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Competing Through S ervitization

Competing Through S ervitization. Tim Baines, Professor of Operations Strategy Director, Aston Centre for Servitization Research and Practice Aston Business School t.baines@aston.ac.uk www.aston-servitization.com. Services by manufacturers.

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Competing Through S ervitization

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  1. Competing Through Servitization

    Tim Baines, Professor of Operations Strategy Director, Aston Centre for Servitization Research and Practice Aston Business School t.baines@aston.ac.uk www.aston-servitization.com
  2. Services by manufacturers For sometime researchers in the USA have studied how manufacturers can build revenue through services (or servitization) While Scandinavians have advocated the environmental benefits of manufacturers delivering product-service systems. Profit margin in sales of rail equipment 3 - 6%, profit margin in services 8 – 10%. Transport accounts for ~70% of C02 emissions, how would this look if the manufacturer paid the fuel bill?
  3. A typical production and consumption model Cash Use Customer purchases product Manufacturer provides product and possibly services Equipment Cash Consumables Repair Monitor Selection Disposal The customer’s footprint of responsibilities
  4. Types of service a manufacturer can offer Services supporting customers An outcome focused on capability delivered through performance of the product Advanced services Customer support agreement, Risk and revenue sharing, Revenue-through-use contact, Rental agreement An outcome focused on maintenance of product condition Intermediate services Scheduled maintenance, Help-desk, Repair, Overhaul, Operator training, Condition monitoring, In-field service Base services Product & spare parts An outcome focused on product provision Services supporting products
  5. A product service system Cash Use Disposal Customer excavation capability Manufacturer provides integrated product and services Equipment Consumables Cash Monitor Maintenance Repair The manufacturer’s footprint of responsibilities
  6. Impact of service strategies Customers Providers (OEMs) Improved financial, risk and asset management. Islington Borough Council 28% reduction in printing costs over 4 years BT 40% saving on reprographics over 4 years Improved focus, investment and performance: Alstom Transport: increase in passenger numbers from 13 million per year to 32 million per year Improved commercial viability. Rolls-Royce: 50% /50% Xerox: 46% / 54% Alstom Power: 60% / 40% Improved growth: Leading adopters have experienced cost reductions from 25-30%. Leading to improvements to services for customers. Companies striving and achieving a 50/50 split in product/ service revenues. OEMs believe they can achieve a growth in services revenue in the region of 5-10% per year. Defensive Xerox: Last year 6% growth in services revenue MAN predicts 50% growth in services in the next 3 to 5 years Offensive
  7. Services, revenue and profit + Revenue earned by the manufacturer from their customer Profit earned £ Advanced Base Intermediate Type of services offered
  8. Performance measures and value demonstration Demonstration of value Local measures & indicators Customer facing measures Macro measures External Internal performance measures & indicators
  9. Malvern Scientific & Assistive Control A small Worcestershire-based SME (eight employees) which designs and manufactures assistive technologies for people with disabilities Trying to break into a market currently dominated by three large North American companies Planning to offer advanced service contracts (life-time provision), with monthly payments incorporating product rental and support delivered by occupational therapists Created a new company (Assistive Control, two employees) which hopes to achieve 70% of revenue from these services Biggest challenge is securing external finance to cover capital acquisition needed to be able to offer the rental model.

  10. Competing Through Servitization

    Tim Baines, Professor of Operations Strategy Director, Aston Centre for Servitization Research and Practice Aston Business School t.baines@aston.ac.uk www.aston-servitization.com
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