Chris Raddats from the University of Liverpool and previous guest on the Field Service Podcast looks forward to the issues that might dominate the servitization agenda over the coming years...
It has been a busy year for servitization research within the academic community and me in particular, having attended two servitization conferences (the Spring Servitization Conference and the International Conference on Business Servitization) and had a literature review of servitization research published in the leading academic journal ‘Industrial Marketing Management’.
The State of Play for Servitization in Academia
In this article, I will provide an overview of the state-of-play of academic literature about servitization at the end of 2019 and the implications of this research for practitioners in 2020 and beyond.
To frame this article, I will draw from the literature review, which was based on analysis of over 200 academic papers and suggests research priorities in five key areas;
- Service offerings;
- Strategy and structure;
- Motivations and performance;
- Resources and capabilities;
- Service development, sales, and delivery.
While these research priorities are important for academics, they are likely to be significant for practitioners too.
Service offerings are what manufacturers provide to their customers, including base services, such as installation, technical and maintenance through to advanced services such as contracting on an availability or performance basis. The key issue here seems to be the increased risks involved in these advanced service offerings, which often involve payment for performance (or non-payment for non-performance).
New risks for both suppliers and customers come from these offerings; for example, is the supplier able to set-up and manage such contracts and sufficiently control the myriad of variables to achieve the contracted performance? Equally, are customers able to negotiate such contracts and manage the suppliers to achieve operational performance improvements and potentially profit from cost savings?
Strategy and Structure:
Strategy and structure refers to the servitization strategy a manufacturer adopts and how it organises its business to deliver the strategy; for example, having a separate services division or one combined with products. Managers need to be aware of multiple servitization trajectories and a ‘one size fits all’ strategy is no longer appropriate; for example, while many manufacturers are servitizing some are deservitizing, removing some services from their portfolios. As part of a servitization strategy, the associated approaches of customers and partners (e.g., distributors) need to be considered so that they all ‘fit together’ in the service maturation process.
Equally, it is also possible that mergers and acquisitions will become important for service growth as manufacturers look to ‘kick start’ this transition.
Motivations for undertaking servitization have been well-documented in the literature and often centre on improving sales or profitability, either directly through services or indirectly through making products more differentiated. Measuring the performance of servitization activities is still a topic that is hotly debated. In particular, what should be the critical mass of services in a traditionally product-based business to make it successful? While services that are closely aligned to products (e.g., installation, technical support, maintenance) probably do not need a critical mass, when manufacturers develop more advanced services (e.g., availability or performance-based offerings), it seems that a critical mass of over 20%+ of turnover from services is required. Indeed, this figure is much higher in some industries, with examples of some successful servitized manufacturers having over 50% of turnover from services. Given the cost of investing in new resources and capabilities for developing and delivering these services, it is not a surprise that this critical mass is required.
Resources and Capabilities
Resources and capabilities are the assets that manufacturers have that enable them to achieve differentiation and competitive advantage in the marketplace. In-house resources and capabilities include having skilled service engineers, service-centric processes and a service culture within the organisation. However, manufacturers need to more fully consider those resources and capabilities that other parties might need for servitization to be a success; for example, what the skills of the customer’s employees need to be in terms of being able provide part of an advanced service.
Service Development, Sales and Delivery
Service development, sales and delivery involves a range of processes that manufacturers need to master to be successful. For example, having new service development (NSD) and service delivery processes that take account of the customer-centric nature of new offerings (compared to products). Having sales people who are service-savvy and sales organisations that can exploit both product and service opportunities is also a key concern.
Finally, managers need to take account of new opportunities from digitalisation using technologies such as cloud computing, the Internet of Things and predictive analytics. These technologies can help them to improve existing service offerings (e.g., a remote diagnostics function as part of a maintenance service) or develop new offerings (e.g., predictive maintenance or assisting customers with improvements to their processes based on analysis of operational data).
In summary, servitization continues to provide many opportunities for academics to research and practitioners to develop to improve their businesses. By learning from each other, we can make servitization one of the key drivers of the global economy in the 21st century.