The current revolution in manufacturing is being driven by the digitalisation of processes, products and services. What exactly is servitisation? What are the success factors and risks for your company? And what does the future hold? We asked Wim Coreynen, researcher and project manager at, among others, Antwerp Management School's "Business Design and Innovation" centre of expertise.
Portrait Wim Coreynen?
- Researcher and project manager at Antwerp Management School's "Business Design and Innovation" centre of expertise and at the Jheronimus Academy of Data Science (JADS) in The Netherlands.
- PhD student in applied economics at the University of Antwerp.
- Contributor to "Are You Ready for Servitization? A Tool to Measure Servitization Capacity" in Practices and Tools for Servitization: Managing Service Transition (to be published early Summer 2018)
Do companies really need to pursue servitisation?
"In short, servitisation means that the product itself is becoming less significant than product-related services that are provided by the vendor to the customer.
"The importance of the physical product itself is declining while the importance of digital services is rising."
While servitisation is considered by some as the holy grail of strategies, it is actually only one of many possible strategies for companies when approaching their markets. One strategic option is to pursue product leadership. Apple is a good example of a company that has executed on product leadership as a strategic choice. A second strategic option is to pursue operational excellence, where the unique selling point is providing value for money. IKEA is a prime example of this. A third strategy is to pursue customer intimacy, servitisation is an option within this category. In customer intimacy, everything revolves around the client relationship and client experience. The first step when selecting a strategic option is to find a healthy balance between these strategies based on the actual market environment."
What are the current trends in servitisation?
"The digitalisation of manufacturing. Industry 4.0 has been going on for a while, but the primary focus until now has been on data analysis in order to enhance process efficiency. Companies are increasingly using technology to improve their customer service quality. If you can download and analyse the data of your customer's machines, you will be able to better predict maintenance work and offer customized service packages to customers."
"Companies are making the transition from being product providers to being service providers and, even better, "solution providers".
What are the key success factors of servitisation as a strategy?
"Key success factors are the design and roll-out of new services in addition to adopting the proper mindset. The development of services differs significantly from product development. As a company, you need, first and foremost, to detect market demand and the activities of your competitors. After that, you need to determine the best way to bring your services to market based on a carefully considered business model and a strong business case that can be persuasively pitched to other customers and prospects. The mindset behind the services needs to be suited to your strategy as well. Your company culture and employees, such as salespeople and technicians, need to be service-minded as well. The question to ask your customers will no longer be, "Which product do you need?", but rather, "Which issues are you struggling with?"
The question is no longer, "Which product does the customer need?", but rather, "Which issues are you struggling with?"
And what are the risks?
"The great risk in servitisation is that your investment does not pay off immediately. This is called the "service paradox", i.e. a delay in the sales that a company realises when offering new services. It is possible that you will lose ground financially during the first three years before your strategy gains any real traction. In addition, companies take on responsibility for their clients' machinery failures. That is a very different commitment than a straight-up product sale. Your internal organisation should not be overlooked either, as it will invariably experience a transition and will need to adapt. Keeping people committed to the strategy may require serious persuasion."
"Data science will become the booming business."
Which companies have done well with servitisation?
"Internationally, Rolls Royce has done a good job. They enter into long-term service agreements instead of simple aircraft engine sales, what they call the Power by the Hour agreement. In Belgium, Atlas Copco is one of the pioneers in servitisation and is piloting the "Machine as a Service" (MaaS) scheme. They are currently preparing a transition from MaaS to CaaS (Compressed air as a Service) at their compressor division.
"The manufacturing sector benefits from the transition to a service industry driven by digitalisation."
The transition to servitisation is by no means limited to manufacturing. ADPO, for example, a local logistics company in the chemicals sector, is offering its customers fully integrated logistics models. Servitisation is being adopted not only by large companies but by SMEs as well. For example, the orthopaedic insole producer, BORGinsole, offers a fully integrated foot scanner to podiatrists, allowing doctors to outsource the entire insole production process."
Which developments do you expect for the (near) future of servitisation in manufacturing?
"The belief in a local manufacturing industry disappeared around the beginning of the current century but is now back. The industrial landscape will change drastically, driven especially by mass digitalisation. With companies shifting from pure manufacturing to becoming service providers, the importance of both proximity to the client and of data analysis is steadily rising. This will certainly have an effect on the job market. Data science will become a booming business. Early adopters will be able to participate in the next step of Industry 4.0."