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Insights from a recent study by the Advanced Services Group at Aston Business School can help you understand if you’re on the right path to advanced services. Professor Tim Baines explains...

Is Servitization a burning topic for your organisation - join Professor Baines and the Advanced Services Group for the Spring Servitization Conference, Copenhagen, Denmark, 14 - 16 May 2018 more info @ https://www.advancedservicesgroup.co.uk/ssc2018

Researchers and pioneering manufacturers have been singing the praises of servitization and its benefits to business – and it seems industry is starting to listen.

Increasing numbers of manufacturing and technology companies are trying to implement services-led strategies. How to go about doing this in practice, however, still presents a challenge to many. The leaders of today’s industry see the success of Rolls-Royce and Xerox in this area, yet they often struggle to work out how to achieve the same for their own businesses.

Within the Advanced Services Group at Aston Business School we’ve been working with manufacturers around the world using the latest research to support them in finding their path to compete through advanced services.

Advanced services’ go a step beyond the product condition and focus on the outcomes that the product enables.While most manufacturers already offer ‘base services’ focusing on product provision such as warranty and spare parts, others take a further step by providing ‘intermediate services’ focused on the product condition such as maintenance, repair, overhaul and remanufacturing,. ‘Advanced services’ go a step beyond the product condition and focus on the outcomes that the product enables.

Real-life examples include Rolls-Royce’s Total-Care offer on gas turbines for their airline customers based on a ‘fixed dollar per flying hour’; Xerox delivering ‘pay-per-click’ scanning, copying and printing of documents; and Alstom Train-Life Services supporting Virgin by assuring the availability, reliability and performance of their Pendolino trains on the UK West Coast Mainline. Advanced services such as these are a core concept in servitization.

With their potential to radically disrupt and alter the face of manufacturing, understanding the process of introducing them is vital to businesses and the economy.

At the Advanced Services Group, this is the focus of our work.

In a recent study, we examined two key questions about the path to servitization:

1. What stages do manufacturing companies go through to achieve competitive advantage through advanced services?
2. What factors and forces affect their progression through those stages?

We conducted interviews with 14 multinational manufacturing companies, all on a trajectory to compete through advanced services, representing a range of industries – from aerospace, defence and road transport through to air filtration and precision motion control systems.

The four stages of transformation

We found that manufacturing companies go through four stages in their transformation to compete through advanced services: exploration, engagement, expansion and exploitation. As manufacturers become conscious of the concept of servitization and suspect that advanced services may be relevant to their organisation, they will start out in a stage of Exploration, where they are doing their research to find out more about the concept and how it could benefit their business.

If the Exploration stage yields a viable opportunity for growth, the initiative will move to Engagement. Here, companies experiment and run pilots with customers and relevant technology, to evaluate and demonstrate the potential value of advanced services.

If the Exploration stage yields a viable opportunity for growth, the initiative will move to Engagement. Here, companies experiment and run pilots with customers and relevant technology, to evaluate and demonstrate the potential value of advanced services.Once a constructive outcome is achieved, the attention moves to Expansion, where advanced services are innovated and implemented with increased scale and speed. When the value of these is demonstrated, attention will switch from individual projects, to initiatives focused on the reliable and efficient delivery of a portfolio of services across the organisation. In doing this, manufacturers are focusing on Exploitation of advanced services.

In each of these stages you can expect multiple iterations and interactions until there is sufficient evidence and consent to move to the following stage.

Progression through the four stages – or in some cases falling back – is influenced by five forces.

Five forces affecting transformation

1. Customer Pull

Customers’ appetite for services has a significant influence on progression.

Several companies described their decision to offer more advanced services, together with usage-based revenue models (i.e. pay-for-flight-hours or pay-for-passengers-moved) as a direct reaction to customer demand.

2. Technology Push

Other manufacturers start servitization having become aware of the technology that could record how their products are being used and transmit this data back. The data makes it possible to develop advanced services contracts based around payment for outputs achieved rather than asset ownership.

The majority of the companies we studied said they had been influenced by this ‘technology push’; IoT and industry 4.0, which are hot topics in industry at the moment, were often mentioned. Fewer companies mentioned the ‘customer pull’ factor, and yet customers’ growing appetite for ‘experiences’ over ownership is arguably just as significant.

In the UK for example, the appetite for services has grown 2.4% per year for the past 20 years according to the Office for National Statistics, significantly outstripping that for selling products – a trend that is being replicated in every developed economy across the world.

