Servitization of products: towards a value-creating economy

Businesses are increasingly turning towards selling the use of their products. This shift in business models affects SMEs and major corporations alike. In practice, this has an impact on all aspects of a company’s organization, from its design chain to developing collaborations, to rolling out new offerings for customers. Xavier Boucher and his colleagues, researchers in industrial systems design and optimization at Mines Saint-Étienne, help companies navigate this transformation.  

Selling uses instead of products. This shift in the business world towards a service economy has been emerging since the early 2010s. It is based on new offerings in which the product is integrated within a service, with the aim of increasing value creation. Leading manufacturers, such as Michelin, are at the forefront of this movement. With its Michelin Fleet Solutions, the company has transitioned from selling tires to selling kilometers to European commercial trucking fleets. But the trend also increasingly affects SMEs, especially as it is recognized as having many benefits including new opportunities to create value and drive growth, positive environmental impacts, building customer loyalty, increasing employee motivation and involvement.

However, such a transition is not easy to implement and requires a long-term strategy. What innovation strategies are necessary? What services should be rolled out and how? What company structures and expertise must be put in place? It all depends on market developments, the economic impacts of such a transformation on a company and the means to implement it, whether alone or with partners, to achieve a sustainable transformation. More generally, shifting a company’s focus to a product-service system means changing its business model. With his team, Xavier Boucher, a researcher at Mines Saint-Étienne, supports companies in this shift.

In the Rhône-Alpes region where he carries out his research, the majority of manufacturers are developing a service dimension to varying degrees through logistics or maintenance activities. “But out of the 150,000 companies in the region, only a few hundred have truly shifted their focus to selling services and to product life-cycle management,” explains the researcher. Nevertheless, his team is facing increasing demand from manufacturers.

Tailored support for companies

The transition from a model of selling products to a product-service system involves a number of issues of company organization, reconfiguration of the production chain and customer relationship management, which the researchers analyze using models. After a diagnostic phase, the goal is often to support a company with its transformation plan. The first step is changing how a product is designed. “When we design a product, we have to consider all the transformations that will make it possible to develop services throughout its use and throughout all the other phases of its life cycle,” explains Xavier Boucher. As such, it is often useful to equip a product with sensors so that its performance and life cycle can be traced when in customers’ possession. But production management is also impacted: this business strategy is part of a broader context of agility. The goal? Create value that is continually evolving through flexible and reconfigurable industrial processes in alignment with this purpose.

To this end, Xavier Boucher’s team develops different tools ranging from strategic analysis to decision support tools to bring a solution to market. “For example, we’ve created a business model that can be used while developing a new service offering to determine the right value creation chain to put in place and the best way for the company to sell the service,” says the researcher. Using a generic simulation platform and a customization approach, the researchers tailor these economic  calculators to manufacturers’ specific circumstances.

This is important since each situation is unique and requires a tailored business model. Indeed, marketing a mobile phone and deploying a cleaning robot will not rely on the same channels of action. The latter will call for services including customized installation for customers, maintenance and upgradability as well as management of consumables and measuring and guaranteeing cleaning quality. Moreover, companies vary in terms of their progress toward servitization. The researchers may collaborate with a start-up that has adopted a product-service model from the outset or with companies with established business models looking for a tailored, long-term transformation.

What are the steps toward a product-service system?

Companies may call upon the expertise of the Mines Saint-Étienne researchers at various stages in their progress toward this transition. For example, a manufacturer may be considering in advance how selling a service would impact its economic balance. Would such a change be the right move based on its situation? In this case, the models establish a progressive trajectory for its transformation and break it down into steps.

Another type of collaboration may be developed with a company who is ready to move towards selling services and is debating how to carry out its initial offering. Researchers use their simulation tools to determine three possible business models: the first is to market its product and add on the sale of services throughout its lifecycle; the second is to shift the company’s business to selling services and integrate the product within a service; and finally, the third model sells performance to customers.

The researchers helped the SME Innovtec develop an autonomous robot offering for industrial cleaning. “We developed computer-aided design tools: modeling, organizational scenarios, simulations. The goal was to expand the traditional product-oriented tools by adding a service package dimension,” explains Xavier Boucher. The company thus benefitted from different scenarios: identifying technologies to ensure its robots’ performance, determining which services were appropriate for this new product etc. But the projections also address topics beyond the production chain, such as whether it should integrate the new services within the current company or create a new legal structure to deploy them.

A final possibility is a company that has already made the transition to servitization but is seeking to go further, as is the case for Clextral, a SME that produces extrusion machines used by the food processing industry, which was supported through the European DiGiFoF project (Digital Skills for Factories of the Future). Its machines have a long service life and provide an opportunity to create value through maintenance and upgrading operations. The researchers have therefore identified a service development focus based on a retrofitting service, a sort of technical upgrade. This consists of exchanging obsolete parts while maintaining a machine’s configuration, or modifying the configuration of a piece of equipment to allow for a different industrial use than originally intended.

Digitization and risk management in multi-stakeholder context

The current trend towards servitization has been made possible by the digitization of companies. The Internet of Things has enabled companies to monitor their machines’ performance. In several years’ time, it may even be possible to fully automate the monitoring process, from ordering spare parts to scheduling on-site intervention. Smart product-service systems to combine digitization and servitization is a research focus and is a central part of the work carried out with elm.leblanc, a company seeking to put in place a real-time information processing to respond to customers more quickly.

However, this change in business models affects not only a company, but its entire ecosystem.  For example, elm.leblanc is considering sharing costs and risks between various stakeholders. One option, for example, would be to incorporate partner companies to implement this service. But how would the economic value or brand image be distributed between the partners without them taking over the company’s market? Research on managing risk and uncertainty is of key importance for Xavier Boucher’s team. “One of the challenges of our work is the number of potential failures for companies, due to the difficulties of effectively managing the transition. Although servitization has clearly been shown to be a path to the future, it is not associated with immediate, consistent economic success. It’s essential to anticipate challenges.”

Article written (in French) by Anaïs Culot for I’MTech