Field service companies aren’t the only ones discovering there’s money to be made in service contracts. Manufacturers, too, are chasing the revenue opportunity. What does “servitization” mean, exactly, and how does it promise to boost customer satisfaction? Ahead of Field Service Digital’s 2014 Field Service Roadshow, where the topic will be front and center, we asked Howard Lightfoot, the co-author of “Made to Serve,” to describe the smart ways manufacturers are using servitization to drive revenues.
What, exactly, does servitization mean?
‘Servitization’ is a transformation. It is about manufacturers increasingly offering services integrated with their products. Providing product-centric services implies closer customer relations, and moving from a transactional approach based on simply making and selling goods, to an more relational approach which delivers higher ‘value add’ to the customer.
Are there any manufacturers today that are doing servitization well?
Rolls-Royce’s civil aerospace business is an iconic example of a successfully ‘servitized’ manufacturer. They don’t just sell aero engines to airline customers, they also provide them with a ‘TotalCare’ service package (which covers engine management and maintenance), whereby the customer pays an agreed-upon fixed price for flown hours. Over 50 percent of Rolls Royce’s revenues comes from the provision of services.
Another example is MAN, the German-based truck and bus manufacturer. MAN provides customers vehicles on a ‘pence per kilometer’ basis. The operator no longer has to buy the vehicle outright, but can pay for its use under a fleet management contract. In this type of service contract, MAN provides ‘uptime’ guarantees and monitors the vehicle in use to provide driver training and fuel efficiency improvements. MAN’s UK CEO has commented, “We are now a service business that happens to make trucks.”
How can companies get started with servitization?
As I mentioned earlier, servitization is a transformation process: a manufacturer, transforming to become a service provider. We have undertaken in-depth case studies with Rolls-Royce, MAN and many other manufacturers who have adopted a ‘servitization’ strategy and have identified a number of factors that are key to a successful strategy. These relate to the service provider’s facilities, integration, monitoring, performance metrics, people and processes.