3. Value network position

The position of the organisation within the wider value network can affect business transformation.

As an example, working through distributors can restrict access to customers and inhibit the changes needed to deliver services. In several cases, manufacturers chose to acquire their distributors.

One manufacturer was stalled by the access to remote sensing technologies, wrestling for some time over acquiring a technology vendor, to give them access and control over information. Positioning in the value network that delivers dependable access to both customers and suppliers has a significant influence.

4. Readiness to change

Internal organisational factors influence readiness to change and can affect progression. Having reliable and well-performing products, for example, is a prerequisite to compete through services. It also leads to an interest in advanced services in cases where, increasingly, product reliability and performance are no longer differentiators.

Organisational commitment is also important. In some cases, where the support of the management board was in place from the outset, companies progressed quickly through the exploration and engagement stages. Without this, progress can be much slower.

5. Competitor threat

The actions of competitors significantly affect organisational commitment. In one case, organisational commitment to advanced services came about when a principal competitor acquired a network of service providers.

This caused anxiety amongst the leadership of the company and led to significant investment in its own advanced services programme.

Are you on the right path?

The findings of our study suggest that transformation towards servitization is neither a clear-cut, linear processnor an easy one. In each of the four stages, key milestones have to be achieved before a company can move to the next stage.

The five influencing forces work internally and externally, affecting progress in each stage. These five forces may be so strong that the manufacturer moves rapidly through all four stages. In other instances, they may be so weak that the manufacturer fails to progress entirely.

Next month we will be running the seventh annual Spring Servitization Conference, this time in partnership with Copenhagen Business School, where we will examine research into the detail of these stages and influencing forces.

The Conference is the go-to place for researchers from around the world to present and discuss their latest work, and topics this year will include: changing the mindset of the organisation in order to compete through services; pricing advanced services; how to use data as an enabler for servitization; how SMEs, in particular, can create value through servitization; internal and external enablers and inhibitors.

To book your place, visit https://www.advancedservicesgroup.co.uk/ssc2018. 

Field Service News will be reporting from the conference and interviewing some of the industrial speakers; look out for updates in future issues.

Can’t join us at the conference?

You can still develop the skills, knowledge and action plans to implement servitization and advanced services at our Skills for Servitization workshop on 22 May 2018. Find out more at https://www.advancedservicesgroup.co.uk/skills-for-servitization In the meantime if you want to assess where your company stands today in terms of adopting a services strategy and where you’re aiming to get to- and compare your thoughts with colleagues to test your alignment- our quick survey Unlock Your Insight will give you a personalised set of feedback in under five minutes. Visit https://www.unlockyourinsight.co.uk/

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With the topic of Servitization gaining more and more traction both in manufacturing circles and beyond a new industry book that provides a roadmap to making the shift towards advanced, outcome based services could well be of vital use for service executives across the globe. One such book Service Strategy in Action has just been published and Kris Oldland spoke exclusively to co-author Christian Kowalkowski...

I’ve met with Kowalkowski a number of times over the last few years.

More often than not it is at the Spring Servitization Conference, arranged by the Aston Centre for Servitization, (who themselves are part of Aston University,) which in itself is an interesting few days as it brings the universes of industry and academia together and there seem to be more and more people in attendance from both sides of the table each year.

Indeed, this should come as little surprise to anyone who has attended any field service oriented conference across the last few years. Servitization, arguably driven by the growing maturity of IoT, has become a mainstream topic within our industry and academics such as Aston’s own Professor Tim Baines, or Cambridge University’s Andy Neely - are both highly sought after for speaking engagements on the topic.

So given the rise in interest in Servitization, it is perhaps something of an anomaly that there are so few books dedicated to the topic. There is Baines’ own offering written with Cranfield’s Howard Lightfoot, 'Made to Serve' that is generally regarded as the go to book on the topic. Then there is Dr. Michael Provost’s excellent work ‘Everything Work’s Wonderfully’ but there is not a huge amount else.

At least until now.

Kowalkowski's new book Service Strategy in Action, co-written by Wolfgang Ulaga , is in many ways perhaps a natural sequel to Baines’ & Lightfoot’s Made to Serve, which although still superbly relevant to anyone wanting to understand the topic of servitization - is now approaching it’s fifth birthday.

And while the philosophy and concept remains the same, the conversation has evolved considerably within that period.

So how does Kowalkowski view the book?

