Driving Competitiveness through Servitization
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The document outlines the findings and goals of a project on servitization, detailing challenges and strategies for enhancing competitiveness in the manufacturing sector. It discusses various factors influencing global industrial operations, addresses the servitization paradox, and emphasizes the need for firms to evolve from product manufacturers to service providers through comprehensive value propositions. Additionally, it highlights the importance of collaboration and innovation in developing service-oriented business models, while also providing insights into future research directions related to servitization practices.
Driving Competitiveness through Servitization
- 1. Driving Competitiveness through Servitization Competitiveness Day 08 September 2014 [email protected]
- 2. 2 What we have accomplished in pre-phase 5th International Seminar on Service Modularity and Architecture, January 16-17, CBS – with the participation of 25 researchers from 15 European universities Workshop with practitioners “Driving Competitiveness through Servitization, April 28, CBS Booklet – “Driving Competitiveness Through Servitization: A Guide for Practitioners”, published by CBS Competitiveness Platform Development of a research agenda for Phase 2 of the project
- 3. 3 Agenda What we do Heading 1. Factors influencing the competitive situation • Global challenges 2. How to compete in this environment • Operations strategy 3. Servitization – what can be offered in addition to the product? • Servitization of manufacturing • Extending your value proposition 4. How far to go – what services to offer • Strategic considerations • Moving from product manufacturer to service provider 5. Clarifying the service as a product • Contracting potentials and risk 6. The service relation has implications on how to calculate costs • Calculating costs 7. Considering the customer perspective • Perspectives on servitization 8. The challenges of servitization • The servitization paradox • Challenges to servitization
- 4. 4 Intense societal debate on the competitiveness of Danish industry Headlines such as: • If we move our production, what is next? • Productivity in Denmark is lagging behind • Will the innovation activities go the same way? • Can re-insourcing replace off-shoring? • How to cope with “servitization”? • Creation of value through new business models • What would Denmark live off?
- 5. 5 Factors and trends that affect industrial operations worldwide Factors Trends Description Macroeconomic Globalization Competition from low cost countries Commoditization Competition shifts to cost Customer demand Risk aversion and new contract forms Market Lock in customers Sale of equipment at low cost to profit from spare parts and maintenance Life cycle offerings Total cost of ownership calculations New profit formulas Fixed costs and long term, outcome based contracts Technology Internet of Things Incorporation of sensors and actuators in machines to provide remote maintenance and continuous information Big Data analytics Making sense and analysis of the vast amount of field data Additive manufacturing (3D Printing) Displacement of inventory and spare parts by installing 3D printers at the customer’s site Environmental Geopolitical Export controls and conflict regions Ownership vs. usage Using rather than owning physical assets is more economically sound for the customer and environment friendly for all Global resource scarcity Energy prices, CO2 reduction, design for disassembly, take back systems
- 6. 6 Background and driving forces Competitive advantage; from sustainable to temporary by resilience, speed and reconfiguration of resources • Danish companies are increasingly competing on global markets • Information and communication technologies shape economics • Innovation is happening at a much higher pace • Technology is transferred • Complex product and process systems are becoming more intertwined
- 7. 7 Agenda What we do Heading 1. Factors influencing the competitive situation • Global challenges 2. How to compete in this environment • Operations strategy
- 8. 8 Competitive performance objectives Competitive performance objective Implications Examples of KPIs for manufacturing Examples of KPIs for service Quality • Being right • Fit for purpose • Process control • Defects per unit • Mean time to failure Customer satisfaction Flexibility • Being able to change • Customization • Resilience Range of product mix Range of service mix Speed • Being fast • Risk of obsolescence Cycle time for process Response time Dependability • Being on time • Trust • Stability % orders delivered on time % faults addressed within time Cost • Being productive • Efficiency Efficiency Labor productivity
- 9. 9 Polar diagram for our service versus a competitor’s service Cost effectiveness Quality Flexibility DependabilitySpeed Competitor Our company Required performance
- 10. 10 Agenda What we do Heading 1. Factors influencing the competitive situation • Global challenges 2. How to compete in this environment • Operations strategy 3. Servitization – what can be offered in addition to the product? • Servitization of manufacturing • Extending your value proposition
- 11. 11 Servitization - creating value through the provision of services Servitization is about competing through value propositions that integrate services with product offerings Servitization based on physical product: - Adding services - Offering functions - Total solutions Essentially it is about ‘interfering’ in your customers’ processes Selling an asset Providing recovery Maximizing availability Offering outcomes (See table 4 on page 10)
