Generic models and trajectories of servitization
Manufacturers can take different routes in their servitization journeys and adopt various servitization models, based on numerous factors:
Model 1 – Basic servitization: Most manufacturing leaders now augment their core product revenue by offering basic services that are complementary to product use, including operator training, maintenance contracts, warranties, refurbishments, or insurance.
Model 2 – Service-rich offerings: Manufacturers offer integrated experiences related to product use to increase their services revenue portfolio. For example, when a customer buys a connected car, it comes with multiple service bouquets from different ecosystems, including extended warranties, predictive replacement alerts for tires, batteries, or other components. Auto original equipment manufacturers (OEMs) such as Geely’s ECARX and Fiat Uconnect offer infotainment, navigation, and communication services.
By using connected machines and internet of things (IoT) technologies, OEMs can offer a range of services, such as uptime warranties and predictive maintenance alerts, assured lead times for spares, and operations monitoring for performance or quality enhancements. Alstom provides extended maintenance services that prioritize performance for its customers, based on the principle of ‘lost customer hours’. Mechanical equipment manufacturer Shaan Gu offers subscription-based maintenance services that include real-time monitoring, monthly diagnosis, special failure analysis, emergency troubleshooting, and spare parts management.
To succeed in this model, manufacturers must:
- Be able to generate timely customer insights and personalize relevant, time-bound offering bundles
- Continuously co-innovate with customers and new services ecosystems
- Have orchestration capacity for seamless integration of new ecosystems and services
Toyo Tire has developed an automated tire information gathering system for trucks and buses, enabling new service-based business models.
Model 3 – Outcome-focused: Here, services sale replaces product sale, and payments are usually based on usage or desired outcomes, including equipment availability and performance. The success of this outcome-based model depends on a deep understanding of usage patterns to ensure reliability, availability, performance, and accurate cost estimates of providing the product-as-a-service.
Although all these factors make the servitized offering attractive to customers, several challenges restrict the widespread adoption of the outcome model by companies. These challenges include aligning the mindsets and interests of internal and external stakeholders to the servitized business model, building functional or technical skills and capabilities, and acquiring financial capabilities or risk-sharing partnerships needed by an outcome-based service sales organization vis-à-vis a product sales-centric organization.
Hence, to successfully execute this model, the following capabilities are needed:
Digital product innovation, with IoT-based connectivity and intelligence to generate relevant insights
Flexible partnerships between customers and onsite service providers for sharing benefits and risks of asset operations emerging from field insights
Transformation of the company’s operating processes, including:
Customer-facing metrics, processes, and capabilities
Finance, human resources, and quality systems
The outcome-focused business model also requires legacy product sales and new services sales models to co-exist, with no adverse impact on customer satisfaction or financial outcomes. This is because all customers will not transition to outcome-based models for all products at once.
Model 4 – Integrated services: This model combines the characteristics of both the service-rich offerings and the outcome-based model. Examples include connected electric vehicles sold as mobility solutions with periodic or usage-based payments and vehicle subscription services like Kia Flex, which offers a new car, including maintenance, repairs, insurance, and car tax, for a monthly fee.
Trucks and construction equipment manufacturers enable service richness for operators, drivers, or asset managers by managing equipment health, uptime, and safety while simultaneously offering owners a usage-based payment model.