“It is really written with executives in mind,” he explains “for business managers as well as service development consultants who are focussing on these issues. What we wanted to do was come up with a really simple road map for service strategy in action, divided into twelve distinct steps - so dependent on how mature the company is when they start, they can pick up the roadmap at the right point for their organisation.”

 

Indeed, the book certainly has the well ordered structure of a manual or how-to-guide. However, given the heavy weight nature of the content this not only makes absolute sense but is probably essential for it to be easily digested as a whole.

Kowalkowski himself, is a softly spoken and quietly intense academic with a clear passion and dedication to his topic and this also flows into his written work. Without, the roadmap structure, there could have been a danger that this book could’ve become a book for academics, that lay-folk like myself (and much of it’s intended audience) may have found hard to navigate through.

As it is however, it provides a perfect reference tool for companies making their way through the maze of moving from a traditional break-fix/SLA based business model to an outcome based services model, where uptime and CSAT are the new golden KPIS.

So how does the book plot out your path towards a truly servitized business?

Actually, the path laid out by Kowalkowski and Ulaga is a fairly straightforward one, based on their work with a number of differing organisations. As with all good ideas this journey starts at the beginning by establishing a clear understanding of why companies should be taking this path in the first place.

And of course not all companies are created equal, and very few scenarios are ever the same. So the opening section of the book deals with understanding your organisations position.

“First of all the service imperative, why at all move into service in the first place,” Kowalkowski comments.

“Is such a move a defensive stance to defend a product business? Or is it more offensive to gain additional revenue streams? What internal and external drivers towards advanced services exist within your organisation? Are you perhaps already on a burning platform - in which case maybe you better move a lot faster?”

“It [Understanding your position] also enables you to access the low hanging fruit, but then if you want to make more profound changes then you need to transform your business model more extensively and different elements of it.”

“What are B2B services – what are the key challenges? Products, are of course very heterogeneous but services are even more so - so, you really need to understand that it is a very different animal selling spare parts to promising up-gain sharing – it’s different worlds.”

 

The book also focuses on the cultural elements of such activities which typically are overlooked in a lot of the other academic literature on servitization which do not touch much upon the softer issues.

Yet the cultural aspect is really important and a key inclusion the book as Kowalkowski explains.

“We have a framework, key characteristics of what becomes important when building a service culture,” he begins.

“It’s all about the starting points – you often start in a service desert, a very myopic perspective where service is a necessary evil. Then the journey is through a dark tunnel before you the see the first glimpse of the promising light where service becomes a key growth engine - and that should be the aim.”

Then this framework can also be used for analysing and diagnosing the internal organisation – where are you today and what do you need to do to get to where you need to be.

Do we have some people who are really strong and supportive within the service business and if so are they in the right place?

“It’s not enough to have a service enthusiast in middle management level.” Kowalkowski asserts.

“You might need to have some service evangelist on the top level and you need the service promoters on the front office. Then you need to convince enough people who are fairly indifferent towards this, you can’t convince those that are the outright obstructers, but to form a guiding coalition large and powerful enough to make it stick – this is something that is important and we focus on this in the chapter on division and leadership.”

 

“We explore how can you do this using established change management framework and how to apply that to a servitization context – so forming a strong guiding and coalition and then empowering others to act upon that vision,” he adds.

In fact, the approach outlined in the book utilises the well established Kotter’s eight step framework which we then applied to this context.

“We said what are the service specific traits of change management here and provide some examples of that instead of re-inventing the wheel,” Kowalkowski comments.

“You have these proven frameworks already and this is very much a change management effort. It is not necessarily the hard things that fail, you might have the technology in place but maybe a company may focus to much on what is technically possible.”

“It becomes this double edge sword - do too much and you just rely on your technological features, investing in technology is of course OK, but ask what can the end customer do with it? You need someone who can analyse the data and suggest improvements for your client’s business, and provide them with insight that they don’t necessarily have the time and resources to do themselves perhaps?”

 

In fact, the questions around how, when and why customers should be engaged within the process of moving to a servitized business model are also covered extensively within the book.

“We focus on the customer and the job to be done in really understanding and outlining how service innovation and development is different from product innovation. We look at strategy and how it is aligned to corporate thoughts?”

“Are you really prepared to cannibalise your business – is that even really necessary?” It may that it is not - depending on what your goal is for the service growth initiative is.”

