As we have seen in previous blogs, the adoption of servitisation is widespread – across many industry sectors and across many countries. The key challenge of this strategy is that it requires manufacturers to think and act in different ways to the way they have behaved when just engaged in making things. Some of these challenges are:
- Engage in relationship marketing rather than transactional marketing.
- Redefine what adds value to the product.
- Creating and supporting partnerships with clients, as well as suppliers. The skills and expertise to manage upstream relationships may be very different from those required to support downstream links.
- Understanding the nature of risk in the service environment.
- Develop skills and expertise in relation to service design and development. As we explain in our book (chapter 12) new product development and new service development can be very different.
- Create and nurture a service culture i.e. think of themselves as service company that makes things rather than a manufacturer with added service offerings.
This is why servitisation is not without risk. There is some evidence that manufacturers that have adopted this strategy are slightly more likely to go bankrupt than those that have not (Neely 2010). Exactly why this might be is not entirely clear, and it may be for different reasons across sectors. Some forms of servitisation create a new asset base that is inflexible and may be difficult to adjust or restructure during an economic downturn. In other cases, the return on investment may be low if, if the services developed are aimed at a small ‘installed product base’ i.e. existing number of products in the market. Finally other forms of servitisation require research and development which may be difficult to recoup.