Ton Hagens / 22 December 2020
ton working at pulse

Servitization is on the rise in the manufacturing industry. More and more companies are switching from a product to a service-oriented business model. By working with service contracts, they create a more stable and predictable source of income. As a result, longer-term relationships naturally emerge, and it becomes possible to use resources more sustainably. It seems like a no-brainer for companies to embrace servitization, but to do this, they’ll need to raise the bar considerably. They’ll need to switch to a new revenue model and pay even more attention to quality and service.

Now that competition from abroad is reducing the added value of production activities, manufacturing companies are looking for new ways to remain relevant, for instance, by offering repair and overhaul services, or financing options. This allows them to ensure recurring business, even during slow periods.

The technology that makes this possible is already available. Modern CRM and ERP systems collect all the necessary data that can be analyzed, using Business Intelligence. Relevant insights from data allow companies to optimize processes and, for example, to carry out predictive maintenance. This, in turn, makes it possible to cut costs considerably.

There are plenty of companies that switch to a service-oriented business model purely for financial reasons. What they don’t realize is that servitization also has the potential to boost the quality of their business significantly. That’s because to make servitization work, you need to deal with your customers’ feedback proactively, and to continue developing your services on an ongoing basis. Customers no longer make a single large investment; they pay for what they use, as they use it. They’re more likely to say goodbye to a product or supplier if it doesn’t meet their expectations. Therefore servitization more or less forces you to be as innovative and flexible as possible.

It sounds challenging, but if you pull it off, your customers are likely to stay with you for a very long time. Servitization leads to more sustainable partnerships. No more ‘you ask, we deliver’, but working – and investing – together. In the long term, this will lead to better results and a more valuable business.

Author
Ton Hagens Managing Director