A flagship event in The Manufacturer magazine’s annual calendar, this year’s Servitization Conference aimed to demonstrate to manufacturing businesses the opportunities available through services. With clients spanning the manufacturing sector, we were naturally there to catch up on the latest thinking.
It is expected that 65% of the global worldwide manufacturing industry will switch from a focus on products and production to building their revenue streams through services over the next three years. This idea of a service-based outcome is known as servitization, and is fast becoming a critical manufacturing trend.
Wyatt PR and content manager, John Edden summarises five things we learned from this year’s event.
1. Servitization is no longer a new ‘trend’
Demonstrated by the fact that attendance for this year’s conference was triple that of the previous year, there is an increasing realisation in the industry that servitization is no longer a new trend. Indeed, many businesses in attendance already had a basic understanding of servitization and instead of wanting to understand what it actually means, the majority of those in attendance wanted to find out how they can successfully start to utilise servitization in their businesses.
2. Servitization is not just a business model change
Professor Tim Baines. Director of Advanced Services Group at Aston Business School made a crucial point during his keynote speech: servitization and the uptake of services in manufacturing is not going to bring an end to actual production. This is not a simple business model change. Instead, servitization offers manufacturing businesses the opportunity to realise additional revenues, and lock-in customer loyalty, whilst still delivering the highest quality manufacturing expertise.
3. The transition to services is not just reserved for products
During the event, delegates heard from businesses including Terex and Ishida (a Wyatt client), companies that are already beginning to transition into services. In every servitization case study heard on the day there was one common statement: in order to be successful, businesses considering servitization need to servitize not just a product, but a part of their overall value chain. For example, remanufacturing a product that has been performance monitored while out in the field can enable a business to manufacture future products to a higher specification, therefore enabling them to charge a premium for all future sales. The transition to services is not just about maintenance of a product, but the wider value chain for that product.
4. Servitization should not be taken lightly
The question was asked of when a manufacturing business should begin to initiate a servitization strategy. Indeed, one of the biggest challenges manufacturers have when moving into services is a lack of engagement from customers. Typically, a service contract will be offered in the same way that a contract for a product is provided. Too often, businesses fail to explore the true value proposition of services.
Professor Tim Baines cited four key stages of servitization: exploration, traction, acceleration, and exploitation. In order to reach the final stage of exploitation, where few businesses currently play, manufacturers need to understand their level of readiness, how their distribution ecosystems will facilitate services, whether customers can actually benefit from services, and how these services will add value.
5. The time to explore servitization is now
The manufacturing sector has never been better positioned to start to implement servitization strategies. Technology and the connected factory is moving at rapid pace; there are now more ways than ever to collect, analyse, and utilise product data, and consumerisation is making businesses more accustomed to services than they have ever been before. In addition to this, global uncertainty coupled with financial insecurity means that manufacturing businesses have a real requirement to yield greater profits from services in order to remain competitive.
The message from the event was clear – servitization is no longer a buzzword best reserved for large corporate businesses, but a powerful opportunity to help manufacturing SMEs realise more revenue streams, gain a competitive edge and thrive during times of economic uncertainty. But with so few businesses having come out of a servitization transformation from the other side, how quickly can this transition to services start to really have an effect for the manufacturing community? And what potential does it have to change the way we manufacture and sell goods over time?
Regardless of the answers to these questions, one thing remains evident from this event: servitization as a concept remains as opportunistic and popular among the manufacturing community now as it has ever been and as the sector continues to overcome external challenges, it could well provide the answer to the sector’s performance struggles.