Tom Palmer was Group Director of Services Strategy at Rolls Royce and has recently joined The Advanced Services Group as a Visiting Professor. In this blog, he is sharing his reflections on Servitization and the future of manufacturing.
We have been talking about Servitization for quite a while now. The term was first coined in the 1980s to mean the evolution towards the provision of services as a business model. The Advanced Services Group is one of a handful of academic centres focused on research around this concept.
The themes that power industrial servitization are still there – and stronger. In particular, these are:
- the increasing availability of capable digital platforms providing the ability to manage product and usage data,
- the move towards the circular economy – to sharing assets rather than owning them and
- customer expectations evolving towards “accessing” assets.
To me, this makes the move towards the provision of customer solutions at minimum financial and environmental cost inevitable.
There are profound strategic implications for product manufacturers. In simple terms, over the next few decades, many manufacturers will have to make the decision of whether to embrace servitization themselves and transition towards broader customer solution provision – or to focus completely on winning in a different competitive landscape through superior product characteristics. They will accept that they may soon be supplying to a broader solution provider or aggregator that will be focused on capturing customer value for themselves.
For those that go down the servitization route, there are new skills and competencies to master. This is not easy. My experience of over 30 years living and leading this change in one of the world’s leading industrial solution providers is that this means dramatic organisational, cultural and business model changes.
For those that don’t go down the servitization route, the change may still be profound as they discover what it takes to win as a more niche product-only business in an increasingly global and efficient industrial landscape where broader solution providers look to exploit market inefficiencies.
Finally, there are implications here for national industrial policymakers. Customer solution providers get to decide which products they buy – and from where. And so it will become increasingly important for industrial policy to support this evolution, in order to protect and support national manufacturing.