Manufacturing and services

One of the features of the I-Cubed Economy is the fusion of manufacturing and services. To understand this concept, I suggest a reading of a recent piece in the Economist about Rolls-Royce - Making things in a post-industrial society: Britain's lonely high-flier. The story talks about RR's strategy of selling services:

This is where Rolls-Royce has melded its technology with service to make it more difficult for competitors to pinch its business. Rather than simply giving away razors to sell razor blades it has, if you will, offered to shave its clients every morning. Instead of selling airlines first engines and then parts and service, Rolls-Royce has convinced its customers to pay a fee for every hour that an engine runs. Rolls-Royce in turn promises to maintain it and replace it if it breaks down. "They aren't selling engines, they are selling hot air out the back of an engine," says an investment analyst. The idea is not unique to Rolls-Royce; the other big makers of aircraft engines do much the same. But Rolls-Royce has adopted it with greater gusto. It has been offering the service for more than a decade; more than half of its engines in service are covered by such contracts, as are about 80% of those it is now selling.

This may seem to support the theory that Britain would do better to concentrate on supplying services rather than on making things. Yet it shows instead that it is sometimes necessary to be good at making things to sell the services connected with them. At Rolls-Royce it is difficult to see where one begins and the other ends.

The key point is summarized in the second paragraph: in order to sell the service, RR needs to be making the product. Just selling the product misses a lot of the value-added in the service end. But a service company is less valuable without the extensive knowledge of the product gained through product development and manufacturing. The combination is the winning strategy.