Adoption of Servitization in product based companies

Master's Thesis, 2018

89 Pages


Table of Contents



List of Figures

List of Tables


1. Introduction
1.1 Problem statement and research questions
1.2 Scope and limitations
1.3 Structure of the thesis
1.4 Research Methodology

2 . Servitization as a Competitive Strategy
2.1 Difference between Service and Product
2.2 Definition of Servitization
2.3 Service-dominant Logic
2.4 Product Service-System
2.4.1 Definition of Product Service-System
2.4.2 Categories of Product Service-System
2.4.3 Benefits of Product Service-System
2.5 Drivers of the Servitization
2.5.1 Reduced product margin and increased competition
2.5.2 New technology and innovations
2.5.3 Increased concern about Environment
2.6 Challenges in adoption of Servitization
2.7 Overview of literature review

3 . Case Study
3.1 Case Company: Daimler AG
3.1.1 Servitization at Daimler AG
3.1.2 Need and advantages of Servitization in Daimler
3.1.3 Implementation
3.1.4 Impact and growth
3.1.5 Future perspective
3.2 Case Company: Michelin
3.2.1 Servitization at Michelin
3.2.2 Need and advantages of Servitization at Michelin
3.2.3 Implementation
3.2.4 Impact and growth
3.2.5 Future perspective
3.3 Case Company: Philips Lighting (Signify)
3.3.1 Servitization at Philips Lighting
3.3.2 Need and advantages of Servitization at Philips Lighting
3.3.3 Implementation
3.3.4 Impact and growth
3.3.5 Future perspective

4 . Summary and common findings
4.1 Servitization in case companies
4.2 Need and advantages of Servitization
4.3 Implementation
4.4 Impact and growth
4.5 Future perspective

5. Guidelines to adopt Servitization
5.1 Guidelines
5.1.1 Shift from product to service mindset
5.1.2 Finding pain-point and designing value proposition
5.1.3 Build capabilities by making collaborations
5.1.4 Organizational changes
5.1.5 Involve client and co-create the value together
5.2 Evaluation of the case companies

6 . Conclusion



The motivation behind writing this thesis is to explore and understand the evolution of the Servitization and how Servitization can help product based companies to compete with the new service business along with their conventional business. Another objective is to derive guidelines to adopt the servitization. This thesis will begin with thorough literature review on Servitization. For better understanding of servitization, difference between product and service will be studied. Furthermore, several definitions of servitization available in the literature will be discussed. This will be followed by understanding Service-Dominant Logic, Goods-Dominant Logic and Product Service-System. There are several factors driving product based companies towards service business. Those factors will be analyzed briefly. Many product based companies have considered seritization as a competitive strategy but, there are several challenges to adopt it successfully therefore, those hurdles will be discussed. Some companies like Daimler AG, Michelin Tires, Philips lighting have tackled those challenges and adopted the servitization successfully. Those three companies will be analyzed thoroughly in case studies with the same framework of criteria in order to understand how they generated additional revenue stream successfully along with their conventional business. On the basis of case studies and literature review, some guidelines will be derived to adopt this strategy successfully.


I am using this opportunity to express my gratitude to everyone who supported me throughout my master thesis. Firstly, I would like to express my sincere gratitude to my mentors Prof. Dr.-Ing. Dietmar Kirch and Prof. Msc. Harald Preissler for the continuous support, motivation, and immense knowledge. I am thankful for their aspiring guidance, invaluably constructive criticism and friendly advice during the research work. I am sincerely grateful to them for sharing their truthful and illuminating views on a number of issues related to the research. I am really thankful to MBAE Team, HTW Berlin for their support administrative work. I am grateful to my friends for their guidance and support throughout the thesis.

Finally, I must express my very profound gratitude to my parents for providing me with unfailing support and continuous encouragement throughout my years of study and through the process of researching and writing this thesis. This accomplishment would not have been possible without them. Thank you.

