What is Servitization in machine and equipment manufacturing?

16. April 2020


The world is moving towards service. This trend does not stop in machine and equipment manufacturing. That’s why machine and equipment manufacturers are increasingly offering comprehensive services for their assets. This transformation is known as “Servitization”. But what does this term mean and why is it so important?

What is Servitization?

Servitization is the transition from the sale of a pure product to a service, for example enabled by the product. A well-known example of this is, to no longer just sell the drill, but the holes in the wall. According to Cambridge University researchers, the definition of servitization is “the innovation of an organisation’s capabilities and processes to better create mutual value through a shift from selling product to selling Product-Service Systems”.

Servitization is the transition from the sale of a pure product to a service, for example enabled by the product.

What types of servitization exist in machine manufacturing?

There are different types of servitization, which is the linking of a machine or asset to the associated services. According to Baines (Made to Serve), there are three different types:

  • Basic Services
    The basic services in machine manufacturing usually consist of the provision of the machine, the associated warranty and the appropriate spare parts.
  • Professional After-Sales Services:
    This type includes additional after-sales services such as commissioning, training, certification, planned maintenance, technical helpdesk, repairs, overhauls, service calls, etc. 
  • Advanced After-Sales Services:
    These are maintenance contracts, service level agreements, performance-based business or operator models or rental agreements. Especially technological innovations such as the Internet of Things will play a significant role here in the future.

Why is Servitization in machine manufacturing important?

Machine and plant manufacturers are facing a challenging future.

Even before the Corona Pandemic, many companies were already struggling with a drop in orders and declining margins in new equipment sales. In response, some manufacturers have already increased their focus on their service and after-sales business in the sense of servitization, mostly due to more stable revenue and on average 2.5 times higher margins. According to McKinsey, Servitization offers a strong lever for machine and equipment manufacturers to differentiate themselves from the competition, because manufacturers who unleash 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 towards service is not big news for most machine 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 stand today in the maturity scale of servitization and where you want to go in terms of service. We have seen that the classification according to Baines into the three types of servitization as described above was not sufficient for most of our customers. We have therefore summarized the five stages of Servitization for you here, which you can use to classify your own maturity level. Based on your classification, it is easier for you to take the best possible next action towards servitization.  

A practical tip from us:
Start where you really stand today. Many companies would like to skip several expansion stages and move directly to predictive maintenance or similar digital services. We have often seen this approach fail in the digital transformation.

Let us know if you want to learn more on how we are already helping other companies in the machine manufacturing sector and also how we can help you to sustainably follow the path of servitization. We offer free consultation appointments to you with one of our experts.

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