driving competitiveness through servitization
TRANSCRIPT
Driving Competitiveness through ServitizationFour Drivers for Competitiveness22 April 2015
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About theproject
• Four year project funded by The Danish Industry Foundation (okt. 2014-18).• The project includes both large and SME’s with different types of products/core
processes (OEM’s and subcontractors of components and materials).• We build on a pre-project carried out in the spring of 2014.• Dissimination activities are expected to reach 200 companies with around 15
case studies and one or more longitudinal field studies.
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Who are behind the project
• Christer Karlsson, Professor, Academic Director CBS Competitiveness Platform• Juliana Hsuan, Professor (mso), Department of Operations Management• Thomas Frandsen, Adjunkt, Department of Operations Management• Jawwad Raja, Adjunkt, Department of Operations Management• Christina Merolli Poulsen, Projektleder, CBS Competitiveness Platform• Ieva Harjo, Forskningsassistent, Department of Operations Management• Kai Inga Basner, Student, Department of Operations Management• Christina Schou Mikkelsen, Student, Department of Operations Management
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Agenda
What we do Heading
1. Factors influencing the competitive situation • Global challenges
2. How to compete in this environment • Operations strategy
3. Servitization – what can be offered in addition to the product?
• Servitization of manufacturing• Extending your value proposition
4. How far to go – what services to offer • Strategic considerations• Moving from product manufacturer to
service provider
5. Clarifying the service as a product • Contracting potentials and risk
6. The service relation has implications on how to calculate costs
• Calculating costs
7. Considering the customer perspective • Perspectives on servitization
8. The challenges of servitization • The servitization paradox• Challenges to servitization
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Productivity has been a topic of intense debate during the last years
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Competitiveness is the capability to create value • Competitiveness aims at qualifying as
a supplier and winning the order• It deals with outcompeting competitors • Productivity is just one factor
Competitiveness is a cross-disciplinary issue
CBS brings together research and practice across fields and industries www.cbs.dk/competitiveness
Productivity and Competitiveness: Challenges to Management
Why focus on competitiveness? Key competitiveness dimensions
The purpose of the platform is to strengthen competitiveness of Danish industry in a global context
Quality Flexibility
DependabilitySpeed
Cost effectivenessCompetitor Our company
Required performance
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Factors and trends that affect industrial operations worldwide
Factors Trends Description
Macroeconomic
Globalization Competition from low cost countries
Commoditization Competition shifts to cost
Customer demand Risk aversion and new contract forms
Market
Lock in customersSale of equipment at low cost to profit from spare parts and maintenance
Life cycle offerings Total cost of ownership calculations
New profit formulas Fixed costs and long term, outcome based contracts
Technology
Internet of Things/ConnectivityIncorporation of sensors and actuators in machines to provide remote maintenance and continuous information
Big Data analytics Making sense and analysis of the vast amount of field data
Additive manufacturing (3D Printing)Displacement of inventory and spare parts by installing 3D printers at the customer’s site
Environmental
Geopolitical Export controls and conflict regions
Ownership vs. usageUsing rather than owning physical assets is more economically sound for the customer and environment friendly for all
Global resource scarcityEnergy prices, CO2 reduction, design for disassembly, take back systems
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Background and driving forces
Competitive advantage; from sustainable to temporary by resilience, speed and reconfiguration of resources
• Danish companies are increasingly competing on global markets
• Information and communication technologies shape economics
• Innovation is happening at a much higher pace
• Technology is transferred
• Complex product and process systems are becoming more intertwined
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Agenda
What we do Heading
1. Factors influencing the competitive situation • Global challenges
2. How to compete in this environment • Operations strategy
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Competitive performance objectives
Competitiveperformance objective
Implications Examples of KPIs for manufacturing
Examples of KPIs for service
Quality • Being right• Fit for purpose• Process control
• Defects per unit• Mean time to failure
Customer satisfaction
Flexibility • Being able to change• Customization• Resilience
Range of product mix Range of service mix
Speed • Being fast• Risk of obsolescence
Cycle time for process Response time
Dependability • Being on time• Trust• Stability
% orders delivered on time
% faults addressed within time
Cost • Being productive• Efficiency
Efficiency Labor productivity
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Polar diagram for our service versus a competitor’s service
Cost effectiveness
Quality Flexibility
DependabilitySpeed
Competitor
Our company
Required performance
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Agenda
What we do Heading
1. Factors influencing the competitive situation • Global challenges
2. How to compete in this environment • Operations strategy
3. Servitization – what can be offered in addition to the product?
• Servitization of manufacturing• Extending your value proposition
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Servitization - creating value through the provision of services
Servitization is about competing through value propositions that integrate services with product offerings
Servitization is about competing through value propositions that integrate services with product offerings
Servitization based on physical product:- Adding services- Offering functions- Total solutions
Essentially it is about ‘interfering’ in your customers’ processes
Selling an asset Providing recovery
Maximizing availability Offering outcomes
(See table 4 on page 10)
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Services can have a large potential for growing revenues and profits
Vestas, June 12, 2014 Presentation from Capital Markets Day, ’Capture full potential of the service business’ slide 9
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An example Atlas Copco
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An example Atlas Copco
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Value propositions and customer expectations
Type of value proposition
Customer expectations Example
Selling an asset Quality and performance of equipment
Offer customized product
Providing recovery of an asset
Minimum disruption in case of equipment failure
Repair of equipment afternotification
Maximizing the availability of an asset
Fault free equipment Provide remote and preventive maintenance
Offering outcomes for the customer
Assisting customers to achieve their goals
Take over customer functions/activities
A product goes into to the processes of the customer
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Extending the value proposition through servitization
