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Competing Through Servitization
Tim Baines, Professor of Operations Strategy
Director, Aston Centre for Servitization Research and Practice Aston Business School
[email protected] www.aston-servitization.com
Services by manufacturers
For sometime researchers in the USA have studied how manufacturers can build revenue through services (or servitization)
While Scandinavians have advocated the environmental benefits of manufacturers delivering product-service systems.
Profit margin in sales of rail equipment 3 - 6%, profit margin in services 8 – 10%.
Transport accounts for ~70% of C02 emissions, how would this look if the manufacturer paid the
fuel bill?
Use
Cash
Disposal
Cash
Equipment
Selection Monitor
ConsumablesRepair
Customer purchases product
Manufacturer provides
product and possibly services
The customer’s footprint of responsibilities
A typical production and consumption model
Intermediate servicesScheduled maintenance, Help-desk, Repair,
Overhaul, Operator training, Condition monitoring, In-field service
Base servicesProduct & spare parts
Advanced servicesCustomer support agreement, Risk and revenue sharing, Revenue-through-use
contact, Rental agreement
An outcome focused on product provision
An outcome focused on
maintenance of product condition
An outcome focused on capability delivered
through performance of the product
Services supporting customers
Services supporting products
Types of service a manufacturer can offer
Use
Cash
Disposal
Cash
Equipment
Maintenance Monitor
Consumables
Repair
Customer excavation capability
Manufacturer provides
integrated product and
services
The manufacturer’s footprint of responsibilities
A product service system
Impact of service strategies
Customers Providers (OEMs)
Defe
nsiv
eO
ffen
siv
e
Improved financial, risk and asset management.• Islington Borough Council 28%
reduction in printing costs over 4 years
• BT 40% saving on reprographics over 4 years
Improved focus, investment and performance:• Alstom Transport: increase in
passenger numbers from 13 million per year to 32 million per year
Improved commercial viability.• Rolls-Royce: 50% /50%
• Xerox: 46% / 54%
• Alstom Power: 60% / 40%
Improved growth:
Leading adopters have experienced cost reductions from 25-30%.
Leading to improvements to services for customers.
Companies striving and achieving a 50/50 split in product/ service revenues.
OEMs believe they can achieve a growth in services revenue in the region of 5-10% per year.
• Xerox: Last year 6% growth in services revenue
• MAN predicts 50% growth in services in the next 3 to 5 years
Services, revenue and profit
Revenue earned by the
manufacturer from th
eir
customer
Advanced
£
Base Intermediate
+
Profit earned
Type of services offered
Performance measures and value demonstration
Customer facing measures
Macro measures
Local measures & indicators
Demonstration of value
Internal performance measures & indicatorsExternal
Malvern Scientific & Assistive Control
• 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.
• 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
Competing Through Servitization
Tim Baines, Professor of Operations Strategy
Director, Aston Centre for Servitization Research and Practice Aston Business School
[email protected] www.aston-servitization.com
