Is servitization still relevant? What kind of relationship do my customers now expect from me?
Is servitization still relevant? What kind of relationship do my customers now expect from me?
In the third of four exclusive essays for service leaders authored by Field Service News, Editor-in-Chief, Kris Oldland, we ask if there is still a place for servitization in a post-pandemic world?
Having spent a decade building momentum towards servitization, did the pandemic make us realise this was a monumental mistake or is it the path that we now have to follow?
As I referenced in the first of the essays in this series, we’ve been moving towards servitization for a long time.
Indeed, last year, when giving a key-note presentation at the World Servitization Conference, I reflected on the fact that I had a front-row seat to the journey servitization has gone through.
That journey began as a small side discussion, usually held in the broom closet adjacent to the main stage at most field service-focused conferences, with just a handful of service leaders listening to the ideas of academics such as Howard Lightfoot, Tim Baines and Shaun West outlining the powerful impact of this forward-looking approach to service thinking.
Fast forward some ten years or so, and I was stood on-stage giving the key-note presentation on the evolution of servitization in that period as a central theme of discussion to a room of well over three hundred industry professionals and being broadcast online to many more at a conference dedicated to best-practices in servitization.
“The existence of this fantastic conference,” I stated to the audience, “was a testament to the rapid growth in awareness of servitization as a concept and its impact on the manufacturing sector and beyond.”
Yet as anyone who will have followed my work, or indeed that of the many others in the servitization space for any time, will be aware, servitization is by no means a new concept. The often discussed poster boy for the servitization movement, Rolls Royce, began its servitization journey with the introduction of power-by-the-hour way back in 1962.
Yet, within the last decade, we’ve really seen the topic of servitization completely break into the mainstream.
There were varying drivers for this shift towards advanced service strategies, including some we may not naturally consider at first glance, such as a societal shift away from the concept of ownership towards an economy of outcome or the increasing focus on corporate responsibility for environmental impact and the rise of the circular economy.
However, while the drivers for servitization were numerous and often a complex blend of differing external factors, the underlying factor for service organisations was that by introducing a servitized element into their service portfolio, they were taking on a greater share of the risk in terms of ensuring operational success in return for much deeper customer relationships and much longer and more profitable service contracts.
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"I believe we should be viewing servitization as a spectrum of solutions that range from a customer success based-approach on one side to outcome-based services on the other..."
Ultimately, servitization can be boiled down to a risk/reward equation. While it may not be a suitable model for every customer within your client base, the reward side of the equation easily outweighed the additional risk for many.
Indeed, as I outlined during the key-note I referenced earlier in this essay, our own research had indicated across several separate studies that the number of field service organisations that had introduced at least some form of servitized offering within their portfolio was consistently increasing year on year.
“While I don’t believe that a servitized offering is right for every customer,” I stated, “I do think that within the near future, almost all service companies will at least have such an offering in place for those customers that are beginning to demand such solutions.”
It was perhaps a bold statement, but it was backed up by empirical data across multiple studies and over a decade’s worth of first-hand anecdotal evidence.
However, I also urged the audience not to shy away from addressing the elephant in the room, and it is one that you, as a service leader reading this essay, should also consider. None of us in the servitization space could have predicted the pandemic’s once-in-a-generation disruptive influence.
The truth is that across the pandemic, many of the industries that suffered the most significant financial loss were industries that had largely embraced the outcome-based revenue model, which is often (incorrectly) used as a synonym for servitization.
Pay per print is a great model, for example, until we move to home-based working. Power-by-the-hour style contracts in aviation equally become obsolete when most planes are grounded.
Increasingly, I have been pushing against how we present the concept of servitization.
Invariably, the imagery used to illustrate servitized models indicates a path, journey, or series of iterations moving from the traditional break-fix approach to service through a series of stages to an ultimate endpoint of outcome-based service solutions.
Instead, I believe we should be viewing servitization as a spectrum of solutions that range from a customer success based-approach on one side to outcome-based services on the other.
In doing so, we can establish a broader range across our service portfolio, which can be more easily adapted to our customers’ varying requirements and needs.
I recently had the pleasure of interviewing Christian Kundert, Services Growth Manager, Caterpillar, on stage at the Field Service Connect conference, where he outlined their approach to service contracts that are essentially comprised of ‘do-it for me’, ‘do it with me’ or ‘help me do it myself’.
"Perhaps, most importantly, it is one that fully embraces Peter Drucker’s concept of Outside-In thinking. It places the customers’ needs at the heart of the design of the service portfolio.... “
By developing a holistic understanding of the different needs of their customers, identifying the varying value propositions their customers may want to see from them, and leveraging technology and processes that can sit across these different needs, Caterpillar has established a model that I believe should be studied by any organisation looking to develop a more advanced service portfolio.
Perhaps, most importantly, it is one that fully embraces Peter Drucker’s concept of Outside-In thinking. It places the customers’ needs at the heart of the design of the service portfolio.
One aspect of this discussion that has emerged since the pandemic first hit that I find particularly interesting is that as a result of the global lockdowns, the balance of the service provider and customer equation related to servitization has been inverted in some cases.
We have seen some service providers walking back from their internal servitization projects to a degree as they pause to revaluate their exposure to future risk that deep servitized contracts could pose. Simultaneously, on the other side of the equation, as we now face a global recession, service customers are far more open to the subscription-based payment terms of servitized contracts.
In answer to the second question of this essay title, ‘What kind of relationship do my customers now expect from me?’ I believe that the answer lies in authentic partnership-based relationships.
Partnership-based relationships are more open to sharing the burden of success. Partnership-based relationships are, by their definition, more robust and mature. Partnership-based relationships are at the very core of everything that makes servitization work.
However, transparency and trust are needed on both sides for partnership-based relationships to work.
Fortunately, as we enter into an era of data abundance, as we shall explore in the final essay of this series, the building blocks for the foundations of such trust-based relationships are already in place.
To conclude, as, with all of the essays in this series, I shall leave you with some further questions
Further questions for consideration for you on this topic:
- Has your approach to servitization been driven by an understanding of where the customer sees the value proposition of the solutions you provide?
- Is there the opportunity to co-create service offerings with key customers, and if so, are you actively developing these?
- Does your organisation see servitization as a journey towards outcome-based services, or does the Caterpillar model as outlined above hold more significant potential?
- How many of your customers have you asked the question – what is it that you wish to see in our business relationship?
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