Why Servitization is a Boon for Advanced Economies

Why Servitization is a Boon for Advanced Economies

by Mike Pilcher, Chief Revenue Officer

What is servitization?

Servitization is the business change of adding value to a base product and selling advanced services to customers.  These services may be consultation, maintenance, pre-emptive product support, data-driven information services, training, and many others. The key to these services is they are people-driven and these people need to be near their customer.  

The demand side of this equation is customers no longer want to be concerned with managing multiple vendors for products, consumables, maintenance and ancillary services, today people want to focus on outcomes. Whether that be Canon delivering document solutions rather than printers or Rolls Royce delivering thrust rather than engines, users want the outcome, not the headache of managing multiple internal supply chains.

Servitization can deliver jobs 

Servitization has many well-documented benefits including increased revenues, reduced costs, and the creation of competitive moats around customer relationships. There is a key benefit for domestic economies that often goes unnoticed.  In a world where we see politicians pushing to bring job expansion to domestic economies, embracing servitization is a solution to delivering local, well-paid employment.

Quality improvements in offshore manufacturing make it increasingly harder to differentiate between competing manufactured products and make it easier to source products from other countries.  This trend has resulted in skilled jobs moving into the most efficient jurisdictions. This has delivered many benefits from reduced manufacturing costs and the associated subdued inflation to flexibility and agility in the supply chain.  

The downside is the loss of manufacturing jobs. While politicians in advanced countries are supporting efforts to bring back factories, that takes time. However servitization provides an immediate solution.

Servitization is a boon for advanced economies

When a businesses’ unique value proposition is delivered by the services that enhance the product provision, servitization gets a supplier’s business closer to its customers, it also gets its people closer to its customer’s people.  Servitization delivers a need for high-value, well-paid, and skilled service workers to support and add value to the delivered product.

In an uncertain world of renegotiated trade deals, and increasing offshoring, servitization is a boon for advanced economies and the local population.