Connociam Basics: What is servitisation?

What is servitisation?

Connociam Basics: What is servitisation?

Servitisation is a strategic innovation process.   Vandermerwe and Rada (1988) define servitisation as the process “in which companies consciously develop service offerings that support their products to gain competitive advantage.By adding services to core products already supplied, firms differentiate their offering from competitors, increasing customer dependency and establishing barriers to competition. ”

We can sequence the evolution towards Servitisation into the 5 following steps:

  1. Full product centricity: offering of physical products

For example, We sell Light bulbs.

  1. Product + Use Services: offerings to support the operation of the product during its use phase (installation, diagnosis, repair, inspections, …)

For example, We replace your company’s light bulbs.

  1. Product life services: offerings beyond the operation and throughout the multiple phases of the product life (upgrades, efficiency, renting, take-back systems, …).

For example, We offer you a leasing service to finance light bulb purchases and light bulb replacement costs in your company.

  1. Customer centric activities: offerings focused on customers’ activities and how to support them in order to generate added value (training and education, call centers, certificatesaudits…)

For example, We provide energy certification as well as a training service for your personnel to save on energy consumption in your company.

  1. Customer centric Business services: offerings to support customers’ business processes (maintenance management offering, financing, project management, design support,…)

For example, We offer a comprehensive energy management service including, lighting installation, replacement and maintenance. An App will help your team to manage energy more efficiently in order to cut costs and be more environmentally friendly.

This brief blueprint outlines a strategic evolution that enables companies to guarantee growth and a long term competitive edge.

Why is servitisation relevant for a company?

Servitisation helps companies to improve the performance of their businesses by:

  1. Increasing differentiation from competitors.
  2. Promoting greater customer loyalty and purchase recurrence.
  3. Generating new lines of business that will ensure sustainable growth.

The servitisation process enables companies to strategically position themselves:

  1. By improving their competitive advantage and developing new competencies for the organisation. 
  2. By drawing up a strategic road map to guide their innovation efforts.

Furthermore, Servitisation constitutes a change of paradigm and culture for the organisation given that it:

  1. Integrates digitalization into the company offering.
  2. Promotes cultural change.

The traditional sectors that implement Servitisation are mostly “product oriented” and notably, technology, industrial products, consumer goods, pharmaceutical products and some FMCG categories.

Some of the companies that have implemented it successfully are IBM, Xerox, Apple, MAN, Caterpillar, CEMEX, GE Aviation, Siemens, Alstom Transport, Phillips Lighting, American Express, Zoetis, Abbott Diagnostics and Cofares, among others.

One concrete example – where Connociam has collaborated directly – is an industrial packaging machinery manufacturer. This company decided to embark on a servitisation process whilst maintaining its core business – the design, manufacturing and sale of industrial packaging lines  – and began to provide a specialised packaging service for the medical sector using its own inhouse technology. With this strategic change it complemented its offering as an industrial machinery manufacturer with a comprehensive finished product packaging and supply service to companies in the medical sector.

Another case, this time more oriented to a consumer product, is the HP Instant Ink service, whereby users no longer must worry about checking ink levels when purchasing new cartridges because the system does this on its own automatically. HP Instant Ink is based on printers that can detect their ink levels and automatically order the cartridges they need based on their printing needs. The ordered cartridges are delivered to the user’s home without any extra charge in return for a monthly subscription. In this case HP provides a service throughout its printers’ life cycle, simplifying their use, improving the user experience and ensuring customer loyalty.

 

 How can we apply it? What is Connociam’s approach for PSS?

At Connociam we have developedour own Servitisation, methodology which we call the “Product Service System®”(PSS), which enables companies to move from “Product centricity” and evolve towards “Customer centricity” and develop new services.

The basis for Servitisation is understanding the company’s customer’s needs, their ecosystem and the existing relations between the different stakeholders. Focusing on Customer Centricity is crucial when it comes to bringing this approach to life, as customer needs and understanding of the ecosystem are the key pillars for building a coherent PPS proposal.

Developing a Product Service System ® (PSS) for a company entails a strategic process divided into the 4 stages outlined below:

  1. Exploring the ecosystem by understanding stakeholders, their relationships and implied value-chain and envisioning relevant opportunities (using Design Thinking tools)
  2. Co-creating value by generating new ideas based on identified opportunities and selecting the best concepts with key stakeholders
  3. Adjusting the PSS to the company’s operations model by defining the best way to ensure efficient new service solutions integrated into day-to-day company activities
  1. Supporting organisational change by promoting the development of new team competencies to ensure successful and sustainable PSS implementation

According to our experience, one key success factor is organisational change. Most teams are not fully aware of the magnitude of the change involved in shifting from a Product Centric approach to a real Customer Centric company.

At the beginning of the journey, most teams are real experts in products and technology but lack a deep customer understanding, whereas once PSS has been applied they have mastered building relationships with customers and become their customers’ strategic partner. It is a question of viewing interaction with customers as an opportunity to Co-create value and come up with solutions to address their needs, and not as a mere transaction.This change takes a long time and requires support and guidance

At Connociam we possess expertise in developing effective servitisation solutions in different sectors by applying the “Product Service System®” approach we have outlined above. This methodology, developed by Connociam, combines knowhow in strategy and technology as well as customer expertise, thus enabling us to come up with new offerings and solutions for customers and in this way to promote the growth of their organisations.

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