- 12. 12 Value propositions and customer expectations Type of value proposition Customer expectations Example Selling an asset Quality and performance of equipment Offer customized product Providing recovery of an asset Minimum disruption in case of equipment failure Repair of equipment after notification Maximizing the availability of an asset Fault free equipment Provide remote and preventive maintenance Offering outcomes for the customer Assisting customers to achieve their goals Take over customer functions/activities A product goes into to the processes of the customer
- 13. 13 Extending the value proposition through servitization
- 14. 14 Agenda What we do Heading 1. Factors influencing the competitive situation • Global challenges 2. How to compete in this environment • Operations strategy 3. Servitization – what can be offered in addition to the product? • Servitization of manufacturing • Extending your value proposition 4. How far to go – what services to offer • Strategic considerations • Moving from product manufacturer to service provider
- 15. 15 Servitization is an attractive strategic response
- 16. 16 From component manufacturer to solution provider Type of Servitization Characteristics Product Oriented Use Oriented Result Oriented • The business model is still mainly geared towards sales of products, but some extra services are added • The product stays in ownership with the provider, and is made available in a different form, and sometimes shared by a number of users • The client and provider in principle agree on a result, and there is no pre-determined product involved Examples • Product related services • Advice and consultancy • Product lease • Product renting or sharing • Product pooling • Activity Management/Outsourcing • Pay per service unit
- 17. 17 Agenda What we do Heading 1. Factors influencing the competitive situation • Global challenges 2. How to compete in this environment • Operations strategy 3. Servitization – what can be offered in addition to the product? • Servitization of manufacturing • Extending your value proposition 4. How far to go – what services to offer • Strategic considerations • Moving from product manufacturer to service provider 5. Clarifying the service as a product • Contracting potentials and risk
- 18. 18 Contracting potentials and risk
- 19. 19 Risks involved in servitization Experiences from practice show mixed results on profit when firms increase their service activities. Risks involved in servitization include: Potential Risk Example Recovery Lack of service infrastructure Involve partners, create service clusters and networks Availability Less revenue from service offerings Penetrate your installed base in order to increase the adoption and capacity utilization Development Customer-specific development costs Charge the design and the construction of services separately and offer to equalize them when the product is purchased Outsourcing Operational risks Risk pooling, transferring risk to suppliers, integrate risks in pricing mechanism
- 20. 20 Agenda What we do Heading 1. Factors influencing the competitive situation • Global challenges 2. How to compete in this environment • Operations strategy 3. Servitization – what can be offered in addition to the product? • Servitization of manufacturing • Extending your value proposition 4. How far to go – what services to offer • Strategic considerations • Moving from product manufacturer to service provider 5. Clarifying the service as a product • Contracting potentials and risk 6. The service relation has implications on how to calculate costs • Calculating costs
- 21. 21 Calculating costs Life Cycle Cost Analysis Costs of a product’s entire life Total Cost of Ownership From price orientation to total cost of owning a product Both methods influence investment decisions within the company and across value chains
- 22. 22 Agenda What we do Heading 1. Factors influencing the competitive situation • Global challenges 2. How to compete in this environment • Operations strategy 3. Servitization – what can be offered in addition to the product? • Servitization of manufacturing • Extending your value proposition 4. How far to go – what services to offer • Strategic considerations • Moving from product manufacturer to service provider 5. Clarifying the service as a product • Contracting potentials and risk 6. The service relation has implications on how to calculate costs • Calculating costs 7. Considering the customer perspective • Perspectives on servitization
- 23. 23 Understanding the customer’s “make or buy” process Typical customer needs Implications for the service provider Focus on core activities Design services to seamlessly support and enhance the value of customer’s core activities Restructuring costs Evaluate the option of retaining product ownership and offering a “leasing” service Access to talent Adopt a customer centric focus and ability to offer expertise adapted to customer needs Reduce time to market Offer engineering and R&D capabilities as a service to the customer and become a development partner Manage risk Consider how scale, specialization and expertise can become a valuable source of mitigating business risks Manage capacity Increase flexibility of resources to mitigate fluctuations in demand when customers procure services to manage capacity Increase scalability Increase volume flexibility and ramp up speed
