A big word, but with a simple explanation. It involves firms, often manufacturers, developing the capabilities they need to provide services and solutions that supplement their traditional product offerings. Servitization is often defined as “an integrated product- and-service solution that delivers value in use.”
Servitization has developed rapidly because businesses need to remain profitable in a fiercely competitive marketplace. Companies must differentiate their offering and provide a range of services to provide a better experience for their customers. It has developed as a retention strategy and a way of driving long-term engagement.
How servitization works in practice
There are two early stages on the road to servitization:
- Basic product provision – sales of goods and spares with minimum support
- Aftersales – services, repairs and maintenance, condition monitoring.
The provision of advanced services takes after-sales to the next level. This requires a shift in mindset: it is a more relationship-based approach to sales and support. The supplier must become fully engaged in the customer’s business and its requirements. Advanced services are usually delivered on a subscription model where the customer pays for the promised outcome. The customer pays only for the value it receives from the supplier. This may be hours of lighting, pages printed or machine up-time.
Traditional product + service model and servitization
The complexities and challenges of servitization
How to deliver advanced services is a real challenge for many companies. It involves rethinking business processes and may result in changes to organizational structure. This explains why some companies have been slow to implement. When services move from being reactive to proactive there is often a cultural shift. The design and provision of advanced services is different from the sales of products with after-sales service. Servitization means fully meeting customers’ needs, ideally leading to customer retention. The questions that need to be answered are:
- What processes will we have to implement or change?
- How does servitization affect the roles and deliverables of sales staff?
- How will this impact existing customer contracts?
- How will customers react to this change in delivering services?
It’s all about the customer. That mindset takes time to develop.
How digital technologies support servitization
A continuous and consistent revenue stream is only possible if the services provided are reliable. Technology plays a key role in keeping services up and running. Internet of Things (IoT) is an important enabler. Machine-embedded sensors in products can feed data back to the manufacturer or service provider about a product’s performance and the condition of the product. The aim is to avoid parts failures and unnecessary downtime. Customers can be contacted directly in real-time with plans for repairs or replacement parts. Output reports give insights into usage trends that inform decisions that drive maintenance efficiency. Software solutions are now available that manage the effective scheduling of resources and provide visibility into all actions taken.
How to move to a servitized supply chain
- Establish a business case for products suited to servitization through a clear understanding of customer needs.
- Run a pilot project with selected customers and products and develop a working prototype
- Establish the range of services that will be offered vs those of competitors
- Calculate projected costs based on identified markets and refine
- Identify skills, capacity, equipment, the technology required
- Ensure Marketing and Sales are onboard
- Schedule roll-out and implement
Customer service is at the heart of a successful servitization initiative. Transforming a traditional product + service offering to a servitization solution comes with a certain level of risk and takes time. Hiring the right people, training them well and using appropriate systems are the keys to success. The benefits are increased profitability and stronger business resilience.