driving competitiveness through servitization

Driving Competitiveness through Servitization

Competitiveness Day

08 September 2014

[email protected]

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What we have accomplished in pre-phase

5th International Seminar on Service Modularity and Architecture,

January 16-17, CBS – with the participation of 25 researchers from 15

European universities

Workshop with practitioners “Driving Competitiveness through

Servitization, April 28, CBS

Booklet – “Driving Competitiveness Through Servitization: A Guide for

Practitioners”, published by CBS Competitiveness Platform

Development of a research agenda for Phase 2 of the project

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Agenda

What we do Heading

1. Factors influencing the competitive situation • Global challenges

2. How to compete in this environment • Operations strategy

3. Servitization – what can be offered in addition to the product?

• Servitization of manufacturing • Extending your value proposition

4. How far to go – what services to offer • Strategic considerations • Moving from product manufacturer to

service provider

5. Clarifying the service as a product • Contracting potentials and risk

6. The service relation has implications on how to calculate costs

• Calculating costs

7. Considering the customer perspective • Perspectives on servitization

8. The challenges of servitization • The servitization paradox • Challenges to servitization

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Intense societal debate on the competitiveness of Danish industry Headlines such as:

• If we move our production, what is next?

• Productivity in Denmark is lagging behind

• Will the innovation activities go the same way?

• Can re-insourcing replace off-shoring?

• How to cope with “servitization”?

• Creation of value through new business models

• What would Denmark live off?

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Factors and trends that affect industrial operations worldwide

Factors Trends Description

Macroeconomic

Globalization Competition from low cost countries

Commoditization Competition shifts to cost

Customer demand Risk aversion and new contract forms

Market

Lock in customers Sale of equipment at low cost to profit from spare parts and

maintenance

Life cycle offerings Total cost of ownership calculations

New profit formulas Fixed costs and long term, outcome based contracts

Technology

Internet of Things Incorporation of sensors and actuators in machines to provide

remote maintenance and continuous information

Big Data analytics Making sense and analysis of the vast amount of field data

Additive manufacturing (3D Printing) Displacement of inventory and spare parts by installing 3D

printers at the customer’s site

Environmental

Geopolitical Export controls and conflict regions

Ownership vs. usage Using rather than owning physical assets is more economically

sound for the customer and environment friendly for all

Global resource scarcity Energy prices, CO2 reduction, design for disassembly, take

back systems

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Background and driving forces

Competitive advantage; from sustainable to temporary

by resilience, speed and reconfiguration of resources

• Danish companies are increasingly competing on global markets

• Information and communication technologies shape economics

• Innovation is happening at a much higher pace

• Technology is transferred

• Complex product and process systems are becoming more intertwined

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Agenda

What we do Heading



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Competitive performance objectives

Competitive performance objective

Implications Examples of KPIs for manufacturing

Examples of KPIs for service

Quality • Being right • Fit for purpose • Process control

• Defects per unit • Mean time to failure

Customer satisfaction

Flexibility • Being able to change • Customization • Resilience

Range of product mix Range of service mix

Speed • Being fast • Risk of obsolescence

Cycle time for process Response time

Dependability • Being on time • Trust • Stability

% orders delivered on time

% faults addressed within time

Cost • Being productive • Efficiency

Efficiency Labor productivity

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Polar diagram for our service versus a competitor’s service

Cost effectiveness

Quality Flexibility

Dependability Speed

Competitor

Our company

Required performance

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Agenda

What we do Heading





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Servitization - creating value through the provision of services

Servitization is about competing through value propositions that

integrate services with product offerings

Servitization based on

physical product:

- Adding services

- Offering functions

- Total solutions

Essentially it is about

‘interfering’ in your

customers’ processes

Selling an asset Providing recovery

Maximizing availability Offering outcomes

(See table 4 on page 10)

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Value propositions and customer expectations

Type of value proposition

Customer expectations Example

Selling an asset Quality and performance of equipment

Offer customized product

Providing recovery of an asset

Minimum disruption in case of equipment failure

Repair of equipment after notification

Maximizing the availability of an asset

Fault free equipment Provide remote and preventive maintenance

Offering outcomes for the customer

Assisting customers to achieve their goals

Take over customer functions/activities

A product goes into to the processes of the customer

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Extending the value proposition through servitization

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Agenda

What we do Heading






service provider

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Servitization is an attractive strategic response

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From component manufacturer to solution provider

Type of Servitization Characteristics

Product Oriented

Use Oriented

Result Oriented

• The business model is still

mainly geared towards sales of

products, but some extra

services are added

• The product stays in ownership

with the provider, and is made

available in a different form,

and sometimes shared by a

number of users

• The client and provider in

principle agree on a result, and

there is no pre-determined

product involved

Examples

• Product related services

• Advice and consultancy

• Product lease

• Product renting or sharing

• Product pooling

• Activity Management/Outsourcing

• Pay per service unit

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Agenda

What we do Heading






service provider


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Contracting potentials and risk

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Risks involved in servitization

Experiences from practice show mixed results on profit when firms

increase their service activities. Risks involved in servitization include:

Potential Risk Example

Recovery Lack of service infrastructure Involve partners, create service clusters and networks

