From transactional to relational: the Evolutionary Model of SCM Group
09 Sep 2024Leveraging services to improve process and product efficiency: the strategy of the Rimini-Based Industrial Group.
How does the interplay between people, companies, machines, products, and markets benefit from the development and application of new digital tools? Under what conditions?
Alessandra Benedetti, Director of Digital Transformation & Business Remodeling at SCM Group, a company with €900 million in revenue, specializing in materials and industrial components processing technologies across various sectors, including furniture, construction, automotive, aerospace, marine, and plastics processing, answers these questions. SCM Group shares a strong digital development culture and significant investments with companies in the packaging and automation sectors, focusing on products and service innovation.
Scm Group and servitisation: Could you tell us when and by whom the idea for this business model emerged? Who inspired you? How did you assess the pros, cons, and timelines for implementing this model?
Our journey began at least 10 years ago when the Group’s General Management made a forward-looking decision to separate revenues and costs related to spare parts and services, giving them the status of a business unit. This shift marked a turning point: after-sales ceased to be a cost center and became a profit center. From that moment on, we focused on the efficiency of the supply chain and service level guarantees as the foundation for business growth. Beyond offering traditional spare parts and repair services, we began to introduce maintenance contracts and personalized spare parts supplies based on customer needs.
In 2015, we launched our first e-commerce platform, which now accounts for approximately 20% of our overall service and spare parts revenue. The next step was shifting from product orientation to customer orientation, prompting us to rethink the customer service experience. The cornerstone of this transformation was the implementation of a Group-wide CRM system. What was once a purely transactional e-commerce platform evolved into a 'customer portal,' enriched with additional content. By 2020, we equipped all our machines with IoT technology to collect operational data and usage information, enabling advanced service scenarios such as the "additional care" service introduced at the latest Xylexpo, which includes full maintenance of the asset provided by SCM Group. The portal became digital, and the service became hybrid, blending human experience with digital accessibility.
Today, we’re asking ourselves how we can better support customers with integrated, scalable software that focus on process and solutions rather than just functionality and products.
Our platform's next evolution will involve delivering services in collaboration with suppliers who play various roles in the customer’s processes. These suppliers could include component vendors or consumables providers, even extending to potential collaboration with our competitors, recognizing that our customer’s factory, the world in which we increasingly identify ourselves, consists of more than just SCM Group machines.
We were inspired by models already explored in the automotive sector, but we’ve given our journey an ‘original’ touch by placing people at the centre, as evident in our Control Room service. This service leverages technologies such as machine learning, data platform, and BI, but ultimately, it’s rooted in the expertise of our most experienced technicians. This expertise creates a continuous feedback loop, where the customer experience is still delivered by a human operator - a person.
The decision was driven less by a convenience assessment and more by a necessity for survival. The competitive landscape has shifted, and relying solely on the product is no longer enough to differentiate from competitors. Engaging in a price war risks pushing the company into an unproductive cycle that strips profitability and stifles innovation. For this reason, we focused on leveraging our unique skills, exploring how we could deploy them to benefit the customer by sharing and transferring them through software and digital solutions.
In conclusion, traditional econometric evaluations like IRR or payback are insufficient to justify the shift from a product to a product-service model, as this transformation requires both vision and time. The real advantage lies in the strategic support this change program provides to an industrial group like SCM Group.
How do you resolve the lack of personnel for development, along with the generational turnover needed? Does AI fill the gap? Can robotics and Big Data cover this shortfall, and if so, how and why?
Technology can help bridge this gap, but it can't do it alone. The key lies in integrating technology with human talent. Investing in continuous training, educating the new generations, and updating the skills of the current workforce is essential. This is especially true when it comes to developing not only technical abilities but also those that support new approaches to problem-solving, relationships, and technology usage.
Technology provides us with powerful tools, but it's up to us to use them intelligently and creatively. In this way, as technology evolves, we grow with it.
At SCM Group, we’re doing exactly that: we have initiatives aimed at spreading a culture and promoting new mindsets that are open to change and ready to embrace the future that has already begun. These initiatives, supported by significant investments in education, are all driven by the belief that experiencing new things and sharing their benefits and successes is the most effective way to educate people about dynamic organizational change and encourage new behaviours.
In the supplier-customer relationship model based on servitisation, there is a bilateral sharing of knowledge and experiences. Do you foresee potential risks for automatic machine manufacturers? Does your Control Room correspond to another on the 'customer's side' that monitors 'what and how' you operate?
Servitisation and the bilateral sharing of knowledge bring both advantages and challenges. The key to managing these risks lies in building a relationship based on trust, empathy, and transparency.
