Servitization – The fundamental transformation

What is the fundamental change for your company?
 

Industries with limited potential for technological innovation in particular face significant challenges in context with servitization. Servitization is much broader and more comprehensive than simply having “more” spare parts, maintenance products or other traditional service offerings.

 

 

 

I. Paradigm shift: From sheer “transactional selling” to “relationship business”.

• The interfaces between product manufacturers and clients are multiplying, alone with the amount and type of interactions. This requires more changes from companies than may be apparent at first glance:

  • Service technicians will act more and more as sales reps for add-on modules and consultants for services.
  • Remote monitoring can provide detailed information on the requirements of client processes. This information can inspire product innovations and/or the offering of new complementary services.

   

  This paradigm shift requires a comprehensive strategic concept allowing for the best possible customer management and seamless linkage between all company units (R&D, marketing, procurement, production, etc.) across all departments and locations.

 

 

 

II. Installed base must be valued and developed as a key strategic asset.

• The installed base, the total number of machines or pieces of equipment being used by clients, must be seen as a strategic asset for a company and be correspondingly cared for, developed and protected. In 1905, John D. Rockefeller gave away oil lamps in China in order to generate demand for his lamp oils and increase sales. With this strategy, his Standard Oil Company was able to monopolize the Chinese market. It’s an open secret that many German machine manufactures don’t earn their profits from manufacturing and selling new units, but from downstream services, spare parts and associated consumables.

 

 

 

III. Companies must develop consistent service offerings for their own specific customer community.

• In practice, a modular service portfolio has proven to be the most advantageous solution: selected service combinations are promoted in the market; others are abandoned or not actively offered. High flexibility and the right mix of services is crucial. This allows a wide variety of customer requirements to be addressed and maximally fulfilled with a standardized set of service modules.

 

 

 

IV. Product know-how must be leveraged for the development of specific services.

• Many producers expand their service offerings to include competition products and deliberately develop the necessary abilities and know-how. Superior competence with ones own products presents an excellent opportunity to develop exclusive services that provide a unique value proposition to customers. If a company appreciates this, a profitable service business can be developed, protected and expanded. Today, HILTI doesn’t just sell tools, but offers “fleet management” that guarantees clients a permanent availability of the support they need. Compared to a simple tool producer, HILTI is a much stronger partner for its clients and much more difficult to replace.

 

 

 

V. Service culture and a product-service system mindset need to be established.

• This requires strong guidance from top management, buy-in from all employees, adjusted targets and incentives, and modified and even new processes in many parts of the company. Servitization is a transformation that should be set in place by the executive board as a corporate-wide endeavor. Due to its complexity and specificity, professional external consulting is highly recommended. Servitization is not a quick or simple initiative: depending on the size of your company, it can take between one and three years. The highest sophistication of servitization is the development of integrated product-service systems, where even as a product is being engineered, an inseparable combination of the physical good, appropriate services and required consumables is created that provides an “all-inclusive solution” for the needs of the customer. Tetra Pak has done an excellent job in combining its packing machines, packaging and associated services.

 

 

 

VI. Build up of service competence and infrastructure in all company areas

• This begins with a multi-stage warehouse structure and the setup of local service units and includes the installation of service helpdesks and support functions, as well as a central governance function for service-related topics. The optimal involvement of service partners, according to the maturity of the service unit in the local subsidiary, is critical for success. In practice, there is an array of collaboration models that can be used with different partners.
  
  
  
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For more and two decades, out VP Strategy Advisory experts have advised companies in various industries on their strategic challenges. Reach out to us!

 

 

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