What is Servitization?

16. April 2020

Servitization

The world is moving in the direction of service. This trend hardly stops at any industry. One example is mechanical and plant engineering. This is why machine and system manufacturers are increasingly offering comprehensive services for all aspects of their equipment. This transformation is referred to as “servitization”. But what does this term mean and why is it so important?

What is Servitization?

Servitization is the shift from selling a pure product to providing a service that is enabled, e.g. by the product. A well-known example of this is no longer just selling the drill, but the holes in the wall. The technical definition of servitization according to Cambridge University researchers is: “the transformation of an organization’s capabilities and processes for better mutual value creation through a shift from selling products to selling product-service systems.”

Servitization is the shift from selling a pure product to providing a service that is enabled, e.g. by the product.

What are the types of servitization?

There are different types of servitization, i.e. the linking of a product with associated services. Based on Baines, there are three different types:

  • Basic Services
    Basic services usually consist of the provision of the product, the associated warranty and the appropriate spare parts.
  • Professional After-Sales Services:
    This type includes additional offerings to the product in after-sales such as commissioning, training, certification, scheduled maintenance, technical help desk, repairs, overhauls, service calls, etc.
  • Advanced After-Sales Services:
    This involves maintenance contracts, service level agreements, performance-based business or operator models, or rental agreements. In particular, technological innovations such as the Internet of Things will play a decisive role here in the future.

Why is Servitization so important?

Product, equipment, device, but also machine and system manufacturers are facing a challenging future.

Even before the Corona pandemic, many companies had to contend with sharp declines in orders and falling margins in the new equipment business. In response, some manufacturers, e.g. in the machine and system manufacturing sector, have already increased the focus on their service and after-sales business in the sense of servitization, among other things because of the more stable sales and the on average 2.5 times higher margins of services. According to McKinsey, servitization offers a strong lever for machine and system manufacturers to differentiate themselves from the competition, because manufacturers who exploit the potential of their installed base can increase their after-sales service revenue by up to 60 percent.

How do you get started with Servitization?

The trend toward service is not big news for most manufacturers. The crucial question is where and how to start setting up your service business for the digital future. To do this, you should first develop an understanding of where you are today in the maturity of servitization and digitization and where you want to go in service. We have found that Baines’ categorization of the three types of servitization as described above has not been sufficient for most of our customers. That’s why we have summarized these five stages of digitization for you here, which you can use to classify your own maturity level. After that, you can formulate much more clearly what the next sensible step is for you.

A practical tip from us:
Start where you really are today. Many companies would like to skip several expansion stages and go straight to predictive maintenance or similar digital offerings. We have often seen this approach fail in the fervor of digitalization.

Do you want to get started with digitization in service? We would be happy to show you how we are already helping other companies with digitization today and how we can help you too.

More information