New research highlights the challenges faced by European capital goods manufacturers in their transition toward service-oriented business models.
Within the fiercely competitive global market, manufacturers are under increased pressure to differentiate their businesses. A major route to achieve this involves ‘servitisation’, the transformation from traditional business models (BMs) to new service-oriented BMs. During this process, companies shift their focus from product-centric offerings to services and solutions. This is done in an effort to increase and provide steady revenues and to build sustainable competitive advantage.
But is this trend gaining momentum among European capital goods manufacturers? In order to analyse the uptake, a team of researchers carried out a survey as part of the EU-funded (T-REX) project. They presented their findings in the ‘International Journal of Engineering Business Management’.
The researchers argue that servitisation implies “not only a redesign of the value proposition but also companies’ need to reshape their business models.” They add: “However, manufacturers undertaking such a shift face numerous challenges that may lead to the so-called service paradox.” When there is such a paradox, substantial investment in adding services to the existing product portfolio doesn’t generate the expected higher returns.
The survey, which covered around 100 manufacturers, investigated the degree of service orientation of BMs of capital goods manufacturers that operate in the automation (e.g. system integrators, robot manufacturers), machinery (e.g. machine tools, packaging machines, textile machines) and transportation (e.g. forklifts, earth-moving machines) sectors. The respondents, operating mainly in Germany and Italy, were classified according to their size: micro and small (25 %), medium (29 %) and large (46 %). The survey’s reference framework included various aspects of the new BMs to become more service-oriented. These were value proposition, customer segments, customer relationships, service delivery channels, key resources and activities, partnerships, revenue model and cost structure.
Slow adoption of service-oriented BMs
The survey found that the adoption of service-oriented BMs was still low in the analysed sectors, particularly in the automation and machine tools industries, where revenues are still dominated by product sales, with services representing only 20 %. “Although the majority of respondents believe that the importance of service business will increase in future (86 % of the total), only 68 % of them claim that services are already an important part of their company’s business,” the researchers noted. They emphasised that information systems and ICTs still have unexploited potential, especially in SMEs. The survey also concluded that customer relationships are transaction-based and that customers are perceived as an obstacle rather than an incentive to offer new service-oriented BMs.
The T-REX (Lifecycle Extension Through Product Redesign and Repair, Renovation, Reuse, Recycle Strategies For Usage&Reusage-Oriented Business Models) project worked to develop conceptual tools to implement and experiment through three industrial application cases. It created a new business platform to offer capital goods as new product-service systems. Through the three validated demonstrators in forklift trucks, machine tools and robot solutions, T-REX demonstrated that it’s possible to create new service-oriented BMs. These can achieve up to 84 % of component reuse, a life-cycle extension in the range of 30-100 %, and a reduction of maintenance service costs by 27-36 %.
Cordis Source: Based on project information and media reports
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