SERVITIZATION TAKES CENTRE STAGE

Mar 21, 2016 • Aston • aston business school • IoT • Servitization

If you thought that servitization was still a concept or something only applicable for large manufacturers, it's time to think again, says Professor Tim Baines, Director of the Centre for Servitization Research and Practice, Aston University Business School, Birmingham.

There’s an excitement about servitization at the moment. "People are asking questions such as: Is it relevant to my business? Will it work for my products? Are my competitors adopting it? What does a Servitization model look like?" Servitization in general and Advanced Services in particular are attracting interest, says Baines, because they offer the prospect of new revenue streams through post-sale services and the greater financial sustainability that comes with it because manufacturers are no longer totally reliant on transactional sales of products for income.

However, as more services are being built around products, says Baines, so process are becoming more complex. "There are three levels of manufacturer-led product services: spare parts, proactive and reactive product condition maintenance, and Advanced Services such has outcome-based contracts. As companies realise the benefits and value servitization can deliver, both they and their customers are becoming more excited about the possibilities of the Advanced Services element." He points out the parallels with the lean manufacturing journey many manufacturers have already been to remove waste and cost from production processes. “Just as Kanban inventory control and just-in-time logistics processes were advanced elements in lean manufacturing, so Advanced Services are a sophisticated element in servitization."

There’s still a lot of uncertainty about whether the servitization model fits all manufacturers and whether it is relevant to all business sectors.

The move towards a servitization model requires a greater focus on customer intimacy, and a change in process towards delivering capabilities and outcomes rather than products, which in turn requires business model innovation, organisational transformation and adoption of new technology, he explains.

All of this is challenging for manufacturers to take on board, he concedes. "While there’s a lot of interest, there’s still a lot of uncertainty about whether the servitization model fits all manufacturers and whether it is relevant to all business sectors. Part of that is because people often think servitization is difficult because of the process changes that need to happen. However, rather than look at servitization per se as being difficult, it’s more useful to focus on how receptive your organisation is to change. It’s as much about the culture and attitudes within the business."

Neither is company size is relevant to whether change will be embraced or resisted, says Baines. “Big companies have more resources to initiate change but also more inertia when it comes to changing existing processes. SMEs can be much more nimble having fewer constraints with, say, legacy processes." There is no doubt that SMEs are interested in servitization - in 2015, out of 100 companies that Aston consulted with on servitization, 77 were SMEs, reports Baines.

The intimate relationship with your customer and long-term partnership that the servitization model demands, beings other challenges. "Who has the intimate relationship with the customer: you, the manufacturer of the product, or your distributor? How do you ensure your distributor has the same commitment to your customer needed to make the Advanced Services model work?”