Again the emphasis is very much about establishing a firm understanding of your own current position before proceeding further. “We offer a diagnostic  test that asks are you are you fit for services, do you have the right resource for what it takes? We look at this in a very straight forward manner but it can be a good starting point for many companies.”

“Then we also look at how to move from free to fee, that is how to capture more value from your existing services – which again is a good starting point for moving towards advanced services, but is also useful for maximising revenue from and getting the most mileage out of your existing services.”

Finally, there is then a focus on building a service factory, which is also about improving existing services.

“We include an example of service blueprinting and how it can be used to improve the efficiency and productivity of the service business," Kowalkowski states.

“It’s all about managing efficiency, effectiveness and capacity utilisation. Again depending on the type of service business, then what productivity aspects are important can be defined.”

Whilst the change management and cultural question are in the main handled by Kowalkowski, the discussion around the transition from selling items, to selling services is a complex one and this part of the equation is handled predominantly by Ulaga.

“Transforming sales is of course a big thing as well and Wolfgang has been working a lot with the sales management - so this part of the book is all based on his extensive work in that area,” explains Kowalkowski.

There is, of course, a very different mindset between a service sales team and a product sales team. But should companies who move to advance services be focussed on retraining their existing staff or replacing them with a specialist sales team that understands and gets service sales?

“Obviously with the magnitude of change, understanding how important it is to get this right is key,” replies Kowalkowski when I put this question to him.

“We dedicate time to looking at the key aspects; what is the difference between industrial sales and service sales? The differences in learning orientation? Customer service orientation?”

“Sometimes, they [service sales professionals] have to be more introverted - which is interesting as you generally look at sales professionals as extroverted people.”

 

‘But look at those who sell service, and who does so well and there is often a much more introverted personality amongst those who are successful.”

It is of course all about the organisation and how to fit service into your organisation.

You will never have a one size fits all solution as different companies work in different ways but Kowalkowski points out that they have noted some “different development patterns over time, such as breaking up the silo mentality, how to foster the collaboration of central and local units and so on,” insight into which would pay for the price of the book itself.

Similarly, understanding if Servitization is right for your business is just a first step on that journey, having a road-map like this book is useful in terms of knowing where you are heading and how to get there. However, it’s also good to know how fast you should be going on various elements of the journey as well.

And this has been embedded into Kowalkowski and Ulaga work also. “In terms of what comes first, strategy or structure - for us it is about having enough in place to be able to initiate the change and execute it,” Kowalkowski comments.

“Maybe you can quite easily identify things that are currently lacking – e.g ‘we are not strong in risk management’. Obviously if a company is about to offer output based services they need to improve that before they can move forward.”

“Yet, whilst that is quite concrete and you could still grab some further low hanging fruit by reviewing your current service pricing – can you start doing something about that?”

“Maybe you need to just start changing cultures and processes for certain things – or even leave some problem areas as they are - as in the long term it may encourages other service and product sales, having a delayed benefit that outweighs the problem it creates today.”

Indeed, the questions around servitization are often as complex as they are numerous, yet the long-term rewards are numerous and long lasting. For anyone going through the shift to servitization books like this are going to be of huge use.

 

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Ahead of this year’s Spring Servitization Conference, Dr Ali Ziaee Bigdeli explores three key reasons why companies should be considering a move towards servitization...

One of the questions that keeps coming up when I talk about servitization is “what are the key examples that really demonstrate the scope of this concept?” There are many examples in the B2B world, where the concept originally took hold, but increasingly examples are emerging in the B2C world, and I often find that these examples that touch people’s daily lives as consumers help to make the point.

Examples of servitization first emerged in the development and delivery of Business-to-Business (B2B) offerings. In this regard, debates almost invariably refer to Power by the Hour, the pioneering engine maintenance solution introduced by Rolls Royce in the early 1960s.

Necessitating extensive changes to processes, structures, technologies and personnel within Rolls Royce, this iconic service provides a perfect example of the experiences and ambitions of many manufacturers who embrace  a servitization-based business model. It also had a fundamental legacy in terms of altering the way that customers contract with the company, with a move away from the transactional purchase of equipment towards a 10-year contractual relationship.

More and more manufacturers are moving towards this initiative. Other B2B examples include Alstom’s TrainLife Services. In this, French group Alstom provides the train with a bundle of repair and maintenance services and charges the operators (such as VirginTrains) based on the miles travelled through 15-20 year contracts. Xerox’s Print Management system offers a services and copier bundle which charges customers based on the number of papers they have copied or printed, and MAN’s pay-per-kilometre programme does a similar thing based on the distance its trucks are driven.

