Defining Servitization

Before looking at the question of, is servitization dependent on being OEM owned we discussed what does servitization really mean. By definition it is applying a service to a product in order to create additional value or a new offering to customers. In reality the way servitization is applied can vary significantly from business to business.


Chris Craggs, CEO MCFT food equipment services started off the conversation. “Understanding what the motivation is from the from the manufacturers point of view. I felt to me was twofold. First of all, that reputational protection, brand protection. The after-sale service and use of whatever asset was it was that was being provided, was as had been promised and didn’t fail any more often than seem to be appropriate in the first instance.


“Secondly, and this takes off in a slightly different direction. The desire and it’s been most obvious, perhaps over the course the last couple of years, in some instances, to earn a through life income from that asset, as opposed to the one-off sale that was delivered and we collected the revenue solely from that.


“Bit consumables, bit maintenance. There have been instances where the servitization model in the Rolls Royce model of sending hours on selling hours on are on an engine over the last couple of years know what the legal clauses in the contracts were that allowed them to that unless derive some revenue when planes are sitting on the ground through no fault of their own.”


Craggs added as the world becomes globalised and consolidated and businesses become bigger and the independent start to fall, there’s a long tail and I accept that. But broadly, when we’re talking about mass markets, the manufacturers become bigger, I also believe that there will be a stratification of business around their core competencies, so manufacturers, will manufacture spare parts suppliers and consumable suppliers will contractually covered, but actually separate businesses”


But the specialist in terms of having robot pickers, the classic Amazon model, it’s stuff that goes out, and you can place orders at seven o’clock at night, you get them tomorrow morning, they’re fitted in the machines back up and working, that’s a specialist business that’s not manufacturing.

And in the same vein, that people carrying out service and maintenance, who again, we would advocate are a separate specialist business, the whole, you know, aspect of field service and getting people to different places and different times with the right parts and the right competence to be able to affect effects. That’s not really a manufacturer’s speciality.


We’ve got something like 700 manufacturers on our database. And you can readily see that some of those guys will have their own field teams, the vast majority, like 99%, do not. How is the customer going to achieve maintenance and uptime, and they’re in their commercial kitchens in our world? How is the manufacturer going to have that product supported and a reputation protected? Whereby the manufacturer there also derives an income, that we have a symbiotic relationship, that we’re approved for warranty posts, warranty installation, commissioning all of those, and somehow the manufacturer derives an income” Craggs concluded.


Shaun West, Professor of Product-Service System Innovation, Lucerne University of Applied Sciences and Arts added, “I bought a business for 200 million Swiss francs or $200 million dollars, based in the UK that repaired generators and motors, and had never ever been an OEM.


And I think one of the flawed aspects on this is that Servitization services are often delivered through people who are not manufacturers on there’s often a miscount conception, that you have to be an OEM to understand the equipment, particularly well. And I think that’s got to do with people who don’t understand manufacturers.


“If I look at our system, for instance, they went to Rolls Royce for Rolls Royce to do design work for the hot turbine blades because they couldn’t do it themselves. And that’s about competencies. And I think there’s another aspect on business models.


“I’ve looked at some number of business models where the supply of spares is needed for both the new equipment manufacturer and the aftermarket services. And a system integrator is just as ready and able I believe or even just a field service business is ready able to deal with some of these things and construct a different value proposition or a similar value proposition, but with different skill sets.” West concluded.


Elaborating further on this Rajat Kakar, Managing Director, AEP Holding, “Its very important to consider the set up of an organisation. If the organisation is placed more in the direction of the product lead organisation, generally they tend tend to see services, or especially the warranty as a cost barrier. They’re not looking at this something which is generating new revenue is just something that the warranty, which has to be done, they have to build provisions for it. So a lot of the vendors might be working on the hardware side. And then on top of it you get hit with warranty obligations, or at least warranty provisions, which eventually lead to warranty obligations meaning that either the provisions are released or they’re charged into the product group.


“If you have an organisation which is product minded, product centric, you will have a different mindset comparatively to an organisation which is driven. If they are product lead which is manufacturing things they will work with partners to see who can deliver the service the cheapest. If somebody who is doing the integration work for them may also be the partner who will actually go out into the field. And they will actively work with these partners in order to achieve this. Its important to take care at the customer side, provide your SLAs and ensure you are meeting the customers requirements.


“In summary it really depends on how the organisation or how the CEO is driving the company. The Servitization model as with Rolls Royce was charging for the engine time, and if the engines are not running it could be catastrophic. IBM for example generally went away from hardware, but they were still a product minded organisation. If they have to provide certain services, how can they expand providing services or in this case, multi-vendor services.


“IBM have worked hard at driving multi-vendor services. Not only will they service their own equipment but will also service HP, Dell, Fujitsu etc. Its important for these companies to evolve to ensure they survive. There is a need to look at other product areas, portfolio management and things such as project management. Diversification is key to surviving, and thriving”. Kakar surmised.


Kris Oldland, Editor in Chief, Field Service News, “I remember writing about Intel, but we were talking about how IoT would turn the service paradigm upside down back in 2013. The technology is becoming an enabler and should become the easy piece. We know that we can move these bits, the data should be able to flow easily. Its paramount to get our heads right with the strategy with the workflows and processes and how we do this from an operational point of view.


“There is no single bullet answer which defines servitization. The service transformation is something on going, it’s a trend, it’s a mechanism. The key question is, how to apply it in your industry. How will it apply in your business, and in the end, that is one of the key questions. And that depends on some choices, but also the circumstances of your industry and your company. And that’s one of the major challenges. That’s a strategic thinking, strategic analysis and strategic assessments. And I think those are the things we have to take on board. And traditionally, that is not something that service leaders had to do a lot because it was more of an operational function, you had to manage, and now you have to manage a business or part of the business.”


As the discussion highlighted servitization may have a discrete definition but in reality it can be applied in multiple ways. For companies to achieve success through servitization it will take innovative thinking and a nimble approach to doing business.


All members of the Field Service Think Tanks are speaking from their own personal opinions which are not necessarily reflective of the organisations they work for. 

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