Servitization

Servitization

The world in which manufacturers operate is changing rapidly. Your customers demand value and this requires you to make strategic changes. In short, you need to transform from product to a total supplier. What steps should you avoid when undertaking this process?

From Product Supplier to Service Provider

Several drivers exist that motivate manufacturers to change from selling products coupled with a few essential services (e.g. training, spares), to using services as the basis of their competitive strategy. Servitization creates a balanced revenue stream, sets you apart from your competitors and builds loyalty. There are multiple benefits of servitization, but ultimately it’s all about adding value to the customer.

Organisational restructuring to deliver a services strategy

The adoption of a servitization strategy seems to raise significant cultural and corporate challenges. There can be particular barriers in defining the organisational structure required to support the delivery of a combination of products and services, and a shift of mindset is necessary to take on services, not to mention a change in the mindsets of customers and suppliers.

Further changes include transactional marketing to relational marketing, developing a long-term relationship with customers and suppliers. Providing services means you are in it for the long game and it is important that your business processes are in line with the new strategy. Organisations should ensure they allow enough time to meet these challenges and make these changes.

Maintenance and Repairs

Maintenance and repairs are examples of basic services. For example, automotive manufacturers considering these services as a way of adding value to their product .

However, as a supplier you are still too reliant on the product, focusing on your own definition of a service rather than the customers. From a customer’s perspective, providing maintenance and repairs is seen as something that is obvious and almost expected rather than a service that adds value.

Types of Services

The type(s) of service(s) a company provides can have a bearing on its success in implementing servitization. Research shows that companies are successful when they provide skilled services such as design and system solutions. The risks of providing more basic services may outweigh the potential benefits of servitization.

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Services as a cost

Providing maintenance and repair services requires an upfront cost from the manufacturer. A service centre needs to be set up and technicians need to be available to repair and maintain the customers’ broken or faulty products. But servitization goes far beyond mere ‘maintenance and repair’.

There are many opportunities to better serve the customer and add value through additional services such as design, installation, transportation and consulting. These services should be regarded as a way to generate incremental revenue rather than as a cost.

Integrated production and service  

For services to successfully generate revenue, it is important that the sale of services is integrated company-wide, as the production process and related services will span several departments. In practice it often turns out that production and services are disconnected from each other, so with this cross-functional structure in mind, organisations need to ensure that departments are fully integrated and all involved in the transformation process.

Do not forget your IT platform 

During the transformation from product supplier to total supplier, it is important that an organisation’s IT systems can support the changes. The existing IT platform will have been built to focus on and support the core business rather than the new hybrid organisation, so evolving the IT platform to support all aspects of the business, including streamlining business processes, is critical in generating revenue from service activities.

Successful implementation of a servitization strategy 

So, there are plenty of pitfalls on your path to an integrated servitization strategy. Adding services to your successful core business is an important transformation process that needs to be done diligently and with conviction. It is much more than simply adding services to existing products. It’s about seeing your organisation as a service provider that sets out to improve the processes of its customers through a business model, rather than product-based innovation.

If you are wondering what steps you have to take, you can download HSOs series of servitization whitepapers:

Part 1: How Manufacturers Can Put the Customer First

Part 2: How to Reap the Benefits of a Servitization Strategy

Part 3: Creating a balanced revenue stream with Servitization