The power of servitization

Jul 23, 2015 • Features • Alstrom • Servitization • Customer Satisfaction and Expectations

In an exclusive interview with Field Service News, Alex Bill, Alstom Power explains to Kris Oldland how the servitization model works in the power generation industry.

For many the concept of servitization is both a new and challenging concept. Even the language around the movement can be confusing. Advanced Services, Outcome Based Solutions, Industrie 4.0 are all on the surface similar terms for the same thing.

At its bare bones it's a movement away from a one-off transaction based revenue stream to a more prolonged, long-tail service-focused revenue stream. Servitization is getting traction across the globe but for many it’s still in its infancy.

Alstom have embraced the servitization model across a number of divisions.

However, for a few companies it’s just the way they do business and has been for some time. One of those companies is across a number of their divisions including power generation and one man who has been right at the heart of this sector for some time is Alex Bill.

“For Alstom Power we have been doing these outcome-based services, or long-term service agreements since the early nineties and we’ve been very successful with these long-terms agreements, which we call operational service contracts. It’s something that we tie in with our upgrade packages,” Bill explains.

Of course the first challenge for a company trying to move towards such a solution is to answer what is often the customer's most important and usually most pressing question ‘What is in it for me?”

Continuous improvement

The way Alstom approach this equation is by continuously improving the service levels and outputs that they deliver to their client base.

“We do a lot of R&D and service R&D on improving the performance of our install- base products and then retrofitting that onto the install base” Bill explains.

Of course this R&D can feed not only the service division but also production of new solutions as well, Bill points out. “By doing this we are also making our new products better and then again tying that all together with long-term contracts which you could call outcome-based contracts.”

From a customer perspective there could be a very compelling argument for moving to outcome-based contracts.

So from a customer perspective there could be a very compelling argument for moving to such a relationship. Rolls Royce, for example, is one of the other often-cited examples of a company pioneering an outcome-based solutions model, but it was driven by their customer American Airlines.

But what about from the service company's outlook?

“From my own personal perspective one of the key benefits is securing long-term business,” Bill asserts. “With an outcome-based contract you can secure business with a customer or a range of customers for ten to fifteen years.”

Such long-term financial security is of course the answer at the heart of the servitization argument. The aim is to move away from the one-hit transaction and by doing so both spreading and increasing profits over a longer period but, as Bill reveals, the beauty of such an approach is that it can become practically self-perpetuating.

“In exchange for that long-term security you have, of course, to guarantee certain outcomes but it’s thanks to that long-term security that you can invest in your service R&D. Suddenly you’ve got a business case to make which is in fact quite a profound one. By investing in those upgrades and bringing them to market essentially it becomes self-fulfilling,” Bill explains.

With his relaxed and conversational manner, the way Bill explains it makes it seem like child’s play. Of course the opposite is true. Establishing such a close relationship with your clients is key if you are going to be able to make such an approach work.

You have to build the relationship with the customer at quite a few levels.

“If you look from contract to contract, you really have to be pretty good with customer intimacy and build the relationship with the customer at quite a few levels,” adds Bill.

“That relationship is a key differentiator for us. It begins when we sell the new product and from there we are with the customer from day one. We then need to build on it and improve it through the services we deliver.”

Having worked both on the manufacturing and services side of the fence Bill is also well placed to see the difference between the two sides of the customer relationship.

“The interesting part from coming from the manufacturing side of the business is the customer you don’t really see until you are coming to the end of the process,” Bill explains when asked about the difference in approaching both the new-build and then the long-term service contracts.

“In service the customer is there at the beginning, the middle, and the end. The variability between customers is also more apparent: in their processes, for example, and understanding their individual needs and so forth. It really does take a different mindset as that variability and the needs of customers can be quite different. That’s always an exciting challenge,” he concludes.