Towards a Common Definition of Servitization
As I travel around to conferences, industry workshops and the like speaking to practitioners from a range of industries in a variety of countries, I've realised that when it comes to services and servitization, we're still often talking about different things. If we are to move forward in changing businesses to adopt these transformations, we need to agree on what we're talking about. Academics have studied this for several decades now, and have pretty much agreed on the following definitions:
What is servitization?
Quite simply, 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. It doesn’t apply only to manufacturers, but it’s here where the term is used most frequently at the moment.
For manufacturers, servitization offers alternative ways to compete, and the potentially more sustainable revenue streams. It has the added benefit to society of localising value capture and improved environmental performance. This video shows more about the benefits.
Servitization is being enabled currently by two megatrends: our society's growing appetite for services, and advances in information and communication technologies, and this is leading to the rise of new business models based on advanced services.
What are advanced services?
Advanced services focus on delivering ‘outcomes’ for the customer, rather than services focused around product ownership, condition and performance. The classic example is selling 'holes' rather than drills; the customer wants to make a hole; the use, condition, features and performance of the drill is just a way of achieving that outcome, but isn't what the customer wants to concern themselves with.
Manufacturers adopting any types of service are going through servitization, but my interest, and that of my research team, is in advanced services because these are the real game-changers that can lead to long-term contracts with customer, providing sustainable revenue and opening up opportunities to get to know the customer's business and become an increasingly important part of their operations.