The fundamental transformation

Servitization is actually a transformation that runs through the entire company so that customer-optimized product service solutions can be created. This is a gradual and long-term process, but one that leads to continuous growth in sales and profitability for the company.

The interfaces between the product manufacturer and the customer are becoming more numerous, as are the number and type of interactions. For companies, this means much more far-reaching changes than it appears at first glance:

• Sales expands the “installed base” through its sales, which is the field that the service cultivates and harvests.
• Service technicians will increasingly act as sellers of additional modules and consultants for services.
• Remote monitoring can provide the company with detailed information about customer process requirements. This allows conclusions to be drawn about new product innovations and/or new supplementary services to be provided.
• R&D not only develops products, but also solutions, which means that the maintainability, longevity and online accessibility of products play a much greater role.
• Indirect functions such as finance, HR and IT must also play their part in order to cope with the increasing complexity of this business. However, it is also this complexity that protects the company's own business against new competitors.

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This paradigm shift requires a comprehensive strategic concept for optimal customer management and end-to-end integration of all areas of the company (development, sales, marketing, purchasing, production, etc.), including with the various country organizations.

The installed base, the total number of machines or pieces of equipment being used by clients, must be seen as a strategic asset for a company and be correspondingly cared for, developed and protected. As early as 1905, John D. Rockefeller had oil lamps given away in China in order to create the basis for his sales of lamp oil. With this strategy, he monopolized the Chinese market for his Standard Oil Company. It is an open secret that many German equipment manufacturers today no longer generate any revenue from their new business, but achieve their vital profitability exclusively through downstream services, spare parts or associated consumables.

In practice, a modular service portfolio has proven to be the most advantageous solution: selected service combinations are promoted in the market; others are abandoned or not actively offered. Optimal flexibility and the right mix of services are crucial. This allows a wide variety of customer requirements to be addressed and maximally fulfilled with a standardized set of service modules.

Many manufacturers are expanding their own service offering to include competitor products and are systematically building up the necessary skills and expertise to do so. The superior expertise of a company's own products must be reflected much more strongly than before in exclusive services – services that give the customer a unique value proposition. This is the only way to consistently secure and profitably expand one's own lucrative service business. Today, HILTI no longer just sells tools, but also offers “fleet management”, which guarantees the customer the permanent availability of the correct and functioning tools. Compared to a pure tool supplier, this makes HILTI much more difficult for customers to replace.

To achieve this, clear guidelines must be defined by management, understanding must be generated among all employees, targets and incentives must be adapted accordingly and processes in various areas of the company must be modified and in some cases newly created. Servitization is a change process that should be set up company-wide by the management and for which professional consulting experience is recommended due to the high level of complexity and specificity.

Servitization is not a quick and easy initiative and can take one to three years, depending on the size of the company. The highest level is the development of integrated product-service systems, i.e. an inseparable combination of physical product, accompanying services and associated consumables is created during development to provide a comprehensive solution for the customer's requirements. Tetra Pak has achieved this in exemplary fashion with its combination of filling systems, packaging and accompanying services.

This starts with a multi-level warehouse structure and the establishment of local service units, but also includes setting up help desks and support functions, as well as a central governance function for all aspects of service. The optimal involvement of service partners is also critical to success, depending on the maturity level of the service organization of the national companies. Here too, there is a range of different models that can be implemented with partners.