I never liked ‘Servitization’

By Mark Euwe, MD The Lookingglass

Manufacturing companies that are suffering from ongoing globalization and commoditization of their products will often revert to a services growth strategy. They claim that ‘servitization’ of their products is needed.

In my article ‘It’s time to follow the white rabbit’,    I describe 8 good reasons why manufacturing companies should take their service businesses more seriously.

Because typically the very first service they come up with is … financing! We’re moving from CAPEX to OPEX, servitization mission completed! And now all of a sudden they are running a ‘services business’.

For me, I never liked the term ‘Servitization’. It was too much ‘turning our product into a service’, while I think that the most essential element of any services approach, is that we come up with additional services around and on top of an existing product portfolio. And when we only ‘servitize’ the main product into a service, we miss out on a lot of opportunities.

Running a services business for a manufacturing company does have its challenges though. I would say that the biggest hurdle is cultural. Trying to break away from a product focused model into a services based model is like going to a different planet with a different language. When I was running a new services division, I was supposed to indicate the targeted ‘number of service units’ in our strategic plans. (Yes, it doesn’t make sense indeed). We didn’t have ‘Cost of Goods Sold’, so our financial model unfortunately distorted the available financial ratios. We did have a large R&D department for products, but how to do innovation for services?

And yet I believe that it is doable (and needed) for manufacturers to build strong service businesses. But it takes a different perspective than building hardware products.

For more info on how we can help with your service business, visit here.