Servitization and digitalisation often come together, but not always at the same pace. Distinguishing them as 2 independent dimensions helps you better understand and plan your servitization journey. Let’s see how …
On the one hand we have servitization. Taking up the definition by Prof. Tim Baines and The Advanced Services Group (“Towards a Common Definition of Servitization” ), it is “quite simply the transformation of a business to compete through a combination of services and products“.
This means moving from the sale of a product to the sale of a Product-Service System (PSS). A PSS is an integrated combination of products and services to be jointly capable of fulfilling specific customer needs.
On the other hand we have the digitalisation of products and services. This consists of using technologies such as IoT, Cloud Computing, Industrial Internet to enhance the PSS offering.
Very often servitization and digitalisation come together, so that they can be considered like two sides of the same coin (see “What is Digital Servitization?” by Dr Christian Kowalkowski). Digitalisation empowers servitization and servitization gives digitalisation a meaning. The result of this union is called digital servitization and gives rise to the development of digital (“smart”), data-driven services.
However, analyzing the experiences of the manufacturers we serve with Servitly so far, not always servitization and digitalisation progress at the same pace.
Let’s take these two cases.
On the one hand there are manufacturers who have developed very sophisticated digital services for their customers, but who have left the “traditional” offer of products and maintenance services unchanged.
At the other extreme we find manufacturers who have not developed digital services for their customers, but who have introduced advanced service offerings, such as all-inclusive full-risk maintenance contracts, and are about to take the step towards the equipment-as-a-service.
Actually our experience in Servitly shows that the level of servitization and the level of digitalisation of the product-service offering are two independent variables. They form a space.
On this subject we had a very fruitful exchange of ideas with Prof. Mario Rapaccini and the ASAP group (see this article) and this is the result.
The first dimension is related to servitization.
The positioning along this dimension depends on the answer to this question: how advanced are the services offered?
In fact, following the definition by Prof. Tim Baines and The Advanced Services Group, along this dimension services can be classified on a scale: from basic to intermediate to advanced services.
A service is the more advanced the more it offers the customer an outcome, a capability, rather than just focusing around product ownership, condition and performance.
The servitization dimension therefore has to do with the definition of the company’s offering to its customers, the service contracts terms, the responsibilities that the company takes in terms of ensuring outcomes for its customers.
The second dimension is related to digitalisation.
The positioning along this dimension depends on the answer to this question: how broad and deep are the digital capabilities of the Product-Service System (PSS)?
Or, in other words, how broad and deep are the capabilities of the Digital Product-Service System supporting the PSS?
Again, we can rank the cases according to a scale.
First of all, let’s consider the types of stakeholders who benefit from the digital capabilities and their degree of separation from the manufacturer.
Secondly, following the model proposed by Porter and Heppelman (“How Smart, Connected Products Are Transforming Competition“), for each stakeholder we can distinguish four sub-levels of digitalisation:
This two-dimensional view provides a broader view and understanding of a manufacturer’s servitization path.
In fact, servitization and digitalisation progress at different paces.
Case A: this is the most linear case, where servitization and digitalisation progress at the same pace
Case B: the manufacturer initially “climbs” the servitization ladder, using digital capabilities only for itself. Later, it further enhances the efficiency and value of services by extending digital capabilities to the value chain and customers.
Case C: the manufacturer initially moves only along the digital dimension. It builds a package of digital (smart) services for customers, while keeping the traditional service offering unchanged. Later, thanks also to the data collected so far, it feels confident in progressing towards advanced service contracts, such as pay per use.
A DPSS (see “Good morning DPSS“) supports manufacturers in both dimensions.
The primary dimension on which the DPSS operates is of course the digitalisation dimension. The DPSS is precisely the software that allows the provision of digital capabilities to all the stakeholders involved in the PSS.
Also, the DPSS backs the evolution towards advanced services. In fact it allows to:
I really hope that this point of view can help you in your servitization journey. Stay tuned!