Servitization Competency 101 – Getting Started with Servitzation
The Service Design Group has driven servitization and as-a-service transformations for mid-market and enterprise B2Bs since 2011. This work is rewarding as it unlocks new revenue streams, growth potential, and enterprise value for our clients, ultimately resulting in impactful business model transformation. Today, the case for why a B2B organization should consider and begin a servitization journey is stronger than ever before. However, as we look across industries, very few companies have started or made any significant progress towards servitization!
Many companies are stuck and struggle to get started with servitization.
In our experience, we find many companies are stuck and just unable to get started with servitization. Perhaps they see the writing on the wall, but nothing “bad” has happened (yet!) as a result of not starting the servitization journey. Or, “service strategy” is a perennial topic that always shifts to next year. Or – and perhaps the worst scenario – there have been multiple failed attempts in the past. Regardless of the reason, what’s clear today is the servitization clock is ticking, pressure is mounting, and there is a growing sense of urgency to act. While this is good, we must recognize and understand the core competencies required to get started with servitization.
If you’re starting your servitization journey, take stock of these competencies and see if you have what it takes to be successful! In our experience, most organizations do not have many of the core competencies required to get started with servitization.
Innovating with service requires a whole new set of skills.
Servitization isn’t the same old product innovation that you might be familiar with. Innovating with service and business models requires a whole new set of skills and the levels of risk and ambiguity increase significantly. And, of course, there’s the added complication of the intangibility of services (as much as we love services, we can’t reach out and grab them!).
Add this all up, and there’s a premium on the ability to effectively do service-based ideation. In our experience, teams struggle to generate servitization concepts, particularly if they’ve never built, delivered and monetized services. They will often default back to product ideas (as this is what’s more natural to them) or generate ideas they believe are services but are instead incremental adjustments to the existing customer experience. Or, the team will fail to unlock service monetization schemes, and default to a “value add” stance (i.e. just give services for free to continue to support product sales).
To avoid these traps, we recommend using a service ideation framework that lets you quickly iterate, ideate, and jump between various service footprints, product + service combinations, pricing schemes and business models. This way, you don’t get stuck on “basic” ideas or fail to explore a “wild” idea (that may be very credible).
It’s beyond risky – perhaps foolish – to do service innovation without your customers
The challenges surrounding ideation – and why it’s such an important core competency for getting started with servitization – go hand in hand with co-creation. If you’ve only produced products for years and never built, delivered and monetized services, don’t fall into the trap of believing you can do this on your own. Customers are required! And, they must be your customers (not a focus group or proxy for your customers).
At a minimum, you need solid Voice of the Customer (VOC) data and insights to get started. But, ideally, you should go well beyond VOC data and invite your customers to participate directly in the early identification, ideation and concept stages. Yes, this can be risky, but with risk comes reward (and trust us, it’s beyond risky – perhaps foolish – to do service innovation without direct customer involvement).
Used effectively, co-creation produces two benefits: 1) it helps overcome some of the challenges faced during service ideation (e.g. missing an opportunity to monetize); and 2) it builds trust and strengthens relationships with your customers. Just keep in mind that you can’t rely on your customers to generate and finalize your service and solution designs for you. Ultimately, the careful crafting of a viable service-based based model is your responsibility!
Many confuse product, user experience and customer experience with service design. They are very different.
We, at The Service Design Group, often get asked “what the heck is service design?” Let’s start with the definition of a service. After all, we should understand that which we are designing before we talk about the design practice.
Our best definition of a service = An in-market offering from a firm that performs a job to be done or creates a specified outcome on behalf of a customer at a level of value, efficiency and/or expertise that the customer can not attain on their own. Organizations often confuse customer service and other necessary business activities, such as sales or e-commerce, for services. They couldn’t be more different!
With that out of the way, our favorite definition for Service Design = The art, science and practice of orchestrating people, process, content, technology and environments to successfully and consistently deliver, measure and manage a service and its outcome(s), with necessary emphasis placed on experience, consistency, repeatability, adoption, utilization and renewals.
Individuals often confuse product, user experience and customer experience with service design. There are some common terms – e.g. journey maps – but the practices are very different.
Service design – as defined here – is a critical core competency to get started with servitization. Any other “design function” isn’t going to get the job done. You need “designers” that are equally fluent in experience design and human centered design (HCD) research as they are in understanding and playing with channel dynamics, creating pricing schemes, doing financial analysis, engineering process flows and envisioning business models!
Business Model Design
The biggest miss in organizations is not realizing a business model is something teams can define and own on an offering-by-offering basis.
Similar to the service design topic, this topic benefits from some definition of terms because confusion abounds with the mere mention of business models. What are they? Here’s our take.
A business model is how a firm competes in a market against other firms and extracts value from its clients. That’s pretty straight-forward, but don’t be fooled. The four most common misunderstandings we’ve encountered are thinking a business model: 1) is a business plan; 2) is how a solution works; 3) is the whole business; 4) is a purely analytical process.
At The Service Design Group, we put more emphasis on business model design, which we define as the purposeful choice of a firm’s identity, mission, customer, and go-to-market — at the level of each discrete offering — requiring cultivation, access to, and alignment of critical resources with the express purpose of creating value, competitive advantage, and barriers to entry that other firms can not easily reproduce.
In our experience, the biggest miss in organizations is not realizing the business model is something teams can and should define, own and experiment with on an offering-by-offering basis. Business model design – as defined here – is a critical core competency to get started with servitization.
As with service design, any other “design function” – as well as standard business consulting or business analytics – isn’t going to get the job done. You need “thinkers and doers” that are equally fluent in pricing models as they are in creating market segmentations, generating competitive differentiation, orchestrating touch points and streamlining experiences.
Ideation, co-creation, service and business model design are rendered useless if you can’t bring concepts to life.
The last core competency to get started is the make it or break it one! Ideation, co-creation, service and business model design are all rendered useless if you can’t quickly bring concepts to life and swiftly evaluate them via rapid prototyping.
While prototyping for services is the same, conceptually, as prototyping physical products (e.g. blue foam models) or prototyping digital applications (e.g. wireframes and click throughs), the skills needed are rather different. To successfully prototype a service innovation, you need to handle the full service stack (back to front office) and have prototyping tools and methods to model, test and evaluate everything from business processes to end-customer experience. Two critical prototyping components we heavily rely on are process engineering and role playing.
As a best practice, we recommend organizing end-to-end “stress tests” with micro-level prototypes for each of the people, process, content, technology and environmental components that comprise the full service. As the piece parts come together, actively run the service system end-to-end with video capture so you can see where things fall apart and where you need to rethink or redesign. Be sure to keep an eye out for when great new ideas “just happen” in the moment. You never know where the next great “aha!” – that may truly differentiate your service – will come from. Perhaps, it will come directly from a customer that you have invited to participate in your rapid prototyping session!
Keep reading! Part Two covers the core competencies for building service-based innovations!