Servitization as a Key to 5G Success, Part 1

By Yana Persky

Lease services and focus on core activities, or develop services in-house? Pay upfront or switch to a subscription model? Choose a CAPEX or an OPEX model? Conduct activities like asset and knowledge management internally, or transfer them to an external supplier? Extend a supplier relationship over a longer period or minimize it? Be exposed to new risks and cost profiles, or access the supplier’s competence and simplify product management by not dealing with assurance, maintenance and repair costs?

Do any of these questions sound familiar? If so, you might be among the early adopters of a product-service model known as “servitization.”

Although the trend has recently been gaining traction, servitization is not a new concept. It was first introduced in the 1980s, when Rolls-Royce and General Electric radically changed the way aircraft engines were sold. To avoid expensive unplanned maintenance due to engine problems, Rolls-Royce started offering a package called TotalCare, where it rented its engines to users who paid according to the elapsed time the engine was in flight. Data collection and analysis in real time allowed Rolls-Royce to predict potential problems, improve maintenance, and provide safety advice to pilots in case of danger. 

Another key example is Alstom Transport, a well-known French multinational. Since the mid-1990s, developing the transport equipment, it has been offering a package called “TrainLife Services.” This package provides services such as maintenance of train fleets, support for managerial and technical operations, improvement of performance, and extension of trains’ operating lives. 

Rolls-Royce and Alstom have inspired a growing number of vendors to view products as part of a “product-service system” (PSS) in response to customer demands that previously went unfulfilled. 

Looking at the carrier space, the reality today is that the complexity and scale of the 5G ecosystem, combined with a lack of operator’s internal skills, will be important drivers for the emerging servitization model. Indeed, mobile operators deploying 5G are finding themselves needing a way to achieve visibility into a more complex environment than they have ever dealt with before. As a result, they are moving towards an integrated product and service offering that delivers value in use, and results in initial cost savings and lower cost of ownership. The expertise of vendors, which are gaining more insight into the needs of customers, can also be a powerful way for service providers to reduce time to market, and become a valuable source of mitigating operational risks. Other motives for a servitization model can be the desire to manage capacity by mitigating fluctuations in demand and increasing scalability of operations.

All this sounds good, but there is a significant gap between customers’ increasing demands for a service-centric model and vendors’ ability to deliver it. According to Worldwide Business Research in conjunction with Syncron, 98% of customers indicate they want to see more manufacturers provide service agreements that offer maximized product uptime; in reality, only 33% of manufacturers offer this today.

For decades, hardware vendors have been focused on product provision and after sales services that include everything from field service to product repairs after products have already broken down. Today’s customers, however, want products that work all the time. This is driving vendors in general, and Ceragon in particular, to shift focus from repair execution to value-based advanced services – including demanding ones such as preventive maintenance, infrastructure monitoring and network optimization. 

In our next blog post, we’ll take a closer look at how Ceragon’s servitization journey enables mobile operators to improve their network performance and efficiency while addressing scalability and skill gaps in their organizations. 

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