Sourabh Sawardekar

Master of Business Administration and Engineering

05th November 2018

List of Figures

Figure 1: Return on assets for the EU economy, 1995-2016 (Houmes, 2017, p. 12)

Figure 2: Structure of the thesis

Figure3: Rolls Royce 'Power by the Hour' (Howard, 2013)

Figure 4: XEROX Managed Print Services (XEROX, 2010)

Figure 5: Main and subcategories of PSS (Tukker, 2004, p. 248)

Figure 6: Offensive and Defensive drivers of Servitization (Aston Business School, 2013)

Figure 7: 'TATA FleetMan' Fleet Management Solution (TATA Motors, 2014)

Figure 8: Circular Economy (Philips N.V., 2014)

Figure 9: Categories and main pillars of Daimler Mobility Services (Entenmann et al., 2018)

Figure 10: Daimler Revenue (2013-2017) (Daimler AG)

Figure 11: car2go impact in North America (Silverman, 2016)

Figure 12: Michelin EFFIFUEL Diagnostics (Michelin Solutions, 2014a)

Figure 13: Michelin EFFIFUEL Initialization (Michelin Solutions, 2014a)

Figure 14: Michelin EFFIFUEL Run Mode (Michelin Solutions, 2014a)

Figure 15: Philips Circular Lighting Business Model Innovation (Signify N. V., 2018b)

Figure 16: Philips Circular Lighting (Philips Lighting, 2018b)

Figure 17: Key Levers for succeeding in Servitization (Avlonitis et al., 2014, p. 18)

List of Tables

Table 1: Structure of the case studies

Table 2: Difference between Services and Products

Table3:Views and concepts distinguishing the differences between GDL and SDL

Table 4: Popular definitions of a Product Service-System

Table 5: car2go Cost Structure in Germany

Table 6: Philips Lighting Services Offerings

Table 7: Overview of case companies

Table 8: Servitization in case companies

Table 9: Servitization in case companies

Table 10: Need and Advantages of Servitization

Table 11: Implementation

Table 12: Impact and growth

Table 13: Future Perspective

Table 14: Shift from product to service mindset

Table 15: Finding pain-point and designing value proposition

Table 16: Build capabilities by making collaborations

Table 17: Organisational Changes

Table 18: Involve client and co-create the value together

Table 19: Ratings of case companies


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1 . Introduction

According to Neely (2008), the concept of Servitization has been introduced by Vandermerwe and Rada in late 1980s which is now considered as a business strategy for manufacturing industry to drive the competitiveness by generating new revenue stream. With falling profit margins on products, conventional product based companies are extending their portfolio by value added services. Adding value to the product has been a new way to strengthen the customer relationship (Probst et al., 2016, p. 2).

To tackle the last recession, manufacturers were hunting the ways to generate new revenue streams. Organizations who integrated their products with services were able to withstand in the recession with growth. Servitization offers extra revenue generation stream with improved reliability and increased profitability (Bhandiwad et al., 2016, p.3). Trends in the manufacturing industry are driving manufacturers towards service business. Competition at local and global level is increasing, profit margins are decreasing. To withstand in these situations manufacturers need new revenue stream and that can be achieved by offering new services and solutions rather than just products (Neely, 2008).

Hence this business strategy in manufacturing plays vital role to drive the competitiveness. Neely (2008) says that,

“Servitization is the innovation of organisation’s capabilities and processes to better create mutual value through a shift from selling product to selling Product-Service Systems” (Neely, 2 0 08 , p. 10)

1.1 Problem statement and research questions

According to PA Consulting as shown in Figure 1, the return on assets (RoA) is falling gradually since last decade. Manufacturers are facing difficulties because of falling prices and consequently low margins. To overcome this problem, different strategies has been applied by manufacturers. Mainly, cost cutting strategy is helping product based companies to widen the profit margin but at the same time cost cutting is weakening creative and innovative capabilities of an organization. Another way to increase the profit margin is by making production processes more efficient by implementing automation and robotics as a substitution of costly human labor. Implementation of3D (Three Dimentional) printing technology is also helping manufacturers to reduce the number of parts and optimize the production processes. But PA Consulting says that, owning highly advanced technology does not promise the success. (Houmes, 2017, p. 12)

