The Servitization Solution for the Manufacturing Industry
Like many industries, manufacturing has been facing disruptions. For example, traditional spares and maintenance revenue have declined as low-cost pirate suppliers and independent service providers gain market share and erode margins. Longer product life has led to commoditization since imminent saturation in value creation is achievable through pure product sales and product R&D. Finally, customer demands post-pandemic have been rising as analytics and insights add higher expectations of value from OEM. While these disruptions are notable, they have had a positive impact in that they have driven manufacturing toward an AI-led and design-led servitization model.
The servitization solution for manufacturing refers to the bundling of digitization with products to create new service offerings. Servitization can add value to existing offerings by leveraging data from connected products to offer free data-driven insights to end-users. Servitization also allows for-fee services by charging for consulting and data insights based on advanced analytics. Finally, the servitization model enables result-oriented service offerings, which are pure service offerings through a product typically on uptime or pay per use basis. What is unique now is that most of these models are becoming part of organizations to drive their cost centers to be profit centers.
Servitization models typically offer three types of services: base, intermediate, and advanced. Base services refer to goods and spare parts, intermediate services include product repairs, maintenance, overhauls, helpdesks, training, and condition monitoring, and advanced services allow for customer support agreements and outcome contracts. In order to build and sustain a successful model, there must be major access by personas and support to AI and data analytics.
One of the great things about servitization is that it can provide benefits to virtually any business. The first step is creating and understanding your initial product. Understand the process of what it is and how you sell it through data. Once you are established with the product, it is then where you allow things to expand. Not necessarily expanding the product but creating new revenue streams by providing services that create a well-rounded solution.
In the B2B space, Dutch electronics firm, Philips, provides LED lighting-as-a-service to Amsterdam-Schiphol airport enhanced by the Internet of Things. Meanwhile, in the B2C sphere, Apple has found the benefits of servitization models by setting up user-friendly stores designed to offer a hands-on experience guided by Apple enthusiasts. Servitization benefits extend into the B2B2C space as seen with the omnichannel, SAP-integrated eCommerce model for manufacturers who sell to Amazon. Integration between Amazon, the manufacturer’s eCommerce store, and SAP, enables the manufacturer to get closer to the end-user of their product by selling alongside distributors. Finally, LinkedIn, a B2C2B company, offers a free model as well as premium models for HR, sales, and marketing.
Just as there are various services servitization models offer, there are also different servitization models: product-oriented service, user-oriented service, result-oriented service, and customer-oriented service. In terms of product-oriented service, GE Healthcare is one of the best examples of this type of servitization model. Every servitization model is crafted by data thinking to be applied through design thinking. This is what takes servitization to the next level.
The benefits of the servitization reach beyond its various models and applications to different business types. We know that this is where companies are today, but it is not so obvious to all leaders. Servitization models are known for growing revenue and profit, improving responses to customer needs, improving product innovation, building new revenue streams, increasing customer loyalty, and setting high barriers for competition. While disruption is never easy, as these benefits illustrate, servitization models are a successful solution for the manufacturing industry. The time has come when persona led (through Design Thinking) micro-services must be the core part of the servitization model leading to twinning of the models prior to the launch of the program, aka, Digital Twinning; when launched execute a continuous improvement model by running analytical components, aka, Contributor and Consumer Services and create a closed-loop performance measurement by creating a “call home” feature to improve product design and delivery.
