The Servitisation Challenge

Servitisation – A challenge for manufacturers

Adding services to products by developing and innovating business capabilities is not easy. But why is it so hard to move away from manufacturing goods to providing integrated products and services? What are the biggest challenges?

As ever I prefer to think about such questions from systems and systemic perspective.

Servitisation – What is it and why do it?

Servitisation is the process of adding (more) services to products. It involves a move away from building and selling goods. It is about delivering integrated goods and services that customer’s value.

Customers are increasingly looking for aggregated solutions that solve their problems completely. What this means is developing service capabilities and using different commercial models. New ways to price, and a move towards outcome-based contracts are also required. These contracts cover the end-to-end product lifecycle and all the customers’ needs related to the product.

For example, consider a supplier who makes packaging equipment for another manufacturer. The manufacturer’s need is not for the machine itself, but for the capability to package goods in line with its own customers' requirements. There are many different ways that a supplier might meet this need. For example by providing a packaging service or by charging for the number of packages.

The opportunity to differentiate is to find new ways to better meet the customer’s real needs. Using this as a strategy to drive growth and protect revenues is is a huge opportunity for UK Manufacturers.

Why is it so hard?

Let’s consider the various systems and stakeholders involved. 

Marketing and Sales will need to develop new ways of getting and understanding insights into their customers’ real needs. They will need to be able to sell different kinds of propositions, often to different people. They will need to develop new capabilities to launch services into their target markets. 

Engineers and Product Designers need to review and rethink their product designs. They will need to consider Design for Service (DfS) and Total Cost of Ownership (TCO) criteria. The subsequent impacts on Manufacturing Operations and Supply Chains will need to be addressed. 

Service departments will become front-and-centre as areas of value creation, not cost centres. 

 HR will need to think about the different knowledge and skills required in the organisation. Finance and Legal functions will need to adapt to different kinds of contracts, revenue streams and payment profiles.

So what may seem like a simple add-on to an existing product offering can quickly move into the need to overhaul every aspect of the organisation. For example "we'll add a warranty and create a customer service department" may only be the start!

What is the biggest challenge?

However, the underlying issue is that it is often the DNA of an organisation that is being challenged. This includes the underlying beliefs held about how value is created and what success looks like. 

For example, an organisation that has built its success on a reputation for engineering excellence may need to re-orientate itself around a passion for customer service. It is the challenge to deep-rooted beliefs that is usually at the heart of the difficulties faced.

What to do?

There are three main actions to take:

1. Develop the strategic intent to servitise. 

2. Consider the belief systems that underpin the organisation’s culture. 

3. Understand how the end-to-end system of value creation will be impacted

 In this context, Systems Leadership is the critical success criterion. Siloed approaches will just not work. The ability to see, design and deliver across boundaries is essential.