Any industrial manufacturer that has not awakened to the fact that it must become a service business is in serious peril today. Sadly, there are many such businesses—companies that still think of themselves as builders of things and that state their gross margins, operating profits, and other measures of success solely in terms of “the product.” But even their more enlightened competitors, the ones who’ve begun to wrap valuable services around their products and, in some cases, profit directly from those services, are enjoying only a temporary advantage. They may be improving their customer relationships by taking on various burdens such as maintenance and replenishment of supplies, but that will get them only so far. A select group of companies is already upping the ante. Soon, it will not be enough for a company to offer services; it will have to provide “smart services.”
A version of this article appeared in the October 2005 issue of Harvard Business Review.