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Servitization and digitalisation, a two-dimensional space

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 …

Servitization, digitalisation and digital servitization

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.

Not always at the same pace

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.

Case 1: low level of servitization, high level of digitalisation

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.

Case 2: high level of servitization, low level of digitalisation

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.

Servitization and digitalisation as a two-dimensional space

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.

Physical and digital: the two dimensions of servitization

The servitization dimension: how advanced are the services offered?

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 digitalisation dimension: how broad and deep are the digital capabilities of the PSS?

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.

Digitalisation broadness

First of all, let’s consider the types of stakeholders who benefit from the digital capabilities and their degree of separation from the manufacturer.

  • at degree 0, the digital system is exploited only by the manufacturer. The purpose of digitalisation is mainly to improve the quality of technical support or optimize service and maintenance activities.
  • at degree 1, the manufacturer can make the digital system available to its value chain. This may include dealers, TACs or any business partners to which the provision of the service is delegated. In this way these external parties can also improve their service activities towards end customers.
  • finally, at degree 2, the manufacturer can exploit the digital system to offer digital (smart) services to its end customers. These can be insights, advices or automations that can help the customer to be more efficient, reduce TCO or increase performance.

Digitalisation deepness

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:

  1. simple operating condition monitoring with alerts and notifications
  2. remote control and configuration
  3. optimization of cognitive processes, such as evaluation of causes of failure or evaluation of time remaining before failure, or physical processes, such as product configuration or operation activities, in order to improve product availability, efficiency, performance or productivity
  4. cooperative automation thanks to the integration with other hardware or software systems, such as MES, home automation systems (B2C), ERP software, FSM, Supply Chain applications for the reordering of spare parts and consumables, etc.

A variety of possible servitization paths across the space

This two-dimensional view provides a broader view and understanding of a manufacturer’s servitization path.

A variety of possible servitization paths across the physical - digital space

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.

What is the role of a Digital PSS in the servitization-digitalisation space?

A DPSS (see “Good morning DPSS“) supports manufacturers in both dimensions.

The role of a Digital PSS in the servitization space

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:

  • offer the customer an online store for the purchase of one-time or recurring services
  • collect and monitor data useful to the manufacturer and the value chain to meet the service contract terms
  • monitor the service KPIs and clearly show them to the customer
  • account for the price of the service in the case of advanced pricing models, such as pay per use, pay per availability or pay per outcome

I really hope that this point of view can help you in your servitization journey. Stay tuned!

Stefano Butti

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