The manufacturing circle is buzzing with servitization for decades. Innumerable research papers on the concepts, strategies, and benefits of this model have evolved.
In simple terms, is about companies using a model where their customers pay for the service instead of the products. Here, the selling is about “outcome as a service”.
Quite naturally, servitization is making way for a major shift in the manufacturing process. It is forcing manufacturing companies to use the latest technologies for connecting and automating different facets of the processes involved and creating newer revenue streams.
Smart factory projects witnessed significant output gains, labor productivity, and factory utilization. However, advanced manufacturing technologies have more to offer than these internal competencies. To make the most of the servitization strategy, manufacturers need to understand this “product-centric services” approach.
What Is Servitization?
Servitization is the process of adding services to product-based businesses to create more revenue streams and deliver better results consistently. Precisely, servitization is also about selling solutions rather than just products.
For manufacturing, servitization offers additional services supplementing traditional products like maintenance, fleet monitoring, etc. Today, the concept is not just a cosmetic approach toward market relevance, but more of a far-reaching and deeper transformation. Manufacturers aim to be appealing to the digital natives and thoughtful of reluctance to change. Their effort is directed towards people, striking that fine balance between technology and tangible customer demands. Addressing growth opportunities and financial resilience, holistic concepts and people-centric transformation are the keys to servitization practice.
Benefits of Servitization for Manufacturers
The primary benefit of servitization is the strengthening of the relationship between manufacturers and their customers. The length of customer relationships determines the profitability of manufacturers. Naturally, businesses want to streamline service delivery to reduce process disruption. Servitization serves as the best choice in this respect.
Servitization also allows businesses to explore different avenues and adjust the business structure. It frees up the finances to ensure transformation yields promising results. As technologies mature and data-driven decisions pick up the pace, this model will get further strengthened and give a competitive edge to manufacturers.
According to PricewaterhouseCoopers report, 78% of manufacturers in the UK are fostering servitization models based on customer relationships and helping customer retention.
Opportunities do not end right here. The data collected allows manufacturers to develop a robust framework for data management that acts as the stepping-stone for better opportunities. With a strategic approach, manufacturers can expect increased profitability, higher customer retention, upselling opportunities, improved relationships with customers, lead generation, and a leading reputation in customer service.
Servitization & AI
New firms are rapidly adapting AI (Artificial Intelligence) capabilities into the service ecosystems, fundamentally transforming perceptions of service quality and delivery in the manufacturing industry. Due to the growth of technologies, business models, interactive customer relations, and service innovations are more important than ever.
As the focus of servitization is on transformation from a product-centric to a service-centric methodology, digital servitization combined with AI helps in the creation of real customer value.
Digital servitization powered by AI is transforming capabilities, processes, and offerings and creating better service value. It impacts value configurations and co-creation, both critical for rewarding service relationships.
AI is bringing in some massive changes, fundamentally modifying service delivery, and adapting to changing consumer behaviors and newer performance metrics. With the significant expansion of AI in the modern manufacturing ecosystems, companies get deep insights and understanding into the value of the co-created digital era.
Servitization & IoT: Extending Boundaries
Servitization defines new services to add value to customers. It has shaken up the manufacturing industry, for it expands manufacturers’ abilities to deliver valuable experiences to end consumers.
Today, servitization means driving supplementary services for products and delivering them through manufacturers directly to meet the ambitious growth plan. As such, manufacturers are venturing into service fields reserved for specialists and are becoming more outcome- and customer-focused.
Servitization transformation demands new services hinging on the manufacturer’s technology adoption. This is intrinsically related to the Internet of Things (IoT). Using IoT devices to track product performance, manufacturers can analyze trends and predict future difficulties. The captured data informs the actions of the manufacturer – whether it is about contacting a customer, making repair/replacement arrangements, or modifying products for greater performance.
To ensure servitization succeeds, manufacturers must leverage the right technology that allows effective resource scheduling to enable transparency of activities and services. Deploying IoT solutions is one of the basic steps to begin.
The Future Framework for a Competitive Edge
While servitization has multifold benefits, the transition may not be easy. Considering that the traditional industry is change-resistant, initiating a process that relooks at the basics and relies heavily on digital maturity is slightly challenging.
All the major processes, like finance, sales, servicing, and logistics, must be reimagined to adapt to the new model. It is crucial to integrate technology and digital systems to make it work. If systems fail to communicate, the model will not work.
To that end, manufacturers should follow an approach adhering to the following guidelines:
- Analyze service requirements after product sales
- Characterize needs depending on data availability, customer segments, and service impact on end users
- Assess customers’ feasibility of purchasing services directly from manufacturers
- Determine service sustainability and acknowledge the competitor landscape
- Identify fresh business models and revenue streams for service integration
- Review the possibilities of digitalization of dependent and customer-centric processes
- Develop a service-driven mindset and culture
- Have a service-based approach for marketing with a service-centric identity for the brand
Final Thoughts
Driven by innovative technologies and powerful business models, servitization shows huge scope. Presently, manufacturers are dependent on revenue from equipment and product sales alone. Product-related service delivery provides a profitable revenue stream and buffers against market volatility and lower sales cycles. Technology drivers like AI, IoT, Cloud, and data analytics not only push production efficiency but also offer cost-effective ways that manufacturers can leverage and deliver value to customers. However, before using servitization, manufacturers should come up with appropriate strategies to evaluate how the change could add value to their business.
Ascentt combines domain knowledge with advanced technology accelerators and analytical for successful servitization strategy implementation. With a robust roadmap, it is possible to design and execute servitization adhering to the technological and business drivers. Connect with us to learn more.