Tim Baines Competing Through Servitization

Competing Through
Servitization
Tim Baines, Professor of Operations Strategy
Director, Aston Centre for Servitization Research and Practice
Aston Business School
[email protected]
Services by manufacturers
For sometime researchers in the USA have studied how
manufacturers can build revenue through services (or
servitization)
Profit margin in sales of rail equipment 3 - 6%,

profit margin in services 8 – 10%.
While Scandinavians have advocated the environmental

benefits of manufacturers delivering product-service systems.
Transport accounts for ~70% of C02 emissions, how
would this look if the manufacturer paid the fuel bill?
A typical production and consumption model
Use Cash
Customer Manufacturer
purchases provides
product product and
possibly
services
Cash Equipment
Consumables
Monitor Repair
Selection
Disposal
The customer’s footprint of

responsibilities
Types of service a manufacturer can offer
Services
supporting
customers An outcome focused on
capability delivered
Advanced services through performance of
Customer support agreement, Risk and the product
revenue sharing, Revenue-through-use
contact, Rental agreement
An outcome
focused on
Intermediate services maintenance of
Scheduled maintenance, Help-desk, Repair,
product condition
Overhaul, Operator training, Condition
monitoring, In-field service
Base An outcome focused

Services services on product provision
supporting Product &
products spare parts
A product service system
Use Cash
Customer Manufacturer
Disposal
excavation provides
capability integrated
product and
services
Equipment
Consumables
Cash Monitor
Maintenance
Repair
The manufacturer’s footprint of

responsibilities
Impact of service strategies
Customers Providers (OEMs)
Improved financial, risk and asset Improved commercial viability.
management. • Rolls-Royce: 50% /50%
Defensive
• Islington Borough Council 28% reduction • Xerox: 46% / 54%

in printing costs over 4 years
• Alstom Power: 60% / 40%
• BT 40% saving on reprographics over 4
years
Leading adopters have experienced Companies striving and achieving a
cost reductions from 25-30%. 50/50 split in product/ service revenues.
Improved focus, investment and Improved growth:

performance: • Xerox: Last year 6% growth in
Offensive
services revenue
• Alstom Transport: increase in passenger
numbers from 13 million per year to 32 • MAN predicts 50% growth in services
million per year in the next 3 to 5 years
Leading to improvements to services for OEMs believe they can achieve a

customers. growth in services revenue in the region
of 5-10% per year.
Services, revenue and profit
Base Intermediate Advanced
Type of services offered

Performance measures and value demonstration
Customer facing Macro Local measures & Demonstration of

measures measures indicators value
External Internal performance measures & indicators

Information and communication technologies
A technology systems focused on informing and
advancing actions on maintenance, repair and use
Monitor Transmit Store Analyse Respond
Links to enterprise processes

and systems
Transducers
Get more data
Base data Exception
Hard Plan contingencies
Data storage reporting
Satellite, cell and
& Repair/ replace
phone, radio, soft
Fault code Internet Asset
storage Inform customer
generation maintenance
system
Fault code data reporting Modify design
Fault code
recording Modify delivery
system
People and their characteristics
Staff located in a front-end office and who are flexible,

relationship builders, service-centric, authentic and
technically adept
I feel the pain my

I have meaning full customer feels if
conversations with my product fails I only make
my customers, and commitments
great team behind against which we
me can truly deliver?
I am prepared to
work varying hours I understand the
or tasks to meet technicalities of
customer demands the product I am
selling?
Business processes
Formalised to deal proactively with the
condition, use and location of assets in the field
Old world New world

Agreed condition
Asset fails & action
Asset failing
Manufacturer Customer
Manufacturer Customer
Negotiation Communication
Asset fixed Asset in use

Integrated as a service delivery system
Haigh Engineering
• Manufacturing business (100 employees) in the waste water sector producing

screening, conditioning, dewatering, compaction and drying equipment
• Cyclical fluctuations in customer demand for products causes instability in
revenue generation
• Spotted an opportunity to become more involved with the refurbishment,
servicing and maintenance of their equipment
• Seek to offering advanced services around equipment management (including
ICT monitoring, maintenance and servicing)
• Revenue from services is set to increase from 10% of overall income to at
least 25%
• Challenges; Rigidity of traditional contracts within the water industry,
contractors in the loop of equipment acquisition, and being able to locate staff
suitably close to customers to ensure responsiveness.
Malvern Scientific & Assistive Control
• A small Worcestershire-based
SME (eight employees) which
designs and manufactures
assistive technologies for people
with disabilities
• Trying to break into a market
currently dominated by three
large North American companies
• Planning to offer advanced service contracts (life-time provision), with monthly

payments incorporating product rental and support delivered by occupational
therapists
• Created a new company (Assistive Control, two employees) which hopes to
achieve 70% of revenue from these services
• Biggest challenge is securing external finance to cover capital acquisition
needed to be able to offer the rental model.
Catering Waste Solutions
• Warwickshire-based SME (five employees) which
provides consultation, products, services and
maintenance around waste water / grease
treatment in commercial kitchens
• Knowledge gained as a contractor has led to
designing its own products for grease separation
• Seeking to offer management solution (advanced
service) to include installation, servicing and
maintenance of the product and regular removal of
waste material which is passed on to a local
biomass energy scheme
• Biggest challenge is in securing external lease
finance to cover ongoing servicing costs
• Considering manufacturing offshore then selling
their own product separate, but concerned about
IP/ commercial sustainability.
Lightpower
Contractor with nine employees, dealing with
specialist interior and exterior lighting, supplying
mainly to the public sector
Struggling to compete in the exterior market where
large competitors are able to win PFI contracts
lasting an average of 25 years
• Advanced services seen as a way to secure business from the public sector,
enabling customers to have a balanced spend profile
• Lightpower offers to take full responsibility for lighting a building or an area for
the period of a contract, managing responsibility for legal compliance of lighting
provision
• It uses its expertise in lighting technology to offer the customer energy savings –
building partnerships with a specialist manufacturer
• The aspiration is for advanced services packages to contribute 40% of revenue
• Challenges in explaining the offering to customers - it is very different to the
traditional package; access to sufficiently senior of decision makers; and finance
on capital.
Experiences so far:
Positive:
• Concept of servitization / advanced services has been well
received – once we get SMEs in the room
• Size has an effect (eg: power to influence) on adoption but does
not preclude SMEs
• Audience is ‘inadvertently’ beyond manufacturing – service
infusion into manufacturing & technology infusion into services.
Negative:
• Servitization language – but there are no obvious alternatives
• Contracts and financing around advanced services
• Contractors in the loop
• Geographic foot-print / reach of SMEs.
Competing Through
Servitization
Tim Baines, Professor of Operations Strategy
Director, Aston Centre for Servitization Research and Practice
Aston Business School
[email protected]

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Competing Through

Profit margin in sales of rail equipment 3 - 6%,

While Scandinavians have advocated the environmental

The customer’s footprint of

Base An outcome focused

The manufacturer’s footprint of

• Islington Borough Council 28% reduction • Xerox: 46% / 54%

Improved focus, investment and Improved growth:

Leading to improvements to services for OEMs believe they can achieve a

Base Intermediate Advanced

Type of services offered

Customer facing Macro Local measures & Demonstration of

External Internal performance measures & indicators

Monitor Transmit Store Analyse Respond

Links to enterprise processes

Staff located in a front-end office and who are flexible,

I feel the pain my

Old world New world

Asset fixed Asset in use

• Manufacturing business (100 employees) in the waste water sector producing

• Planning to offer advanced service contracts (life-time provision), with monthly

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