Breaking down legacy culture will be key to embracing servitization

Across industries, there is widespread awareness that organizations must move forward on the path to a servitized business model. In new research commissioned by IFS, polling senior leadership across multiple sectors about the shift to servitization, a remarkable 85% of respondents believe their market is ripe for the approach.

However, there is a marked difference between awareness that it is time to move to servitization, and actually making the transition. The research found that just 19% of organizations said they have completed their evolution to a servitized model, while 42% say they have the processes mapped out but have either organizational or technology-based issues to overcome, more often than not legacy technology issues are holding them back.

Businesses need to ensure they understand these issues. To make the shift successfully, it is vital they appreciate the impact on people and culture, and the challenges they will need to navigate in managing change. Moving to servitization necessitates a fundamental shift in both mentality and organizational culture, extending beyond a mere transition in business strategies or pricing structures.

Barriers and obstacles to progress

To be successful with servitization businesses have to ingrain it into their DNA so that it becomes part of their culture. There is still much work to be done when it comes to embedding it into their work processes. Nearly a quarter (23%) of the survey sample are still trying to understand the impact of servitization on their business, people, processes, and technology, and a fifth (20%) admit they do not understand how the business case for servitization will deliver real benefits for them.

That lack of understanding is holding organizations back as they look to optimize the benefits they get from servitization. In line with this, nearly a quarter (22%) of the survey sample believe that impact on processes and people are among the main challenges when building momentum for the servitized business model.

The need to move away from a traditional product-centric or transactional business model to a servitized one has inevitably brought disruption to many businesses and their employees. Yet, a change of approach is essential. From the process perspective, legacy organizational structures often hinder the seamless integration of services into the business model. Siloed departments, conflicting priorities, old technology, and a lack of cross-functional collaboration can all slow down progress.

Organizations know they need to change, but they often do not have sufficient people in place with the right skills to make that happen. For example, more than a third (34%) of the survey respondents reference ‘lack of internal resources and expertise to develop and implement a servitized model’ among the main barriers they face in evolving their business to a servitized approach.

Just understanding the technology itself can be a significant problem here. Adopting new technologies means that employees need to learn how to use them effectively. Companies might find they have a skills gap, need to hire new talent with the required expertise, and invest in training to address the talent shortfall.

To mitigate this challenge, nearly half (46%) of survey respondents are recruiting experienced people and 43% have revisited their original business case to appoint executive sponsors for key functions. Others prefer to focus on upskilling the existing workforce. In line with this, 42% have created problem-solving focus groups, and 35% have stepped up communication to improve coordination and understanding.

How fear of the unknown stokes resistance

Equally, moving from a product-focused culture to one centered around services requires a fundamental shift in mindset. Resistance to change, fear of the unknown, and entrenched beliefs about traditional business models can prevent organizations from advancing their servitization plans.

To start servitization in your business, you need to think differently and ask yourself: what do my products do and what need do they fulfil now, and in the future? And then ask yourself, how could I supply what they do as a service or what adjancies are there that could be a service? A change of approach is required to move the perception of servitization as a threat to an opportunity and, along with it, a change of business KPIs and organizational structure.

In line with this, 24% of respondents cite ‘lack of internal buy-in’ as one of the main factors holding the business back. A still greater proportion of respondents (28%) point to the difficulty of altering company culture as one of their three barriers to servitization. This is highest in manufacturing (36%) and lowest in construction and engineering (21%) – a rare example in this survey of significant variation in the views of respondents from different industries.

What these figures show above all is that as with any significant technological shift, there’s a need for effective change management strategies to ensure all stakeholders, from employees to customers, understand and are comfortable with the new tools and systems. This is key, but it has to be done well. Research from Prosci, a leading change management training and certification organization, shows initiatives with excellent change management are six times likelier to meet objectives than those with poor change management.

Embracing the future of business

Many organizations are well on their way to servitization, but it is a challenging journey fraught with people and organizational barriers. To succeed, organizations should cultivate an environment where innovation thrives across the whole enterprise. This happens by nurturing a culture that values personal growth, agility, and calculated risk-taking, with a deep-rooted emphasis on putting the well-being and needs of their customers and employees at the forefront. As these trailblazers venture forth, they not only champion the journey toward servitization but also inspire a shared cultural evolution for others to embrace.

In our technologically advanced age, servitization isn’t just a trend – it’s a necessity. We can see there are considerable barriers to overcome in terms of understanding its impact, stakeholder attitudes and the entrenchment of processes based on aging technology. As in many areas of innovation, in-house skills remain a challenge.

Yet, as businesses move towards a servitized model, the most valuable asset isn’t technology but the people who power it. Skilled, adaptable, and agile employees are crucial in navigating this transformation, emphasizing the need to prioritize talent development, acquisition, and retention. To support this focus, companies must proactively address the emerging skills gap by investing in comprehensive training programs, creating pathways for upskilling, and leveraging cross-functional teams.

Ultimately, for servitization to truly take hold, it must be underpinned by a culture that embraces change, values customer and employee experiences, and aligns all stakeholders with the vision of the transformation. As companies navigate this shift, they not only pave the way for their own future but also set a benchmark for the industry, demonstrating that with the right mindset and commitment, the move to servitization can be a powerful catalyst for innovation and growth.