Presentation on theme: "Competing Through Servitization"— Presentation transcript:
1 Competing Through Servitization Tim Baines, Professor of Operations StrategyDirector, Aston Centre for Servitization Research and PracticeAston Business School
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 UseCashDisposalEquipmentSelectionMonitorConsumablesRepairCustomer purchases productManufacturer provides product and possibly servicesThe customer’s footprint of responsibilities
4 Types of service a manufacturer can offer Intermediate servicesScheduled maintenance, Help-desk, Repair, Overhaul, Operator training, Condition monitoring, In-field serviceBase servicesProduct & spare partsAdvanced servicesCustomer support agreement, Risk and revenue sharing, Revenue-through-use contact, Rental agreementAn outcome focused on product provisionAn outcome focused on maintenance of product conditionAn outcome focused on capability delivered through performance of the productServices supporting customersServices supporting products
5 A product service system UseCashDisposalEquipmentMaintenanceMonitorConsumablesRepairCustomer excavation capabilityManufacturer provides integrated product and servicesThe manufacturer’s footprint of responsibilities
6 Impact of service strategies CustomersProviders (OEMs)Improved financial, risk and asset management.Islington Borough Council 28% reduction in printing costs over 4 yearsBT 40% saving on reprographics over 4 yearsImproved focus, investment and performance:Alstom Transport: increase in passenger numbers from 13 million per year to 32 million per yearImproved commercial viability.Rolls-Royce: 50% /50%Xerox: % / 54%Alstom Power: 60% / 40%Improved growth:DefensiveLeading 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.Xerox: Last year 6% growth in services revenueMAN predicts 50% growth in services in the next 3 to 5 yearsOffensive
7 Services, revenue and profit +Revenue earned by the manufacturer from their customerProfit earnedBaseIntermediateAdvancedType of services offered
8 Performance measures and value demonstration Customer facing measuresMacro measuresLocal measures & indicatorsDemonstration of valueInternal performance measures & indicatorsExternal
9 Malvern Scientific & Assistive Control A small Worcestershire-based SME (eight employees) which designs and manufactures assistive technologies for people with disabilitiesTrying to break into a market currently dominated by three large North American companiesPlanning to offer advanced service contracts (life-time provision), with monthly payments incorporating product rental and support delivered by occupational therapistsCreated a new company (Assistive Control, two employees) which hopes to achieve 70% of revenue from these servicesBiggest 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 StrategyDirector, Aston Centre for Servitization Research and PracticeAston Business School