Have you mapped out your Servitization Journey?Oct 12, 2020
In a few years, a large percentage of manufacturers will have implemented Servitization Strategy. While the benefits to Servitization are significant, manufacturers encounter challenges to reaping the full rewards. In this blog post, we examine the framework or map a manufacturer should follow to ensure they minimize risk and maximize return on investment.
According to Forrester Research, approximately one-third of all product companies will service business in the next five (5) years. However, the path to Servitization can be arduous. It often begins with the manufacturer’s realization that there are numerous benefits to be gained by pursuing a Servitization strategy including but not limited to:
- Higher service revenue and profit.
- Improved responses to customer needs.
- Improved innovation.
- Creation of new revenue streams.
- Increased customer loyalty.
- Setting higher barriers to competition.
To reap these benefits, the manufacturer’s leadership team must understand the Servitization Lifecycle and its impact on the business. The lifecycle starts with the provision of basic or transaction-based services (i.e., delivery, start-up installations, etc.), develops into intermediary or value-added services (e.g., onsite service, spare parts, help desks, etc.), and culminates in the provision of advanced services. Advanced services are outcome-based and typically take the form of pay per use, subscription, or contractual guarantee of performance.
We can think of basic services as those activities which are essential for making the product operational. In other words, they facilitate product use. Intermediary services are those the add value to the product or customer. They augment or improve the customer experience with the product. Whereas advanced services become the experience itself. Instead of purchasing the product outright, the customer pays for the experience that the product will deliver.
Once the leadership team becomes aware of these distinctions, they will or at least should, ask several strategic questions:
· Where on the Servitization Lifecycle are our products and service offerings?
· Where would we like to be in the lifecycle?
· Where do our customers need us to be?
· What’s possible in terms of how we could structure and deliver service offerings?
· Where should we be based on customer wants & needs, competitive forces, and current capabilities?
· How do we get there? Where are the gaps and how do we fill them?
The leadership team must take the time to answer these questions. Companies who don’t complete their due diligence run the risk of falling short of achieving the full benefits of Servitization at best or completely missing the opportunity at worst.
Service leaders can avoid these pitfalls by following a strategic planning framework or map that provides for objectivity, data-driven analysis, and creative thinking. More specifically, the ideal map involves the following steps:
· Obtain a foundational understanding of the Servitization Lifecycle, the full array of service offerings that support each stage, and the service delivery infrastructure required to support each stage of the Servitization Lifecycle
· Assess the company’s current service offerings and go to market approach to determine baseline capabilities
· Conduct a benchmark evaluation of the company’s internal systems, processes, and performance metrics against the industry average and best in class standards to determine gaps
· Examine of customer wants, needs, and willingness to pay for new Servitization offerings
· Determine the size and forecast of the Total Available Market and revenue potential
· Identify and evaluate strategic options in terms of revenue, profit, risk, and return on investment
· Development of recommended Servitization Strategy and Business Plan based on the evaluation of options
This approach is designed to result in the design of an optimal strategy. Companies that implement an optimal Servitization strategy experience faster time to market, lower risk, higher customer satisfaction, and greater return on investment.
If your company is embarking on a Servitization Journey or is stuck somewhere along the way, then consider Blumberg Advisory Group’s Servitization Map™. This framework delivered by a consulting team with decades of experience in the Service Industry, provides the objectivity, data-driven analysis, and creative thinking necessary for success. To learn more, schedule a free consultation.
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