Recently, the word servitisation has been trending in the manufacturing world. This term refers to adding services to companies that are product focused on creating revenue streams and delivering a desired outcome to customers consistently until they become solutions-focused. An easy way to understand this is by considering the as-a-service model. Here, a person will only make a one-off investment in purchasing a product. Servitisation does the opposite, focusing on ‘outcome as a service’. Hence, taken in another way, servitisation considers selling the entire solution to a consumer rather than simply a product. Businesses that adopt this have a far more feasible mode of maintaining finances as consumers would pay for each unit of service that is being used while the organisation remains to have ownership of the technology and handles the operational costs. Modern-day examples of servitisation used in the media industry include Spotify and Netflix. This blog will provide a comprehensive understanding of what servitatisation means for manufacturers.
What is Servitisation?
The concept of servitsation emerged in the 1960s when Bristol Siddeley wanted to offer ‘Power by the Hour’ for their Viper engines. Hence, instead of purchasing an engine, consumers brought the power. Consequently, the operators were able to focus on perfecting the accuracy of their predictive capabilities in assets and significantly reducing capital costs such as accessories and inventory.
Servitisation emerged during the 1980s, making it a differentiating marker that put companies ahead of their competitors. It was introduced by Sandra Vandermerwe and Juan Rada, who wanted to find a way to retain their customer base and demonstrate their unique position in the business world. As organisations started moving away from a purely business approach, they started to gain traction by attracting customers who were interested in only being billed on usage metrics like the number of hours and throughput used. For example, aircraft engine manufacturers preferred ‘pay by hour’, while others considered the lifting capacity measured in tonnes and shaft rotation, which focused on the hydraulic power unit as the basis on which they paid. This gained more popularity during the COVID-19 pandemic as servitisations allowed companies to embrace digitalisation and carry out remote support. In other words, any assets that break at a factory could be remotely fixed much faster due to sarvitisation.
Certain companies have additionally attempted to sell products and also offer services to increase customer revenue without capital investment.
How Does Servitisation Work?
While the process of servitisation differs according to the industry, in manufacturing, there are three levels. This includes base services, intermediate services and advanced services.
- Base services: This includes offering spare parts services to customers whenever required. It, in other words, concerns product provision. For example, the company may continuously send spare parts for maintenance, repairs, asset support and overhaul during a specific period annually. This may not be the easiest level to start, given that it may not be easy to sell spare parts to different industries.
- Intermediate services: This is known as the Maintenance, Repair and Operations (MRO) servitisation level, where services are provided proactively and are remotely monitored. This form of service is more customised to each client’s needs. It consistently carries out condition monitoring, offers field services and can be easily reached through a customer help desk.
- Advanced services: Where parties contractually agree to establish a product service system, a servitisation business model is said to be implemented successfully. This is more in line with what servitisation generally means, thereby being the ideal level. Examples include PaaS, fleet management, and Service Level Agreements.
How and Why Should You Get Started on Servitisation?
Servitisation requires data to be connected for it to be reliable. This means companies should be willing to invest in technologies such as IoT-based sensors to monitor assets in real-time. Other advanced tools like augmented reality can help in diagnosing and problem-solving from a remote location. Thus, companies looking to adopt a servitisation work method in their manufacturing processes must first transition to digitalising their manufacturing plant floor to ensure ample data is collected and analysed using AI-embedded tools. Hence big data also plays a vital role in ensuring informed decisions are taken.
Considering that servitisation directly caters to the customer’s needs, it leads to greater customer retention. Since customers are no longer happy with generalised solutions, the fact that servitisation prioritises customisability so that their clients are able to meet their goals and objectives best is an advantage. Where the company also provides goods, the insights gained through the repair and maintenance processes can be used to improve product manufacturing and meet higher standards. It, therefore, encourages companies to be more innovative and build additional revenue streams.
Understanding that assets today are getting more complicated by the day, many businesses find it easier to outsource their maintenance. This is because the lack of skills and expertise to take care of assets would only lead to massive losses on their end. Hence, outsourcing it to a specialised team that can also help companies understand how they can maximise their investment is advantageous to both parties. As customers are at the heart of servitisation, the close relationship that consequently forms only means that competitors no longer have the space to steal a customer or market share from another.
A Servitisation Model is Only for the Bold
Adopting a servitation model is not for everyone. Designing products and services are extremely different from one another, requiring organisations to learn the intricate differences between them. To successfully implement a servitisation model, there needs to be a change in the corporate mindset to succeed in this type of model. Companies like Rolls Royce, Caterpillar, Xerox and large manufacturing organisations are examples of successful businesses that have benefited from adopting a servitised model in their factories. As servitised manufacturers, the services, knowledge and trust that is formed among clients end up being the driving force to move atop the business ladder in your industry.
