Servitization strategy augments company value

Dec 15, 2015 7:00:12 AM


Become a more valuable company by following a servitization strategy

For companies like MAN, Rolls-Royce, and many other early manufacturing adopters, there are many advantages to a servitization strategy. It enables them to generate more revenue and profit by delivering a competitive, productive customer experience that gives customers a rich context to deepen their connection with a company. In order for servitization to succeed, the quality of the customer experience is paramount.

Controlling costs, reducing risk, and generating stable recurring revenue

Servitization mitigates much of the volatility and risk in doing business with your customers. For them, it reduces the risk and cost of doing business with your company. For one thing, your recurring services revenue is predictable and steady, unlike the spikes and valleys you experience when your sales team closes significant deals on high-value equipment that alternate with periods of prospecting and selling when no concurrent revenue generation takes place. That can make it easier to rely on your servitization strategy when you plan your entry into new markets where, for example, prospects might not be able to budget for an equipment purchase, but they can well afford your service contracts with their manageable monthly cost.

Businesses finding it difficult to achieve stakeholder approval for a large capital expense may find it a relative snap to secure buy off for the operational expense of a service contract: They may not be ready to purchase a truck or extrusion machinery outright, but within a service with guaranteed uptimes, those become affordable. On the other hand, if you miss a sales target, you don’t face risks such as not being able to make payroll, because services and their revenue give the business a sound financial foundation.

Becoming more valuable to customers

When your services deliver reliable, undisrupted operation of critical machinery and equipment customers need, you are more strategic to their business and find earlier and greater inclusion in their planning than a vendor operating under the more traditional “deliver and disappear” model. The likelihood of customers shopping around and considering a wholesale replacement becomes very low. From a customer perspective, the cost/benefit ratio of a monthly service fee is often far more defensible and affordable than a one-time capital expense.

Under the service model, you gain the leverage to enhance the customer experience by creating more touchpoints and high-quality, timely interactions, such as proposing design enhancements or innovations based on IoT data about the workloads and performance of the machinery you placed on their sites. Or, you can create and offer additional services. A servitization strategy thus helps you increase the lifetime value of customer accounts and gain a greater share of their spending.

Higher-quality revenue and a better company valuation

Servitization is to your advantage when you want to attract investors, or want to sell the business or spin off parts of it. Recurring revenue is considered as higher-quality revenue than one-time revenue, and typically results in a larger valuation of the company. Everything else being equal, the business based on recurring revenue will be valued by investors as much as 16 times higher than the one based on the one-time revenue model. Your earnings before interest, taxes, depreciation, and amortization (EBITDA) will also increase under your servitization strategy’s recurring-revenue model.

Other posts in this series:

If you’re interested in discussing servitization strategy 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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About Author
Luciano Cunha

Luciano Cunha

Chief Executive Officer (CEO) For Luciano, being responsible for To-Increase’s global sales and marketing means unleashing the company’s insight, innovation, and creativity to tell our story and help customers achieve their goals. On the road much of the time, he travels the world to meet with customers, understand their challenges and ambitions, and find the most effective ways to help them advance. Luciano develops and mentors our marketing and sales team, and creates strategies to help the To-Increase worldwide partner channel thrive and grow.
Making Customer Needs the Main Business Driver Luciano and his team have daily conversations with the To-Increase research and development organization to bring customers’ requirements and concerns into the road maps and design of our solutions. Luciano brings his insight to the marketing group to make sure the company’s communications resonate with customers and speak directly to their experience.
“I’m awed by customers’ innovative spirit in taking business management technology past its limits and by their generosity in letting us participate and empower them. I hope to transform our organization to become even more customer-centric than we are today. That means making more resources available to spend productive time with both our customers and partners, so we can ensure that we place into customer businesses effective solutions that fit the evolutionary stage of their operation and the way their people and processes work.”
Empowering a Global Channel
Because To-Increase only sells through partners, readying the channel to be successful in helping customers is a business-critical effort. Luciano aims to meet partners where their interests are. Partners who consider the relationship with To-Increase strategic can rely on our industry specialists to work with them as they plan their growth and serve customers. If partners prefer a less collaborative relationship, they still receive the rich To-Increase expertise and resources to ensure they win the business, perform a successful deployment, and retain a satisfied customer. In working with partners and their customers, Luciano brings to bear his experience of many years of creating successful, customer-focused business development and marketing strategies in many of the world’s countries and regions.
Enabling Customer Success in Challenging Business Environments
Looking into the near future, Luciano expects that customers will continue to expect To-Increase to help them make business sense of unfolding trends and technologies. For example, the internet of things (IoT) will thoroughly revolutionize manufacturing, engineering, and supply chains. Big data will be meaningful and valuable when decision-makers can use technology solutions to transform it into actionable business intelligence that supports key roles and business processes. Mobility will help companies become digital enterprises and move business processes forward from any location, at any time. Team To-Increase harnesses innovation to help customers translate the promise of these technologies into business results.
Before his current role, Luciano for several years was one of To-Increase’s global industry directors, responsible for our industry solutions. His experience also spans more than 17 years in IT and manufacturing management roles. These positions took him into various areas at IBM Brazil, serving as product manager for several software development companies, and included working in senior management at a manufacturing organization in the U.S.
Luciano is married with two young children. Away from work, he enjoys participating in a soccer class together with his son and daughter as well as taking relaxing walks in natural environments with his family.

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