Servitization of products business model

What it is: Refers to industries offering additional services to supplement their traditional
products and core services. This developed out of the necessity for businesses to remain
profitable and competitive in an age where the financial aspects of design and manufacturing
are becoming increasingly challenged by emerging markets.

History: Was first introduced in the 1980s by Vandermerwe and Rada, who argued that
manufacturers needed a way to firstly set themselves apart from competitors, and more
importantly to retain their customer base and increase levels of differentiation. From an
economic view point it is also proving to be a valuable concept, as the life-cycle of manufactured
products increases as the technology which develops them improves; meaning products are
tending to need replacing less frequently. Adding additional assistance such as servicing and
product support can add much needed value to a business model.

Example: In healthcare, for example, many pharmaceutical firms are under significant pressure.
The cost of developing drugs is increasing, many of the traditional drugs are coming off patent
and so the generic manufacturers can move into the market. As a consequence pharmaceutical
firms are rethinking their business models - defining themselves as healthcare solutions
providers. Think like a patient - most of us don't want the products that pharmaceutical firms
provide. We'd prefer not to be ill in the first place. So if someone can provide healthcare
solutions, which reduce the likelihood of illness, the interests of providers and customers are
again much more closely aligned

Benefit: The first being meeting customers demands, leading ultimately to greater customer
retention. No longer can a business rest on its laurels and assume that products alone will
sustain a business. Customers are becoming more demanding with their requirements and
offering additional services that can meet those demands.

Risks: There are specific challenges they face, essentially because a service culture is different
to a make it sell it culture. The design of services is different to the design of products,
requiring a shift in corporate mind-set to make the implementation of this model successful.
Shared Services and Outsourcing (SSO)

What is shared services: Delivery model for the effective and efficient delivery of non-core
services to the business. It employs a specialist team, geographically unconstrained, and focuses
on the requirements of the customer. Shared Services is characterized by its client-focus, use of
technology, and implementation of leading practices. The goal of Shared Services is to provide
high quality, non-core, but mission critical services to the business at lower cost and more
efficiently than the business could otherwise provide for itself.

What is outsourcing: A business practice used by companies to reduce costs or improve

efficiency by shifting tasks, operations, jobs or processes to an external contracted third party
for a significant period of time. The functions that are contracted out can be performed by the
third party either onsite or offsite of the business.

Example: A company outsourcing their Human Resources may have payroll, workforce
administration, and recruiting in scope. Clearly there is much more to Human Resources than
those processes. The company is retaining compensation administration, benefits
administration, HR strategy, labor relations, etc. Sometimes these "retained organisations" are
organised themselves as a shared service centre, other times the company will retain these
processes in various business units.