Why servitisation is the new winning strategy for manufacturers

Published date: December 9, 2020

Servitisation – a switch from product-based business models to service-based ones – is likely to separate the winners from the losers in the post-COVID manufacturing sector.

It’s become clear to many leaders in the industry that current business models are no longer working. Shaving tiny amounts off product lead-times, shifting a few more boxes, or cutting corners on labour costs won’t produce the significant boost in productivity and sustainability companies need.

Instead, managers need to think beyond the factory and focus on service-based models that are all about delivering outcomes and value, not boxes of products.

The servitisation process, by which a manufacturer becomes a service provider, is particularly exciting when the services in question are advanced ones that deliver business outcomes: mobility as a service rather than cars; heat rather than heaters; assurance rather than insurance.

For example, Tyre giant Goodyear offers a service where it gathers data from tyres and analyses it to give customers a picture of the health of their fleet’s tyres, predict and schedule maintenance needs in advance, and plan the ideal routes. This service has proved vital during COVID-19.

A smaller company, Nicklin Transit Packaging, has also added data monitors to its packaging, enabling customers to monitor their products in transit and get a real-time overview of where they are and the humidity, temperature, and drop, tilt and shock forces acting on them.

With these advanced service models, customers pay for the outcomes they want when they achieve them, instead of paying upfront for a product. This provides manufacturers with long-running customer relationships on which they can build further service offerings.

Until now, the main driver of servitisation has been customer demand, and more recently, advances in data technology. COVID has provided a potent third driver to which manufacturers must respond if they are to survive.

Global market growth for services is higher than that for products. Servitisation boosts growth and therefore the economy as a whole. It adds value, which will always bring more profit than cutting costs. What’s more, unlike production, services tend not to produce a lot of carbon emissions and other environmental damage, so servitisation is a move towards sustainability too.

Servitisation is a profound and challenging shift for most manufacturers; but for those who want to survive and thrive in the new normal, it’s likely to be indispensable.