Article | March 10, 2017

What Is The Advantage Of Servitization For Manufacturing Firms?

Source: Microsoft

Servitization is a logical step in the transformative journey of how companies work with customers and generate revenue. In the not-too-distant past, a manufacturing company likely focused on the sale of its products -- for example, a piece of construction equipment -- as a singular offering. Service contracts represented a cost to the company. When products failed, it was considered too expensive for a product-focused company to service its own equipment. Companies allowed third-parties to provide the service contracts and the manufacturing firms generated revenue solely from the products themselves.

In the aftermath of the 2008 recession, companies needed new revenue streams in the wake of reduced spending -- and found them with service offerings. Even in an economic downturn, existing items needed to be fixed and new ones did not necessarily need to be bought. Today, one out of four manufacturing operations is generating new revenue from servitization, per Aberdeen Group research.