Servitization, the transformation from selling products to selling services, is becoming an increasingly vital strategy for supply chain businesses aiming to maintain a competitive edge, drive financial savings, and enhance customer service.

In a world shaped by rapidly-changing market conditions, evolving consumer expectations, technological advancements, and the increasing importance of sustainability, transitioning to servitization models is becoming ever more urgent for businesses. Companies that are slow to adopt this shift may find themselves at a significant disadvantage in the future, while supply chain businesses that are quick to embrace and implement the model are likely to more rapidly achieve competitive edge.

A recent IFS-commissioned survey polling senior decision-makers in multiple industry sectors across the UK found a strong drive to servitization. 79% of respondents said that implementing a servitized model was a high priority for their organisation within the next 18 months.

However, delivering on this vision quickly and effectively will not be easy. Adopting a servitization model comes with its unique set of challenges and requires a nuanced understanding to ensure its ongoing success.

Understanding the obstacles

The journey towards servitization begins with recognising the varying levels of understanding about what servitization models entail and the benefits they can offer.

In the IFS survey, 30% of the UK sample highlighted ‘difficulty in shifting from a product-focused to a service-focused culture and mindset within the organisation’ as a main barrier in evolving to a servitized business.

And these problems persist after implementation as well. The IFS survey revealed that 15% of respondents said, ‘not fully understanding how technology can help’ was a main challenge when building momentum for a servitized business model, while the same percentage cited ‘lack of board buy-in’, and 19% referenced ‘lack of tangible benefits in the business case’.

A crucial step in gaining C-suite and wider business buy-in for servitization efforts is the identification of specific use cases that can demonstrate tangible value. This incremental step-by-step approach to servitisation roll-out is key to long-term success.

To navigate the complexities of servitization, supply chain firms must start with a single use case, clearly outlining the specific benefits and understanding the impact on both the organisation and its customers. Measuring the success of this initial implementation is crucial for building momentum and securing broader organisational support. And given the manifest benefits of servitization, many businesses will soon be able to measure and demonstrate manifest benefits from this single use case.

For customers, servitization can lead to enhanced service levels, customised solutions, and often, more cost-effective options. It can also deliver higher profit margins. 26% of UK respondents to the IFS survey referenced that among the impacts of having their organisation servitized in their specific business area. Moreover it drives enhanced customer engagement. 27% of the UK survey sample cited ‘increased customer satisfaction and loyalty’ among the key impacts of servitization.

From a supply chain perspective, specifically, servitization means more pressure on businesses across the chain to deliver products quickly and efficiently to meet new service level agreements. However, it also offers a chance to these organisations to build deeper customer relationships, more stable revenue streams, and access opportunities to offer additional value-added services.

Internally, businesses can improve operational efficiency, something which 24% of UK survey respondents referenced, and foster a more agile approach to market changes. In line with this, more than a quarter (26%) of respondents referenced ‘ability to capture new customer segments, or target new markets’ as an impact of business servitization.

Thinking of the longer term

Demonstrating these benefits within a specific business area can increase buy-in for further rollouts, making servitization a compelling case for transforming traditional business models.

Even as momentum builds, businesses can’t afford to rest on their laurels as they tap into the many benefits that servitization can bring. A long-term shift to a servitized business requires not only a change in mindset but also the integration of different service offerings and the alignment of internal resources to support the new model. The lack of internal resources is a recurring concern, highlighting the need for careful planning and resource allocation to support the servitization strategy.

Building momentum

In conclusion, the path to servitization is both a strategic imperative and a transformative journey that demands a meticulous and phased approach. By starting with targeted, tangible use cases, businesses can lay a solid foundation, demonstrating the value of servitization in a way that resonates across the organisation.

This initial success serves as a catalyst, not just for further internal adoption, but as a beacon for the industry, showcasing the practical benefits and strategic advantages of shifting towards a service-oriented business model. Such a structured rollout not only navigates through initial hurdles but also fosters an environment of continuous improvement and innovation.

In conclusion, servitization is a vital strategy for all businesses, not least for those in the supply chain. Implementing this approach through focused and phased use cases allows companies to demonstrate its value, promoting broader adoption and highlighting its benefits, especially in the supply chain context. This strategic evolution encourages ongoing innovation and positions servitization as a key driver of sustainable growth and competitive advantage, essential both for providers of products and services across multiple sectors and for the supply chains that service them.