The fusion of manufacturing and services in government contracting

Here is a story from the Washington Business Journal on How to sell products as services. The story starts with noting the growing trend in government contracting toward the acquisition of services. But then it goes on to note:

A more subtle trend — and for marketers to the federal government, an equally important one — is the acquisition of products other than services as if they were services. For example, a report this month from the Government Accountability Office talked about possible schedule slips for the Pentagon’s big aerial refueling tanker replacement program. This is one of only a few major acquisition programs run as a fixed price deal, with performance incentives and most of the risk borne by the contractor. Eventually the government will buy specialized airplanes, but in the early years of the program, it is buying engineering services.
This approach is happening now. Few deals match the scope and $51 billion price tag of the KC-46 tanker, but every product vendor will feel it to some extent as products increasingly get bundled with and sold as services.

This is mirroring the trend in the non-government contracting sector. As I’ve noted before, the fusion of manufacturing and services is consider by at least one business strategist as an “enduring strategy.” Rolls Royce selling thrust out of back of a plane, not jet engines and Germany Mittelständler companies selling their knowledge, not machine tools are cases in point. Even Apple blurs the line. As the recent book publishing anti-trust case demonstrates, Apple is both a service firm competing with Amazon through iTunes and iBooks and a hardware firm competing Samsung (though some down play the importance of Apple’s revenues from services).
So, can we move the debate beyond the sterile “either manufacturing or services” cliche? Clearly, it is both/and — and our viewpoint and public policy need to catch up.

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