Servitization is the biggest buzzword in the business world right now. It’s a term that has been used to describe how companies are turning their products and services into subscription-based businesses, but it can also be applied to any product or service where you sell an ongoing relationship with your customers instead of selling one-time purchases.

Servitization is being driven by two trends:

1. The rise of mobile technology makes it easier for people to subscribe to services on the go.

2. A shift from traditional marketing models, which focus on sales and advertising, to more customer-centric ones that emphasize relationships and loyalty.

In this article, we will explore what servitization means, and why it matters in the global business landscape. 

Definition of Servitization 

Andy Neely (University of Cambridge) says that servitization is: ‘the tendency of manufacturing firms to sell services and solutions rather than just products’. Another definition coined by Tim Baines (Aston Business School) says: ‘the term servitization is used to describe the transformation of a business to compete through a combination of services and products, rather than products alone. It doesn’t apply only to manufacturers, but it’s here where the term is used most frequently at the moment.’

The term "servitization," refers to the process of turning products and services into revenue sources. In recent years, the concept has been gaining traction within the enterprise software industry, where it serves as a way to help businesses better understand how to make money from the assets they already possess.

Servitization is rooted in what some call "people-centricity." This approach focuses on creating value for customers rather than just selling products. Companies which embrace this philosophy are able to build stronger relationships with their clients and ultimately become more profitable over time. For example, the ability to sell subscriptions for online courses could prove lucrative for a company like Udemy, whose revenues come primarily from advertising sales. But without a subscription model, Udemy would be unable to monetize the vast majority of the courses it offers.

Why Is Servitization Important?

Servitization is important because it represents a new way of thinking about how businesses operate. The old model was based on selling products to consumers. Servitization involves, as the name implies, selling services or rather the benefits of the product to the consumer.

This shift allows businesses to better understand their customers, offer better products and create a deeper connection with their customers. This leads to increased revenue and profitability.

Benefits of Servitization

Servitization is about transforming your business model into a service-based business model. The key benefits:

1) Customers will have access to new products and services at a lower cost

2) You'll be able to focus on innovation and growth

3) Your business will become more sustainable with a perennial revenue stream

4) You'll be able to scale faster

5) Your business will be more profitable

Examples of Servitization

Rolls-Royce

Perhaps one of the most outstanding examples of servitization and digital transformation is Rolls Royce. It is one of the pioneers in the jet industry, adopting a servitization model by transforming itself from being a manufacturer or provider of jet engines to providing jet engines as a service. So,  instead of paying for the engines upfront, Rolls-Royce provides 'power the-hour.' In other words, the customers pay an ongoing fee every time the aircraft flies. All the maintenance costs, safety and security risks, and service costs are handled by Rolls Royce. This ensures that the aviation company can run its fleet as efficiently as possible thereby enhancing operational efficiency and reducing operating costs while also providing a great customer experience. Rolls Royce relies heavily on data analytics and cloud computing to deliver a seamless experience to its aviation customers. 

Xerox 

Xerox is one of the pioneers of servitization in the photocopying industry. It has achieved this by moving away from selling photocopying equipment and adopting a pay-per-output pricing model. Its service offering is termed ‘managed print services’ and includes a range of integrated solutions to optimise the customer's document related infrastructure and processes. Xerox Corporation is considered the model of a servitized enterprise. A large number of scientific publications cite it as an example of a successful servitization model. ( Source 1, Source 2) (You might need to give a few examples in order to support this claim)

Caterpillar

Caterpillar is another example of a company that has adopted servitization by offering machinery as-a-service. In order to achieve this, it monitors the use of its products to get solid feedback from customers, and it provides maintenance services to extend the product's lifespan and maintain its performance over time.

To sum up

The biggest advantage of moving towards the servitization model, or the XaaS model, is that it helps companies avoid becoming obsolete. It is becoming increasingly difficult for legacy industries to adapt to the changing world around them. A company that takes advantage of emerging technologies and trends, however, will thrive in the future. Servitization is well on its way to becoming arguably the next big business model. 

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