Business model innovation

Servitization Of Manufacturing - a Business Model Innovation

As a response to competitive pressures, many of the world’s largest capital equipment and manufacturing companies are placing growing attention on delivering a service rather than just a product, often at a higher margin. This “servitization” of manufacturing can lead to a higher market share and customer loyalty.

Servitization across sectors

Servitization is taking place across sectors while having considerable implications for strategic competitive advantage.

In its most advanced form, it involves business models that integrate products and services in total solutions. OEMs report service revenue growth of 5-10% per year and by 2015:

  • 71% of global manufacturers are expected to use services in order to differentiate their products
  • 82% of European manufacturers are expected to focus on services.

Developing close customer relationships is critical to competitiveness and a key motivation for manufacturers to engage in a servitization initiative. Success requires a customer-centric organization that can manage the processes of its customers while increasing revenues or reducing risks and costs. A deep understanding of the customer context is required in order to develop successful value propositions, which can be of different types as shown in the following table.

Value Propositions and Customer Expectations

(Smith et. al., 2014)