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Figure 1: Return on assets for the EU economy, 1995-2016 (Houmes, 2017, p. 12) A collaborative research between IndustryWeek Custom Research and Kronos Incorporated on ‘the Future of Manufacturing: 2020 and beyond’ says that, the companies with revenue more than $100 million has the great challenge of price reduction pressure and global competition. (IndustryWeek Custom Research, Kronos Incorporated, 2016, p. 4)

As illustrated above, these are the factors affecting manufacturing industry on the global and local scale and becoming the pain points for product based companies. The objective of this thesis is to explore and understand the evolution of the Servitization and how can Servitization help manufacturers to compete with the new service business along with their conventional business and be profitable.

To explore and understand the concept of Servitization, following are the research questions:

- What is Servitization?
- What are the drivers of Servitization?
- What are the difficulties to adopt the Servitization in product based companies?
- How well-established companies adopted the Servitization?
- What are the guidelines to adopt the Servitization?

1. 2 Scope and limitations

The objective of this thesis is to contribute to the current literature. The research is extensively based on secondary data due to difficulty in obtaining primary data (e.g. interviews and surveys). Data for the case study has been obtained from respective company’s website, annual reports, and internal as well as external studies. There are limitations to obtain the information about financial figures and internal changes made by case companies to adopt the servitization.

1.3 Structure of the thesis

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1.4 Research Methodology

The research methodology is inspired by Mark Saunders, Philip Lewis and Adrian Thornhill to go through extensive literature review to understand the topic on the basis of research questions (Mark et al., 2009). The research strategy is developed by first identifying data sources and time frame. Firstly, a very diverse range of publications has been identified (e.g. journal articles, books, and trade journals etc.). This literature research has been carried out through internet desk research. The research is based on the literature published in the timeframe 1988-2018. The main emphasis is on finding the answers of research question by using the high quality literature available on this topic. Only secondary research methodology has been used due to difficulty in obtaining primary data.

To facilitate the theoretical knowledge about Servitization, extensive literature review is followed by case studies. The three well established companies, who are generating new revenue stream through Servitization have been chosen for case study i.e. Daimler AG, Michelin and Philips Lighting. These cases will illustrate that the Servitization is not only the concept but the successful business strategy. This study is carried out by desk research. The information has been gathered by using company websites, annual reports, internal and external case studies, internet articles, reports and other secondary sources.

For the ease of comparative study, case companies have been analyzed by definite framework and same set of criteria:

Table 1: Structure of the case studies

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The first factor is to understand the company background briefly. Companies have been analyzed by same framework such as, core business, headquarters, founded in, business units, revenue, company size and global presence. This is followed by the detailed description of new service offerings. Three of these companies have developed wide range of service offerings therefore, one of these services has been chosen for the further research. Then, needs, drivers and advantages of service offerings have been analyzed. For successful adoption of service business along with conventional product based business, it is important to develop implementation strategy. Three of these companies have been successfully adopted servitization therefore, their service business implementation strategies have been studied thoroughly. This is followed by the impact and growth. Case studies have been ended up by discussing future perspective showcased by case companies.

In the next chapter, all the factors analyzed in case studies have been comparatively observed and common findings have been discussed accordingly. On the basis of common findings and literature review some guidelines have been derived to adopt the Servitization successfully. Ultimately, this research brings strategic recommendations and guidelines to shift the mindset from product to service offerings.

2. Servitization as a Competitive Strategy

The objective of this chapter is to understand the term Servitization in perspective of competitive strategy which is increasingly seeking attention of management researchers. The evolution of Servitization has been discussed and followed by definitions in the available literatures. Furthermore for the better understanding, some examples of the companies who have successfully adopted Servitization has been also discussed. Some of those companies are analyzed thoroughly in case studies.

