Servitization is an opportunity for machine builders to grow and improve margins by differentiating themselves with services. An opportunity that many machine companies are not yet taking sufficient advantage of.
What is the typical route machine companies take during servitization? What can they learn from the companies that have gone before them? How to arrive at a winning aspiration, strategy and approach? What should be the ambition? And where to start?
The transformation to service and customer orientation must be driven and motivated from the top. The implementation of the servitization strategy can be delegated to the executive for the Service business. But you can also opt for the fresh perspective of a hands-on (interim) program manager, who can guide the way on the servitization path.
In this post, I share my experience and some pragmatic advice on how to approach service innovation.
Servitization
Machinery companies can grow and greatly improve their profitability if they differentiate themselves by providing services. But the machinery industry still often misses opportunities because the focus is on the product and technology, and not enough on the customer and services. While they are uniquely capable of providing their value to the customer throughout the life cycle of the products they supply.
Offering services in addition to providing a product is called servitization. Several machine builders have already successfully developed service business in recent decades. Topday, there is also a considerable consulting industry to support companies in this endeavor. Yet many companies still struggle to take advantage of this opportunity and their strategic initiatives to develop service get bogged down after a while.
A typical route to one's own end goal
In technical companies, servitization follows a typical path to its own endpoint. A route that is similar in terms of successive stages, choices to be made and actions to be taken. In contrast, the own endpoint for service transformation depends on the company's unique context. That context is determined by factors such as their position on the value chain, what problems they can solve for their customers, how much value they create for their customers with these solutions, how they take their products to market and whether products are digitally connected. Factors that also influence the speed of servitization.
Servitization processes, tools and culture
Because the route of servitization is often similar, machine companies can benefit from the experience of those that have gone before them.
Best practice processes
First, there are best practices. A good example is Noventum's Service Industry Standards. With its Service Transformation Center(STC), Noventum offers a rich knowledge base built up from a large number of companies with experience in servitization. A knowledge base that other companies can use when defining, developing and implementing their servitization strategy. Other consultants and institutes such as the Advanced Services Group also offer playbooks for servitization based on the typical pathway that have been seen and researched at hundreds of industrial companies.
The right IT tools
In addition to the examples of successful companies for inspiration and best practices as available in the STC, there are also various IT systems and digital tools on the market that support service processes, such as for scheduling service technicians, handling service orders, managing knowledge and information about the installed base or making a digital connection to machines in the field in a secure and customer-acceptable way. Here it is important to choose the right tools and implement them in a practical way. And especially at the right time during the servitization journey.
A customer-centric culture
Finally, customer focus is a prerequisite for successful servitization. In addition to service-oriented business processes and tools, a customer-focused corporate culture and skills are needed to maintain momentum along the route from a product focus to a product and service focus. The importance of a customer-centric corporate culture cannot be underestimated. It is a change process that affects the entire organization and is sometimes at odds with the ongoing ways of working and seeing in the company. It is a trajectory that succeeds only if it is supported by the top of the organization and supported where necessary with education and training.
By setting up best practice service processes, appropriate investment in supporting IT tools, as well as creating a customer-centric corporate culture, companies will undergo the typical evolution from providing warranty as a service, to offering a broader package of successively reactive, preventive, predicative and finally proactive services.
Challenges in stages
Along this route, machine builders encounter typical challenges, often in successive phases of their servitization journey.
Manage service as a business
It starts with setting up a service team and managing service operations as a business, with its own goals and measurable business performance. Because what gets measured, gets done!
If a service team has not yet been set up, I recommend starting here and combining the service activities that already exist to start managing them as a stand-alone business. Those activities might include machine installation and commissioning, aftercare and warranty, spare parts sales, and any business through upgrades or modernization of previously delivered products or systems.
The service team must have the knowledge and experience to help customers. After all, service is sharing or using knowledge so that customers can make the best use of the products delivered. This sometimes requires difficult choices, namely the use of sometimes scarce expert technicians for service activities. Managing service as a separate business with its own clear goals and responsibilities is also for this reason a good first step. It secures a business approach to servitization.
Define a service model: optimize scheduling, quality and ticketing
Once the service team is operational, the need arises for adequate scheduling, assigning skilled technicians, prioritizing service requests, reporting internally and to the customer, and timely and accurate invoicing. Processes that are usually different from those used in the production environment. And functionality that is different than what is available in a product-oriented ERP system. Information that is very important to collect and manage well, because after all, knowledge about the life cycle of the installed base and customer relationships, and important to provide good service and advice next time as well.
