The alignment of servitization and outcome-based services

The alignment of servitization and outcome-based services

Our of the key discussions and debates around servitization is whether a fully servitized offering is, by default, an outcome-based solution. There is, of course, much nuance around this conversation, and it is one that has been debated and will continue to be debated across the opinion pages of Field Service News.

 

However, within a data-driven report such as this, where the intention is to outline the trends of the market without editorialisation, we can see that the consensus amongst those organisations who are actively offering a servitized element within their service portfolio is that the two terms are increasingly becoming synonymous. 

 

Indeed, almost three-quarters (71%) of the respondents in this study who do offer a servitized element within their service portfolio have stated that their servitized offering is based around an outcome-based pricing model. 

 

Meanwhile, amongst those organisations that state that they are currently in the process of developing their own servitization offering, 86% state that they intend it to be a fully outcome-based priced offering. 

 

 

However, as we discussed in the opening section of this report, in such complex strategic discussions, terms can often become somewhat vague and be used interchangeably. We, therefore, once again wanted to drill down further to better understand how our respondents were defining outcome-based services. 

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"It is interesting to note the number of companies who have adopted a servitization approach that is detached from product and focuses around the pricing of service."

We asked our respondents, therefore, to state which of the following options was closest to their definition of cost-per-outcome-based pricing. 

 

  • Fully outcome-based, where- the customer pays the price for an outcome which includes service, parts, installation and the asset. 
  • Only the service is outcome related- the customer pays for the services based on a set result. The asset remains as Capex 
  • Services have some element of outcome-based pricing- but it is not a 100% outcome-based pricing model. 

 

The third option in this list was not selected by any of the respondents, which is good as this allows us to better define the meaning of the terms and how are respondents have interpreted this part of the study. 

 

However, there was more of a balance between the first two options. Technically, within most broad definitions of servitization, including our own, the first option would be preferable, and this was selected by 64% of organisations wherein we see both service and products combined into one contract. 

 

However, it is interesting to note the number of companies who have adopted a servitization approach that is detached from product and focuses around the pricing of service. 

 

It will be fascinating to dig deeper into this aspect of the study in our follow-up interviews and identify if those organisations who have taken this approach also include any parts and consumables within their pricing structure. 

 

What these findings do reveal, however, is that there is a much broader spectrum of servitized offerings arising as more companies adopt such approaches. 

 

Interestingly, given the potential risk of a fully outcome-based model that was laid bare by the pandemic, it could be that this ‘servitization-lite’ approach allows for a more balanced approach to advanced service design and something we may see further development of in the future

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