As we discussed before in Chapter 1, the term Servitization has been introduced by Vandermerwe and Rada in 1988. Since late 80’s this term has been studied by numerous authors and researchers. Hence, this term has grown with diverse range of sub-terms (Kohtamäki et al., 2018, p.3). Available literature shows the growing interest in this topic by academic and business researchers as well as government. Much of the literature emphasizes that, the shift towards Servitization is an additional value and revenue stream to drive the competitiveness for product based companies. This strategy is significance of being unique, long lasting and competitive in lower cost economies (Baines et al., p. 1).

2.1 Difference between Service and Product

Servitization has been defined in several ways by different authors. The terms product and service has been mainly discussed to frame the definition of Servitization. Therefore, it is important to understand these two terms. Generally, in the manufacturing sector the term ‘product’ is referred as materialistic object (e.g. car, plane, bulb, tire etc.). Whereas the term ‘service’ has different perspective. It is generally referred as an offering (e.g. maintenance, insurance etc.). For this research, the definition of Oxford English Dictionary has been considered. Service is defined as an “economic activity that does not result in ownership of a tangible asset” (Baines et al., pp.3–4).

Some authors like Grönroos (1990) has defined the term Service in different way as follows:

Service is “ an activity or series of activities of more or less intangible nature that normally, but not necessarily, takes place in interaction between the customer and service employees, and/or physical resources or goods and/or systems of the service provider, which are provided as solution to customer problems” (Leich et al., 2010, p. 10)

The definition above stands out from traditional products with some specific characteristics of services such as ‘intangibility’, ‘simultaneity’, ‘heterogeneity ’and ‘perishable’.

Intangibility: Many researchers claim that services are intangible in nature. It means, services include ideas and experiences rather than the physical attributes. Whereas products are tangible in nature.

Simultaneity: Products have to be produced and make available before they get consumed. On the other hand, usually services are produced and offered at the same time. The role of customer needs in services in vital therefore customer interaction is necessary in case of services.

Heterogeneity: Because of different needs of different customers, every service has its own characteristics and quality. In contrast, products usually have standard features and quality.

Perishable: Services are perishable in nature. Products can be produced and stored in stock whereas services cannot be produced and stored in stock to sell them in future (Leich et al., 2010, pp. 10–11).

The difference between products and services has been summarized in the table below:

Table 2: Difference between Services and Products (Leich et al., 2010, p. 10)

Abbildung in dieser Leseprobe nicht enthalten

2.2 Definition of Servitization

Vandemerwe and Rada (1988) who introduced the term Servitization, defined it as

“ The increased offering of fuller market packages or ‘bundles’ of customer focused combinations of goods, services, support, self-service and knowledge in order to add value to core product offerings” (Baines et al., pp.3–4)

Tim Baines comments on the definition as, Vandemerwe and Rada has a perspective that “services are performed and not produced and are essentially intangible” (Baines et al., p. 4) And stated his definition of Servitization as

“ The innovation of an organization’s capabilities and processes to better create mutual value through a shift from selling products to selling product service systems” (Baines et al., p. 4)

Furthermore, author Andy Neely (2008) has used the term ‘Servitized Organization’ for the companies who have adopted servitization and says that,

“ A Servitized Organisation designs, builds and delivers one or more integrated product and service offerings that deliver value in use” (Neely, 2008, p. 11)

For the better understanding of the term Servitization some examples of servitized organizations have been discussed below. Many examples in diverse range of industries can be seen nowadays. On a local level, most of the manufacturers provides services along with their conventional product such as maintenance, warranty, service call center etc. Nevertheless, on the global scale some companies have developed more sophisticated service offerings.

Rolls Royce’s ‘Power by the Hour’ service is pioneering example of Servitization. Under this service instead of selling jet engines to airlines, Rolls Royce offers a complete engine and accessory replacement on a fixed-cost-per-flying-hours basis (Rolls-Royce, 2012). In which majority of the customer’s money is used to increase the equipment uptime. It means customer does not purchase physical product but purchases the end results i.e. uptime of aircraft (Posselt et al., 2018, pp.3–4). The position of Rolls Royce in the value chain has been changed in ‘Power by the hour’ business model as shown in the figure below. It illustrates that, Rolls Royce takes responsibility of airline’s non-core activities and let them concentrate on their core business by providing ‘Power by the Hour’ service.

