To define servitization we want to refer to the studies of the experts at the Advanced Services Group, including Prof. Tim Baines, and in particular to their latest definition published in the book “Servitization Strategy”.
Short definition of servitization:
Servitization is the process of transforming a firm to also compete through offering ‘outcomes’ to customers.
We particularly like this definition because it is extremely concise yet rich.
We highlight 5 concepts that lie within the definition of servitization given by the book:
servitization is a transformation process
servitization changes the competitive game
servitization focuses on outcomes
servitization implies the provision of product-service systems
servitization is both for product-centric and service-centric companies
Servitization is a transformation process
Servitization is a transformation process, a journey. It is therefore not an object or a result to be achieved. In this journey, the technological and digital components (like a DPS system) are enabling factors and accelerators, but they cannot be considered the only aspect to focus on. Servitization also impacts the business model (sales, marketing, customer relationships, costs, partnerships, etc.) and the organization of the firm.
A more extensive definition that we can find in the book is in fact:
Extended definition of servitization:
Servitization is the process where a firm engages with business model innovations and organisational changes, so as to compete through providing business outcomes for customers rather than only producing and selling outputs.
Servitization changes the competitive game
Servitization implies not only “selling” services, but more, “competing” through services. Services are therefore not an accessory, but a fundamental component of competitive differentiation. The reason why a customer chooses one supplier over another, why a firm is successful or not.
Servitization focuses on outcomes
Servitization does not mean offering just any kind of service. It specifically implies helping the customer to achieve outcomes. This gives any servitization initiative a clear direction to follow.
This also gives us a yardstick, which we can use to measure the degree of responsibility the provider takes to let customers achieve the outcomes they seek. The more responsibility the provider takes, the more activities and the more risks it assumes, the more advanced the service and the greater the value for the customer.
Definition of advanced service
An ‘advanced service’ is an ‘integrated products-service system, that when used, delivers outcomes that directly align with value creation and capture processes within a customer’s own organisation’.
Finally, this aspect is also very useful in the design of the DPS system, because it drives every design choice in that direction.
Servitization implies the provision of product-service systems
Servitization leads to a new “value proposition”, the combination of services and products, product-service systems.
This combination is the mean by which a provider delivers outcomes.
From a software point of view we can think the DPS system as the digital companion of such product-service system.
Servitization is both for product-centric and service-centric companies
For product-centric companies, servitization implies bundling services into their product offering.
But the reverse is also true.
Businesses which are often thought of as pure service can also apply servitization by bundling products into their service offering to strengthen their value proposition for customers.
Let’s take the example of a company providing maintenance services for heating systems. Today, this company provides assistance services occasionally, when a customer requests it, typically due to a failure. Through a servitization process, this company could sell ‘comfort’ to its customers, that is the guarantee of always having the desired temperature, without having to worry about what happens in the heating system.