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In our first blog (The role of Servitization in a changing economy - part 1) of this three part series, we explained what servitization is, why it exists and its importance in a changing economy. In this blog, we are going to delve a little deeper into advanced services and some of the drivers of servitization. Servitization is enabled mostly by two drivers; society’s growing interest in (advanced) services, and the advances in IT technologies (like digitization, IoT, big data, automation etc.). Together, this has led to the rise of new business models based on advanced services like Product-as-a-Service or Product-Service Systems.
Advanced services deliver ‘outcomes’ for customers, instead of services that are focussed around a product ownership or performance. One of the classic examples is ‘selling holes’ instead of drills. The customer has no need for a drill; it has a need for a hole. Companies that apply any types of advanced services are experiencing, or have experienced, the servitization process.
For most companies this process can be a game-changer that can lead to long-term contracts, providing a sustainable revenue, and opening up opportunities for increasing interaction with the customer. However, in most cases, servitization also requires an organizational transformation.
Here at Firmhouse, we see servitization as the transformation process from a product-seller to an enhanced service-oriented business model. This requires a transformation in thought-processes, but also in organizational structure, especially in companies that were product-oriented.
For business with their focus on the product / production there is a lot to gain from servitization. Servitization can provide value for those companies that incur high expenses in production, but little profit from exploitation. Generally, companies are at the beginning of the utilization of applications like Internet of Things (IoT), that will give servitization the necessary tools to create an even better customer experience. Like by providing individualized tips & tricks that would give a higher performance or better usage experience.
The progression of technologies like IoT helps servitization. Think about new maintenance models based on usage, that can predict when a product or production line needs maintenance or repairs and act on that. Again, this can decrease down-time and strengthen your customer relationship. This is an example of such ‘advanced’ service, that leads to predictive and preventative data-driven services. This data can be incorporated into Service Level Agreements (SLA’s) or can be linked to the asset’s availability, reliability, trust, ability and/or efficiency [i].
Nonetheless, servitization doesn’t have to be about complex integrated or smart systems. Even with relatively simple products a company can still distinguish themselves from other companies. Like sending a new toner when the old one runs out. Or putting a simple product like a bicycle in an ‘as-a-service’ proposition. In any case; these companies are building a stronger and more loyal customer base that can help them develop better products and services in the future [ii].
IoT is only part of the drivers behind servitization. Another important part is digitization, which is another factor responsible for the change in manufacturing. Because of digitization new business concepts are made possible, and more economic activity can be insourced again. This trend is also known as ‘Industrie 4.0’ or ‘Smart Industry’. It focusses on automation, robotization and increasing the networking capacity of companies.
Possibly, this can enable companies to start producing in lower volumes, hyper personalized or customized, specifically made for the demands of customers, against the cost of mass-production. This, in turn, can change supply-chains and change responsibilities over the whole lifecycle of a product. Digitization can help enable the fusion between physical product and service. That is why servitization cannot be seen as a separate thing; it influences both production ánd consumption.
Got interested in launching a servitization trajectory or product-as-a-service proposition? Looking for ways how digitization or the Internet of Things (IoT) can contribute to your business? At Firmhouse we can help you start your proposition on our platform. We can fully automate all back-end processes and help you launch in no-time. Check our website for more information, or contact us for scheduling a demo.
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