An opportunity awaits Bangladesh | The Daily Star

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Servitization is becoming popular around the world as a profitable business model. It has been adopted by developed countries and companies operating in industries where strongly installed product bases are a prerequisite, such as elevators, commercial machinery, printing and packaging machinery, construction equipment. , health care and agricultural machinery.

The business model is becoming popular and is being implemented in the electronics, lighting, heating, automotive and aircraft engine industries as well as other sectors.

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WHAT IS SERVITIZATION?

Products are usually tangible in nature with some material artifacts (eg, ballpoint pen, bag, or car, etc.), while academics call them commodities. On the other hand, service is something intangible in nature (eg advice, medical advice, banking, etc.). Service also refers to an offer (for example, maintenance, repair, insurance, etc.).

The business world commonly uses the term “product” to refer to both goods and services. Servitisation therefore refers to the shift from an activity of selling products only (predominantly tangible) to selling products as a service.

Simply put, servitization means applying a service to a tangible product to create additional value or a new offering for a customer.

For example, instead of selling an air conditioner on its own, an electronics manufacturer can install it and / or sell it as a service. Consumers do not need to purchase air conditioning or other related equipment. Rather, they will pay for the air conditioning service used in the home or office. This business model is also known as a “product-service system”. In this business model, users pay a fixed price for a unit of services consumed.

EXAMPLES OF SERVITIZATION

The use of servitisation in on-demand industries (Netflix or Uber), electrical and electronic goods seems an obvious progression, while the use is generalized in all sectors.

The integration of product and service features, labeled servitisation, dates back 150 years. But this term was first used in the context of manufacturing operations in 1988. Over the past 30 years, the more rapid advances towards a service orientation of economies, businesses and industries have become more rapid. and fascinating with the dynamic transformation of transport, communication channels, IT and digitization.

It has become an essential model for “winning in the secondary market”. For example, when we buy a refrigerator or a freezer, the companies sell the products with after-sales service.

So when consumers need repair, service or maintenance, they pay for it. This can be called the primary level of servitization.

Full servitization occurs when consumers do not buy the product. Instead, they’ll use it as part of a contract or business model. They will not own the product. Rather, the company will provide or maintain it on behalf of customers.

The classic example in the business world is Rolls-Royce. Instead of selling jet engines, it sells “Power-by-the-Hour” or “TotalCare” solutions to the aerospace industry. We all know Rolls-Royce as an automobile and aircraft engine manufacturer. But it has moved from selling motors to a service sales company where it no longer sells just motors. It sells efficiency by letting motors run hourly and tracking motor performance in real time.

It tracks data during flights. Rolls-Royce provides maintenance and other services at major airports around the world. Before the pilots of an airplane even know it, the Rolls Royce team can track engine performance and help pilots by giving them the real-time information they need.

Airlines only pay for the hours when Rolls Royce engines are running.

Servitisation has gained attention as a means of building a profitable, solid and lasting customer relationship and trust.

It is a hot topic in the world for several reasons. First, it encourages not owning expensive machinery and equipment that can be used, shared, or distributed by a service provider. For example, Siemens stopped producing much of its electronic equipment and sold it as a unit of product. Rather, he extended them as a service.

During my studies at the University of Exeter in the UK, I first experienced two such services. The first is that the university does not have photocopiers, printers and scanning machines. Rather, Xerox, the world’s largest maker of photocopiers, lets the university use the machine as part of the servitization business model, and students pay for the services. Xerox has gone from selling printers and copiers to managing documents.

Another experiment is that the university purchases all of Philips’ LED lighting systems as a service. The university does not have the lights. Philips provides maintenance for the entire LED lighting system, repairs, replacements and servicing. Since they are also IoT (Internet of Things) compatible, the lighting systems have automatic sensors. So when there is no one around, the lights turn off automatically. This saves cost and provides efficiency in power consumption. As a result, the overall maintenance costs decrease for the users.

Second, servitization offers the opportunity to create a service-oriented competitive advantage that manufacturing-oriented products cannot create on their own. It offers an opportunity for product innovation.

Third, servitization saves the earth by managing energy efficiency.

According to an article published by the World Economic Forum in 2020, the servitization model is a key contributor to the system efficiency approach to achieve global energy decarbonization. Thus, servitization is now seen as a force of the Fourth Industrial Revolution and has become part of the digital dialogue in Europe in recent years.

Finally, it saves capital expenditure and optimizes operational expenditure. Thus, its efficiency leads to profitability. Along with many other direct financial benefits, servitization provides a long-term, sustainable revenue stream to service providers and expense benefits to service users.

THE MAIN DRIVERS OF SERVITIZATION

The main drivers of the servitization rationale include improved reliability and uptime, customer operational engagement, the sale of new product capabilities and new revenue-generating activities, according to Tata Consultancy documents.

The advantages are many. Research in 2018 found that 48% of UK manufacturers plan to increase their investment in servitization.

There are also challenges. When a company thinks of moving to servitization, it must manage the resistance of the core business model and the supporters of these old schools.

The other challenge is that all manufacturing operations, especially large and established ones, such as electronics, home appliances or car manufacturers, are organized into departments such as production, engineering, R&D, marketing and supply chain. Thus, attitude towards the customer, sharing of customer experience, workshops and training are necessary.

RECOMMENDATIONS FOR BANGLADESH

Servitization is now widely recognized as a force for innovation and growth in manufacturing and industrial capabilities, facilities and processes that can shift from selling products to selling bundled or integrated service offerings to deliver value. added.

Western countries use this strategy to raise barriers to entry for low-income countries. Now, if companies in Bangladesh start to learn and adopt principles to gradually move from a product sales business model to a servitization business model, they can begin to gain a competitive advantage over local and multinational competitors.

Startups can also integrate with large manufacturing companies to co-create and convert product-only dimensions into product-service dimensions.

It is an economic model of the new world. Developed countries adopted it and began the journey to a served future. They improvise every day as a source of competitive advantage and a superior means of delivering customer satisfaction.

In Bangladesh, we only know of a certain primary level of servitisation. But sooner rather than later, companies will have to embrace this. Otherwise, our businesses will be left behind.

The author is Deputy Managing Director of Marketing at MM Ispahani Ltd. He can be contacted at didarulhasan@gmail.com.


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