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In our previous blog, we explained what servitization is, why it exists, and its importance in a changing economy. In this blog, we will take a closer look at advanced services and some of the key drivers behind servitization.
Servitization is primarily driven by two factors: society's growing interest in advanced services and advancements in IT technologies, such as digitization, IoT, big data, and automation. Together, these have led to the emergence of new business models based on advanced services, such as Product-as-a-Service or Product-Service Systems.
Advanced services deliver outcomes for customers, rather than services focused on product ownership or performance. A classic example is "selling holes" instead of drills—the customer doesn't need a drill; they need a hole.
Companies that adopt advanced services are undergoing, or have undergone, the servitization process. For many companies, this process can be a game-changer, leading to long-term contracts, sustainable revenue, and increased opportunities for customer interaction. However, in most cases, servitization also requires organizational transformation.
At Firmhouse, we view servitization as the transformation from a product-seller to a more service-oriented business model. This shift requires changes not only in thought processes but also in organizational structure, especially for companies that have traditionally been product-focused. Businesses centered on product development and production stand to gain significantly from servitization. It can add value to companies that incur high production costs but see little profit from product exploitation.
In general, companies are just beginning to explore applications like the Internet of Things (IoT), which will provide the necessary tools to enhance servitization and create an even better customer experience. For example, offering personalized tips and tricks can improve product performance and the overall user experience.
The advancement of technologies like IoT supports servitization. Consider new maintenance models based on usage, which can predict when a product or production line requires maintenance or repairs and take action accordingly. This can reduce downtime and strengthen customer relationships. This is an example of an 'advanced' service that enables predictive and preventative data-driven solutions. Such data can be incorporated into Service Level Agreements (SLAs) or linked to an asset's availability, reliability, trustworthiness, capability, and/or efficiency.
However, servitization doesn’t have to involve complex, integrated, or smart systems. Even with relatively simple products, companies can still differentiate themselves. For example, automatically sending a new toner when the old one runs out, or offering a simple product like a bicycle as part of an "as-a-service" model. In any case, these companies are building stronger, more loyal customer bases, which can help them develop better products and services in the future.
IoT is just one of the drivers behind servitization. Another key factor is digitization, which is transforming the manufacturing landscape. Digitization enables new business concepts and allows more economic activities to be insourced. This trend is often referred to as "Industry 4.0" or "Smart Industry," and it focuses on automation, robotization, and enhancing the networking capacity of companies.
As a result, companies may be able to produce in lower volumes, offering hyper-personalized or customized products tailored to customer demands, all at the cost of mass production. This shift could significantly alter supply chains and redistribute responsibilities across a product's entire lifecycle.
Digitization also facilitates the integration of physical products and services, underscoring the fact that servitization cannot be viewed in isolation—it impacts both production and consumption.
Interested in launching a servitization strategy or a product-as-a-service offering? Looking for ways that digitization or the Internet of Things can enhance your business?
At Firmhouse, we can help you kick-start your proposition on our platform. We offer full automation of all back-end processes, enabling you to launch quickly and efficiently.
Visit our website for more information or contact us to book a demo.
