old” industries on knowledge — not price. Knowledge is what gives them a superior product and knowledge is what makes their services so valuable. But is it not just generic knowledge. They are selling their knowledge as a means to create solutions for their customers. Their customers want the knowledge to be specifically applied to them – not some abstract concepts. That is the “service” part of the equation. Or as the story on Mittelständler companies put it “service and advice.”
So, where are the public policies that help our economy make the switch to the “solutions” business?