The customer pays for using an asset, rather than its purchase, and so benefits from a restructuring of the risks, responsibilities, and costs traditionally associated with ownership.įor over two decades academic literature has encouraged manufacturers to ‘go downstream’ and move towards their customer’s end of the supply chain and ‘add value’ by integrating services with their products. Here the emphasis is on the ‘sale of use’ rather than the ‘sale of product’. Researchers at Cranfield University in England, following an extensive review of the relevant literature, defined (2007) Servitization as ‘the innovation of an organisations capabilities and processes to better create mutual value through a shift from selling product to selling Product Service Systems’ (PSS).Ī (PSS) can be thought of as a market proposition that extends the traditional functionality of a product by incorporating additional services. It was coined by Sandra Vandermerwe and Juan Rada in their 1988 article in the European Management Journal “ Servitization of Business: Adding Value by Adding Services”. They defined servitization as “the increased offering of fuller market packages or ‘bundles’ of customer focused combinations of goods, services, support, self-service and knowledge in order to add value to core product offerings”

However, Servitization is not a manufacturing paradigm shift as was Lean Manufacturing but is a special case in Product-Service Systems and a business model adopted by manufacturers of complex high value capital equipment providing advanced services to deliver pay per use, availability, outcome and performance based contracts centred around their manufactured product.Īs a word Servitization has been around since the late 1980s. Smart connected products are creating new business models for industrial companies as they enable greater customer intimacy. In companies that are successful with Servitization, there are 6 hidden lessons to be learned: (1) Facilities that are co-located and distributed throughout customers operations (2) Vertical Integration to ensure control over responsiveness and continuous improvement (3) Technology Systems focused on informing and advancing actions on repair and maintenance (4) Performance measures focused on asset availability, reliability, performance and cost (5) Staff who are flexible, relationship builders, service-centric, authentic and technically adept (6) Organisational processes formalized to deal proactively with the condition, use and location of assets in the field.

Paradigm shift examples in business