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