Understanding the customer’s needs and concerns by listening actively allows us to create customized and efficient solutions. In the Control Room, we’ve combined empathetic listening, which Customer Service applies in their relationship with the operators and maintenance staff of our customers, with a set of algorithms that open an equally 'personal' channel for machine listening. This type of listening not only strengthens the relationship but also helps identify potential problems early on, allowing us to resolve them before they become critical or even visible. The customer decides to make their data transparent, and we, in return, make our knowledge accessible and usable.
Transparency goes hand in hand with trust, and bidirectionality is a foundational element of both: while the customer grants access to their data, we make available and automatically share the wealth of knowledge we’ve built over 70 years, clearly explaining the operational decisions and the reasons behind our recommendations. This way, the customer feels like an integral part of the process. This transparency, necessary for the symmetrical sharing of objectives, not only improves customer satisfaction through better KPIs for production and reliability but also increases their loyalty and trust in the supplier.
A significant shift in this relationship is the growing involvement of the customer in the solution design phases. This collaborative approach helps develop more innovative and customized solutions.
Turning our knowledge into a process and service - knowledge that is activated and enriched by the information our customers share with us - represents a crucial step in building a competitive advantage rooted in new, inimitable pillars, because they are built on our history and our people.
How is the margin changing or will it change from the manufacturing model to a mixed model that integrates servitisation? Could you give some examples with relative economic values?
The transition from the traditional model of selling machines as capital goods (Capex) to a mixed model that integrates servitisation and offers machine-as-a-service is revolutionizing how companies generate margins.
In the traditional model, margins primarily came from the initial sale of the machine and post-sale services such as repairs and spare parts. The machine sale represented a significant capital expense for the customer, with high margins for the manufacturer at the point of sale, but with limited and less predictable post-sale revenue. For example, if a machine cost €100,000, the manufacturer could gain a 20% margin, or €20,000, at the point of sale. Revenue from maintenance services and spare parts would vary and depend on the machine's wear and the actual need for intervention.
In the mixed model with servitisation, the machine isn’t sold as a capital good but is offered as an ongoing service. This leads to a different distribution of revenue and margins. In this case, margins shift toward a more constant and predictable revenue stream generated by regular service fees paid by customers. For instance, instead of selling a machine for €100,000, the manufacturer might charge €2,000 per month for using the machine and associated services. Over a year, this would generate €24,000 in recurring revenue, which, spread over time, can lead to a higher overall margin compared to a one-time sale.
With servitisation, the percentage margin on services can be significantly higher than the margin on the separate sale of machines and post-sale services. If we consider that recurring service margins can be around 30-40%, on an annual contract of €24,000, the manufacturer could achieve a margin of approximately €7,200-9,600 each year. This model also allows for the inclusion of additional value-added services, such as software upgrades, remote monitoring, and predictive maintenance, which further increase revenue and margins.
This change not only improves revenue predictability but also fosters a closer and more continuous relationship with customers, who benefit from more integrated and personalized services.
It’s often said that the servitisation business model is only feasible for large companies. Based on your experience, how true is this belief?
Servitisation, first and foremost, is a change management project. Transforming within smaller contexts, where you can more easily feel the pulse of the company compared to larger, multinational, and multi-technological companies like SCM Group, certainly allows for quicker implementation. However, it’s clear that technology alone is not enough, and since it’s becoming more accessible, the difference is made by teams and individuals who must either possess or develop the right mindset. The right conditions do not only exist in large companies. Many small or medium-sized enterprises (SMEs) have demonstrated their ability to successfully transform themselves.
In conclusion, while traditional econometric evaluations like IRR or payback can certainly justify the shift from a product to a product-service model, this transformation carries deeper implications and requires both vision and time. The true benefit lies in the strategic support this change program offers to an industrial group like SCM Group.
Control over technology, knowledge, finance, public opinion, and even politics through lobbying efforts: Do you agree on the necessity of mastering all five areas? And if so, does this effectively exclude SMEs?
What I can say, without presuming to take a specific position on this matter, since it’s beyond my area of expertise, is that we’re witnessing a significant turning point due to the advent of AI (technology). AI has, for the first time in history, altered our relationship with knowledge (reason) and reality (politics and public opinion). This brings not only social, economic, and legal implications but also philosophical, spiritual, and moral ones. It’s impossible to predict all the consequences, nor can we ignore its existence or make the mistake of treating these issues as independent variables. But that would require another interview to fully explore such a complex topic!
Credits: COM.PACK (July/August 2024): compacknews.news
