Saying yes or no to Servitization: Why and How?

It is very well possible that there is not a single Basque equipment manufacturer for the energy sector who has pondered whether or not to go ahead with the ‘servitization’ of their products and services. As the answer is usually in the affirmative, the larger question then becomes: “How does one go about it?”

Consequently, a number of questions arise: How do we increase income from aftersales service? Should we become integrated? If so, of the whole system, or of a subsystem only? Should we seek out innovative marketing approaches, such as leasing for example? In short, what needs to be added to turn our product into a Product-Service System that delivers value in use?

These are common questions being asked throughout energy sectors: in power distribution, where the development of smart grids is opening the door to new competitors who are themselves expert service providers; in wind power generation, where there is enormous pressure from low-cost competitors; or in conventional energy generation, where roles are highly defined. In all of the aforementioned, opportunities continue to emerge in moving up or down the value chain. It will certainly be interesting to see how competitors position themselves in offshore wind power generation, where there is an apparent return to concentrating projects into a few large contracts, and with the added complexity of two elements which are much less relevant to onshore wind farms: power transmission and installation.

None of these questions, though, are easy to answer, and less so to put into practice. On the one hand, there are the inherent obstacles present in the new business: existing competition ─ sometimes even from our own clients; new competitors arriving on the scene from a variety of activities; or difficulties in receiving payment for services rendered.

Perhaps, however, the most relevant of all is that “servitization” requires a greater focus on client needs, and a more open client-supplier relationship, than what is currently the norm amongst equipment manufacturers. In more concrete terms this requires: advanced commercial capabilities (based on precise client segmentation); engineering aimed at resolving the client’s problems rather than optimising the product; collaborative R&D; partnering with suppliers of complementary products and the international presence of different activities, etc.

Evidently, some deep and careful thinking is required in order to move towards a service based product offering. Is there room for a new competitor? Does our company possess the necessary capacities? What is not so evident, however, is that we would do well to continue competing on products, if that is indeed what the client requires, and what the competitive dynamic of our sector recommends.

 

*Published in the Estrategia Empresarial Energy Supplement, March 2014

Igor Revilla

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