Servitization

Customers, who require wider and more user-friendly service solutions, are demanding change. Servitization is transforming sectoral structures, and production and operational models. At company or organizational level, the challenges of servitization lie in businesse, product and customer process development.

Key aspects of servitization include technological opportunities, business models, change management and customer-centric development. These are also the foundations of the training provided by Aalto PRO and Aalto University. As a pioneer in the industry, we have been providing programs in service design for ten years. Our students obtain a comprehensive overview of the subject, are given a framework and concepts, and have the chance to try out the methods best suited to various phases. The program also imparts a large amount of tacit knowledge and confidence in your own approach.

From product-oriented business to service solutions

The social significance of services has increased. They already account for over two-thirds of total production. In particular, many industrial companies that previously built services around their products now blend their products with a service that can be produced in a diverse value network.

On a global scale, the transition from product-oriented to service-dominant production began in the early 1990s. Within value chains, the profitability of manufacturing industry has decreased due to high costs, particularly in the West (Wise and Baumgartner 1999).

Such companies are now seeking a new role and position in value networks, and are changing traditional industry structures. Structures are also transforming because entirely new types of actors and networks of actors are being created for service development and production. Change is also being driven by customers that are demanding wider and more user-friendly service solutions. In the midst of such change, most companies with a product-oriented business logic are seeking innovations through servitization, in particular.

Companies nneds to switch from commoditizing business activities to more profitable and better differentiated products and services."

In production, new technological developments, such as IoT and 3D printing, may restructure value networks in such a manner that the focus returns to high-cost countries which have the skills required by new technology.

The driver of growth in the services sector lies in the need of companies to switch from commoditizing business activities to more profitable and better differentiated products and services. The lost competitiveness of basic industry has been replaced with various servicing, optimization, development and manufacturing services that enhance the customer’s efficiency. Most of these services are new to the customer. They also require a new approach and difficult changes from the customer, such as outsourcing decisions, reorganizations, acceptance of supplier dependency, risk sharing, commitment to common goals, and ultimately the sharing of jointly created value. In this way, servitization also leads to new forms of cooperation and business models between companies.

Service business models

The servitization of production structures is a multi-directional phenomenon. Whereas companies previously focused on building services around their products, products are now being embedded in services while services have become more productized. This is also evident in B2B businesses, where customer understanding and customer-oriented innovations are increasingly dominant in innovation management. The development of service business models also lies at the heart of this trend. In turn, servitization and the strong emergence of the platform economy require expertise in developing new approaches to value creation for the customer and thereby growth for enterprises.

Management and development of service processes

Service processes tend to be heterogeneous: a wide variety of services is available, different service types differ markedly and quality varies considerably.

Lean is a system for developing operational processes, with the aim of generating as much customer value as possible with as few resources as possible. The term originated in the United States and its content is largely based on Toyota's management and operational philosophy, as well as the work of Ford and Taylor and newer research on work. Lean has also been successfully applied to the development of service processes.

Many problems with service processes, such as the overloading of workers and uneven quality, are due to dispersion"

Many problems with service processes, such as the overloading of workers and uneven quality, are due to dispersion: variations in issues such as workday starting times, customer needs, the volume and duration of work, and working methods. Although not all causes of dispersion can be eliminated, they can often be isolated. Lean principles, such as standards – which help both supervisors and employees to detect deviations from standard processes – can be used in process development. Standards can include shelf marks for goods, morning meetings with agendas, red and green indicators, checklists and failure prevention mechanisms

Management of service processes should also be standardized with regard to the monitoring of process status, indicators and work standards, as well as problem solving processes and, of course, monitoring the management system itself. Executives who apply Lean principles also know that the employee development of subordinates is a key task.

Service design as a human-centric approach

New approaches to business and product development are being sought through servitization. Service design supports innovation management by providing a process and methods for the development of customer-oriented services and their cost-effective validation at the start of product development.

In service design, the customer service experience is designed in a user-centric manner so that the service meets both the needs of users and the service provider's business objectives. That is why a better understanding is required of people and their needs, desires and dreams. Service design enables the identification of customers’ hidden needs and desires, and the development of easy-to-use, experiential and individually tailored products and services. People also want to influence the design of services targeted at them. Service design provides a process and tools for meeting these needs.

It is equally applicable to the development of physical and digital services. Through service design, information can be gained on customers and their needs, and the best possible solutions can be identified e.g. for smooth customer service, the building of interactive channels and service paths, and the scaling up of services. Service design also helps to ensure that a service is pleasant and easy to use for the customer.

The future of service design

In the future, the role of service design will expand from development of the customer experience to planning of the employee experience and organizational strategy, and to business development and strategic decision making. The use of data and analytics will increase as service design becomes more strategic. The importance of service design expertise to all parts of organizations is growing; the aim is to develop a corporate culture based on the understanding and adoption of the customer-oriented approach across an organization. In addition to the recruitment of service design experts from outside, this requires the training of current employees in the service design approach.

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Elisabeth Pesola

Competence Manager

+358 10 837 3816

elisabeth.pesola@aaltoee.fi