The new business buzzword: Servitization

 

Servitization is the moniker of choice in the UK and US for the focus on service in developed economies, and the theory is simple enough. Move from selling goods to an integrated combination of goods and services and you will improve business performance and establish the means for competitive advantage. Companies such as Rolls Royce and Xerox have implemented Servitization strategies and research from the Aston Centre for Servitization Research and Practice says that 65% of the world’s manufacturing industry will switch from a product to a service focus over the next three years. But don’t get lulled into a false sense of security that it’s only manufacturers that need to make the change. Servitization is coming, and it will change the way we do business forever.

It’s not just a 21st century darling

The theory of Servitization is sound, after all why would you sell a single product when you could strive for a long term relationship? Servitization is relationship marketing at its very finest and whilst it may appear to be a 21st century darling, the term has actually been around since the 80s when Vandermerwe and Rada flagged it as a means to generate new revenue streams through services associated with a firm’s traditional goods.

The new worldview

When the idea really took hold though was perhaps with Vargo and Lusch’s Evolving to a New Dominant Logic for Marketing in 2004. As the authors stated at the time, “a worldview or dominant logic…seeps into the individual and collective mindset”. Vargo & Lusch’s paradigm challenged perceptions of value with customers as co-creators of value, and goods as merely instruments for the delivery of services. In other words, firms do not embed value into products but instead it is realised in usage. And so we begin to understand why Servitization is so fundamental.

From selling products to complete solutions

We are seeing a diverse range of organisations that are moving from selling products to selling complete solutions. These may be base services such as a spare parts service, intermediate services like offering a help-desk to assist with customer usage concerns to advanced services including customer support agreements and it is often at this level that solutions are produced in tandem with the customer. The clear difference is the customer orientation, and whilst in the past firms may have stated that goods were produced with customer needs in mind, this collaborative approach is worlds apart. Take champions of Servitization Rolls Royce whose ‘power by the hour’ programme turned the concept of selling engines on its head, instead offering engine maintenance contracts over the engine’s life cycle.

If the cap fits

Servitization offers compelling business reasons to make the switch to a service focus, not only allowing a firm to differentiate and improve customer satisfaction but to free it from the necessity to compete based upon cost alone, and develop relationships that are essential to business success. The first port of call for firms considering making the move to a service focused strategy are its own capabilities, does it have the necessary skills to implement service enhancements at base, intermediate or advanced level and if not, how can it go about obtaining these skills? Outsourcing is one option but a more sustainable and manageable solution is often staff training in specific skills such as customer service. Ensure your business is prepared for the Servitization revolution heading its way.

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About the author

Paul Russell is co-founder and director of Luxury Academy London, www.luxuryacademy.co.uk, a multi-national private training company with offices in London, Delhi, Mumbai and Visakhapatnam. Luxury Academy London specialise in leadership, communication and business etiquette training for companies and private clients across a wide range of sectors. Prior to founding Luxury Academy London, Paul worked in senior leadership roles across Europe, United States, Middle East and Asia. A dynamic trainer and seminar leader, Paul has designed and taught courses, workshops and seminars worldwide on a wide variety of soft skills.

Servitization is the moniker of choice in the UK and US for the focus on service in developed economies, and the theory is simple enough. Move from selling goods to an integrated combination of goods and services and you will improve business performance and establish the means for competitive advantage. Companies such as Rolls Royce and Xerox have implemented Servitization strategies and research from the Aston Centre for Servitization Research and Practice says that 65% of the world’s manufacturing industry will switch from a product to a service focus over the next three years. But don’t get lulled into a false sense of security that it’s only manufacturers that need to make the change. Servitization is coming, and it will change the way we do business forever.

It’s not just a 21st century darling

The theory of Servitization is sound, after all why would you sell a single product when you could strive for a long term relationship? Servitization is relationship marketing at its very finest and whilst it may appear to be a 21st century darling, the term has actually been around since the 80s when Vandermerwe and Rada flagged it as a means to generate new revenue streams through services associated with a firm’s traditional goods.

The new worldview

When the idea really took hold though was perhaps with Vargo and Lusch’s Evolving to a New Dominant Logic for Marketing in 2004. As the authors stated at the time, “a worldview or dominant logic…seeps into the individual and collective mindset”. Vargo & Lusch’s paradigm challenged perceptions of value with customers as co-creators of value, and goods as merely instruments for the delivery of services. In other words, firms do not embed value into products but instead it is realised in usage. And so we begin to understand why Servitization is so fundamental.

From selling products to complete solutions

We are seeing a diverse range of organisations that are moving from selling products to selling complete solutions. These may be base services such as a spare parts service, intermediate services like offering a help-desk to assist with customer usage concerns to advanced services including customer support agreements and it is often at this level that solutions are produced in tandem with the customer. The clear difference is the customer orientation, and whilst in the past firms may have stated that goods were produced with customer needs in mind, this collaborative approach is worlds apart. Take champions of Servitization Rolls Royce whose ‘power by the hour’ programme turned the concept of selling engines on its head, instead offering engine maintenance contracts over the engine’s life cycle.

If the cap fits

Servitization offers compelling business reasons to make the switch to a service focus, not only allowing a firm to differentiate and improve customer satisfaction but to free it from the necessity to compete based upon cost alone, and develop relationships that are essential to business success. The first port of call for firms considering making the move to a service focused strategy are its own capabilities, does it have the necessary skills to implement service enhancements at base, intermediate or advanced level and if not, how can it go about obtaining these skills? Outsourcing is one option but a more sustainable and manageable solution is often staff training in specific skills such as customer service. Ensure your business is prepared for the Servitization revolution heading its way.

————————————————————————————————————————————–

About the author

Paul Russell is co-founder and director of Luxury Academy London, www.luxuryacademy.co.uk, a multi-national private training company with offices in London, Delhi, Mumbai and Visakhapatnam. Luxury Academy London specialise in leadership, communication and business etiquette training for companies and private clients across a wide range of sectors. Prior to founding Luxury Academy London, Paul worked in senior leadership roles across Europe, United States, Middle East and Asia. A dynamic trainer and seminar leader, Paul has designed and taught courses, workshops and seminars worldwide on a wide variety of soft skills.

2017-09-01T14:28:29+00:00