Servitisation is not a particularly new phenomenon. The term was defined in the late 1980s in an article in the European Management Journal, but the concept of bundling service packages with products to add value goes back to the 1960s and the innovative, ‘power-by-the-hour’ concept of Bristol Siddeley, a British aero engine manufacturer later acquired by Rolls-Royce. It offered a complete engine and accessory service that enabled operators to forecast service and replacement costs more accurately and eliminated the need for them to purchase stocks of engines and spares. Yet despite being around for 50 years, it’s only relatively recently that servitisation has become a talking point, especially in the manufacturing industry.
Some of the main drivers behind the servitisation revival are growing competition at local and global level and the commoditisation of products. Margins are being squeezed, so new revenue streams are required. Instead of accepting the received wisdom that competitiveness can only be achieved by offering cheaper, faster or better products, manufacturers are increasingly seeing themselves as service providers, offering total solutions rather than just products.
Take Rolls-Royce, for example. Instead of asking its customers what they want (A: aero engines), it asks them what they want to achieve (A: maximise flying time). So Rolls-Royce offers TotalCare, enabling customers to purchase the power of an engine while Rolls-Royce delivers the support that ensures the engines deliver power.
In other cases, adding service has been found to result in:
• 5–10% annual increase in service revenue for OEMs
• Maintenance cost reductions of 25–30%
• At least 10% reduction in fuel consumption
• CO2 emissions down by 10–15%
Servitisation – why is it trending?
A major part of what makes servitisation hot today is the emergence of new technologies and capabilities that enable much more advanced and complete service options. The Internet of Things (IoT); advances in sensor and beacon technologies; the ability to quickly convert operational data into real business intelligence through advanced analytics; the ubiquity and range of mobile technologies and devices – these and other innovations are paving the way for a totally different take on the role of the contemporary manufacturer.
Technologies driving change
So what’s required of manufacturers who want to servitise their business? Like any other major innovation in the industry, servitisation means that enterprises will need to confront change to be able to grasp the opportunities it presents. Some of these will be technology-based. A study from the Cambridge Service Alliance in 2015 found consensus among capital equipment manufacturers (CEM) on five key technology requirements to enable servitisation in the future:
1. Predictive analytics to predict specific failure modes
2. Remote communications to resolve issues remotely
3. Consumption monitoring to create customer-specific service offerings
4. Pushing information to employees/customers via mobile platforms
5. Mobile platforms to access business software remotely for maintenance techniques, product details etc.
Manufacturers will need to assess the individual value of these, and other, technologies for their operations to ensure medium-term service competitiveness.
Rethinking the organisation
Servitisation comes with a number of organisational challenges as well that may cause manufacturers to question the process. Will it be necessary to invest in new equipment? Do we have the people with the required skill sets to deliver on our service promises? What will adding service entail in terms of new regulations and compliance issues? All are valid issues, and enterprises will also have to learn that, to win new customers by adding service, sales cycles will be longer.
Instead of selling wares, they will be selling value, such as lower costs or higher revenue, and that often requires more persuasion. Therefore, among other things, they will need the right enterprise software in place to facilitate this change.
However, these are challenges that companies need to overcome if they are to continue to be competitive in their markets – indeed for some, it will be a matter of survival or not.
Servitisation in practice
Manufacturers that are already reaping the benefits of servitisation include players in a wide array of sectors.
Dutch technology firm Philips provides one of the world’s busiest airports, Amsterdam-Schiphol, with ‘lighting as a service’. Because efficient LED lamps are highly expensive, the airport authority opted for a servitisation package from Philips to provide lighting. In line with its eco-friendly policies, Schiphol airport has reduced electricity consumption by 50% without having to buy a lamp.
Also on the subject of environmental benefits, servitisation approaches at MAN Truck & Bus UK have cut customers’ fuel consumption by at least 10% and reduced CO2 emissions by up to 15%.
Xerox makes most people think of photocopying machines and other products. Yet the American global corporation has made a significant shift from a product to service-centred business model, focusing on business outsourcing, document and digital printing and software solutions. Using these solutions, enterprises such as Reuters report a 19% reduction in total cost of ownership, PricewaterhouseCoopers (PwC) is 100% compliant with security requirements, and the UK Department of Work and Pensions has reduced electricity consumption by 36%.
Beijer Electronics, a Swedish-based producer of electronics hardware with markets worldwide, is another case in point. Forecasts showed that within six years, the automation industry’s hardware focus will be transformed and sales growth rate will decline. How, then, was the company to secure its future?
The survival path Beijer chose was to add software that helps customers to control and manage their hardware. And that’s where the company sees future revenue growth and new business opportunities.
One of the tools Beijer is using is a CRM solution from IFS that is integrated with its business software. Among other things, it puts accurate customer information directly into the hands of sales staff, enabling them to tailor offerings to different categories of customers.
Beijer is also looking at mobile CRM as a means to speed up information flows and access sound business intelligence in the field. One effect of this is that Beijer’s customers get through-life service that enables them, in turn, to resolve their customers’ problems and create the feeling that they and Beijer are ‘in this together’, thereby encouraging greater customer loyalty.
These and other companies that have added advanced services as a means of increasing the value of their offering tend to use some or all of the technologies underlined in the Cambridge Service Alliance study, including predictive analytics, remote communications, mobile platforms and consumer monitoring.
Servitisation – what’s next?
Companies that have added service to their offerings, adapted their organisations to enable this and acquired the requisite technology (often in the form of integrated, full-scope enterprise software) have confronted the question of ‘What’s next?’ – and reaped significant benefits. In fact, adding service contributes to much of what is the very essence of good business, that is, actively looking to the future and seeking to shape it, to create opportunities rather than merely grasp those that arise.
Benefits reported include:
• Enhanced revenue – reported growth between 2x and 4x
• Better margins – increases of 3–10% reported
• Sustainable business growth – increases of up 5–10% reported
• Greater customer satisfaction – they are getting what they want
• More repeat business, greater market share, and a better reputation
• Predictable income streams
For decades, IFS has worked with manufacturers to help them design, make and sell their products. Now, the company is taking the next step and enabling them to efficiently add service to their offering. Combining a comprehensive suite of enterprise software that covers ERP, EAM, field service management and mobile workforce management with enterprise operational intelligence and advanced analytics, IFS enables manufacturers to actively take part in the transformation process, giving them the capabilities and insights to make decisions based on real-time statuses to not only meet customer needs but also anticipate them. Being able to handle today’s business challenges is important; shaping what’s next is crucial to growth and continued success.
Antony Bourne is Global Industry Director of IFS.
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