Servitization: How small and medium sized businesses can Compete, Grow and maybe even Disrupt

Overview

“Servitization: How small and medium sized businesses can Compete, Grow and maybe even Disrupt” presents a comprehensive analysis of how manufacturing companies can transform their business models by integrating services with traditional product offerings.

Mark Olding explores the strategic shift from selling products to providing ongoing services and solutions, a transition that enables manufacturers to differentiate themselves in competitive markets, build long-term customer relationships, and generate recurring revenue streams.

Key Insights

The Concept of Servitization

• Servitization represents manufacturing’s gradual shift from product-centered value propositions to complex product-service systems
• Focuses on delivering capabilities rather than just physical assets
• Reflects changing customer priorities who now focus on lifetime costs rather than just initial purchase price

Three-Tiered Framework

• Basic Servitization: Offering support services to generate additional revenue (spare parts, repair manuals)
• Intermediate Servitization: Providing action-related services where manufacturers execute maintenance activities while customers retain asset ownership
• Advanced Servitization: Manufacturers assume greater responsibility and risk, often retaining ownership of assets while providing guaranteed performance through availability contracts

Business Case for Servitization

• Economic Drivers: Protection against commoditization and low-cost competition
• Environmental Factors: Regulatory pressures and sustainability requirements
• Market Context: Evolving customer expectations focusing on value-in-use
• Technological Enablers: Digital innovations supporting service delivery
• Knowledge Perspective: Leveraging manufacturer expertise for competitive advantage

Implementation Requirements

• Development of product-service systems (PSS) that combine elements of production and service delivery
• Organizational restructuring to support service orientation
• Technology adoption for communication, condition monitoring, data storage, and analytics
• New performance metrics focused on availability and reliability
• Alignment of facility location, layout, and organizational structure

Performance Measurement

• Demonstration of value and best practices
• Local measures and indicators
• Macro internal measures
• Customer-facing metrics that evaluate service quality

Practical Applications for Manufacturers

The insights from Olding’s work offer immediate value for US-based manufacturers facing intense global competition and margin pressures.

By implementing servitization strategies, manufacturers can create new revenue streams that are more stable and predictable than traditional product sales. The tiered approach allows companies to start with basic services before gradually developing more advanced capabilities.

For implementation, manufacturers should begin by analyzing their current customer relationships to identify service opportunities, then develop the necessary technological infrastructure for monitoring product performance.

Establishing cross-functional teams that blend engineering, sales, and service expertise is essential for creating effective product-service systems.

Companies that successfully transition to service-oriented models can expect not only stronger customer relationships but also improved market differentiation and environmental performance.

Key Takeaways

• Servitization represents a fundamental shift from production-centered to service-oriented thinking
• Success requires organizational change, not just adding services as afterthoughts
• Digital technologies (IoT, AI) are critical enablers for advanced servitization
• The transition is best approached as a journey, often starting with hybrid models
• Implementation requires alignment across operations, marketing, and sales functions
• Performance metrics must shift from product quality to service availability and reliability

This book is particularly valuable for manufacturing leaders who are experiencing margin pressure from global competition or product commoditization.

It provides a strategic roadmap for those looking to future-proof their businesses through service innovation and create more stable, recurring revenue streams.

The practical frameworks and implementation guidance make it especially useful for executives who are ready to move beyond conceptual understanding to actual execution of servitization strategies.