Servitization is Leading Manufacturing’s Advance into new Business Models

New Revenue Streams Rising

For manufacturing leaders evaluating how to launch a servitization capability, space elevators provide a surprisingly useful object lesson.

Servitization, or digitally-driven service management, involves the creation of new digital services – enabled by cutting-edge analytics, embedded sensors, machine-to-machine (M2M) communications and related forms of advanced technology – that are bundled with products. These new manufacturing models, which require a relationship-based sales approach, have helped firms produce entirely new revenue streams, slash costs, lift customer relationships to new levels and carve out sharp advantages over competitors. In some cases, servitization programs have evolved into entirely new companies.

Like the carbon nanotube cables that leading scientists are now trying to send tens of thousands of miles into geostationary orbit, servitization programs involve numerous interrelated enabling components that must be understood, evaluated and orchestrated into a smoothly-running operating system. For most original equipment manufacturers (OEMs), the development of servitization capabilities also requires a major mindset shift from selling products to selling outcomes.

Servitization Models Driving Growth

The concept of servitization – the coupling of service offerings with products – emerged decades ago. Rolls-Royce’s pioneering “power by the hour” approach to support business jet engines in the 1960s marks an early servitization milestone. What is new, however, is how leading manufacturers now leverage digital technology advancements to deploy servitization models that drive significant growth.

Beyond those high-profile examples of servitization exist examples within nearly every manufacturing segment:

It’s complex work, but then so is building a space elevator, which some leading astronautics experts believe will start ferrying equipment into orbit – for as much as 100X less the cost than doing so via rocket-powered crafts – by 2035. The key to planning this type of endeavor is to deconstruct the project into smaller challenges, identify all of the enabling components and key challenges, and recognize that a handful of key considerations are crucial to creating an effective strategy.  Scientists have already homed in on three pivotal aspects of getting a space elevator aloft: the material needed to build a cable that will be 100 million times longer than it is wide (carbon nanotubes with crystal graphene as a backup); the counterweight (repurposing orbiting space junk is a strong possibility); and power (solar energy enhanced by laser technology).

A viable space elevator program also must extend beyond engineering matters to address less tangible, yet still crucial, drivers of success, such as the political cooperation required to sustain a sweeping, multilateral effort.

Consider a Pragmatic Approach

A similarly practical approach has governed successful servitization planning efforts completed by Rolls-Royce, Alstom, Xerox and Caterpillar among others. While the allure of advanced technologies and revenue increases are seductive, manufacturing leaders should undertake a distinctly pragmatic approach. They should also strive to extinguish commonly held misperceptions about this growing trend while focusing on servitization realities.

This report examines different models of servitization, identifying the enabling components and key challenges, and sharing considerations that have proven useful in developing strategies for successful servitization programs. In our experience, identifying the servitization opportunity and setting a strategy can be completed in the same 12-15-week timeframe that other major strategy-setting activities typically require.

Download and read our entire report below to learn more and begin planning your journey forward.