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Agenda
What we do Heading
1. Factors influencing the competitive situation • Global challenges
2. How to compete in this environment • Operations strategy
3. Servitization – what can be offered in addition to the product?
• Servitization of manufacturing• Extending your value proposition
4. How far to go – what services to offer • Strategic considerations• Moving from product manufacturer to
service provider
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Servitization is an attractive strategic response
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Product-centered servitization A portfolio of services is directly coupled to a product offering • Products (goods) as a tangible commodity manufactured to be sold and quite
simplistically is capable of “falling on your toe”• Services: “economic activity that does not result in ownership of a tangible asset” • Servitization is “the increased offering of fuller market packages or “bundles” of
customer focussed combinations of goods, services, support, self-service and knowledge in order to add value to core product offerings” (Vandermerwe and Rada, 1988)
Use OrientedService
ResultOrientedService
Product OrientedService
MaintenanceRepair
LeasingRentingPooling
Activity managementFunctional outcome
Product Service
Tucker (2004)
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Agenda
What we do Heading
1. Factors influencing the competitive situation • Global challenges
2. How to compete in this environment • Operations strategy
3. Servitization – what can be offered in addition to the product?
• Servitization of manufacturing• Extending your value proposition
4. How far to go – what services to offer • Strategic considerations• Moving from product manufacturer to
service provider
5. Clarifying the service as a product • Contracting potentials and risk
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Contracting potentials and risk
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Risks involved in servitization
Experiences from practice show mixed results on profit when firms increase their service activities. Risks involved in servitization include:
Potential Risk Example
Recovery Lack of service infrastructure Involve partners, create service clusters and networks
Availability Less revenue from service offerings Penetrate your installed base in order to increase the adoption and capacity utilization
Development Customer‐specific development costs Charge the design and the construction of services separately and offer to equalize them when the product is purchased
Outsourcing Operational risks Risk pooling, transferring risk to suppliers, integrate risks in pricing mechanism
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Agenda
What we do Heading
1. Factors influencing the competitive situation • Global challenges
2. How to compete in this environment • Operations strategy
3. Servitization – what can be offered in addition to the product?
• Servitization of manufacturing• Extending your value proposition
4. How far to go – what services to offer • Strategic considerations• Moving from product manufacturer to
service provider
5. Clarifying the service as a product • Contracting potentials and risk
6. The service relation has implications on how to calculate costs
• Calculating costs
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Calculating costsLife Cycle Cost Analysis
Costs of a product’s entire life
Total Cost of Ownership
From price orientation to total cost of owning a product
Both methods influence investment decisions within the company and across value chains
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Agenda
What we do Heading
1. Factors influencing the competitive situation • Global challenges
2. How to compete in this environment • Operations strategy
3. Servitization – what can be offered in addition to the product?
• Servitization of manufacturing• Extending your value proposition
4. How far to go – what services to offer • Strategic considerations• Moving from product manufacturer to
service provider
5. Clarifying the service as a product • Contracting potentials and risk
6. The service relation has implications on how to calculate costs
• Calculating costs
7. Considering the customer perspective • Perspectives on servitization
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Understanding the customer’s “make or buy” process
Typical customer needs Implications for the service provider
Focus on core activities Design services to seamlessly support and enhance the value of customer’s core activities
Restructuring costs Evaluate the option of retaining product ownership and offering a “leasing” service
Access to talent Adopt a customer centric focus and ability to offer expertise adapted to customer needs
Reduce time to market Offer engineering and R&D capabilities as a service to the customer and become a development partner
Manage risk Consider how scale, specialization and expertise can become a valuable source of mitigating business risks
Manage capacity Increase flexibility of resources to mitigate fluctuations in demand when customers procure services to manage capacity
Increase scalability Increase volume flexibility and ramp up speed
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Agenda
What we do Heading
1. Factors influencing the competitive situation • Global challenges
2. How to compete in this environment • Operations strategy
3. Servitization – what can be offered in addition to the product?
• Servitization of manufacturing• Extending your value proposition
4. How far to go – what services to offer • Strategic considerations• Moving from product manufacturer to
service provider
5. Clarifying the service as a product • Contracting potentials and risk
6. The service relation has implications on how to calculate costs
• Calculating costs
7. Considering the customer perspective • Perspectives on servitization
8. The challenges of servitization • The servitization paradox• Challenges to servitization
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Addressing the servitization paradox
An observed “service paradox” in which revenues earned by the manufacturer may increase but profits actually decrease with greater
servitization.
An observed “service paradox” in which revenues earned by the manufacturer may increase but profits actually decrease with greater
servitization.
Setting strategic direction
Define and communicate a clear service strategy and initiate the necessary investments to align the strategic direction with operational capabilities
Adjusting organizational design
Create the organizational arrangements to support the development, sale and delivery of services and align performance measures and objectives
Developing capabilities
Develop capabilities for designing and delivering services, including technical expertise, customer orientation and Information Technology
Establishing a service culture
Provide managerial attention to the values supporting service design and delivery such as customer orientation, heterogeneity and flexibility
