Making Servitization Pay
In today’s aggressively competitive global markets it is increasingly hard to keep competitive differentiation between a company and its competitors. With improvement in the quality of manufacturing production in emerging markets, and the associated off-shoring of manufacturing, it is harder to differentiate on product quality alone. Competition is no longer predominantly domestic and is increasingly driven by pricing, this has led to product-centric companies offering services to complement and enhance their products, a process known as servitization. Whether it is Rolls Royce selling engine power by the hour or Audi Unite allowing families to share new cars, the process of servitization creates opportunities for both producers and customers.
Servitization is the process of moving a product-centric business away from the provision of a pure product, through the intermediate step of delivering support and maintenance services based around the product, to a goal of advanced services based on the performance of the product. Product-centric businesses embracing servitization get closer to their customer, delivering greater value based on the outcome of the use of the product, which is what the customer ultimately cares about. An example is a printer manufacturer evolving through a journey of selling printers, then providing consumables and maintenance services, and ultimately providing printing output. Servitization delivers material benefit to the supplier, revenues increase through the sale of new service lines, margin increases as the value-added nature of the services derive greater margin than the product alone, and a competitive moat is built around the supplier, the customer becomes more reliant on the supplier, the relationship becomes stronger and harder to dislodge.
This move to services is not yet delivering value for many traditional product companies – research shows that while 7 out of 10 manufacturing business say services are now well developed in their businesses, a third have yet to derive any significant value from them. Why is this? There are three main areas of challenge.
Pricing services is a new area of undertaking identifying the costs of service delivery are challenging. Understanding all the resources required to deliver advanced services and ensuring that all costs associated with delivery are captured and allocated to the appropriate customer are critical to the success of a services line of business. When starting a servitization journey it is critical to make the first steps successful to keep momentum behind the initiative. To deliver accurate pricing, and capturing accurate costs and consumption of delivered services, legacy siloed systems need to be integrated into a single view across all operations.
Resource allocation – for successful servitization it is essential the right people, products, and assets are deployed in the right place at the right time. This requires a thorough understanding both of what is in use, what may be required in future and the probability of what may be required, are accurately forecast. Combining a view of today with a predictive view of the future is critical to success.
Delivery execution – the move to advanced services through servitization gets the supplier much closer to the customer and while this delivers great opportunity it also injects risk. As the customer becomes more reliant on the supplier, it is critical to ensure services levels are optimized at all times. High-quality service relies on customers not having to wait for service delivery and for the services provider to predict and pre-empt customer requirements, this requires a real-time view of services operations, ensuring customer requirements are met at all times.
At Kimble, we are aware of these challenges because we work with product-centric businesses who are moving to servitization. Kimble co-founder Mark Robinson writes here about how the role of a services team embedded in a product business changes according to the maturity of the product.
Servitization requires implementation of professional services automation technology. This should deliver a real-time, customer-centric operational view, with predictive and proscriptive analytics, highlighting trends and recommending the next best action to services teams.
As product-centric businesses adapt to new ways of working they allocate the time of high-value resources effectively, manage engagements proactively, and forecast accurately. When they do this consistently, business performance improves and servitization delivers revenue growth, profit growth, and improves customer satisfaction.