Servitisation is a complex-sounding word that encapsulates a simple idea: shifting from a reliance on products as a driver for economic growth, to an emphasis on delivering services that complement a particular product, and give the consumer a more rounded package.
So instead of focussing on selling new products, servitisation concentrates on giving the consumer the outcome that they would associate with a product — in terms of what it can do, how its top level of performance can be sustained, and through the addition of value adding features or services that expand upon this performance in various ways.
Why Servitisation Matters
Makers and sellers of goods must now operate in an environment that’s in a continual state of disruption, due to technological advancements and product or process innovations. In this climate, the challenge is to find new ways to differentiate your brand, and to adjust your product line or portfolio so as to remain competitive.
Products in today’s market also face the risk of quickly becoming commodities, as customer behaviour and expectations alter, the actual lifespans of products decrease, and pressures increase from a global market in which access to information and intellectual property make it easy for players to replicate items — in turn making it difficult for producers to distinguish their own offerings from the rest of the pack.
Historically, manufacturers have traditionally been responsible for providing the hard goods, with the consumer taking responsibility for ongoing maintenance and repairs. However as consumers have become more aware of the possibilities offered by new materials and fabrication techniques, there’s no longer a viable demand for products that require constant repair.
A sustainable business model for these times is one that benefits both manufacturer and consumer, and keeps their interests in line with each other. The shift from a product-oriented strategy to one that’s based on services can accomplish this in a number of ways.
You might for example add a service like maintenance or monitoring to an existing product. Making products available to consumers on a rental basis would be another strategy. Or you might offer a service-based alternative to the simple product itself, with expertise and consulting to perform the functions that the customer initially bought the item to accomplish.
The classic example of servitisation in this sense is the “power by the hour” policy adopted by Rolls-Royce in the dispersal of its jet engines — a model that gives consumers the product, together with an ongoing maintenance and monitoring programme and related services. The pay-per-copy service that Xerox offers is an example of another type, with the company maximising on the results of what its products can achieve.
The Benefits That Servitisation Offers
Over the last decade, the value found in production alone has been declining, while the value contribution derived from services has been on the rise. Market analysis also indicates that services lead to increased revenue while also having higher profit margins than selling products. Manufacturers who can make the shift to providing innovative and worthwhile services alongside their products therefore stand to capture more of their customer value.
Due to the long-term connection with consumers that ongoing service provision makes possible, servitisation offers organisations a more continuous revenue stream, and greater financial stability. Over time, opportunities to sell additional products or services may come to light.
The extended interaction with customers also facilitates the nurturing of good relationships, and fosters customer loyalty. This aids in customer retention — one of the foundation stones for economic success.
By packaging both a product and a set of relevant services, the servitisation model enables manufacturers to market a complete solution to the customer’s requirements. This generates revenue for the organisation from both the product and solution sides, while giving consumers the complete offerings that they expect and desire.
Putting Servitisation Into Best Practice
Embracing servitisation requires an initial change in mind-set at the level of the organisation. Rather than viewing yourself as either a product manufacturer or a service provider, the trick is to establish and maintain the optimum balance between the two sets of activities.
Making the switch will result in changes that affect the entire organisation, both in its operational and commercial aspects. In all likelihood, the organisational focus, procedures, and structure will alter in significant ways, and it’s important to communicate and manage these changes effectively.
One way of handling this is to set up a dedicated change management team, which takes responsibility for situational monitoring, developing strategies for implementation, making adjustments as necessary, and communicating the results to all stakeholders in the enterprise.
Staff training should also be a part of the transition. Training programmes should address new methods and modes of delivery for services, customer interaction, how to access and use the knowledge bases connecting products and services, etc.
Since servitisation is a customer-centric endeavour, it’s important to monitor customer data, and to keep an eye on trends in consumer behaviour and expectations. An awareness of customer requirements and pain points will empower you to adjust the nature of your service offerings, so that they remain relevant and unique.
From a financial perspective, it’s important to assign the expenses resulting from the sale of various services to relevant business functions, and to adopt relevant metrics or performance indicators to keep track of these flows of funds.
In some instances, the organisation may have to make financial provisions not only for the costs associated with maintenance, but also for any penalties specified in risk sharing contracts. Wherever possible, financial obligations should be at least partly transferred to the supply chain, through the design of contractual agreements that formalise reliability and quality requirements. Here, it may be necessary to implement performance management processes that can assist your suppliers in sticking to their contract requirements.
Maintenance and monitoring are two core requirements of the servitisation economy, and to implement them successfully, it’s crucial to have the right technologies available. Predictive maintenance analytics and technology are particularly useful in this regard. Technologies like digital twins and virtualisation enable manufacturers to optimise the design of their equipment and facilities, along with production and maintenance processes.
In addition, sustaining an effective flow of information across the supply chain may require a software platform that enables scalable and real-time performance monitoring, with advanced machine learning algorithms for process automation. This becomes particularly relevant for servitisation implementations involving connected technology and devices.
At Vinnter, we provide our customers with highly skilled and experienced teams of software and business developers in the area of connected things. Our activities cover applications ranging from electronics design to the development of cloud services and mobile applications.
Even more important for success is the user and business perspective on an idea. Therefore we also have people skilled in asking the hard questions of why. If we know about the why it is so much easier to find out the how and what, which leads to whom and when.
If you would like to know more about how Vinnter can assist in your servitisation efforts, get in touch with us.