Industrial manufacturing companies know servitization – the shift from selling products to providing services – is important. Our new research, which questioned 60 of the top industrial engineering executives in Europe, found 75% expect delivering services to become a significantly bigger part of their business in the next three to five years. But only 30% have a service strategy in place. We spoke with Hans Houmes to find out more.
PA: Why is servitization such an important trend for manufacturers?
Hans: Servitization is vital for manufacturers who operate in markets where low-cost producers are taking market share and driving down margins. It’ll give them the chance to establish better relationships with their customers – making it harder for competitors to find a way in – and it’s a chance to capitalise on advances in technology and data to create a service-focused business. And if that’s not enough, our research also proves companies that get it right are more profitable.
PA: Our research found less than a third of companies have a servitization strategy in place. Why is that?
Hans: To put in bluntly, some companies don’t see servitization as something they need to worry about. Many are still using the traditional manufacturing model of producing products and finding clients to sell these products to. They see servitization very much as theory rather than something that’s reality. But we’re working with companies right now to see how they can craft a servitization strategy, so it’s essential for manufacturers to start exploring possibilities.
From Products to services
How do you do create sustainable growth in manufacturing through Servitization?
PA: What are your top tips for companies who want to decide what their servitization strategy is?
Hans: In an ideal world, customer demand for servitized offerings and companies’ confidence in developing and delivering them should match up. But in reality, there’s almost always a mismatch between customer demand and supplier offer. The first step is to understand the size and impact of the gap between what you want to sell and what your customers want to buy. This will help you define your servitization strategy.
You also need to decide where to position your company within the market ecosystem. Matching the development of a servitized offer closely with evolving customer demand can help you take a strong position within the ecosystem.
Start experimenting with your clients – with your end customers, tier one suppliers and distributors. What offerings do they find the most attractive? Test them out and progress with the ones that are the most popular.
PA: Can you give an example of a company that’s really succeeding with their servitization strategy?
Hans: FEI – a company that designs and manufactures microscope technology – has a services segment that represents around 25% of their total sales. An impressive figure. To keep themselves competitive and improve customer experience, FEI decided to turn data from the microscopes into information. By using algorithms, FEI’s data scientists have developed a unique system to support the internal quality cycle in the production process and provide proactive support to their customers.
FEI’s offer isn’t just about the microscope anymore – it’s about providing better outcomes for their customers in terms of quality and availability. Using the new algorithms to remotely monitor their microscopes, FEI can provide guidance and targeted training to optimise the use of their equipment at the customer site and on the factory floor.
To seize the opportunities that servitization brings, manufacturers need to look beyond what they do today and imagine what they can do to contribute to the success of their customers. You can find out more by downloading our report – ‘From products to services: creating sustainable growth in industrial manufacturing through servitization’.