As the service business evolves, the desire often arises to deliver services closer to the customer in terms of distance. This saves travel costs and reduces response time. Usually this means that the company starts setting up local service points with capable technicians closer to the customer. Technicians that are sometimes hard to come by, or sometimes easier to find closer to the customer. Thus, the interpretation of servitization depends on the opportunities and threats facing the company.
It also implies agreeing on a service model with clear instructions on "who-does-what." A division of roles between first-line service close to the customer and second-line support by the parent organization. Digital means can help here, for example remote monitoring of systems and advising customers or the in-house technicians.
Remote monitoring and service agreements
Once the delivery of services is organized and customers value these services, the opportunity arises to tie these customers to the company in multi-year service contracts. Being able to provide remote monitoring of machines in the field is a common reason for customers to enter into such a service contract because it ensures them access to knowledge and support.
Sometimes it starts with just an agreement that guarantees access to knowledge if and when deemed necessary by the customer. But it is also frequently a model for providing on-site services for a longer period of time (for example, support during maintenance or regular inspections) or securing the availability of spare parts (such as price agreements or keeping parts in stock). Of course, customers will only enter into these types of contracts when they are confident that service will be delivered as soon as it is needed. Planned and also unexpected. Multi-year service agreements are an opportunity for an OEM to improve the availability and reliability of the machines at customers' premises during operation, thus nurturing the relationship with the customer.
For machine companies, service contracts also offer excellent opportunities to expand the range of services, for example, by upgrading, modernizing and adapting machines to new needs that arise during the life cycle of the system, or by supporting the retirement and replacement of equipment.
Installed base selling
With well-run service operations and bonding of key customers often comes the desire to scale the service business. This requires a deeper understanding of the customer and market potential. It makes sense now to consider an investment in installed base management. After all, good insight into the installed base provides focus to strategy, marketing and sales. It makes it possible to set meaningful goals and make targeted choices about sales strategy and further investments in the organization, processes and IT support.
Installed base management is heavily data-driven, and there are good solutions in the market, such as Entytle, to use AI to clean up available data and turn it into actionable information for strategy and sales.
Proactive services through in-depth customer, machine and process data analysis
In addition to a better understanding of the potential of the installed base, well-run service operations with customers also provide an opportunity to gain deeper knowledge about the performance and customer value of the products and systems delivered.
This can be done through a combination of customer research and using data collected (manually and digitally) on the performance of machines in the customer's production process. Again, new digital technologies are available that a mature service organization can use to proactively offer new services to customers. Solutions that meet any customer concerns about cyber-security and meet requirements of new regulations (such as NIS2), challenges that also present opportunities for product and service development.
Where to start?
Choose where to the play
For machine builders, servitization begins with an assessment of capabilities. An examination to establish an ambitious as well as achievable goal for servitization within the company's unique context. Once the goal is set, a servitization strategy can be determined with priorities and choices about where to play, what services to be offered, and the capabilities and systems needed.
It is advisable to start with a select group of customers. Customers for whom service is likely to have a high added value, for example because the machines supplied are critical to their production process, and these customers may be interested in insured service and a service contract. Or just customers who want to focus more on their own core business and, instead of owning the machine, are interested in buying the output of the plant "as a service," without the worry about proper operation and maintenance. The playing field depends on the situation.
Use available knowledge
When working out the servitization strategy, it is highly recommended to use the knowledge and experience of companies that went before. This can be done by consulting the many publications on servitization and inspiring case studies, or by support from specialized consultants such as Noventum, moreMomentum or ProfitableServices, with a wealth of knowledge of best practices. They can also help with the selection of appropriate IT systems.
Hands-on guidance along the servitization path
Finally, it is important to encourage, motivate and enforce the transformation to service and customer orientation from the top.
The implementation of the a servitization strategy can be delegated to the manager for the Service business. But you can also opt for the fresh perspective of a hands-on (interim) program manager, who can guide the service team along the servitization path.
Summarized in a diagram:
| Challenges | Phasing | Results |
| Setting up service team with access to knowledge | Setting up service team: manage service as a business | Service team established Trained service technicians Local service teams Shorter mobilization time and less travel time Increased revenue from parts sales, repairs and modernization Optimal planning Consistent quality |
| Obtain and deploy capable technicians | Define service model: optimize scheduling, quality and ticketing | |
| Binding customers | Remote monitoring and service agreements | Remote service Service contracts concluded |
| Scaling up service revenue | Installed base driven sales | Potential sales from installed base Sales priorities set Additional services over machine life cycle |
| Gaining insight into customer value | Proactive service through in-depth customer, machine and process data analysis | 360 view of customer Deep insight into product usage and customer process Services to improve customer business process |
| Significant growth | Opportunities for more services related to the customer's business |