The case for servitization: Improved revenue generation for manufacturers and a better experience for their customers
Some enterprises are well on the way to complete servitization of what used to be product offerings, and others are defining their goals and planning for it. Many are looking for a sound roadmap to take advantage of servitization soon, in a low-risk manner that avoids missteps. Some industry observers say servitization is how manufacturing companies will survive. Others point out that it promises the advantages of a much improved customer experience and a more predictable business model for manufacturers. We’ll consider the practical aspects of servitization in today’s and the next four blog posts.
Fast evolution of the business model from products to services
Especially in the realm of the equipment and discrete manufacturing companies To-Increase supports, we expect servitization, enabled by the cloud and the internet of things (IoT), to become a standard business practice. If you browse around our blog, you see that we have discussed it repeatedly in different contexts, for example, in a post from June of this year.
Servitization brings one of the most fundamental business model changes in many decades. In the world of machine and equipment manufacturing, it’s directly driven by the increasingly complex business needs of manufacturers and their customers. Not even constant technical innovation and product upgrades are enough anymore to succeed and compete. Customers want more from the companies that provide them with business-critical machines and equipment. They are looking for these products to be surrounded by intelligence that enables them to maintain or increase their value. A mere equipment commodity cannot deliver that, even if it comes from a highly customer-focused company. Many organizations engage in ongoing optimization efforts to become ever more competitive and relevant. They need their machines to come along with them as they learn and adapt to new demands from their customers. Servitization, where a once firmly circumscribed product becomes a component of a flexible service offering that can evolve based on learning and insight about its performance and customer needs, can make that possible.
Leading the way on the servitization journey
We think of servitization as a transformative journey that begins with your tangible, traditional products. You find ways to augment them with supporting services, add more strongly differentiated services, and eventually deliver advanced services that can supplement or even fully replace your product offerings of today.
Some companies have already advanced far along the servitization path, including some well-known manufacturers. Providing valuable services has become a strong competitive distinction for them. For example, the Civil Aerospace division of Rolls-Royce sells TotalCare, a comprehensive maintenance and engine management service, together with the engines purchased by airlines. The company promises TotalCare customers controlled costs of owning and operating Rolls-Royce engines, better availability or uptime, a higher asset and brand value. They pay a fixed price for the amount of hours flown. This service generates more than fifty percent of Rolls-Royce’s aerospace revenue.
Another servitization success is happening at MAN, the German manufacturer of buses trucks, engines, turbomachinery, and other technical products. When it comes to vehicles, the company has made a complete turnaround from a traditional manufacturing organization to a service provider. Fleet operators no longer buy vehicles outright, but sign a service contract that comes with uptime guarantees, driver improvement training, and continuous enhancement of fuel efficiency. Customers pay a fixed, small amount per kilometer or mile driven.
MAN and its customers benefit from ongoing learning, which helps the company make better trucks and assists the customers in operating them more efficiently. IoT-connected sensors in the various systems and components of MAN trucks and buses provide a full view of how a vehicle performs on the road, enabling improvements based on real-life running conditions. Customers receive usage data for drivers, which means they can see whether a driver, for example, speeds or wastes fuel by leaving the engine running when the vehicle is stopped. Customers can send their drivers to MAN’s training courses to hone their skills.
Other posts in this series:
- Become a more valuable company by following a servitization strategy
- Transitioning to a service business: Meaningful servitization planning, healthy cash flow, and proven trajectories
- The quality of the servitization customer experience is what ultimately moves customers to your services model—or not
- Servitization sales present many more opportunities, but require a more customer-centric approach
If you’re interested in discussing servitization and any of the issues the transition brings up, or have questions and feedback, I would love to hear from you. Get in touch with me or contact To-Increase.
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