Insights from a recent study by the Advanced Services Group at Aston Business School can help you understand if you’re on the right path to advanced services. Professor Tim Baines explains...
Is Servitization a burning topic for your organisation - join Professor Baines and the Advanced Services Group for the Spring Servitization Conference, Copenhagen, Denmark, 14 - 16 May 2018 more info @ https://www.advancedservicesgroup.co.uk/ssc2018
Researchers and pioneering manufacturers have been singing the praises of servitization and its benefits to business – and it seems industry is starting to listen.
Increasing numbers of manufacturing and technology companies are trying to implement services-led strategies. How to go about doing this in practice, however, still presents a challenge to many. The leaders of today’s industry see the success of Rolls-Royce and Xerox in this area, yet they often struggle to work out how to achieve the same for their own businesses.
Within the Advanced Services Group at Aston Business School we’ve been working with manufacturers around the world using the latest research to support them in finding their path to compete through advanced services.
Advanced services’ go a step beyond the product condition and focus on the outcomes that the product enables.While most manufacturers already offer ‘base services’ focusing on product provision such as warranty and spare parts, others take a further step by providing ‘intermediate services’ focused on the product condition such as maintenance, repair, overhaul and remanufacturing,. ‘Advanced services’ go a step beyond the product condition and focus on the outcomes that the product enables.
Real-life examples include Rolls-Royce’s Total-Care offer on gas turbines for their airline customers based on a ‘fixed dollar per flying hour’; Xerox delivering ‘pay-per-click’ scanning, copying and printing of documents; and Alstom Train-Life Services supporting Virgin by assuring the availability, reliability and performance of their Pendolino trains on the UK West Coast Mainline. Advanced services such as these are a core concept in servitization.
With their potential to radically disrupt and alter the face of manufacturing, understanding the process of introducing them is vital to businesses and the economy.
At the Advanced Services Group, this is the focus of our work.
In a recent study, we examined two key questions about the path to servitization:
- What stages do manufacturing companies go through to achieve competitive advantage through advanced services?
- What factors and forces affect their progression through those stages?
We conducted interviews with 14 multinational manufacturing companies, all on a trajectory to compete through advanced services, representing a range of industries – from aerospace, defence and road transport through to air filtration and precision motion control systems.
The four stages of transformation
We found that manufacturing companies go through four stages in their transformation to compete through advanced services: exploration, engagement, expansion and exploitation. As manufacturers become conscious of the concept of servitization and suspect that advanced services may be relevant to their organisation, they will start out in a stage of Exploration, where they are doing their research to find out more about the concept and how it could benefit their business.
If the Exploration stage yields a viable opportunity for growth, the initiative will move to Engagement. Here, companies experiment and run pilots with customers and relevant technology, to evaluate and demonstrate the potential value of advanced services.
If the Exploration stage yields a viable opportunity for growth, the initiative will move to Engagement. Here, companies experiment and run pilots with customers and relevant technology, to evaluate and demonstrate the potential value of advanced services.Once a constructive outcome is achieved, the attention moves to Expansion, where advanced services are innovated and implemented with increased scale and speed. When the value of these is demonstrated, attention will switch from individual projects, to initiatives focused on the reliable and efficient delivery of a portfolio of services across the organisation. In doing this, manufacturers are focusing on Exploitation of advanced services.
In each of these stages you can expect multiple iterations and interactions until there is sufficient evidence and consent to move to the following stage.
Progression through the four stages – or in some cases falling back – is influenced by five forces.
Five forces affecting transformation
1. Customer Pull
Customers’ appetite for services has a significant influence on progression.
Several companies described their decision to offer more advanced services, together with usage-based revenue models (i.e. pay-for-flight-hours or pay-for-passengers-moved) as a direct reaction to customer demand.
2. Technology Push
Other manufacturers start servitization having become aware of the technology that could record how their products are being used and transmit this data back. The data makes it possible to develop advanced services contracts based around payment for outputs achieved rather than asset ownership.
The majority of the companies we studied said they had been influenced by this ‘technology push’; IoT and industry 4.0, which are hot topics in industry at the moment, were often mentioned. Fewer companies mentioned the ‘customer pull’ factor, and yet customers’ growing appetite for ‘experiences’ over ownership is arguably just as significant.
In the UK for example, the appetite for services has grown 2.4% per year for the past 20 years according to the Office for National Statistics, significantly outstripping that for selling products – a trend that is being replicated in every developed economy across the world.
3. Value network position
The position of the organisation within the wider value network can affect business transformation.
As an example, working through distributors can restrict access to customers and inhibit the changes needed to deliver services. In several cases, manufacturers chose to acquire their distributors.
One manufacturer was stalled by the access to remote sensing technologies, wrestling for some time over acquiring a technology vendor, to give them access and control over information. Positioning in the value network that delivers dependable access to both customers and suppliers has a significant influence.
4. Readiness to change
Internal organisational factors influence readiness to change and can affect progression. Having reliable and well-performing products, for example, is a prerequisite to compete through services. It also leads to an interest in advanced services in cases where, increasingly, product reliability and performance are no longer differentiators.
Organisational commitment is also important. In some cases, where the support of the management board was in place from the outset, companies progressed quickly through the exploration and engagement stages. Without this, progress can be much slower.
5. Competitor threat
The actions of competitors significantly affect organisational commitment. In one case, organisational commitment to advanced services came about when a principal competitor acquired a network of service providers.
This caused anxiety amongst the leadership of the company and led to significant investment in its own advanced services programme.
Are you on the right path?
The findings of our study suggest that transformation towards servitization is neither a clear-cut, linear processnor an easy one. In each of the four stages, key milestones have to be achieved before a company can move to the next stage.
The five influencing forces work internally and externally, affecting progress in each stage. These five forces may be so strong that the manufacturer moves rapidly through all four stages. In other instances, they may be so weak that the manufacturer fails to progress entirely.
Next month we will be running the seventh annual Spring Servitization Conference, this time in partnership with Copenhagen Business School, where we will examine research into the detail of these stages and influencing forces.
The Conference is the go-to place for researchers from around the world to present and discuss their latest work, and topics this year will include: changing the mindset of the organisation in order to compete through services; pricing advanced services; how to use data as an enabler for servitization; how SMEs, in particular, can create value through servitization; internal and external enablers and inhibitors.
To book your place, visit https://www.advancedservicesgroup.co.uk/ssc2018.
Field Service News will be reporting from the conference and interviewing some of the industrial speakers; look out for updates in future issues.
Can’t join us at the conference?
You can still develop the skills, knowledge and action plans to implement servitization and advanced services at our Skills for Servitization workshop on 22 May 2018. Find out more at https://www.advancedservicesgroup.co.uk/skills-for-servitization In the meantime if you want to assess where your company stands today in terms of adopting a services strategy and where you’re aiming to get to- and compare your thoughts with colleagues to test your alignment- our quick survey Unlock Your Insight will give you a personalised set of feedback in under five minutes. Visit https://www.unlockyourinsight.co.uk/
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