Pioneering manufacturers and researchers alike have been extoling the virtues of servitization as the future of manufacturing. Amidst discussions about the economic future of the UK after leaving the EU, the hype around digital technologies, industry 4.0 and IoT, servitization emerges more and more often as the business model that will give manufacturers the competitive edge. So, how does it work?
What do we mean by servitization?
Servitization is the process by which manufacturers transform their business model and innovate their capabilities to compete through advanced services, rather than through product alone. However not all services are created equal; they can have significant differences, particularly in their potential value to the business and the level of risk associated with their delivery.
Types of services
Most manufacturers include base services in their offer, focusing on the provision of the product, such as warranties and spare parts. Some manufacturers increase their service offer to focus on the condition of the product, such as maintenance, repair, overhaul and remanufacturing – we call these intermediate services. The third type of services is the one that interests us the most – advanced services. This type of services goes beyond the product’s condition to focus on the capability or outcome enabled by the product.
In the manufacturing context, the outcomes delivered focus on the customer’s business operations. Rolls-Royce’s Total-Care package on gas turbines for its airline customers is based on a ‘fixed dollar per flying hour’, Xerox offers ‘pay-per-click’ scanning, copying and printing of documents and Alstom’s contract with Virgin ensures the availability, reliability and performance of its Pendolino trains on the UK West Coast Mainline.
These three examples illustrate the logic and advantage that advanced services can bring to a customer; they pay for the outcomes they want to achieve, when they achieve them, rather than paying for a product and having to worry about its upkeep. For the manufacturing business, they provide long-running contracts and a symbiotic relationship with the customer, which can lead to further opportunities to grow services offerings.
Up to now, the business decision to take the journey towards servitization has often been led by customer demand. However, with the rise in recent years of digital technologies and the ability to capture and use data, we seem to have reached the tipping point. More and more manufacturers are actively looking to create service-led strategies, enabled by their unrivalled product knowledge and innovation abilities and the technologies they increasingly have in place to gather and utilise data.
Take Nederman for example, a multinational air filtration manufacturer. Nederman offers a cloud-based service that gives its customers insight into the health and status of filtration solution and allows them to track system performance, predict maintenance needs, prove legal compliance and optimize energy use. Experts within Nederman analyse the data and give recommendations and guidance on the performance of the products. This in turn allows the customer more time and confidence to focus on its core business areas.
Tyre manufacturer Goodyear has also been offering similar services, whereby data is collected and analysed to provide customers with greater insight into the tyre health of their fleets. Combined with intelligent alerts based on predictive analytics, this enables customers to schedule proactive maintenance and optimise route planning.
Nicklin Transit Packaging is a packaging manufacturer based in the West Midlands, with a customer base in the automotive, glass and construction industries. By adding a remote asset monitoring service to its packaging, Nicklin allows customers to monitor their packed products in real-time through all stages of transport, giving insight into shock, drop and tilt, humidity levels and temperature, as well as location. This gives customers real-time information on the whereabouts, safety and security of their products, hence greater peace of mind.
The servitization journey
Servitization and advanced services offer the opportunity to enhance growth and productivity for many manufacturers, though it is a fundamental transformation of mind-set for traditional, product-focused manufacturers.
We developed an online tool - Unlock your insight - which helps you to find out if your current strategy is focused on product or service and whether you and your colleagues are aligned in your opinions of services as a future strategy for the business.
Once you know this, you can start considering the business model and organisational change required and how to involve internal and external stakeholders. Our Transformation Roadmap is a useful tool for this process, as it allows manufacturers to locate their position in the servitization journey and helps clarify the necessary next steps.
For many, servitization is neither an easy nor a quick process, but if successful, it certainly has the potential to provide the competitive edge.
About the author
Tim Baines is Professor of Operations Strategy & Executive Director of the Advanced Services Group at Aston University.
Tim is the leading international authority on servitization and spends much of his time working hands-on with both global and local manufacturing companies to understand servitization in practice and help to transform businesses.
His book Made to Serve: How manufacturers can compete through servitization and product service systems has been described as, ‘Essential reading for any companies or executives looking to explore this option for their business’ and provides a practical guide to servitization, based on in-depth research with leading corporations such as Xerox, Caterpillar, Alstom and MAN Truck & Bus UK.