Most of these are ‘classic’ and very well-known examples now, but just recently Goodyear announced the launch of Goodyear Proactive Solutions.

 

This will aim to use new technologies such as predictive analytics to help truck fleet managers better handle how their vehicles are used. The common thread is that the outcome is not the sale of a product, but capability delivered through the performance of the product.

The extension of servitization into a product like tyres, which on the face of it is a ‘simple’ and commoditised product, shows just how widely applicable the idea is.

As I mentioned in my introduction, the concept is also slowly-but-surely getting into the Business-to-Customer (B2C) level too, where it touches our everyday lives. You may have experienced something like it if you have ever gone for a new car on a Personal Contract Purchase (PCP) contract.

It is basically a leasing model, in which the car manufacturers charge their customers based on the estimated mileage for a fixed period, rather than just the price of the asset. Repair and maintenance are usually included in these  contracts, meaning that the customers would only need to fill the tank and enjoy the drive.

Other examples include Brompton, the British manufacturer of popular folding bikes, now rents the bikes via docks across the UK to provide a more hassle-free option; Daimler’s Mercedes Me platform which remotely notifies drivers if the car requires maintenance or repair work; and OTIS’s Remote Elevator Monitoring (REM), which provides safety and continence 24/7 through the data collected, recorded and analysed from the lift. In this, the manufacturer enables to detecting trapped passengers, collect  lift performance data, communicate lift performance data to Otisline, and establish a voice link from the lift car to the Otisline or another manned location.

These examples may lead to the question of why is it critical for manufacturing firms to move towards servitization? I can think of three principal reasons:

1. Growth and sustainability.

Through the development and delivery of advanced service offerings, the manufacturer enables its customers to achieve their key strategic aims. This focus on helping customers to achieve their own Key Performance Indicators (KPIs) is how these manufacturers are differentiated from competitors, and delivers business growth and sustainability for both themselves and their customers.

For manufacturers it generates long term contracts, closer relationships with customers, new business opportunities and revenue streams, and an enhanced image and market differentiation. The customer is able to realise greater value from its operations, better understand and predict its costs and financial profile, and potentially have the opportunity to scale-up operations.

2. Locking-out competitors.

Today, more and more technology-focused intermediaries are moving into the product manufacturing space and disrupting their value networks.

Indeed, significant disruptions are already happening in some sectors. For instance, the technology giant Uber is moving into the long-haul transport business with a new division called Uber Freight, in which the shipper directly connects with the truck, challenging the traditional business models of all stakeholders in this network from manufacturer through to user. Servitization strategies push manufacturers to move towards collaboration with other members of the network (e.g. distributors, suppliers, supplier of suppliers, technology vendors, and customers) and this will create a resilient barrier that inhibits the entry of new players.

3. Sharing risks of new technological innovation.

Manufacturing firms generally perceive implementation and adoption of advanced services as a high-risk strategy, perhaps due partly to a traditional product-based mind-set. The perceived risks are operational (e.g. capacity constraints, human resourcing and leadership issues), strategic (e.g. decline in competitiveness, reputational issues) and financial (e.g. direct negative impacts on profit, revenue and market share).

As with any new initiative, manufacturing firms that start to compete through services must internalise new risks. In this respect, the alignment of the incentive with other stakeholders in the value network enables risk sharing and mitigates unnecessary costs.

There are so many aspects to servitization; the benefits are quite well documented, but the challenges of adopting it are numerous, and our understanding- both as researchers and practitioners in industry trying to make an influence change- of how to overcome these is still developing.

This month I’ll be heading to Lucerne for the annual Spring Servitization Conference.

Over the past few years it’s become a key event in the calendar for researchers and thought leaders who want to share and progress their knowledge and understanding of how the theory of servitization can be applied in practice to manufacturing businesses around the world.

This year, I’m looking forward to the discussion on research topics such as: The impact of top management team composition and past performance on servitization; changing the revenue model for individual services; assessing your readiness for servitization with a diagnostic tool to measure service capacity, as well as industry keynotes from representatives of Sulzer Rotating Equipment Services, Testo Industrial Services, ABB Turbo Systems and Ali Group.

You can join the conversation by coming along to the conference, it’s running from 15th-17th May, and more details and registration are on the website https://www.advancedservicesgroup.co.uk/ssc2017w

 

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