However, servitisation goes beyond good customer service and has recently become reinforced by other trends: digitalisation and social change, and that material products are increasingly losing perceived value. For modern consumers, ownership is taking a back seat. Instead, they are increasingly looking for the most cost-effective way to complete tasks and solve problems.
Through servitisation, manufacturing companies are simply following the change in demand. Instead of offering a product for sale, they market a combined offer of product and service
. For customers, this means that they have less work to do, integrating the product and can concentrate on their core business.
For manufacturing companies, the combined approach means more turnover per customer
without much effort; selling the required 'know-how' that is readily available. In its completion, servitisation becomes product-as-a-service or solution-as-a-service.
THE DIFFERENT TYPES OF SERVITISATION
In servitisation, experts distinguish between three different types of services with their different scopes:
- Base Services: These are options that can be added to a physical product, for example spare parts service, installation and set-up on site or application training for staff.
- Intermediate Services: These are services that ensure that the product is always functional and operational, for example regular field inspections, maintenance and servicing.
- Advanced Services: Customers no longer buy the product itself, but rather a specific service provided by the company, for example leasing machines or the "power by the hour" model of Bristol Siddeley or Rolls-Royce (see below).
SERVITISATION AND THE PRODUCT-SERVICE RELATIONSHIP
In the context of servitisation, buyers, experts, and service companies often move to a so-called Product-Service system
. It is created when a product is linked with suitable services to form a new overall package. Under this system, and as the relationship matures, product and service is weighted differently
. What results is a shift in balance and responsibility:
- Product oriented: Product is in the foreground and is only complemented by individual field services such as installation, maintenance and repair.
- Integration oriented: Additional services such as financing, disposal of old equipment or training are intended to facilitate the acquisition and integration of the product.
- Service oriented: True product-service system where both elements are essential, for example sale of a heavy plant equipment in combination with a monitoring service (corresponding to Intermediate Services).
- Use oriented: Selling a function instead of a product, for example through a leasing service for machines and equipment.
- Results oriented: Service completely replaces the product, for example by offering a gardening service instead of selling a lawn mower.
EXAMPLES OF SUCCESSFUL SERVITISATION
The potential for long-term value creation sounds great, but how does this look in practice? The following examples of a product-service operations (derived from product ranges) illustrate servitisation best practice for the manufacturing industry:
I. THE ROLLS-ROYCE 'POWER BY THE HOUR' OFFER
Bristol Siddeley, a manufacturer of aircraft engines, came up with the idea of offering its engines to airlines as early as the 1960s. This is, to not simply sell conventionally, but make products available for a transparent, fixed price.
A fixed price per flying hour was agreed. The Invoice per flight hour
gave the business model its name: 'Power by the hour'. After Rolls-Royce bought the company in 1968, however, this early innovation in servitisation was initially left to be forgotten.
Around 15 years later, management took up the basic idea again and developed a new concept based on servitisation with 'TotalCare'. For a fee, airlines now acquired the 'provision of an engine including monitoring, maintenance and repair'
. Billing was based on operating hours.
Advantages of servitisation:
- Less fluctuation in engine sales
- Increase in turnover through integration of repair, maintenance and spare parts
- Quality and durable engine design with low maintenance are rewarded
On the airline side, the concept also brings many advantages. In fact, the 'power by the hour' principle enabled the emergence of modern low-cost airlines in the first place, because they no longer need so much capital to enter the market:
- Fewer financial risks
- Plannable operating costs
- Better availability for engines
- Reduced downtime through monitoring and regular maintenance
Other industries and companies such as the tool manufacturer HILTI have meanwhile taken up the 'power by the hour' concept and make their products available to customers, including maintenance and servicing, for a fixed price.
II. ICI-NOBEL – A SERVITISATION SUCCESS STORY
As a manufacturer of explosives for quarries, ICI-Nobel suffered from intense price pressure and erratic customers who could not be tied down. The weak competitive position
could have meant the end. Instead, the management invoked the strengths within the company:
competences for carrying out and optimising blasting.
Instead of continuing to compete in the competitive market for explosives, ICI-Nobel changed its offer from a pure product to a service for quarry owners and operators;
the planning, preparation, and execution of blasts corresponding exactly with market demand. Up to now explosives had only been a means to an end.
By almost perfectly satisfying the needs of its customers, ICI-Nobel not only achieved higher profits
, but also better customer loyalty
. The quarry operating companies appreciated the benefits of servitisation;
they no longer had to employ skilled workers or store dangerous explosives, but still made the same profits.
NEW BUSINESS MODELS BRING NEW FIELD SERVICE CHALLENGES
If you want to think along the lines of servitisation, think from your customer's perspective. Consider what management thought leader Peter Drucker said: