With competition in the manufacturing sector greater than ever, developing a comprehensive service offering is crucial for firms looking to survive and thrive over the long term.
We spoke to Professor Tim Baines from the Aston Centre for Servitization Research and Practice to get the lowdown on the concept that is causing a seismic shift in the way manufacturers do business.
Sell us servitization in one sentence…
Servitization is a business model transformation – from selling a product alone to selling a package of product and services – which can generate business growth, sustainable revenue and long term contracts.
What’s the history of the practice?
Certain manufacturers have been selling services for decades; Rolls Royce celebrated the 50th anniversary of its ‘Power by the Hour’ contract in 2012. As a concept, the term servitization was coined by academics in America in the 1970s. It’s something that manufacturers all over the world offer now, but the UK is actually a leading light in its adoption. The word itself can be quite controversial and to some people seems overly academic, but look at terms like ‘just-in-time’ and ‘lean’; when they were first spoken about they were seen as clumsy, awkward words that wouldn’t catch on- much as ‘servitization’ is now by some people. But these terms became the dominant paradigms in manufacturing in the 1980s and 1990s, and I believe servitization really is the next in line in terms of a seismic shift in the way manufacturers do business.
What are the top line benefits on offer to manufacturers?
The leading companies in servitization have seen significant benefits for a few decades now. These include gaining a competitive advantage by differentiating themselves, getting closer to the customer and generating more business through that relationship, and securing long term, high value contracts (five years is typical). Not only that, but they also help their customers in turn to achieve more value in their businesses. Now, there’s a second wave of companies who have seen what’s happened to the pioneers and are saying, ‘we’d like some of that.’
Which sectors of UK plc have best embraced the concept so far?
The key with servitization is it’s all about the manufacturer of the product providing the services that go with it- they are the ones who have the best knowledge about the product so are best placed to service it. So the broad answer to the question is that it’s manufacturers. The leading UK examples actually come from a range of sectors, but many are in transport; Rolls Royce or MAN Truck and Bus for example. MAN not only manufactures trucks but also helps fleet operators to meet their legal requirements for documentation, inspection and servicing etc, and provides driver and vehicle performance data to help fleet operators monitor driver professionalism and improve fuel economy and road safety.
What are the biggest challenges facing manufacturers in greater adoption?
The ‘second wave’ I mentioned of manufacturers who are currently trying to servitize have an interesting new challenge on their hands. In many ways, things are easier because the pioneers have shown them what their business processes, facilities and technology need to look like to do this, and I have captured much of this in my book, Made to Serve: How manufacturers can compete through servitization and product service systems. However, they must do something that the first wave didn’t have to do (because they were pulled into servitization by customer demand) and that’s educate their customers about the benefits of this model, and persuade them to sign up to the long term contracts, and in many cases give away responsibility for things that they have traditionally done themselves within their own operations. If they can’t persuade their customers of the benefits to them, they won’t make a success of competing through advanced services.
How important is mindset change in using the concept to best effect?
The mindset of the manufacturer has to change fundamentally for a company to get the best out of servitization. You have to go from thinking of yourself as a company that makes and sells products to one that does everything it can to help its customers to be successful and grow their businesses. You have to get closer to your customer and understand their aims and challenges, and you have to have people in your organisation that can cultivate and manage long term relationships with the customer, and design services that really get to the heart of making the customer’s life better.
If you had one piece of advice for manufacturers looking to expand their service offering what would it be?
Read my book! Ok, in all seriousness I’d say the first thing you have to do is take time to really understand your customer. Think about the pains they have that you can take away from them by offering them services, and build your model from that.
Tell us a little bit more about the Aston Centre for Servitization Research and Practice...
We’re a centre of about twenty people who are passionate about helping UK manufacturing to grow and be sustainable. I was an engineer before I started working for universities, and we try to stay as grounded as possible in the manufacturing roots of our Birmingham base. By that I mean we are very focused on being relevant to industry, approachable and open to collaboration. We have researchers who are working with local, national and international businesses to understand the process for transforming business models, the challenges and how to overcome them, and we have business liaison staff who work to help companies implement this learning. We offer a range of development programmes, training and publications and we are always keen to hear from any company that’s interested in working with us or just finding out a bit more about what we do.
Where can manufacturers get more information?
Our website is www.aston-servitization.com and we are on Twitter @_servitization Please do get in touch through either of these channels or by email to firstname.lastname@example.org. We are also running a conference in May bringing together leading researchers and practitioners of servitization – see the website for more details.