Servitisation is not a particularly new phenomenon. Yet despite being around for 50 years, it has only relatively recently become a talking point, especially in the manufacturing industry. By Antony Bourne.
The term ‘servitisation’ was defined in the late 1980s in the European Management Journal, but the concept of bundling service packages with products to add value goes back to the 1960s and the innovative ‘power-by-the-hour’ concept of Bristol Siddeley, a British aero-engine manufacturer later acquired by Rolls-Royce. It offered a complete engine and accessory service that enabled operators to forecast service and replacement costs more accurately and eliminated the need for stocks of engines and spares.
Drivers behind servitisation’s curent revival include growing local and global competition and the commoditisation of products. Instead of accepting the received wisdom that competitiveness can only be achieved by offering cheaper, faster or better products, manufacturers are increasingly seeing themselves as service providers, offering total solutions rather than just products. For example, instead of asking its customers what they want (aero engines), Rolls-Royce asks what they want to achieve (maximise flying time). So Rolls-Royce offers TotalCare, enabling customers to purchase the power of an engine while Rolls-Royce delivers the support that ensures the engines deliver power.
A major factor driving servitisation is new technologies and capabilities that enable more advanced, complete service options. The Internet of Things (IoT); advances in sensor and beacon technologies; the ability to quickly convert operational data into real business intelligence through advanced analytics; the ubiquity and range of mobile technologies and devices – innovations like these are ushering in a totally different take on the role of the contemporary manufacturer.
What’s required of manufacturers who want to servitise their business? Like any other major innovation, enterprises will need to confront change to grasp the opportunities servitisation presents. A study from the Cambridge Service Alliance in 2015 found consensus among capital equipment manufacturers on five key technology requirements: predictive analytics; remote communications; consumption monitoring; pushing information to employees/customers via mobile platforms; and mobile platforms to access software remotely. Manufacturers will need to assess the value of these, and other, technologies to ensure medium-term service competitiveness.
Servitisation also brings organisational challenges that may cause manufacturers to question the process. Will it be necessary to invest in new equipment? Do staff have the required skill sets to deliver on service promises? What will adding service entail in terms of regulations and compliance issues? Enterprises must also learn that, to win new customers by adding service, sales cycles will be longer. Instead of wares, they will be selling value, such as lower costs or higher revenue, which often requires more persuasion. Among other things, they will need the right enterprise software.
However, companies need to overcome these challenges if they are to remain competitive –for some, it will be a matter of survival. Nonetheless, manufacturers are already reaping the benefits of servitisation in a wide array of sectors.
Dutch technology firm Philips provides one of the world’s busiest airports, Amsterdam-Schiphol, with ‘lighting as a service’. Because efficient LED lamps are expensive, the airport authority opted for a servitisation package from Philips to provide lighting. In line with its eco-friendly policies, Schiphol has reduced electricity consumption by 50% without buying a single lamp.
Servitisation approaches also brought environmental benefits at MAN Truck and Bus UK, who cut customers’ fuel consumption by at least 10% and reduced CO2 emissions by up to 15%.
While known for products such as photocopying machines, Xerox has made a significant shift to a service-centred business model, focusing on business outsourcing, document and digital printing, and software solutions. Using these solutions, enterprises such as Reuters report a 19% reduction in total cost of ownership, PricewaterhouseCoopers (PwC) is 100% compliant with security requirements, and the UK Department of Work and Pensions has cut electricity consumption by 36%.
Beijer Electronics, a Swedish producer of electronics hardware, is another case. Forecasts showed that within six years, the automation industry’s hardware focus will be transformed and sales growth rate will decline. The survival path Beijer chose was to add software that helps customers control and manage hardware. And that’s where the company sees future revenue growth and new business opportunities. One tool Beijer uses is a CRM solution from IFS that is integrated with its business software. Among other things, it puts accurate customer information directly into the hands of sales staff, enabling them to tailor offerings to different customer categories. Beijer is also looking at mobile CRM to speed up information flows and access sound business intelligence in the field. One effect of this is that Beijer’s customers get through-life service that enables them, in turn, to resolve their customers’ problems and create the feeling that they and Beijer are ‘in this together’, enhancing customer loyalty.
Companies like these, who have added advanced services to increase the value of their offering, tend to use some or all of the technologies underlined in the Cambridge Service Alliance study. In adapting their organisations and acquiring the requisite technology, they have confronted the question ‘What’s next?’ – and reaped significant benefits. Indeed, adding service contributes to the very essence of good business: actively looking to the future and seeking to shape it, to create opportunities rather than merely grasp those that arise.
Benefits reported include: revenue growth between 2x and 4x; margin increases of 3%-10%; sustainable business growth, with increases of 5%-10%; greater customer satisfaction; more repeat business, greater market share, and a better reputation; and predictable income streams.
For decades, IFS has worked with manufacturers to help them design, make and sell their products. Now, it is taking the next step and enabling them to efficiently add service to their offering. Combining a comprehensive suite of enterprise software, IFS enables manufacturers to actively particpate in the transformation process, giving them the capabilities and insights to make decisions based on real-time statuses to not only meet customer needs but also anticipate them. Being able to handle today’s business challenges is important; shaping what’s next is crucial to growth and continued success.
Antony Bourne is Global Industry Director of Industrial and High-tech Manufacturing for enterprise applications company IFS.