Servitization: The next Industrial Revolution, Part 1

Sep 4 • Aston, Features, Servitization • 3825 Views • No Comments on Servitization: The next Industrial Revolution, Part 1

Facebooktwittergoogle_plusredditpinterestlinkedintumblrmail

The world of academia and industry came together at the end of May to discuss the latest theories and trends in servitization at the Aston University Spring Servitization Conference. Held in the purpose-built Aston conference centre in the heart of the University and hosted by the Aston Centre for Servitization Research and Practice, the conference holds a unique position within the servitization community in bringing together representatives of both academia and industry. Kris Oldland was there.

Aston’s own Professor Tim Baines is widely considered by many to be one of a handful of people at the very top of this field and he was joined by academics from across the globe from Helsinki, to Tokyo, from Hangzou to Glasgow. Industry was also well represented with companies of all sizes in attendance ranging from third generation family-run Nicklin Transit Packaging through to blue chip companies such as Air France and Goodyear.

“The purpose of the conference is best expressed as three objectives,” explained Baines. “Firstly, to bring the researchers in the field together to really consolidate the knowledge base around servitization, so where are we today with servitization.”

“Secondly it’s to bridge theory and practice, to bring practitioners into the mix, talk about their experiences and let the academics learn from that and vice versa.”

All too often the community of servitization is disparate and fragmented…

“And the third thing is possibly the most important of the three: it’s all about community building. All too often that the community of servitization is disparate and fragmented, this conference is about bringing the international community together to share their experiences on servitization, their research on servitization.”

There certainly was a genuine buzz of community throughout the two days, which was greatly enhanced by the format itself. With no less than forty presentations being presented across two days the danger of death by PowerPoint ran higher here than at most conferences. However, the ten minute rule – strictly enforced by Baines and his colleagues – kept everyone on their toes and the sessions were well supported by a slick app which allowed for feedback and questions for each presentation. This added a good interactive element which kept the audience involved throughout.

The advantage of so many presentations, of course, is that there were a phenomenal number of talking points being generated from each session, so as we made our way to the networking coffee breaks each time the courtyard area was full of debate and discussion.

Whilst servitization is indeed gaining a lot of traction at the moment, it remains an unknown area for many or at best an area of confusion for others. In it’s simplest sense servitization is the shift from a traditional transactional manufacturing approach (whereby we build a build a product, sell it and then offer some form of aftermarket service to help maintain that product for a specific period of time) to a model where we build a product in order to sell the service itself.

Sony and Telemadrid

A great example of this approach is  the brand new state-of-the-art system Sony Professional Systems Europe have just installed for Spanish news company Telemadrid, replacing an existing suite. However, instead of Telemadrid having to pay a big lump sum they are paying Sony on a pay-per-usage basis.

Instead of Telemadrid having to pay a big lump sum they are paying Sony on a pay-per-usage basis…

The benefits for Sony are that over the longer term they can generate greater profits for longer periods plus embed themselves within their customers’ workflow making customer retention far higher.

The benefits for Telemadrid are that they have a far more manageable cost line on their proft and loss sheets, they have access to the very latest technology and  they need no internal technicians to service that technology. Most  importantly, it is in Sony’s best interests to ensure that Telemadrid receive 100% uptime otherwise they will face severe financial penalties. Result: Telemadrid knows the service they receive will be reliable.

(For the full story on how Sony is transforming its service business  in Europe read our in-depth two-part interview with John Cooper, Head of IT and workflow Management, Europe here)

This trend will continue as more and more  companies are pulled into a servitization model by their customers. Rolls Royce’s power-by-the-hour is one of the best-known examples of the servitization model and was the direct result of American Airlines demanding such a service from the jet engine manufacturer some thirty years ago). Other companies are seeking to adopt a servitization model for reasons such as improving profits or differentiating themselves from their competition.

METSO

One company that has just made the transition to servitization is mining, utilities and recycling organisation Metso. John Cullen, Vice President of Marketing and Brand, was one of the keynote speakers at the conference and outlined how and why Metso had made the shift.

“At the moment I would say we are at the beginning of the process,” Cullen began.  “We’ve actually been going through a process of servitization within our company but it’s a journey that started some three years ago when our services unit was put into a separate division having previously been attached to the different product businesses.”

But why have they made this move? In fact there were a number of different reasons that led Metso went this path. “There were a number of different drivers for us,” Cullen stated. From a customer perspective we weren’t delivering to our customers everything that they wanted. They were looking for us to take a more active role in their business processes and support them, where we tended to be very much more reactive.”

We had a lot of great service products within the company but they weren’t recognised because we weren’t selling them as a servitized products

“Secondly we already had a lot of great service products within the company but they weren’t recognised because we weren’t selling them as a servitized products. We were just coming to our customers and saying what problems do you have, we can fix it.”

“So we really needed to change the way we were doing things from being reactive to proactive. For us, it helps our business develop new revenue streams, but it also means we deliver a better service to our customers.”

The cultural challenge

Of course such a radical shift in business strategy needs not only the buy-in from the executive level but also from all members within the organisation. Something which can prove to be a significant hurdle for companies to overcome when moving to a servitized business model.

“When we presented these concepts they’ve actually been embraced by our people but one of the challenges is that we are changing the way people do their job in everything. So what we are asking people to do is throw away maybe twenty years of doing things and look at things in a completely different way and that’s hard for anybody to do,” explained Cullen.

One of the challenges is that we are changing the way people do their job…

“It’s about a cultural shift. The positives being that people are interested, they’re eager and they do see the benefits but actually doing it but, still, changing the way you’ve been doing things is a difficult thing to do.”

It is, of course, a cultural shift for Metso’s clients too. It’s a big point of discussion: should companies try to roll out such an approach to all of their customers in one go or is it better to perhaps apply the Pareto principle and roll the changes out to those customers your closer to first?

For Metso the intention is to take the first approach although the reality of doing so isn’t particularly straightforward. “It’s an approach that we are trying to put out to every company but the practicalities are that we have to start with a few customers within various territories and then actually develop competence within the organisation to deliver,” Cullen explained.

“But it’s not something we want to limit,” he added, “It’s a culture and we want to change the culture everywhere.”

Look out for Part 2 of this report from the Servitization conference  where we’ll hear from Christian Kowalkowski of the Hanken School of Economics on how servitization has evolved over the past decade.

Be social and share this feature

Facebooktwittergoogle_plusredditpinterestlinkedintumblrmail

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *

Blue Captcha Image Refresh

*

This site uses Akismet to reduce spam. Learn how your comment data is processed.

« »

Read previous post:
The Changing Face of Field Service

Service Management Expo 2015 saw a number of excellent debates including a panel discussion that focused on the challenge of...

Close