Availability Less revenue from service offerings Penetrate your installed base in order to increase the adoption and capacity utilization

Development Customer-specific development costs Charge the design and the construction of services separately and offer to equalize them when the product is purchased

Outsourcing Operational risks Risk pooling, transferring risk to suppliers, integrate risks in pricing mechanism

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Agenda

What we do Heading






service provider




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Calculating costs

Life Cycle Cost Analysis

Costs of a product’s entire life

Total Cost of Ownership

From price orientation to total cost

of owning a product

Both methods influence investment decisions

within the company and across value chains

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Agenda

What we do Heading






service provider





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Understanding the customer’s “make or buy” process

Typical customer needs Implications for the service provider

Focus on core activities Design services to seamlessly support and enhance the value of customer’s core activities

Restructuring costs Evaluate the option of retaining product ownership and offering a “leasing” service

Access to talent Adopt a customer centric focus and ability to offer expertise adapted to customer needs

Reduce time to market Offer engineering and R&D capabilities as a service to the customer and become a development partner

Manage risk Consider how scale, specialization and expertise can become a valuable source of mitigating business risks

Manage capacity Increase flexibility of resources to mitigate fluctuations in demand when customers procure services to manage capacity

Increase scalability Increase volume flexibility and ramp up speed

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Agenda

What we do Heading






service provider





8. The challenges of servitization • The servitization paradox • Challenges to servitization

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Addressing the servitization paradox

An observed “service paradox” in which revenues earned by the

manufacturer may increase but profits actually decrease with greater

servitization.

Setting strategic direction

Define and communicate a clear

service strategy and initiate the

necessary investments to align the

strategic direction with operational

capabilities

Adjusting organizational

design

Create the organizational

arrangements to support the

development, sale and delivery of

services and align performance

measures and objectives

Developing capabilities

Develop capabilities for designing

and delivering services, including

technical expertise, customer

orientation and Information

Technology

Establishing a service culture

Provide managerial attention to the

values supporting service design

and delivery such as customer

orientation, heterogeneity and

flexibility

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Challenges of delivering advanced services and integrated solutions

Firms face a stream of challenges that should be evaluated vis-a-vis the performance objectives, both in the short term and long term. They have to:

• Create leadership support from top management to sales and operations managers

• Make the necessary investments to develop and implement services and solutions

• Change the mind-set and capabilities of the organization to selling and delivering services and solutions

• Make a strategic effort to capture the potential of the installed base

• Develop KPIs and align incentives to ensure integrated sales and delivery of products combined with services

• Coordinate and align the development of new products integrated with new services

• Involve customers in the development process

• Create the necessary flexibility and adaptability to enable customization

• Formulate attractive value propositions through better understanding of customer needs

• Ensure that the quality of service provision lives up to customer expectations

• Specify Service Level Agreements to ensure an appropriate balance of risk and rewards in the face of information asymmetry

• Develop trustful relationships to support the investment in customer specific competencies

• Manage the geographical and cultural distances in a globally distributed network of service partners

Servitization as a global competitive strategic response - why do we embark on

servitization?

• Management of value chain and inter-firm relationships

• Mapping of servitization landscape in Denmark

• Benchmarking

• Investment decisions for service development

Design and innovation for servitization – what is needed to realize servitization?

• Innovating business models

• Mapping of servitization performance

• Development of new services

• Formulation of value propositions for value creation and value capture

• Managing the adoption of disruptive process technologies

• Development of servitization for sustainability and reverse logistics of products

The processes of servitization transformation – how to implement servitization?

• Development of new knowledge, capabilities and skills

• Development and management of distributed network of service partners

• Development of KPIs and alignment of incentives within the company and with partners

• Development of managerial tools for self-assessment of servitization performance and roadmapping

Research THEMES

Mapping – the researcher gathers information to identify Danish manufacturing companies

that are pursuing servitization and to graphically show the levels of servitization maturity. We

expect the mapping phase to take 10 months approaching 200 companies and then giving

feed-back to those responding.

Case studies – the researcher explores how servitization is applied in a company over a

period of time and makes comparisons with other servitization activities (both within the

company and with one or more companies). The duration of a project is 3 – 9 months.

Action research – the researcher is active in the company servitization process

implementing the concepts and models from the theory of servitization. The duration of a

project may be 1.5 - 3.5 years.

In-depth longitudinal field studies – the research is carried out on the basis of interactive

and participatory roles held by the researcher often with the researcher embedded in

servitization projects in the company with hands-on application of the theories and tools over

a continuous period of time. The duration of a project may be 2 - 3.5 years.

Clinical research - the researcher participates in problem solving projects within the

company. The researcher assists the company in developing servitization and solving

problems in the process. These projects should be planned and negotiated between the

company and CBS. The duration of a project is dependent on the issue(s).

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Our approach

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Our approach

Academic Partners

Domestic (e.g., DTU, Aarhus University)

International (e.g., Cambridge University, London Business

School, Aalto University)

Industrial Partners

Interactive field projects

Progressive knowledge development

Funding

The Danish Industry Foundation

Companies

Would you like to be an industrial partner of ours? What types of research projects would be interesting to you?

We’d be delighted to hear your thoughts!

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