Vanilla, Inc. Director Ryan Sharp explains how more companies are turning to the concept of servitization to open up new revenue streams and increase customer loyalty.
The concept of Servitization is quickly building up momentum within the manufacturing industry, but what exactly is this growing trend?
Servitization is simply the extension of an organisation’s business offering from simply selling products and maybe fixing them when they break, to providing an end-to-end solution comprised not only of the product, but also of service, not just for when something breaks or wears out, but proactively. In the most extreme cases, instead of a product and service being sold, we see the sale of a complete solution.
A study carried out by IFS Applications™, global leaders in the service and maintenance software space, found that companies that offer to their customers end-to-end service management are 24% more likely to report profitability than those doing reactive field service work.
IFS Applications™ is just one company that provides a truly service-centric ERP solution, but this concept is not exactly new. It was explored by Rolls Royce in 1962 through their “Power by the Hour” initiative. Instead of selling an airplane engine and then, selling additional services, the customer received both the engine and the service, billed at an hourly rate. In 1988, this concept was formally defined by Sandra Vandermerwe and Juan F. Rada in their book ‘Servitization of business: Adding value by adding services’. The authors believed that manufacturers needed to not only differentiate themselves from competitors, but also offer additional revenue streams and build better relationships with their customers, which in turn would lead to longer and healthier relationships.
Today, more companies are starting to dip their toes into the servitization pool in industries such as heavy manufacturing, aerospace, pharmaceuticals, healthcare and even in the enterprise software markets. One could argue that subscription enterprise software plans serviced in the cloud, fall into this model, since the hardware, software, maintenance, and support are all included in the subscription plan. The customer does not need to worry about installing patches, upgrading memory or performing/restoring backups. Instead, they receive the complete solution allowing them to perform business related tasks seamlessly within their software platform.
The servitization process follows a conventional path, from providing simple aftersales services to intricate and comprehensive service levels such as monitoring and proactive maintenance.
The following are typical stages needed to complete the ‘Servitization Journey’:
- Provide basic services for sold equipment – traditional service plans and warranty work supplied by an enterprise or third-party service vendor.
- Upselling of service plans – organisations providing more extensive service plans for products sold in the past and installed at customer facilities. The extent of these service plans would likely include preventative maintenance and possibly even equipment replacement at the end of a product’s lifecycle.
- Offering of monitoring services – in this level of service the seller and service provider takes advantage of the IoT (Internet of things) to provide real-time monitoring of equipment and systems to determine when maintenance is required, be proactive about system failures, and also to operate systems more efficiently.
- Selling solutions and systems, not products – in the final phase of servitization, we see a solution as the product as opposed to the equipment + service. In the case of Rolls Royce, the organisation is selling the power that the engine provides instead of the equipment + service.
Once a business has realised what servitization is, it can then discover what advantages it will bring and there are several important benefits to be aware of:
- Increase in meeting (and exceeding) customer demand, which leads to higher levels of customer retention.
- The customer the ability to pay only for the value they receive from a solution.
- Additional revenue streams and growth ability.
- Improved responses to customer needs.
- Closer relationship with customers, improving product and service innovation.
- Gaining competitive advantages.
Implementing servitization is not without its challenges. An organisation built around design and manufacturing will not always possess the skillsets needed to implement a highly successful service model. A framework will need to be developed, often from scratch, to support the new model. The organisation will also need to refocus its ethos from one that offers a product, to one that offers a complete solution or system.
At Vanilla, Inc. we can assist your journey to servitization with a combination of powerful tools and business expertise. In fact, Vanilla provides a servitization model itself as we deliver a complete solution, whether that is be a piece of software, an integration, or a provided service.
As a Gold Partner of IFS Applications, combined with our expertise in functional and technical spaces, we provide exceptional, industry-leading services in ERP implementation, upgrades, process re-engineering, integration and IoT, mobile and custom apps, managed services and support, all aligned to improve the customer experience by making your problems, our problems.