- 24. 24 Agenda What we do Heading 1. Factors influencing the competitive situation • Global challenges 2. How to compete in this environment • Operations strategy 3. Servitization – what can be offered in addition to the product? • Servitization of manufacturing • Extending your value proposition 4. How far to go – what services to offer • Strategic considerations • Moving from product manufacturer to service provider 5. Clarifying the service as a product • Contracting potentials and risk 6. The service relation has implications on how to calculate costs • Calculating costs 7. Considering the customer perspective • Perspectives on servitization 8. The challenges of servitization • The servitization paradox • Challenges to servitization
- 25. 25 Addressing the servitization paradox An observed “service paradox” in which revenues earned by the manufacturer may increase but profits actually decrease with greater servitization. Setting strategic direction Define and communicate a clear service strategy and initiate the necessary investments to align the strategic direction with operational capabilities Adjusting organizational design Create the organizational arrangements to support the development, sale and delivery of services and align performance measures and objectives Developing capabilities Develop capabilities for designing and delivering services, including technical expertise, customer orientation and Information Technology Establishing a service culture Provide managerial attention to the values supporting service design and delivery such as customer orientation, heterogeneity and flexibility
- 26. 26 Challenges of delivering advanced services and integrated solutions Firms face a stream of challenges that should be evaluated vis-à-vis the performance objectives, both in the short term and long term. They have to: • Create leadership support from top management to sales and operations managers • Make the necessary investments to develop and implement services and solutions • Change the mind-set and capabilities of the organization to selling and delivering services and solutions • Make a strategic effort to capture the potential of the installed base • Develop KPIs and align incentives to ensure integrated sales and delivery of products combined with services • Coordinate and align the development of new products integrated with new services • Involve customers in the development process • Create the necessary flexibility and adaptability to enable customization • Formulate attractive value propositions through better understanding of customer needs • Ensure that the quality of service provision lives up to customer expectations • Specify Service Level Agreements to ensure an appropriate balance of risk and rewards in the face of information asymmetry • Develop trustful relationships to support the investment in customer specific competencies • Manage the geographical and cultural distances in a globally distributed network of service partners
- 27. Servitization as a global competitive strategic response - why do we embark on servitization? • Management of value chain and inter-firm relationships • Mapping of servitization landscape in Denmark • Benchmarking • Investment decisions for service development Design and innovation for servitization – what is needed to realize servitization? • Innovating business models • Mapping of servitization performance • Development of new services • Formulation of value propositions for value creation and value capture • Managing the adoption of disruptive process technologies • Development of servitization for sustainability and reverse logistics of products The processes of servitization transformation – how to implement servitization? • Development of new knowledge, capabilities and skills • Development and management of distributed network of service partners • Development of KPIs and alignment of incentives within the company and with partners • Development of managerial tools for self-assessment of servitization performance and roadmapping Research THEMES
- 28. Mapping – the researcher gathers information to identify Danish manufacturing companies that are pursuing servitization and to graphically show the levels of servitization maturity. We expect the mapping phase to take 10 months approaching 200 companies and then giving feed-back to those responding. Case studies – the researcher explores how servitization is applied in a company over a period of time and makes comparisons with other servitization activities (both within the company and with one or more companies). The duration of a project is 3 – 9 months. Action research – the researcher is active in the company servitization process implementing the concepts and models from the theory of servitization. The duration of a project may be 1.5 - 3.5 years. In-depth longitudinal field studies – the research is carried out on the basis of interactive and participatory roles held by the researcher often with the researcher embedded in servitization projects in the company with hands-on application of the theories and tools over a continuous period of time. The duration of a project may be 2 - 3.5 years. Clinical research - the researcher participates in problem solving projects within the company. The researcher assists the company in developing servitization and solving problems in the process. These projects should be planned and negotiated between the company and CBS. The duration of a project is dependent on the issue(s). Our approach
- 29. 29 Our approach Academic Partners Domestic (e.g., DTU, Aarhus University) International (e.g., Cambridge University, London Business School, Aalto University) Industrial Partners Interactive field projects Progressive knowledge development Funding The Danish Industry Foundation Companies
- 30. Would you like to be an industrial partner of ours? What types of research projects would be interesting to you? We’d be delighted to hear your thoughts! [email protected]