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Servitization and its impact on Business Models and Enterprise packages


Was going through some interesting articles on "Servitization", a captivating concept I must say. So what is servitization? Manufacturing industries have been selling products - components or end items as their main offering along with supplementary services such as After Sales...etc.  Servitization refers to these organizations packaging their offerings of which services form an integral portion. The main focus is on service required by the consumer rather than the product itself. Let's take an example of a business customer requiring a Coolant to be delivered at specific pressure and temperature within their premise,  Servitization here will bring forth the focus of the Manufacturer to provide the exact services required rather than selling coolants, pressure and temperature gauges.

Servitization will have a profound impact on the way the Manufacturing organization will conduct its business, of which the predominant one will be a phase off of the categorization of Product and Service. Product specification will be restated as Service specification. Few business models which would evolve as part of Servitization are illustrated in the diagram.


Service based models can be broadly classified into Consumption and Performance based models. Pricing will be based on consumption of service, not consumption of products. Similarly, performance based models, for example pricing based on labor productivity instead of number of hours of work.

Following are the Key benefits which is envisaged with Servitization for the respective sections

Service Consumers:

·         Pay only for what is used

·         Quick response to business dynamics

·         Core competency focus

·         Cost reduction due to outsourcing

Service Providers:

·         Long term relationship with the customers

·         Swift response to market demand

·         Improve service capability

·         Optimize supply and demand

Impact on Enterprise packages:

Due to this paradigm shift which Servitization is envisaged to deliver, there will be some specific changes in enterprise package services. Few examples include

Ø  CRM solution would leverage real time collaboration with their service consumers, prescriptive analytics, automatic scheduling based on consumers' demand variation, etc.

Ø  HCM solution would emphasize on feature like payroll based on employee productivity rather than number of work hours.

Ø  SRM solution would emphasize on specific features like Performance based on vendor contracts, real time collaboration with their vendors, vendor mobility, etc. SCM solution might require features like service visibility along with inventory visibility, machine to machine communication, predictive analytics, etc.

Ø  Engineering solutions would require product as well as service related features.

The more I am researching on the concept of Servitization, the more intriguing it gets, in some way telling me that the 4th revolution in the Manufacturing business is on its way and in a big way! I request you all to extend your thoughts on this and provide you valuable suggestions/feedbacks

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