Abbildung in dieser Leseprobe nicht enthalten

Figure3: Rolls Royce 'Power by the Hour' (Howard, 2013)

In the similar way Xerox’s ‘Managed Print Service’ is a prominent example in another industry. Instead of selling copy machines, Xerox takes care of management of printing devices of the customer which includes everything from the provision of copy machine till maintenance and repairs as well as technological updates (Posselt et al., 2018, pp.3–4). Xerox claims that this service saves money, automates steps, boosts productivity and improves document security and environment sustainability by reducing carbon footprint (XEROX, 2018). Xerox has showcased some more advantages of the service as in the figure 4 below.

Servitization is not only limited for B2B (Business to Business) industry. It has already made an impact on B2C (Business to Customer) industry as well. The growing business and competition in car sharing services by automotive manufacturers is prominent example of Servitization in B2C context. The idea behind this service business is same as B2B. Costomers are willing to have an independent mobility solutions but without owning a car. Thus, automotive manufacturers are providing vehicle without ownership and generating new revenue stream on the basis of actual time and distance travelled by customer (Posselt et al., 2018, pp.3–4). For example, Germany’s three big car manufacturers have started their own car sharing platforms: BMW with DriveNow, Daimler with car2go and Volkswagen with Quicar (The Red Relocators, 2018).

Abbildung in dieser Leseprobe nicht enthalten

Figure 4: XEROX Managed Print Services (XEROX, 2010)

2.3 Service-dominant Logic

After Vandemerwe and Rada’s definition of Servitization, Vargo & Lusch (2004, 2008) coined the term Service-dominant Logic (SDL). SDL mainly concerns about vital role of the customer in collaborative value creation. To understand this logic, the distinction made between the terms Service (the process of using one’s competences for the benefit of another party) and Products (particular types of goods) by Vergo and Lusch has to be kept in mind. SDL contradicts the conventional Goods-Dominant logic (GDL) with the tradition that goods are manufactured by manufacturers and distributed to customers. In the goods-dominant logic partners act as a part of supply chain, not as performers in value networks. Here, Service-dominant logic claims that, firm alone cannot create the value but value is co-created with customer in a collaborative manner. SDL makes manufacturers or service providers to involve customers in their value creation procedure. In Service dominant logic customer is treated as a source, not as an end part of value chain. Vargo & Lusch claims that, in SDL, goods only play a role of vehicles for service provision. SDL helps to change the focus from provider-centric mindset to the customer- centric mindset. Consequently, it teaches to work together with customer and learn about changing customer needs (Viljakainen, 2013, pp. 2–3).

Vergo & Lusch (2004a) stated Service-dominant logic’s definition of service as “the application of specialized competences (skills and knowledge), through deeds, processes, and performances for the benefit of another entity or the entity itself” (Posselt et al., 2018, p. 24).

The summary of differences between Service-dominant logics and Goods-dominant logic has been mentioned in the table below.

Table3:Views and concepts distinguishing the differences between GDL and SDL (Viljakainen, 2013, p.3)

Abbildung in dieser Leseprobe nicht enthalten

2.4 Product Service-System

Researcher Baines claims that Product Service-System (PSS) is a special case of Servitization. It focuses on ‘sale of use’ rather than ‘sale of product’. It says, consumer only pays for the use of the product and excludes risk, responsibilities and cost associated with ownership of the product. Some authors emphasize on the impact of PSS on sustainability. They expect that pure PSS will have lesser impact on environment than the conventional operations where company manufactures product and transfer the risk and responsibilities to the customer along with the ownership of product. To support the statements above on PSS, Baines gives an example of Rolls Royce’s ‘Power-by-the-hour’ where company leases gas turbine engines to airlines instead of giving the ownership of the engine. Rolls Royce keeps direct access to the product data so that they can analyze the performance and use of an engine and improve engine efficiency, asset utilization and consequently reduce the total cost and environmental impact (Baines, 2007, p. 1).

