Services: A manufacturing renaissance?

Tim Baines specialises in the realisation of competitive manufacturing operations.  As a Professor of Operations Strategy, he works extensively across the disciplines of management and engineering with leading companies in his field including Rolls-Royce, Caterpillar, Alstom, MAN and Xerox.  

His research at Aston Business School includes examining the adoption of a services-led approach within the manufacturing industry. This services-led competitive strategy, and the process through which this is achieved, is known as servitization.

While a classic manufacturing company and services company may differ in their purposes, increasingly, leading manufacturers are basing their competitive strategies on the delivery of a complete service from the production line through to customer aftercare. Those manufacturers who have chosen to servitize have, invariably, different stories to tell about their motivations and approaches.

Research undertaken at Aston University has identified five main reasons why over 500 UK manufactures are choosing to adopt a servitization approach. These are opportunities to:
  • Improve the ability to respond to customer needs
  • Increase revenue through differentiation from competitors
  • Increase customer loyalty
  • Build new revenue streams
  • Set barriers to competitors.
Caterpillar, the world’s largest manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines, is a celebrated icon of servitization. The organisation demonstrates a range of services that can be compartmentalised into base, intermediate and advanced services, depending on the level of risk and responsibility entailed. This well-structured portfolio of services offered to customers is beyond that of the conventional production-based competencies of a manufacturer.

Alstrom Transport is another example of a large multinational company offering extended maintenance, repair and overhaul contracts for their expensive and complex capital equipment. They particularly demonstrate how performance based contracts- an advanced service- is a key tool in servitization. One of their principal performance measures is “lost customer hours” and corresponds to the length of any delays caused by train failures, factored against the number of passengers affected.
A train failure during rush hour therefore carries higher penalties than a failure during quieter times of the day, to ensure emphasis is placed on achieving a quality service.

It has been suggested through studies, that advanced services, even when managed well, are proportionately less profitable because they present more challenges. On the other hand, the more “advanced” the service, the greater the potential for revenue generated and opportunities to retain customers and gain an advantage over low-cost competitors. Managing the risk is crucially important in servitization and an ability to monitor services from production through to aftercare is essential to achieve business success.

In an ever changing world, the UK-based manufacturing industry needs to increasingly adopt servitization. Companies can no longer compete successfully through pure product innovation or product efficiencies. Increasingly, a service-led competitive strategy offers opportunities to increase revenue generation and amplify resilience to economic downturns. A multi-service emphasis is essential to strengthening relationships with customers, to create new and resilient revenue streams and to set high barriers for competitors.

For further information visit the Aston Centre for Servitization Research and Practice website.