Service in Mechanical Engineering: The Underestimated Business

Author: Edgar Schueber

At nearly every executive board meeting in the mechanical engineering sector, the same phrase is now heard: “Service is strategically important.” 84 percent of industrial companies say this (Roland Berger / KVD 2026). Only 62 percent have a documented strategy for this, and on average, 7 percent of investments and 3 percent of research expenditures go toward an area that accounts for more than a quarter of revenue.

So it has long been established that service matters. The more interesting question is why so few people act on this knowledge, and what has changed recently to make it easier to do so today than it was three years ago.

The most stable business a manufacturer can have

Every system delivered generates service needs over its lifetime, often spanning decades. Overall, service in the mechanical engineering industry accounts for more than 25 percent of total revenue (Roland Berger / KVD 2026). That alone would be reason enough to take it seriously. However, its full value only becomes apparent when new business slows down.

While product sales may plummet by about 30 percent, service revenue falls by only 5 to 8 percent. In a world marked by interest rate pressures, supply chain risks, and fluctuating demand, this is perhaps the most valuable characteristic of the service business: it holds steady when other areas falter and provides the financial flexibility needed to navigate the crisis.

Stability is complemented by growth. Manufacturers with a proactive, contract-driven service model generate an average of 48 percent of their EBIT from services, while competitors with a reactive approach generate only about 15 percent (Roland Berger / KVD 2026). This aligns with the bigger picture: Over the life cycle, the aftermarket generates two to three times as much revenue as the new equipment business, with significantly higher margins. McKinsey estimates the EBIT margin in the aftermarket at around 25 percent, compared to about 10 percent for new equipment (BCG, McKinsey). The difference lies in the business model. Companies that systematically align maintenance and service contracts with their installed base can turn individual spare-part orders into predictable, recurring revenue.

Growth and resilience are not mutually exclusive. In good years, service drives growth; in bad years, it serves as an anchor of stability. The installed base is therefore installed capital that resides with the customer and is waiting to be utilized.

Why So Little Is Happening Anyway

If business is going so well, why doesn’t the mechanical engineering industry act accordingly? The honest answer has little to do with technology. It’s an old way of thinking: In many places, service is viewed as an after-sales add-on, a mandatory task that comes after the sale. In very few companies is it treated as a separate business unit with its own strategy and budget.

This pattern is evident in the wide gap between the 84 percent who consider service important and the 62 percent who have documented a strategy for it—a difference of 22 percentage points that represents nothing more than a declaration of intent. One-third of companies explicitly acknowledge the importance of service but still do not invest in it (Roland Berger / KVD 2026). And when it comes to technology, the market is further behind than the general AI euphoria would suggest: 90 percent of manufacturers are not operationally ready for AI, and only 9 percent have largely automated their services.

Underlying this is a practical problem that every service manager is familiar with. No one knows for certain which machine is running where and at what status. The installed base is scattered across Excel spreadsheets, disparate systems, and the minds of individual technicians. As long as this blind spot exists, any service strategy remains just a presentation and never becomes operational.

What Has Changed

Until a few years ago, this situation was difficult to change—and for good reason. The tools needed to structure distributed service data, connect systems end-to-end, and derive reliable decisions from that data were expensive, incomplete, or both. That has changed. Today, the building blocks are available and have been proven in practice.

The research is clear on this point: Resilience “is NOT the result of technology investments in isolation” (Roland Berger / KVD 2026). It stems from a leadership decision to build the service as a business and from an operating model that supports that decision. The bottleneck, therefore, is no longer the availability of technology, but the willingness to use it strategically.

Artificial intelligence plays a different role here than the headlines suggest. In the service sector, where there is a widespread shortage of skilled workers, it acts as a capacity multiplier: It helps a small team handle more systems and more requests effectively. According to the study, the shortage of skilled workers is the single biggest weakness in the service sector, and practical knowledge is lost with every technician who retires—faster than it can be documented. The demand is there: 93 percent of service buyers cite AI capabilities as an important criterion (Gartner 2025).

This is precisely where an opportunity lies that is rarely mentioned. AI can be used even before digitization is complete and helps to close the gap: cataloging legacy assets and documentation, preserving the knowledge of experienced technicians before it is lost, and providing useful answers from fragmented material—even before the installed base is fully structured. A foundation is still necessary; that doesn’t change. But the 90 percent that are “not AI-ready” is not a verdict that precludes action. It’s a starting point. You don’t have to be fully digitized to get started.

Where to Start

The next step, therefore, is a business decision. Those who treat service as a separate business provide it with a documented strategy and a budget that is commensurate with its contribution to revenue. This is the most difficult and most important step, and it is a management task.

The first operational step is more modest and concrete: making the installed base visible. A typical mass-production manufacturer with around 2,000 systems in the field gains greater control simply by having machines, components, contracts, and service history consolidated and linked in one place. This makes it possible to integrate processes, leverage knowledge, and make informed decisions. Each stage delivers its own benefits, and together they form a service business that grows alongside the installed base.

The order in which these steps are taken is important. Efficiency is the starting point, offering quick, tangible benefits: less time spent searching, faster processing of complaints and warranty claims, and a reduced workload for the back-office staff. The bigger goal lies beyond that and is called growth and resilience. Expiring contracts become visible and are renewed instead of lapsing. Prices are reviewed based on actual usage data. Reactive order-taking transforms into an active service business. Those who start today can catch up on missed digitalization opportunities and immediately leverage them as a growth driver.

Conclusion: Waiting is the most expensive option

The greatest risk is doing nothing. Competitors and specialized third parties are targeting the installed base with better data and faster processes, and the study is unequivocal on this point: Anyone who does not operate the service with a dedicated focus is “prone to extinction” (Roland Berger / KVD 2026). A business that accounts for over a quarter of revenue and remains stable even during economic downturns deserves more than 7 percent of your attention.

The conditions for getting started have never been better. The business opportunity is there, the numbers are clear, the technology is available—and it can even help close the gap. What’s missing is the decision to treat the service with the importance its contribution to the company has long deserved.

If you want to know where your service stands today, there are two obvious first steps. An Installed Base Assessment will show you within a few weeks how comprehensively your installed base has been documented and where the greatest potential for improvement lies. If you’d prefer a more low-commitment approach, we can discuss your current situation in a brief initial consultation, which will help determine the most sensible next step. Feel free to reach out.