2.4.1Definition of Product Service-System

It is important to study the definitions available in the literature to understand the concept thoroughly. The table below shows definitions of PSS by some researchers,

Table 4: Popular definitions of a Product Service-System (Baines, 2007, p.3)

Abbildung in dieser Leseprobe nicht enthalten

While defining PSS many of the authors above emphasized on customer satisfaction and lower impact of service product combination on environment. Baines (2007) summarizes all of the definitions above as

“ A PSS is an integrated product and service offering that delivers value in use. A PSS offers the opportunity to decouple economic success from material consumption and hence reduce theenvironmental impact of economic activity. The PSS logic is premised on utilizing the knowledge of the designer-manufacturer to both increase value as an output and decrease material and other costs as an input to a system. (Baines, 2007, pp.3–4)”

2.4.2 Categories of Product Service-System

Researcher Tukker claims that, PSS generates new revenue stream for the product based companies because, they “fulfil client needs in an integrated and customized way, hence allowing clients to concentrate on core activities”, they “can build unique relationships with clients, enhancing customer loyalty” and they “can probably innovate faster since they follow their client needs better” (Tukker, 2004 , p. 247).

Tukker (2004) also categorized PSS in the following way:

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Figure 5: Main and subcategories of PSS (Tukker, 2004, p. 248)

PSS has been segmented in three main categories as: product oriented, use oriented and result oriented.

- Product oriented services: Here, the revenue stream is generated mainly by sales of products but in addition some services has been offered.
- Use oriented services: Here, product plays central role but, revenue stream is not generated by selling products. Provider of the service owns the product but makes it available to the customers in different forms, and sometimes product is shared by multiple customers.
- Result oriented services: Here, service provider and customer agree on the results of the service. There is not an involvement of pre-determined product.

Tukker (2004) further says that, each category discussed above has different sets of economic and environmental characteristics and sub-categorizes PSS in eight types.

- Product oriented services:

- Product related service: Here, provider sells the product and offers services that are needed while using the product. For example, maintenance contract, financial scheme or supply of consumable goods. The agreement between provider and consumer ends when life of the product ends.
- Advice and consultancy: Here, provider sells the product and share their expertise or advice regarding efficient use of the product. For example, advice or consulting on optimization of customer’s logistics processes where product is used for manufacturing.

- Use oriented services:

- Product lease: Here, provider owns the product and most of the time responsible for maintenance, repair and control as well. Customer pays rent for use of the product and usually customer is entitled for unlimited and individual use of the product.
- Product renting or sharing: Same as above, here provider owns the product and responsible for maintenance, repair and control. Customer pays rent for use of the product. The main difference between product leasing and product renting/sharing is, here customer is not entitled for unlimited and individual use of the product. Other customers can also use the same product at another time.
- Product pooling: This is almost same as product renting/sharing. The only difference is that the same product can be used simultaneously by another customers.

- Result oriented services:

- Activity management/outsourcing: Here, some activities in an organization are outsourced to another organization. The quality of outsourced services is controlled by defining performance indicators. For example, catering or office cleaning services.
- Pay per service unit: Here, customer does not own the product and pays fees as per use of the product. For example, most of the copier producers providing copy machine to the customers with paper, toner, maintenance, repair etc. on pay-per-print basis.
- Functional result: Here provider provides service to the customer as a delivery of end results. For example, providing pleasant climate in an office instead of gas or cooling equipment. Author claims that, this service is opposite of activity management/outsourcing (Tukker, 2004, pp. 248–249).

2.4.3 Benefits of Product Service-System

Author Baines says that, from the customer’s perspective, PSS being flexible provides more value and customer could be more beneficial because, PSS is able to provide better functionality as per customer’s requirements. Conventional product based companies benefit themselves from PSS’s strategic market opportunities over only mass production of the products. PSS offers overall improvement in value for the customer through the extended service portfolio along with traditional products (Baines, 2007, p. 6).

