In the olden days, things were very easy. Manufacturing companies made stuff while service companies did things for people. The difference was clear.
For instance, you have your car from Toyota or GM. However, when you get engine trouble, you don’t go to Toyota or GM to have it fixed. You go to a mechanic.
These days, however, that’s no longer true. With more and more companies competing with one another, you have to find something that puts you ahead of your competitors.
With servitization, you will offer a service that is closely tied with your product. Sometimes, servitization might even change the nature of the product.
For instance, Rolls-Royce manufacturers jet engines. In the late 1990s, they started to offer maintenance and management services for their engines. Airlines would pay extra to have them service the engines they sell.
But what made the company an excellent example of servitization is the fact that they are now using sensors and other Internet of Things (IoT) devices to offer another service: letting airlines pay to rent their engines by the hour.
Airlines are no longer buying a jet engine; they rent one. They only pay for the time they’re using the engine. How does Rolls-Royce earn from it? They get a windfall from their consulting and maintenance services.
Benefits of servitization
As you can see, there are a lot of advantages when a company picks up servitization for its operations. The enterprise will be able to lay the groundwork with IoT. IoT sensors and devices generate performance data that provides both the users and the company a lot of insights.
This allows businesses to offer value-added services. Because you already have the customer’s attention, these new services are easy to sell as well. You can even package it along with the product.
Or in the case of Rolls-Royce, they moved from simply being a manufacturer to a service provider and consultant. In short, servitization gave them a new business model and a new revenue stream.
Advantages for the customer
If you think that servitization is just another way for companies to get your money as a consumer, think again. Servitization can help you save with fewer hassles to contend to.
For instance, you do not have to buy equipment. You can rent it from the company and pay only for the times you use it. You don’t have to pay for machine downtimes!
You can also get a better look when to service the equipment before any issues crop up. That means that there are no disruptions in your operations. You can schedule maintenance and repair only when you are not using the machine.
This is the same benefit you get from the cloud. Servitization allows you to be more agile and flexible since you don’t have to wait for equity and capital to be able to afford the equipment you need.
Not only that, you get the manufacturer to do the maintenance for you, so there is no need for in-house personnel.
Three types of servitization
From the descriptions above, you may have guessed that there are three types of servitization.
- Base services: Providing the product to your users.
- Intermediate services: Repairing, monitoring, and troubleshooting any problems with the product. This is also where field service and customer help desks come in.
- Advanced services: Pay as you go, business model, fleet management, and other integrated solutions.
When a company opts to undergo servitization, it should invest in technology. According to Dr. Howard Lightfoot, the use of connected technology is to receive diagnostic and monitor information. Lightfoot is the manager at Cranfield University’s Operations Excellence Institute.
The technologies you need are used to:
- Monitor critical production systems.
- Transmit monitoring events to a GPRS, Internet, satellite, or cellphone receiver.
- Store data.
- Analyze data to diagnose or predict product behavior and utilization trends.
- Suggest appropriate responses such as undergoing preventive maintenance, repairing, or replacing.
The Internet of Things allows you to do all these. You do not have to spend a lot. A sensor typically costs less than a dollar to produce. You can add a GPRS antenna to your car and have it send location data to your mobile phone.
What you can do
If you still do not have a servitization plan, then do not despair. You probably are not the only one in your industry that is left doing business in the middle ages.
Many businesses have not connected to a servitization model. This is because many manufacturers are not comfortable changing their products. If it works, then why bother changing it?
Others are not comfortable with cannibalizing their own revenues. Indeed, if a jet engine maker makes a lot of money selling airplane engines, it does not make sense to offer your customers a way to just rent the same product. It’s going to cannibalize your other products or services.
However, not getting into servitization means that your company is going to be left in the dust by your competitors. That is why it is important to come up with a strategy that includes servitization.
First off, you should have a good idea of how to transform your services and product. You should talk to your employees and customers to have a feel of what they need from your product and how you can offer it.
Servitization should not be seen as cannibalizing your business. But instead, as a way to augment it. You’re not going to stop selling cars, only one that has better sensors and allows your users to drive a bit more safely.
Call Four Cornerstone today!
The first step to servitization is to get the technology right. Fortunately, Oracle has the Oracle Internet of Things platform that can help you hit the ground running with IoT. Couple that with other Oracle offerings and you pretty much have a good head start.
We can be there every step of the way. From knowing what you need to implementing your plans. Talk to us today at (817) 377-1144.
Photo courtesy of Rolls-Royce.