Introduced by Vandermerwe and Rada back in 1988, the term Servitization is used to describe the transformation of a business to compete through a combination of services and products, rather than products alone. Have you already considered it as part of your differentiation and growth strategy?
For manufacturers, Servitization offers alternative ways to compete through advanced services, which focus on delivering ‘outcomes’ for the customer, rather than services focused around product ownership, condition and performance.
The ‘hall of fame’ of Servitization consists of industry leaders such as Rolls-Royce Aerospace with Power-by-the-Hour, Alstom with Train Life Services, and Xerox with Managed Print Services.
Rolls-Royce manufactures engines and has offered a service package whereby customers pay by the hour according to the amount of time an engine is in flight. With the TotalCare service contract that Rolls-Royce offer to airlines, also referred to as Power-by-the-Hour, the customer pays a fee per flying hour. The revenue for the customer equals revenue for Rolls-Royce. Effectively the proposition is insurance on a performance-based outcome. The customer is relieved of the need to manage their maintenance and engineering, and transfers the financial risk associated plus operational risk to Rolls-Royce.
Learn about how Rolls-Royce Aerospace handled the downtime in the aviation market in 2020 in our case study.
Alstom is a French multinational company operating worldwide in rail transport. Alstom offered extended maintenance services that prioritise performance for its clients, based on the principle of ‘lost customer hours’.
Alstom trains operate, among others, the UK West Coast Mainline. The advanced services contract was initially with rail operator Virgin Rail Group, and more recently with Avanti West Coast. Some features of these contracts include, viable trains being present every morning and ensure these are available for an agreed amount of hours per day. Trains have to be clean and have all customer-facing features (such as toilets and catering) in working order. Alstom is paid on the basis of pence per mile travelled by the trains. Since Alstom takes on the risk of technical failures, it receives penalties if trains are delayed or cancelled due to technical or maintenance problems.
Find out about how Alstom delivered such a contract here.
A firm initially known for photocopiers, Xerox positioned itself as an enterprise for business processes and management. The high level of expertise is a pre-requisite for the development of advanced services, in Xerox’s case around document management. Managed Print Services cover the offerings are strategic outsourced services that guarantee the outcome of a business process or even platform (as well as the total cost of ownership and availability of the embedded devices/assets). Taking the hospital environment as an example, managed fleets of Multi-Function Devices are used within several UK trusts to deliver Xerox’s Medical Records Management Service: incoming correspondence and patient consent forms are scanned to workflow to guarantee on-line availability of the complete patient medical record at the point of need.
Read about Xerox’s design and service innovation journey here.
Servitization and You
You might be thinking, since Servitization has been around for a while and so many industry leaders are already providing advanced services, is it not too late for my organisation to servitize?
Well, 2022 might be just the year for you to consider starting your Servitization journey. There is no debate that the industrial landscape is changing at a fast rate. Servitization enables organisations to maintain resilience through diversifying their portfolios, so Servitization leaders constantly work on finding new ways to deliver value to their customers.
A new generation
Has going back to the ‘hall of fame’ of leading examples revitalised your interest in Servitization? There are plenty more Servitization cases for us to explore. Next time we will introduce you to a new generation of Servitization leaders.