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Competing Through Servitization

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Presentation on theme: "Competing Through Servitization"— Presentation transcript:

1 Competing Through Servitization
Tim Baines, Professor of Operations Strategy Director, Aston Centre for Servitization Research and Practice Aston 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
Use Cash Disposal Equipment Selection Monitor Consumables Repair Customer purchases product Manufacturer provides product and possibly services The customer’s footprint of responsibilities

4 Types of service a manufacturer can offer
Intermediate services Scheduled maintenance, Help-desk, Repair, Overhaul, Operator training, Condition monitoring, In-field service Base services Product & spare parts Advanced services Customer support agreement, Risk and revenue sharing, Revenue-through-use contact, Rental agreement An outcome focused on product provision An outcome focused on maintenance of product condition An outcome focused on capability delivered through performance of the product Services supporting customers Services supporting products

5 A product service system
Use Cash Disposal Equipment Maintenance Monitor Consumables Repair Customer excavation capability Manufacturer provides integrated product and services 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: % / 54% Alstom Power: 60% / 40% Improved growth: Defensive 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. 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 Base Intermediate Advanced Type of services offered

8 Performance measures and value demonstration
Customer facing measures Macro measures Local measures & indicators Demonstration of value Internal performance measures & indicators External

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

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