Beyond the Product: Embracing Servitization for Value Creation
Generally, manufacturers exhibit a narrow focus on the ultimate product, placing little emphasis on services or the delivery of such.
The manner in which manufacturers function is undergoing a paradigm shift due to Digitization and the Internet of Things (IoT), which are occurring in all industries and locations. Globally, manufacturers are integrating technological features into their goods in an effort to differentiate themselves in their respective markets.
Integrated products are not an unfamiliar concept within the manufacturing sector. Investments in the industrial IoT are anticipated to surpass $60 trillion in value by the end of the next decade. Prominent B2B and consumer organizations, including those in the housing, engine, automobile, and domestic product industries, are accelerating the process of integrating their entire product lines. This phenomenon surpasses even the most sizable corporations.
In the industry, products are commonly supplied by manufacturers through indirect distribution channels, such as wholesalers, dealers, and retailers, or directly to original equipment manufacturers (OEMs). As a result of this arrangement, manufacturers are unable to gain immediate access to data sources that provide real-time insights into the performance and utilization of their products by end users, as they do not have direct contact with the consumers. In essence, warranty claims are typically received by consumers subsequent to their encounter with dissatisfaction, thereby precluding the opportunity to implement preventative measures.
Ingenious manufacturers are employing various technologies such as IoT, Machine Learning (ML), and Artificial Intelligence (AI) to develop intelligent products suitable for direct sale to consumers. This configuration enables producers to efficiently and directly acquire significant feedback from consumers regarding the performance of their products, any instances of deterioration, and requirements for replacement.
This proposition, known as the Servitization Business Model, entails providing support to manufacturers through the complete transformation of the transaction paradigm from products to subscriptions, thus creating value. Customers are presented with bundled products and hourly services, as opposed to purchasing a complete product. This may consist of training, consulting, maintenance, restorations, enhancements, and other services designed to increase the product’s value.
Servitization can manifest in four distinct models:
- Service Improvement
- Customer Operational Improvement
- New Product Capabilities
- New Revenue Streams
Effective Change Management, strategic resource allocation, and meticulous planning are critical components in ensuring a smooth Transformation from a product-centric to a service-centric model.
Let us now delve more deeply into the initial two Servitization models.
1. Service Improvement
Service enhancement signifies the dedication of an organization to ensuring that its products and services are available and dependably accessible to customers at all times. Servitization replaces the conventional maintenance approach of repairing things as they break with predictive maintenance, which utilizes technology to forecast equipment failure and perform timely servicing to prevent disruption.
Service agreements frequently encompass prompt response and support in the event of equipment failure, with the aim of reducing downtime through the availability of spare parts and expert assistance. Customer value is generated through the enhancement of product dependability, the optimization of utilization, and the reduction of overall maintenance costs; these factors collectively augment the value of the brand.
2. Customer Operational Improvement
Servitization’s Customer Operational Improvement component entails a shift in emphasis from product provision to the enhancement of operational efficiency via value-added services. The enhancements attained by the client are intrinsically linked to the prosperity of the service provider. Providing customized solutions to enhance the functioning of a client entails the integration of products with supplementary services such as training, maintenance, or consulting. This integration aims to optimize the efficiency and effectiveness of products within the unique operational context of the client.
The integration of IoT and Data Analytics enables service providers to collect and analyze information from the product (e.g., machinery) being used by the customers at their premises. These insights empower providers to deliver well-informed recommendations regarding process optimization, waste reduction, and productivity enhancement.
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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