Over the next 10 years, the business sector is likely to experience a major shift, as new technology paves the way for digitally driven ecosystems that are based around services rather than products. Sweden and Swedish companies have great potential to stay at the forefront of business innovation on a global scale.
Business Sweden's report The services revolution describes the evolution of the business landscape and how it affects Swedish companies in detail. Download the report here, or read a summary of the main points from the report below.
From products to services
In the last few decades, the services sector has grown steadily both in Sweden and abroad, with a gradual transition from products to services-oriented solutions.
This development is known as the servicification of the business sector, and it is likely to accelerate over the next 10 years. Together with technological innovation areas such as artificial intelligence (AI), the Internet of Things and 3D-printing, we can expect nothing short of a services revolution.
What is servicification?
Business Sweden uses two dimensions that can help to explain what servicification means in concrete terms: Intelligence level and Complexity level.
Intelligence level: From manual to autonomous
A high intelligence level is characterised by an increased level of automated systems. At an early stage, this happens in customer interactions and certain work processes. A more advanced degree of intelligence are algorithm-driven business systems that have the ability to learn from feedback and previous experience. In the final stage, artificial intelligence will be central to all operations and manage most processes and even decisions.
Complexity level: From product to super system
In terms of complexity, servicification can be illustrated by a transformation from product-focused operations to the creation of a so-called super system – businesses that develop their own global platforms and digital solutions.
Leading the way: the new platform companies
Digitally driven, global platform companies like Google, Facebook, Amazon and Airbnb are currently leading the way towards a high level of servicification. Instead of simply offering products and goods, they leverage technology to create service-based ecosystems.
Value is no longer a linear, one-sided process, but is rather created through simplified interaction between two or more parties, usually consumers and producers. It is also worth noting that these companies do not own the production of the goods and services that they provide.
Impact on the Swedish business sector
There is no doubt that the business sector will undergo major changes in the coming decade. While nobody can predict the future with absolute certainty, it is still useful to evaluate the opportunities and challenges that lie ahead.
Business Sweden has created three scenarios that explore Sweden’s possible relation to the services revolution.
Scenario 1: Continued servicification
In scenario 1, Swedish businesses continue to adopt services innovation and digital solutions at a similar rate as in the last 15 years. They do not, however, introduce solutions like ecosystems and global service platforms. Productivity rates and services output will continue to rise, but at a slower rate compared to previous landmark advances.
Economic growth will be more or less the same as in the past 15 years. The biggest production increase is expected to occur in the services sector. Total employment will rise, but is concentrated to services growth.
Scenario 2: The platform economy is embraced
In scenario 2, companies develop extensive services portfolios and build industrial ecosystems. Manufacturers move further towards autonomous systems and introduce complex, global service platforms in different business niches. Products are included only as one part of a company’s overall service offering.
The growth rate of both services and goods will be twice as high as in scenario 1. Economic growth can be expected to increase dramatically, and total employment could increase by almost a million full-time professional positions.
Scenario 3: Comprehensive shift to services
In the final scenario, service providers adopt full automation and advanced ecosystems. Businesses develop global service platforms, which leads to new service offerings.
A number of Swedish companies become leading service providers and make a global impact through industrial ecosystems and scalable platform solutions.
The growth of services output has a significant effect on foreign trade. Steep productivity gains drive increased production of goods.
Both services and goods production increase more than three times than in scenario 1, and total employment is expected to increase markedly in the services sector.
Regardless of the exact course Sweden will take in regard to servicification, it is clear that the business sector can expect major changes ahead.
With an attractive environment for research and many successful and innovative start-up companies, Sweden is in a good position to take a leading role – but this position needs to be reinforced and further developed.
All three scenarios predict economic growth and a rise in GDP, export and total employment, but the rise is significantly higher in the last two scenarios. Note that the rise in employment is restricted to the services sector.
How can I prepare my business for the services revolution?
The success of today’s platform companies shows that there is a lot to gain from offering a large and varied services portfolio.
Companies ought to ask themselves whether they should follow innovations within technology and business models, or whether they will take the lead themselves. Not every company can become a global platform enterprise, but those that aim for a global reach may want to consider developing bespoke platform solutions for specific markets.
Here are a few guidelines for companies that are keen to make the transition to a services-based business or intend to put their mark on the global market.
Focus on customer needs
To succeed internationally, it is becoming increasingly important to take care of customer relations. It will be vital both to develop a genuine understanding of customer needs and to maintain direct communication with the customers.
Develop a profitable business model
Moving the focus from products to services will have a fundamental effect on revenue streams. An example would be a company that puts in place a pay-per-use system. Development and manufacturing costs will remain the same, but revenue will be spread out over a longer period. In order to facilitate such a transition, it will be crucial to have an updated business model in place to ensure financial stability.
Attract services pioneers
Developing product solutions as part of a service requires advanced skills beyond traditional core competences. Swedish companies need to find star talent with in-depth knowledge and experience of services-driven innovation, digital technologies and AI.
Connecting Sweden to the talent pool
Bearing in mind Sweden’s current demographic challenges (an ageing population and a slowing influx of professionals in the labour force), it is crucial that policy measures are taken to increase the number of qualified professionals ready to enter the labour market.
Building for the services society
A growing services sector will attract more people to cities and urban areas, and housing projects will need to develop at increased speed.
Setting rules for the services industry’s national expansion
Swedish rules and regulations need to be adapted to a new playing field, while meeting the broader goals of Sweden’s society. There are high levels of internal competence within the central and local government related to urban planning, healthcare, environment and recycling. With certain reforms, these skills could be applied to reinforce Sweden’s position in export markets.