According to University of Cambridge Professer and servitization expert Andy Nealy
, “[s]ervitization is the innovation of organisation’s capabilities and processes to better create mutual value through a shift from selling product to selling Product-Service Systems. A Product-Service System is an integrated product and service offering that delivers value in use. A Servitized Organisation designs, builds and delivers an integrated product and service offering that delivers value in use.”
Simply put, it is the process of adding services to a product. Especially important for complex equipment, servitization extends the value of a product throughout its entire life cycle, not just its initial purchase. It redefines the provider and customer relationship by transforming the traditional short-term transactional exchange of a product into a long-term relationship with service over the life of the product. Is servitization something new or was it here all along?
There are differing opinions when it comes to the emergence of servitization on the manufacturing scene. While some argue that servitization has long been part of manufacturing, others maintain it has been a recently observed phenomenon.
Indiana University Operations Management Professor Roger W. Schmenner
suggests that servitization has antecedents that go back 150 years but simply wasn’t an attractive revenue stream for some manufacturers with high production capabilities. It wasn’t their core competency. Schmenner says that “[t]he bundling of manufactured goods to downstream-available services was led by companies with new products but with no great manufacturing strengths, as a way to establish barriers to entry. Companies with significant manufacturing capabilities were not as quick or as complete in their integration of manufacturing and service.”
In a research paper, Baines, Lightfoot, Benedettini and Kay
say that “[i]n management related literature, servitization development is commonly traced back to the early 1990s. However, Davies et al. (2007) point out that the industrial marketing literature suggests that pioneering applications originated in the 1960s with the introduction of ‘systems selling’ strategies”.
Whichever theory you believe, long established practice or recent arrival, servitization is a topic that is spurring lively debate in the search for additional sources of revenue in the highly competitive manufacturing landscape. Is service revenue growing?
Much has been written about the growing aftermarket parts and service industry as it relates to complex equipment, including posts on our own blog (Complex Equipment and Aftermarket Support Are Like Peas and Carrots
). But is the idea of boundless service revenue fact or fiction?
According to a University of Cambridge research paper The Servitization of Manufacturing: Further Evidence
by Neely, Benedetinni and Visnjic, the scale of servitization is less remarkable than one might think. Their initial worldwide 2007 and subsequent 2011 estimates reveal that the number of “servitized” manufacturing firms stands unchanged at roughly 30%. The United States experiences the highest level of servitization with 58% in 2007 and 55% in 2011. China saw the most significant increase from less than 1% to 19%. With the exception of China, servitization worldwide doesn’t appear to be vastly or immediately reshaping the world.
While they report that “there have been widespread efforts to servitize,” they go on to describe the “servitization paradox” – that “some firms that have decided to servitize achieve superior financial results, while others achieve superior financial results remaining as a pure manufacturing firm.” Schmenner’s theory that highly proficient manufacturers don’t experience success in servitization may be one explanation for low adoption, but there’s more to the equation than is being considered. And that is the application of technology.Servitization at the center of convergence
Products, services, technology and manufacturing don’t operate in a vacuum. They are becoming increasingly connected at an amazing rate. It is at this point of convergence where servitization is poised to redefine how we structure the business models of manufacturing and aftermarket services. Manufacturers not willing to embrace and incorporate technology will find themselves at the shallow end of the servitization revenue pool.
Unlike traditional manufacturing, which has learned best production practices since the days of the industrial revolution, clear cut paths to successful servitization have not been as easy to find or follow. Big Data
, Performance Dashboards
, and Mobility
are just now emerging, establishing themselves as valuable tools in navigating the route to servitization success. Enigma's InService MRO
and InService EPC
have been leaders in defining that road map. We have developed tools that complex equipment manufacturers use to successfully extend, manage, and capitalize on aftermarket services. It’s the path that manufacturing has been searching for.
As PTC president and chief executive officer James Heppelmann relayed to customers at the company’s annual PTC Live Global
meeting, “The world of building stuff is being transformed into a world of building services tied to stuff.” Complex products, by their very nature will also contribute to the servitization of manufacturing. Complex equipment and the data they generate, collect and share through the Internet of Things
will become part of the service history that manufacturers will use to service their products through their full life cycle. This concept is bigger than us all individually. It is life altering.
Technology is the change agent in connecting the manufacturer of complex products with the aftermarket service of those products. As forward looking organizations like Enigma and PTC combine their expertise
, servitization will become more widely attainable, pushing the scale higher and opening new avenues of revenue for manufacturers.