PSS not only benefits to the manufacturer but also helps to protect environment. After adopting PSS manufacturer becomes responsible for product-service through take-back, recycling and refurbishment which reduces waste from product’s life cycle. Manufacturers also takes an advantage of PSS by providing the same or better value-in-use to the customer by using less energy and resources which proves significant reduction in the cost with improved sustainability. Adoption of PSS can result into reduced consumption of resources and consequently reduced waste, as lesser amount of material will be used to manufacture lesser products. However, there will be less jobs available because of reduced manufacturing activities. Successful implementation of PSS can also compensate loss of jobs through increased sales and service activities (Baines, 2007, pp. 6–7).

2.5 Drivers of the Servitization

In order to understand why product based companies are moving towards Servitization, it is important to analyses the drivers which are driving the shift of companies from product to service. Following are the factors that are affecting conventional product based business and encouraging companies to move towards Servitization:

2.5.1 Reduced product margin and increased competition

Currently, many product based companies are facing problems of reduced margins, increasing ups and downs in the revenue stream, instability in raw material prices. In addition, production facilities in low- cost countries and Commoditization has been pain points of product based companies (Avlonitis et al., 2014, p. 7).

To tackle these problems, manufacturers are in search of cost effective offerings that can be sold in their product and service portfolio to stand out of the competition (Probst et al., 2016, p. 9). Researchers from Aston Business School identified some initial drivers and they categorized it in ‘defensive’ and ‘offensive’. They defined these two categories as, Defensive: Improvements in business efficiencies, cost savings and predictability and Offensive: Improvements in business competitiveness, focus and growth (Aston Business School, 2013, p. 10).

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Figure 6: Offensive and Defensive drivers of Servitization (Aston Business School, 2013, p. 11)

Customers in Servitization takes advantages of shift from ownership of the product to pay-per-use, as they make savings in the initial investments and converts fixed asset cost into the predictable variable cost. In pay-per-use service supplier of the service takes care of technical issues as well as investment which is substantial cost saving for the customer. On the other side, provider gets an opportunity of building relationship with the customer, understanding customer needs and requirements and consequently, enhancing customer loyalty (Probst et al., 2016, p. 9).

Same principle applies for B2C as with B2B. Researchers claim that, now-a-days users are giving preference to service over product. According to World Economy Forum, the shift from product to service may have happened because of necessity, as a result of depressed economy and youth under or unemployment. This may have resulted in sharing or on-demand economy to use the product without ownership to save the initial cost as well as maintenance (Probst et al., 2016, p. 9).

2.5.2 New technology and innovations

Researchers believe that technologies like Internet of Things (IoT), cloud computing and Big Data are encouraging product based companies to make business processes innovative and offer new services (Probst et al., 2016, p. 9). Dr. Lightfoot claims that, all servitized organizations have one thing in common i.e. use of conceded technology. Technology develops the capability of delivering higher level of service as per customer requirements and needs (Athyantha, 2017).

Internet of things is specially driving Servitization in fast pace. It is converting the world of physical things into digital information center. Every connected equipment collects large amount of data for their manufacturers (Athyantha, 2017) and creates new value in two ways by improving operational efficiency and by launching new services and business models (e.g. remote asset management, predictive maintenance, better decision making, process automation, improved product performance and customer relationship, service based business models, analyzing product data and insights etc.) (Mulders, 2016, p. 11)

Dr. Lightfoot gives an example of truck manufacturing company getting servitized. Typically, they sell trucks as a conventional product and furthermore connect their trucks via cellular connections to collect the data. This collected data is used as data source for fleet management solutions. So, along with selling conventional product, truck manufacturers sell fleet management solutions (Athyantha, 2017). For instance, Truck manufacturing company TATA Motors sells their fleet management solution

‘TATA FleetMan’ along with their conventional trucks selling business. Data transmission processes in the ‘TATA FleetMan’ have been showed briefly in the figure below.


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Adoption of Servitization in product based companies
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