Servitisation Changes More Than Your Business Model
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Servitisation Changes More Than Your Business Model
A manufacturer decides that services should become a more important part of its future. The strategic logic is compelling. Services can deepen customer relationships, create recurring revenue, differentiate the business and extend value creation far beyond the original product sale.
So the company invests. It connects equipment. It develops new service offerings. It introduces remote monitoring. Perhaps it launches predictive maintenance, subscription models or performance-based contracts.
Yet several years into the journey, progress can be slower than expected. The technology exists. The strategy exists. The services exist. But the organisation is still, in many respects, behaving like a product company.
Why? One explanation is that we have tended to think about servitisation primarily as a business model transformation.
A different business requires different capabilities
Consider what happens as an industrial company moves along the servitisation journey. At one end, the company creates value primarily through the quality, performance and reliability of its products. Its organisation has been built accordingly.
Engineering develops excellent products. Manufacturing produces them efficiently. Sales understands features, specifications and applications. Service supports the installed base through spare parts, repairs and maintenance. These capabilities may have taken decades to build.
Now consider a company that wants to move beyond this model.
Instead of simply selling equipment, it wants to optimise the customer's operation.
Instead of selling maintenance, it wants to guarantee availability.
Instead of selling a machine, it wants to sell the output or outcome that machine enables.
The product remains important. But the capabilities required to create value begin to change. The company needs deeper understanding of customer operations. It needs to combine products, services, software and data into coherent propositions. It may need to sell value rather than specifications. It needs different approaches to pricing and contracting. It needs to monitor performance throughout the customer lifecycle.
And if it begins taking responsibility for outcomes, it must become increasingly good at understanding and managing risks that previously sat with the customer.
The journey might be described simply as:
PRODUCT → SERVICE → SOLUTION → OUTCOME
But beneath those four words sits a much larger organisational transformation.
Technology is only part of the answer
Digitalisation has accelerated the possibilities enormously. Connected equipment can tell us how a product is being used. Remote monitoring can identify problems before a customer notices them. Analytics can help predict failures. AI can increasingly help optimise performance and support decision-making.
These technologies make entirely new service propositions possible. But installing sensors does not create a service business. Collecting data does not automatically create customer value. And developing an AI capability does not necessarily mean an organisation knows how to turn that capability into something customers will pay for.
There is an important distinction between having technology and having the organisational capability to create value from technology. The latter requires people who understand the customer problem, the technology, the commercial model and the operational implications—and who can bring those pieces together.
That is a very different challenge.
The commercial model changes too
The capability shift becomes particularly visible when we look at sales. Imagine a salesperson who has spent 15 years successfully selling industrial equipment. They know the product inside out. They understand specifications, applications and competitors. They have strong customer relationships and an excellent track record.
Now ask that same person to sell an outcome. The conversation changes.
The customer may no longer be comparing one machine against another. They may be evaluating the economic value of improved uptime, productivity, energy efficiency or throughput. The buying group may change. The financial model may change. The contract may cover several years rather than one transaction. Risk may be shared between supplier and customer.
And the salesperson may need to understand far more about the customer's operation than was previously necessary. This doesn't make traditional product-selling capability less valuable. It means additional capabilities are required. And that distinction matters.
Capability gaps are not necessarily people gaps
When organisations identify a new capability requirement, there can be a temptation to immediately translate it into a recruitment requirement. That is too simplistic.
Companies already contain enormous amounts of knowledge, experience and potential. Some new capabilities can be developed internally. Existing employees can learn new skills. Teams can be reorganised. Capabilities can be accessed through partners. Technology can augment existing expertise. External specialists can provide capabilities temporarily.
And sometimes the organisation does need experience or expertise that simply doesn't exist internally. The important point is to understand the capability gap before deciding how to fill it.
That suggests a different sequence of questions:
Where are we going?
What must we become good at to get there?
Which of those capabilities do we already have?
Which do we need to strengthen or create?
And only then: how should we acquire them?
This turns capability development into a strategic question rather than simply an HR question.
