This article provides a service transformation model to show how manufacturers can transform their service business using a process known as servitisation.
More and more manufacturers are becoming aware of servitisation as a way to protect against product commoditisation and grow the revenues and profits of their manufacturing business.
However, very few manufacturers are aware of what servitisation involves or the nature of the service transformation journey required.
In this article, we offer up the service transformation model that we have experience of using with a variety of manufacturing organisations.
SEE ALSO: The Essential Guide to Servitisation
We describe the key steps along the transformational journey from a manufacturing business that is 100% product led to a manufacturing business that is 100% service led (no that’s not a misnomer) although we recognise that not all businesses will want to go this far.
Regardless of the manufacturer or manufacturing sector in question, companies that have transformed successfully through the process known as “servitisation” have all followed a similar path.
The change journey usually takes years to complete as it requires improvements across multiple business dimensions and capabilities.
That said, early benefits can be realised quickly if a phased approach is taken.
Your starting point should always be an honest appraisal of where your business stands today on the product/service continuum.
You also require an understanding of where you need to be to deliver the best product/service mix for your customer base.
The gap between the two (if there is one) will determine the challenges your business faces and the next steps to take in developing your service capability.
We’ll come back to these practical considerations later, but first, lets explore the service transformation model to understand what the key transformational steps are.
Service Transformation Model
From the work we’ve done with the servitisation of manufacturers in multiple engineering sectors over the last 20 years or so, we’ve developed a five stage service transformation model.
As you read through the five stages (see diagram opposite), try to work out which one your business is at currently and where you’d like it to be.
1. Product Manufacturer
At stage 1, product manufacturers are focused entirely on designing, making and selling products.
The only services offered at this stage are obligatory ones such as warranty services.
For these product manufacturers, any after-sales requirements that a customer may have are met by the customer themselves or by a third party service provider.
2. Product Supporter
By stage 2 of the service transformation model, manufacturers have become product supporters and now recognise that offering services to their customers is a way to boost their revenues for each unit manufactured while simultaneously serving customers better.
Product supporters will therefore offer additional complementary products and services at the Point Of Sale (POS).
These might include accessories, merchandise, consumables, installation, or training for example.
They also address their customer’s need for after-sales support by providing aftermarket services such as repairs and spare parts on demand but without guarantees.
3. Service Differentiator
Stage 3 manufacturers are service differentiators building and marketing their offerings around their ability to provide customer service, or a particular kind of customer service, better than their competitors.
These manufacturers have upgraded their aftermarket repair service offering into a field service operation to repair customer products with a guaranteed response time and/or First Time Fix rate.
Such contracts are often referred to as extended warranties or maintenance services, for which customers are willing to pay extra for the “peace of mind” benefits (i.e. financial risk reduction or insurance) that such contracts offer.
For the manufacturer, these intangible customer benefits usually translate into higher margin revenues when marketed, sold and delivered properly.
4. Customer Advocate
At level 4 of the service transformation model, manufacturers have begun to lead their business and marketing efforts with their customer service rather than their products.
Their customers are more likely to buy their product because it comes with the aftermarket services they require, rather than the product itself.
Customer advocates therefore lead with a range of proactive and preventative maintenance services, offer guaranteed availability or uptime of their parts or equipment.
These services also have commercially contracted service levels with penalties for contract failures.
Service contracts of this kind are often called availability contracts and can be applied to spare parts, engineered assemblies/systems, whole equipment or fleets of equipment, as required.
5. Strategic Partner
At level 5, manufacturers can still design, make and sell their own products (as they can for all five stages) but the customer is largely oblivious to this fact.
As a strategic partner, a manufacturer is now bundling their product within their contracted service offering that is designed to perform a particular capability for the customer to an agreed standard of output or performance.
The customer no longer buys and owns the product but pays for its use or pays for the outputs created by it instead.
Examples include paying for flying hours, miles driven, pages printed, photocopies made, holes dug, etc.
Contracts of this type are often called capability contracts or output-based contracts.
How Mature Is Your Manufacturing Services Business?
Transforming a manufacturing business to the extent that it reaches stage 5 of this service transformation model for some (or all) of its products involves a major paradigm shift for manufacturers.
When done successfully though, it can yield major benefits.
SEE ALSO: The Essential Guide to Servitisation
Stronger revenues, improved profit visibility, increased customer retention and greater business longevity are typical.
So where does your business stand today on the service transformation model?
Where do you think you need your business to be and in what time frame?
The most important thing is for your business leaders to agree where your business needs to be and to agree where the biggest gaps are today as this will drive the business case for change and how much additional value is currently being left on the table.
So ask yourself:
Where does your business sit in the service transformation model?
What’s your ambition for where your manufacturing business should be and in what time frame?
What specific things do you need to do to transform your business?
How Servispart Consulting Can Help
We often conduct diagnostic assessments to clarify the maturity of service capabilities within a manufacturing business, help set a roadmap of what needs to change and to help build a business case for how your service transformation can be achieved.
Learn more about how you can transform your business to avoid the product commoditisation trap and create more value for your customers by reading our white paper: Rethinking Manufacturing – How To Protect And Grow Your Manufacturing Business By Giving Your Best Products Away.