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Organizing for Servitization

Servitization is basically creating value by adding services. For manufacturers facing globalization, servitization is an avenue to generate new revenue. It is a new idea. Many companies have had some form of servitization in earlier too. Servitization can emerge in many forms. Companies can offer product life-cycle offering (including maintenance) or asset management of group of machines or even consulting.  It is a common practice in many industries including Aerospace and defence where some components are maintained as rotary part, a replacement available whenever a breakdown happens. Landing gear, avionics are some of the parts where the OEM or MRO partner maintains a spare and provides replacement services so as to reduce overall downtime. These provisioning around product is the first step of servitization. OEMs can also approach reconditioning and remanufacturing services around product servitization. Often this helps in arresting 3rd party replacement markets and also additional revenues from supporting segments with lesser resource endowments. Another approach OEMs can pursue is to explore modularization and steps to increase offsite services from in situ services.

Maximizing availability of a machine and outcome-based equipment is where higher stage of evolution of servitization happens. With emergence of IoT, Cloud and Mobile devices and their commoditization, companies are realizing it is possible to get use case data to generate condition monitoring, field services and engineering help desk. Heavy equipment manufacturers like CAT or Atlas Capco and many more have deployed remote tracking and monitoring services as a part of their aftersales services. Remote equipment tracking is not only used for preventive maintenance scheduling, but also in obtaining data on field use and productivity. Armed with advanced technologies companies are offering their equipment on pay per use or per output basis. Companies with advanced technologies including IoT, machine analytics, etc to monitor operations, including service agreements & availability contracts.

Key in the transformation from manufacturer to servitization partner is preparing the company to traverse from product supplier, outsourced agency to managed partner. Companies face several challenges in follow through a servitization strategy. Smart companies see servitization as a marathon not as a sprint and pursue a four-legged approach.

First step is to realize the areas where servitization would be pursued. Monetization opportunities of installed base opens up avenues for servitization strategies. Key is to start small. Identify parts where the cost of service is a significant part of the total cost of ownership and “downtime” costs have huge business implications. Products that need to calibrated regularly to meet regulatory requirements are also ideal candidates. For companies wishing to pursue product-based opportunity it is better to start with a single product.  Initiate necessary investments to pursue asset recovery or asset availability programs. Safer to starts with rotary parts contracts. Realizing servitization benefits will require capability development in not just technical areas (product related MTBF, etc), but also in customer engagement and IT. Customer relationship moves beyond point of sales. Capabilities to assess customer expectation of service provision and balance of risk and rewards is what is required to stay relevant. Investments in field service software and help desk increases your ability to offer first time right services. IT enabling field service will help break the silos and improve transparency. Successful Servitization programs requires rewiring the organization. Sales and services teams may be integrated, aftersales parts and service may be tightly aligned. Supply chains may need to automated an optimized. Systems to pair service parts inventory and price management may be required to provide logical and automated next steps for maintenance & repair.  KRA/KPI may have to be relooked to ensure common objectives, incentives may have to be redesigned to integrate sales and services. Important cog in the wheel of servitization is change in the culture of organization. Changing the mindset and the capabilities of the company from sell and forget to delivering services and solutions requires strong commitment from the leadership and appropriate mechanisms to institutionalize service orientation. The big challenge is to move to data driven organization. Connecting field service and other areas would provide detailed insights into warranty program, design capabilities and engineering maturity of a company. Investments made for servitization can offer useful insights on the product configurations deployed in field, over-or under- engineering of parts, opportunity to sell an extended warranty, features used and unused and so on. The ability to breaking down the silos across teams and using data to drive “service” revenue maximization is the biggest challenge companies face. This may also require managing geographically dispersed and culturally different distribution network of partners. Smarter companies are deploying skunk teams or holacracy and other approaches to drive the results. In essence, Servitization is a transformation journey. Plan ahead and focus on execution.

Dr TR Madan Mohan