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Servitisation is getting popular throughout the world as a profitable business model. It has been embraced by the developed countries and the companies operating within sectors, where the high-installed product bases are a prerequisite, such as elevators, business machines, printing and packaging machinery, construction equipment, health care, and agricultural machinery.
The business model is getting popular and being implemented in electronics, lighting, heating, auto and aero engines industries and other sectors as well.
WHAT IS SERVITISATION?
Products are usually tangible in nature with some material artefacts (e.g., ballpen, bag or car etc.), while academics term these as goods. On the other hand, service is something that is intangible in nature (e.g., consultancy, doctor’s advice, banking etc.). Service also refers to an offering (e.g., maintenance, repair, insurance etc.).
The business community commonly uses the term “product” to mean both goods and services. Servitisation, thus, refers to moving from a selling product only (tangible-dominant) business to selling products as a service.
Put simply, servitisation means applying service to a tangible product to create additional value or a new offering to a customer.
For example, instead of selling an air-conditioner alone, an electronics products manufacturer can install and/or sell it as a service. Consumers need not buy air-conditioning or any related equipment. Rather, they will pay for air-conditioning service used at home or office. This business model is also known as a ‘product-service system’. Within this business model, the users pay a fixed fee for a unit of services consumed.
EXAMPLES OF SERVITISATION
The use of servitisation in the on-demand industries (Netflix or Uber), electric and electronic goods seems an obvious progression, while the usage is getting popular across sectors.
The integration of product and service features, labelled as servitisation, is found 150 years back. But this term was first used in a manufacturing operations context in 1988. In the last 30 years’ faster progressions towards a service-led orientation of the economies, businesses and industries are getting quicker and fascinating with the dynamic transformation in transportations, communication channels, information technology and digitisation.
This has become a vital model for ‘winning in the aftermarket’. For example, when we buy a refrigerator or freezer, the companies sell the products with aftersales service.
So, when the consumers require repair, maintenance or servicing, they pay for it. This can be called the primary level of servitisation.
Full servitisation occurs when consumers will not buy the product. Instead, they will use it under a contract or business model. They will not own the product. Rather, the company will supply or maintain it on behalf of customers.
The classic example around the business world is Rolls-Royce. Instead of selling jet engines, it sells “Power-by-the-Hour” or “TotalCare” solutions to the aerospace industry. We all know Rolls-Royce as an auto and aero-engine manufacturer. But it moved from engine selling to a service selling company where it no longer sells the engines only. It sells efficiency by letting the engines be used hourly and tracking engine performance in real-time.
It tracks data while flights are on the go. Rolls-Royce ensures maintenance and other services in important airports around the world. Even before the pilots within an aircraft know, the Rolls Royce team can track the performance of the engines and help the pilots by supplying real-time information they need.
The airlines companies pay for the hours only when the Rolls Royce engines are in action.
Servitisation has aroused attention as a means of building profitable, strong, long-term customer relations and trust.
It is a hot topic around the world for a few reasons. First, it encourages not to own expensive machinery and equipment that can be used, shared or distributed by a service provider. For example, Siemens stopped producing a lot of its electronic equipment to sell as a product unit. Rather, it extended them as a service.
While studying at the University of Exeter in the UK, I directly experienced two services of this nature. One is the university does not own the photocopier, printing and scanning machines. Rather, Xerox, the largest photocopier manufacturer in the world, lets the university use the machine under the servitisation business model, and students pay for the services. Xerox has moved from selling printers and copiers to delivering document management.
Another experience is, the university buys the whole LED lighting systems from Philips as a service. The university does not own the lights. Philips maintains the entire LED lighting system, repair, replacements and servicing. Since these are also IoT-enabled (Internet of Things), the lighting systems have automatic sensors. So, when no people are around, the lights turn off automatically. This saves costs and provides the efficiency of energy consumption. As a result, the overall maintenance costs come down for the users.
Second, servitisation offers the opportunity to create a service-led competitive advantage that manufacturing-led goods cannot create alone. It offers an opportunity for product innovation.
Third, servitisation helps save the earth by managing energy efficiency.
According to an article published by the World Economic Forum in 2020, the servitisation model is a key contributor to the system efficiency approach to attaining global energy decarbonisation. Thus, servitisation is now being considered as a force of the Fourth Industrial Revolution and has become a part of the digital dialogue in Europe in recent years.
Last but not least, it saves capital expenditure and optimises operational expenditure. Thus, its efficiency leads to profitability. With a lot of other direct financial benefits, servitisation offers a long-term and sustainable revenue stream to the service providers and expenses benefits to the service users.
THE MAIN DRIVERS OF SERVITISATION
The main drivers of servitisation rationale include enhancing reliability and uptime, customer operational involvement, selling new product capabilities, and new revenue-generating business, according to documents of Tata Consultancy.
The benefits are aplenty. Research in 2018 found 48 per cent of the UK manufacturers are planning to increase their investments towards servitisation.
There are challenges too. When a company thinks of moving into servitisation, it needs to manage the resistances that come from the core business model and the supporters of such old-schools.
The other challenge is all the manufacturing operations, especially the large and established ones, such as electronics, home appliances or automakers, are organised into departments such as production, engineering, R&D, marketing and supply chain. Thus, customer-facing attitude, customer’s experience sharing and workshops and training are necessary.
RECOMMENDATIONS FOR BANGLADESH
Servitisation is now widely recognised as a force of innovation and growth of manufacturing and industrial capabilities, facilities and processes that can move from selling products to selling bundled or integrated service offerings to deliver additional value.
Western countries are using this strategy to raise entry barriers against low-income countries. Now, if companies in Bangladesh start learning and adopting principles to move from product selling to servitisation business model gradually, they will be able to begin to gain competitive advantage against local and multinational competitions.
The startups can also integrate with large manufacturing companies to co-create and convert the product-only dimensions into product-service dimensions.
This is a new-world business model. The developed countries have embraced it and have begun the journey to a servitised future. They are improvising every day as a source of gaining competitive advantage and a superior way of providing customer satisfaction.
In Bangladesh, we experience only some primary level of servitisation. But sooner rather than later, the businesses will need to adopt this. Otherwise, our businesses are going to be left behind.
The writer is deputy general manager for marketing at MM Ispahani Ltd. He can be reached at didarulhasan@gmail.com.
(TDS)
