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Service or service delivery is seldom the primary concern of manufacturers; their attention is generally limited to the ultimate product.

Digitization and the Internet of Things (IoT) are instigating a fundamental transformation in the operational practices of manufacturers, transcending industries and geographical boundaries.  To differentiate themselves in their respective industries, manufacturers around the world are integrating technological features into their products.

In the realm of manufacturing, the notion of integrated products is by no means novel.  Approximately a decade from now, industrial IoT investments are anticipated to surpass $60 trillion.  Integration of entire product lines—including residences, engines, automobiles, and household goods—is being accelerated by the majority of prominent B2B and consumer organizations.  Even the most sizable corporations are not immune to this trend.

On the general, producers distribute their goods through indirect channels, such as wholesalers, dealers, and retailers, or directly to original equipment manufacturers (OEMs).  Manufacturers lack immediate access to data sources that provide real-time insights into the performance and utilization of their products by end users due to the absence of direct consumer contact in this arrangement.  In essence, the receipt of warranty claims occurs subsequent to the occurrence of consumer dissatisfaction, marking a period in which proactive measures have become impracticable.

In order to develop intelligent products that they can sell directly to consumers, astute manufacturers are employing IoT, Machine Learning (ML), Artificial Intelligence (AI), and other technologies.  This structure facilitates the prompt and direct collection of valuable feedback from consumers regarding the performance of their products, any instances of deterioration, and the necessity for replacements.

This value-generating proposition, known as the Servitization Business Model, entails making the transition from products to subscriptions for the entire transaction model on behalf of manufacturers.  Products are bundled with services and made available to consumers on an hourly basis, as opposed to purchased as a whole.  Other services that increase the product's value may be encompassed within this category, such as training, consulting, maintenance, restorations, and enhancements.

Four distinct Servitization models are possible:

1. Service Improvement
2. Customer Operational Improvement
3. New Product Capabilities
4. New Revenue Streams

Efficient Change Management, strategic allocation of resources, and thorough planning are essential elements in guaranteeing a seamless transition from a product-centric to a service-centric business model.

In the following section, we shall further examine the first two Servitization models.

1. Service Improvement

Service enhancement denotes the commitment of a company to guaranteeing the continuous availability and dependability of its offerings for customers.  Servitization supplants the traditional maintenance methodology of on-demand repairs with predictive maintenance. This latter employs technological advancements to anticipate equipment failure and execute punctual servicing tasks, thereby averting any potential disruptions.

Frequently, service agreements include expeditious response and assistance in the case of equipment malfunction, with the objective of mitigating operational interruptions by providing spare parts and specialized guidance.  The value of a brand is increased when customer value is generated via the enhancement of product dependability, the optimization of utilization, and the reduction of overall maintenance costs.

1. Customer Operational Improvement

The Customer Operational Improvement element of Servitization involves a transition in focus from the mere provision of products to the improvement of operational efficiency through the utilization of value-added services.  The success of the service provider is inextricably linked to the improvements achieved by the client.  In order to optimize the performance of a client, tailored solutions must incorporate supplementary services, including consulting, training, or maintenance. The objective of this integration is to maximize the efficacy and efficiency of products in accordance with the specific operational circumstances of the client.

By integrating IoT and Data Analytics, service providers are able to gather and analyze information from the customers' premises regarding the product (e.g., apparatus) in use.  These observations enable service providers to provide informed suggestions concerning the optimization of processes, reduction of waste, and enhancement of productivity.

Interested in learning more about the other models of Servitization? You can download an editable PowerPoint presentation on Servitization Model here on the Flevy documents marketplace.

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