“We describe servitization as the innovation of an organization’s capabilities and processes to deliver services rather than products alone,” explains Eleanor Musson, Senior Partnerships Manager, The Advanced Services Group, Aston University in a recent report.
The often-cited example for this is the pioneering Rolls-Royce “power-by-the-hour” jet engine offering. Instead of a customer purchasing an engine and a separate maintenance contract, a complete service is offered at a fixed cost-per-flying hour. This includes engine and accessory replacement, if required.
Acceleration towards everything-as-a-service
Traditionally, many companies sold physical and digital items and looked to sell support and maintenance contracts on the back of these sales. Via servitization, companies can provide a more compelling offering. They can increase value to their customers by bundling additional services through the lifetime of the product. This helps convert one-off buyers into ongoing subscribers, providing predictable revenue for the provider and data about customer behavior that can improve overall service design.
KONE, an international company specializing in elevators, escalators, autowalks and automatic doors, offers people-flow mapping as part of its servitization offering. The mapping capability, which analyzes data collected on in-building traffic patterns, helps customers assess where potential congestion areas are, for example, to minimize wait times.
Servitization helps to build strong customer engagement while erasing expensive CAPEX and providing a move to a more predictable OPEX model. A growing number of technology enterprises offers bespoke as-a-service tailored to their customers’ specific requirements. SaaS applications, for example, can be customized and integrated into an enterprise’s business application suite.
Elizabeth De Dobbeller, VP Head of EMEAR Partner Sales at Cisco, outlined three main reasons for the rise of as-a-service at Orange Hello! World 2021. She said, “Customers want business outcomes and new opportunities for value creation, extending the lifecycle of products and enhancing sustainability as part of the green economy.”
IDC warns that servitization must not be seen as simply another revenue grab for manufacturers and must provide a compelling reason for adoption. “The delivery of enhanced service offerings to customers is a lifeline to improved customer experiences, new value opportunities and differentiation. Customers have more choices than ever, even in traditional business-to-business environments, and the service experience is an opportunity for providers to partner with customers around shared goals and outcomes,” says Aly Pinder, Program Director, IDC Service Innovation and Connected Products Research.
Servitization can help support a green economy
Servitization also provides a way of speeding up the adoption of energy-efficient technologies. It removes, for example, high up-front investment costs that some companies are either not willing to or are not in a position to absorb.
It doesn’t stop there. According to De Dobbeller, servitization brings many significant environmental benefits, over and above technology costs. As part of a servitization model, companies can offer customers added-value services linked to the reuse and recycling of materials and components. Predictive maintenance can improve the longevity of systems.
Philips, for example, provides so-called circular lighting at Schiphol Airport in Amsterdam. Instead of buying LED lighting, the airport buys “light-as-a-service” managed by Philips, which replaces and recycles them as necessary.
“Servitization brings with it many flexible options that support a green economy as they allow companies to monitor usage and adopt a sharing economy or circular economy principles,” explains De Dobbeller.
According to Basel Agency for Sustainable Energy (BASE), the servitization model is a key enabler in the systematic efficiency approach designed to reach global decarbonization goals. Systematic efficiency embraces smart technology, clean electrification and energy-efficient buildings and infrastructures alongside a circular economy approach to water, waste and materials.
Servitization is also a motivator for sustainable innovation, according to BASE. Under a pay-per-use model, enterprises can find innovative ways to increase efficiencies while maximizing the lifecycle of devices and recycling components as part of a circular economy. BASE believes this can take many forms: preventive maintenance utilizing AI; analyzing data to determine when a machine may need servicing; rethinking designs to ensure they are sustainable.
Servitization demands collaborative partnerships
Servitization is not about going it alone. It demands a move away from traditional linear supply chains and ways of working to a collaborative ecosystem of partners. “No vendor can build up an innovative platform alone, hence the power of partnership is essential,” explains Yves Martin, Chief Partner Officer at Orange Business Services.
These secure and digital platforms built via collaboration enable enterprises to adapt and innovate at speed. They may consist of several components. “Applications right now have their homes in different locations. The data and services that power them call for investment in automation, orchestration and also data integration,” explains De Dobbeller. Other critical components include connectivity, infrastructure and service management, essential ingredients in an agile architecture.
To be successful at servitization, it is imperative that enterprises align their products, technologies, operations and supply chains. They must provide new services that slot into business outcomes and are easy and appealing when it comes to customer adoption.
Data drives servitization
“Data and advanced analytics enable enterprises to capture new customer values,” explains Zena Smilga, Managing Consultant, Innovation and Business, Orange Business Services at Orange Hello World! 2021. This is done by gaining insight into customer behaviors, finding out what they want from a brand, and making their experiences better. These are the bricks on which servitization is built and are essential to offering services that will appeal to customer needs.
Smilga cites medical devices, connected cars and manufacturing machinery that have become a platform for data-driven services and operational efficiencies.
“Data is a game-changer here. It is all about keeping the customer happy, the loyalty, the love for the total experience and solution. It is also a means to be ahead of the customer, helping to predict the personalization element, getting insightful information on the experience and then building that into a re-invented customer-centric model,” adds Jean Critcher, Head of Consulting Practices, Orange Business Services Europe.
It is no longer enough to offer a quality product. Customers demand real-time responses, predictive maintenance, the ability to make smart decisions, self-service options and sustainability. Servitization enables enterprises to deliver on these requirements and, at the same time, second guess their customers’ needs. However, servitization isn’t an easy transformation to make.
Changes in corporate culture and structure
Developing a services value proposition demands significant input. Moving from a product-based to a service-based culture requires major modifications in a company’s organizational and corporate culture. This includes a change in focus and business model, careful planning and long-term commitment.
Enterprises looking to embark on a servitization journey need to be open to reimagining their business models, building vital partner ecosystems and creating a self-service-driven culture and mindset.
Enterprises need to create digitally-enabled, services-led business models that use data created by connected devices. To find out more, download a joint report from Aston University’s Advanced Services Group and Orange Business Services on how to build a competitive service.
Jan has been writing about technology for over 22 years for magazines and web sites, including ComputerActive, IQ magazine and Signum. She has been a business correspondent on ComputerWorld in Sydney and covered the channel for Ziff-Davis in New York.