Disruption in Manufacturing: Why GE bought ServiceMax?
Yet again another sensational news surprised everyone in the world of manufacturing; GE Digital announced it is going to buy ServiceMax, a cloud-based field service management company, for around £730m. You may ask why (!), but the answer is very simple. GE estimates there is a market-wide opportunity for capability-based service propositions by $25 billion through the use of analytical tools.
Regardless of how well your products have been designed and manufactured, they’ll become commodity one day. Manufacturing firms have just recently realised that securing their existing competitive position and expanding their operations cannot be achieved purely through continues technical improvement of their physical products. They have started to base their competitive strategies on advanced services – the process which commonly referred to as "servitization". In this context, understanding the acquisition of ServiceMax by GE Digital makes so much sense.
For the past few years, GE has started to transform from a company that simply selling sophisticated machines, to the one that selling solution and capability towards their customers, and this fits very well with how ServiceMax views the world. GE has invested huge amount of time and effort to design, manufacture and deliver smart and connected industrial machines to get closer to their customers and assist them to get their jobs done more effectively and efficiently. Therefore, the resources and capabilities that ServiceMax will bring to the equation will assist them in reaching their goal much smoother, and faster than many of their key competitors.
In the below 4 points I have summarised why I think the GE/ServiceMax story is very important for the future dynamics of the manufacturing:
1. Certainly Big Data and data analytics are two essential foundations and key enablers of servitization and the development and delivery of advanced services. They provide the capability to understand and analyse the relevant data from the products in the customers’ operations, which in turn, enable the development of new value propositions such as proactive and predictive maintenance services. Although GE has been successful in providing such services in some of its businesses (including GE Aviation and GE Power), the company had to extend such initiatives across other businesses particularly GE Healthcare, and GE Oil & Gas. This acquisition will provide huge capability to the company to pursue its growth strategy more aggressively across its different streams of business.
2. ServiceMax will extend the circle of the attributes of big data for GE. They will bring huge “volume” of data related to many customers from different industries that are very much relevant to GE’s businesses, with a great level of “variety” that could become available and analysed in an excessive level of “velocity”, and with high level of accuracy that enhance the “veracity” of the decision making processes. This is what any manufacturer wish for.
3. For ServiceMax, this acquisition will hugely help them in extending their portfolio of offerings and entering into new markets. As its CEO, Dave Yarnold has mentioned:
“ The transaction will help position ServiceMax to reach its next phase of growth by having access to GE’s broad and advanced industrial portfolio, deep domain expertise and substantial customer footprint.”
This clearly resonate with the notion of value network, which explains that dealing with complex customer demands and expectations can no longer be performed by relying on knowledge and capabilities of just a few departments within a single company. Widening the collaboration outside the organisation’s boundaries enables firms to (a) manage the technological risks and develop innovation in complex and uncertain environment (new solutions for existing problems), and (b) expose new opportunities that can serve to a larger market segment and address more complex needs.
4. Undoubtedly, the wide-spread adoption of Internet of Things (IoT) will lead to a dramatic surge in the digitalisation of manufacturing, which in turn changes the capabilities of the physical products, creating substantial innovation and new value creation opportunities. This announcement will put huge pressure not only on GE’s competitors, but also other manufacturing firms seeking growth. While some will be able to realise the opportunities of digitalisation, big data and data analytics, others will lose out as digital technology-focused companies move into the product manufacturing space and disrupt their value networks. This is evidenced in the case of Uber. This technology giant has quietly started to move into the long-haul business with a new division called Uber Freight, in which a shipper directly connects with a truck, much like the Uber app that connects riders and drivers. Uber’s expertise in leveraging data will challenge the traditional business models of all stakeholders in this network from truck manufacturer through to users (e.g. supermarkets).