Comment: How servitization can give manufacturers a competitive edge

Servitization - a shift to service based business models - will be key to boosting resilience and growth in manufacturing writes Professor Tim Baines, Director of Advanced Services Group at Aston Business School.

Many leaders recognise that the existing business models for many manufacturers are no longer fit for purpose. Significant increases in productivity and environmental sustainability will not be achieved through incremental reductions in product lead-times, a focus on shifting boxes, or labour reduction to reduce costs.

The opportunities are beyond ‘factory gate thinking’ and require managers to move away from a  ‘goods based logic’ and  instead focus on high-value service based business models that focus on delivering outcomes.

This is the world of Advanced Services, and the means through which manufacturers innovate to compete in this way is referred to as Servitization. Servitization is the innovation process where a business, usually a manufacturer, transforms themselves to compete through services rather than simply the sale of products. Servitization is particularly interesting, indeed exciting, when those services are advanced and focus on delivering business outcomes. Rather than selling cars; the sale of mobility; rather than gas boilers, the sale of Heat-as-a-service; rather than selling engines, the sale of thrust; and rather than selling insurance, the selling of assurance.

Servitization is the innovation process where a business, usually a manufacturer, transforms themselves to compete through services rather than simply the sale of products

Tyre manufacturer Goodyear offers services whereby data is collected and analysed to provide customers with greater insight into the tyre health of their fleets. Combined with intelligent alerts based on predictive analytics, this enables customers to schedule proactive maintenance and optimise route planning. This service has been especially important in keeping the logistics industry moving during the COVID-19 pandemic and of vital importance to customers and ultimately consumers.

Nicklin Transit Packaging is a packaging manufacturer based in the West Midlands, with a customer base in the automotive, glass and construction industries. By adding a remote asset monitoring service to its packaging, Nicklin allows customers to monitor their packed products in real-time through all stages of transport, giving insight into shock, drop and tilt, humidity levels and temperature, as well as location. This gives customers real-time information on the whereabouts, safety and security of their products, hence greater peace of mind.

These examples illustrate the logic and advantage that advanced services can bring to a customer; they pay for the outcomes they want to achieve, when they achieve them, rather than paying for a product and having to worry about its upkeep. For the manufacturing business, they provide long-running contracts and a symbiotic relationship with the customer, which can lead to further opportunities to grow services offerings.

Up to now, the business decision to take the journey towards servitization has often been led by customer demand combined, more recently, with the emergence of digital technologies and the ability to capture and use data. The pandemic has created a third, even more urgent driver, to which manufacturers are having to respond in order to survive.

The arguments for servitization are compelling, and indeed the global market growth for services significantly outstrips that for products

Servitization is good for growth and resilience therefore good for business, the economy, the environment, and society.  It enables manufacturers to create value, rather than simply efficiencies, through digital innovations, and through that improved value it delivers productivity. Servitization is compelling; yet servitization appears complex for those of us who have grown up and grown old through in an era of where the dominant paradigm is one of production and consumption.  Carbon intensive business models focusing on Make-Sell-Dump.

Advanced Services and servitization complement the strategic imperatives of productivity and sustainability. Productivity improvements are achieved through a focus on creating more value out for the same input of resources. This focus on outcomes leads to a dematerialisation of the supply chain.  The arguments for servitization are compelling, and indeed the global market growth for services significantly outstrips that for products.  Yet servitization remains a topic that many manufacturing mangers struggle to properly understand, and this is a major inhibitor for businesses attempting to respond to the strategic imperatives of 2020 and beyond.

Servitization and advanced services offer the opportunity to enhance growth and productivity for many manufacturers, though it is a fundamental transformation of mind-set for traditional, product-focused manufacturers. We developed an online tool - Unlock your insight - which helps you to find out if your current strategy is focused on product or service and whether you and your colleagues are aligned in your opinions of services as a future strategy for the business.

Once you know this, you can start considering the business model and organisational change required and how to involve internal and external stakeholders. Our Transformation Roadmap is a useful tool for this process, as it allows manufacturers to locate their position in the servitization journey and helps clarify the necessary next steps. Our miniguide series also provides tools and guidance on application of particular techniques and knowlesge.

For many, servitization is neither an easy nor a quick process, but if successful, it certainly has the potential to provide the competitive edge.

Professor Tim Baines - Director of the Advanced Services Group at Aston Business School  - is a leading international authority on servitization and advanced services and spends much of his time working hands-on with both global and local manufacturing companies to understand servitization in practice and help to transform businesses.