There is no single servitisation capability model
A company moving from reactive maintenance toward preventive service contracts needs different capabilities from one moving towards equipment-as-a-service. A business introducing remote monitoring faces different challenges from one accepting contractual responsibility for customer uptime.
And an organisation beginning its servitisation journey should not necessarily attempt to develop all the capabilities required by a highly mature service business. This is why capability discussions need to begin with strategic destination and maturity.
Where are we today?
Where are we actually trying to go?
And what capabilities does the next stage of the journey require?
Not every manufacturer needs to reach the same destination. For some, excellent lifecycle services may be the right model. For others, integrated solutions may create greater value. And in certain markets, outcome-based models may represent the opportunity.
The objective isn't maximum servitisation. It is finding the model that creates value for the customer and makes economic sense for the provider—and developing the capabilities required to deliver it.
Servitisation is ultimately about people
They interpret customer problems. They design propositions. They develop technology. They sell value. They price risk. They build partnerships. They operate services. They make decisions when things don't go according to plan.
This is why the people question should not sit at the end of the servitisation discussion. It should run through the entire journey.
Not simply: Who do we need to hire?
But: What must our organisation become capable of doing?
That is the question we will explore over the coming year. We will look at the capabilities behind servitisation, where capability gaps emerge, how companies can build them, how organisational structures need to evolve and, eventually, what all of this means for leadership and talent.
Three questions for your leadership team
Frequently Asked Questions
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Q: 1. What is servitisation?
A: Servitisation is the shift from creating value primarily through selling products towards creating value through services, solutions and, ultimately, customer outcomes. The product may remain central, but the way value is created, delivered and monetised evolves.
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Q: 2. Why is servitisation a capability transformation?
A: Because changing what a company sells also changes what it needs to be good at. Customer insight, solution design, value selling, data analytics, lifecycle management, commercial modelling, risk management and service leadership can all become increasingly important.
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Q: 3. What is the difference between a business model transformation and a capability transformation?
A: Business model transformation defines how the organisation intends to create and capture value. Capability transformation determines whether the organisation has the people, skills, processes and ways of working required to actually deliver it. Successful servitisation requires both.
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Q: 4. What capabilities are most important for servitisation?
A: There is no universal list. The capabilities required depend on where the organisation is today and where it intends to go. However, common areas include customer understanding, service innovation, digital and data capability, solution selling, commercial and contractual expertise, service operations, risk management and cross-functional collaboration.
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Q: 5. Does every manufacturer need to become an outcome-based business?
A: No. The objective should not be maximum servitisation. Some organisations may create the greatest customer and commercial value through excellent lifecycle services or managed services. The right destination depends on the market, customers, economics, competitive environment and appetite for risk.
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Q: 6. Does servitisation mean replacing existing employees with service specialists?
A: Not necessarily. A capability gap is not automatically a people gap. Existing employees can develop new capabilities, teams can be reorganised, technology can augment expertise, partnerships can provide capabilities and external specialists can fill specific gaps. Recruitment is one option, not the starting point.
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Q: 7. Why isn't investing in technology enough?
A: Technology creates possibilities, but organisations create value. Connected equipment, analytics and AI only become commercially valuable when people can translate them into propositions that solve customer problems and can sell, deliver and continuously improve those propositions.
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Q: 8. How does servitisation change sales?
A: The conversation can move from product specifications and purchase price towards customer economics, uptime, productivity, efficiency and outcomes. Salespeople may therefore need to understand the customer's operation more deeply, engage different decision-makers, build value-based propositions and sell longer-term relationships rather than individual transactions.
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Q: 9. How should a company identify its servitisation capability gaps?
A: Start with strategy rather than people. Ask: Where are we today? Where are we going? What must we become good at to succeed there? What capabilities do we already possess? Where are the gaps? Only then should the organisation decide whether to build, buy, borrow, partner or recruit for those capabilities.
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Q: 10. What should leadership do first?
A: Agree the destination. Leadership teams should establish where the business currently sits on the Product-Centric → Product + Service → Managed Services → Smart Services → Autonomous Services journey and where it genuinely wants to go. From there, they can identify the capabilities required for the next stage, rather than trying to build everything at once.
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