I was reading Strategy+Business’s Best Business Books 2011: Strategy (registration required) when I came across this as part of a review:
Services, not just products (or platforms), the second principle, stresses the importance of offering services as an effective way to avoid the commoditization of products. Not only do services add revenue, often at a higher profit margin, but they are also harder to replace.
It is one of the “six enduring principle” of Staying Power: Six Enduring Principles for Managing Strategy and Innovation in an Uncertain World by MIT Professor Michael Cusumano. Cusumano notes in a lecture on the book:
The second principle is that for many industries managers need to think in terms of services that complement their products and not just focus on the products or platforms themselves. Probably the best example of this is Apple. Apple continues to make great products, but the ipod, ipad and iphone are of little value without a very important service, the itunes digital media service. They are also not very valuable without an internet service. We can also take automobiles as an example of this as well. Most manufacturers over the last 15 years or so have made most of their money, not from the product, but actually from the services; financial services, such as loans and leases, warranties, insurance and after sale repair. General Motors has even rolled out telematic services in the form of the OnStar service. These are far more valuable than the actual products. The products become, in some way, a platform for delivering services. Once again, smart phones are pretty worthless without services. Another company that is very famous for ‘servitising’ their product and that is Rolls Royce. Rather than selling engines, they actually sell ‘power by the hour’, which is a different method of pricing and delivering the product. Many software companies have done this as well, for example ‘cloud computing’.
How times have changed! 30 years ago, the fusion of manufacturing and services would not be an “enduring strategy.” In fact, theory would be seen as polar opposite strategies: either you are a service company or you are a manufacturing company. Now we recognize the both/and transformation of the economy. Progress!