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Leadership in high-value services: What it takes for manufacturers to compete through servitization and Product-Service SystemsTim BainesProfessor of Operations Strategy Aston Business School
What is the outlook for manufacturers in the
developed economies of Europe and North America?
Country Hourly compensation costs in manufacturing in USD
Increase in output per manufacturing employee (index, 2002 = 100)
2010 % change (USD) since 1997
1997 2010 % change in output since 1997
USA 34.74 3.2 76.1 149.8 197UK 29.44 3.6 83.1 128 154Germany 43.76 3.2 90.5 112.9 125France 40.55 3.8 88.4 120.9 137China* 1.36 2.19 NA NA NAIndia* 2.3 1.44 NA NA NASingapore 19.10 3.5 78.4 143.7 183Taiwan NA NA 78.7 176.9 225PR Korea NA NA 66 160.7 243Japan NA NA 91.5 134.9 147
Unfortunately competitors in emerging economies are just not playing fair…
…and the global markets for mass consumption are changing
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?
Key questions
So what does it really mean to compete through services?
Is servitization a new concept?
Does it simply means adding services to products?
Are products only a platform for delivering services?
Does it mean relinquishing manufacturing activities?
Is all about new Information and Communication Technologies (ICTs)?
Can it generate greater revenues and profits for the manufacturer?
MAN
CAT
ALSTOM
XEROX
4 yrs
Knowledge from previous studies
Understand leading practices and technologies
R-R
Su
rvey
of
400
UK
co
mp
anie
s
Going to Gemba!
They are manufacturers
Adopting a services-led competitive
strategy
Focusing on advanced services
Outcome is a capability rooted in
production competences
Coupled with long-term risk and
reward agreements
Delivering high-value
Process of servitization
Intermediate servicesScheduled maintenance, Help-desk, Repair,
Overhaul, Operator training, Condition monitoring, In-field service
Base servicesProduct & spare parts
Advanced servicesCustomer support agreement, Risk and revenue sharing, Revenue-through-use
contact, Rental agreement
Outcome focused on product provision
Outcome focused on product condition
Outcome focused on capability
Services supporting customers
Services supporting products
Services on offer
A document management capability
Use
Cash
Disposal
Cash
Technology
Service
MonitorConsumables
Risks and rewards
Revenue earned by the
manufacturer
Advanced
£
Base Intermediate
+
-
Profit earned
Type of services offered
Relationships between services, revenue and profit
So how do leading adopters view servitization?
So how do leading adopters of
servitization deliver to their customers?
Characteristics of a traditional factory
Centralisation to exploit economies of scale and natural resources
Integrated where needed to control cost and quality
Focused on the planning and control of material flow
Focused on cost, quality and delivery of products
Staff who are technically capable, analytical, and dependable
Reactive to demands for after-sales support and tendency towards ‘heroic recovery’
A technology systems focused on informing and advancing actions on maintenance, repair and use
Remote product sensing
Monitor Transmit Store Analyse Respond
Transducers
Data storage
Fault code generation
Fault code recording
Base data
Fault code data
Satellite, cell phone,
radio, Internet
Hard and soft
storage
system
Exception reporting
&Asset
maintenance
reporting
Get more dataPlan
contingenciesRepair/ replace
Inform customer
Modify design
Modify delivery system
Lin
ks t
o e
nte
rpri
se
pro
cesses a
nd
syste
ms
Facilities that are co-located and distributed throughout customers operations
Practices and technologies key to success
Rolls-Royce pre - TotalCare’ Rolls-Royce post - TotalCare’
Customer facing measures
Macro measures
Local measures & indicators
Demonstration of value
Internal performance measures & indicatorsExternal
Performance measurement and demonstration
Vertically integrated into design and production activities to ensure control over responsiveness and continuous improvement
Production operations
Materials Production Design Service Use
Conventional manufacturer
Service operations
Servitized operations
Production operations
Combined original equipment manufacture
and product-centric services
Exclusive focused on product-centric
services
Conventional service provider
Position and extent of vertical integration within supply chain
Servitized operations
Practices and technologies key to success
Practices and technologies key to success
Staff located in a front-end office and who are flexible, relationship builders, service-centric, authentic and
technically adept
I am prepared to work varying hours
or tasks to meet customer demands
I have meaning full conversations with my customers, and great team behind
me
I feel the pain my customer feels if my product fails I only make
commitments against which we can truly deliver?
I understand the technicalities of the product I am
selling?
Practices and technologies key to success
Formalised to deal proactively with the condition, use and location of assets in the field
Asset fails
Manufacturer Customer
Asset fixed
Negotiation
Asset failing
Manufacturer Customer
Asset in use
Communication
Agreed condition & action
Old world New world
Facilities that are co-located and
distributed
Vertically integrated within supply chains
Exploiting ICTs for remote asset
monitoring
Staff that are service-centric, flexible, skilled in relationships, and
resilient
Performance measurement
systems replicating those of customers
Process that are proactive and integrated with
customers
Service delivery system
A complex integration of practices and technologies.
What we now know
Well established examples of servitization exist
To succeed, the manufacturer views themselves as a services provider
The product platform is critically important
Exploits technical competences firmly rooted in design and production
Information and Communication Technologies are key, but only as a component in a tightly integrated system
It can generate greater profits, though they reduce as a proportion of revenue
...but there are a few things we still don’t know.
Leadership in high-value services: What it takes for manufacturers to compete through servitization and Product-Service SystemsTim BainesProfessor of Operations Strategy Aston Business School