Insight

Discussion: What Is Servitization?

7 Dec , 2017  

This year’s SPS Drives 2017 show in Nuremberg provided some useful insights into the future direction of the drives, motors and industrial automation markets. With Industry 4.0 and IIoT now firmly lodged in the industry’s consciousness, it was interesting to see the different ways in which forward-thinking companies are taking advantage of these advances in technology.

One major new trend was a move away from selling hardware as a singular entity, towards a more full-service offer. Servitization, where a company offers a complete package of products and services as opposed just the hardware, is growing in prominence. But what is it?

The Automation Engineer assembled a panel from Control Techniques to investigate.

 

Andrea Annunziata – global product manager – servo drives

Paul Rowlett – global product manager – general purpose drives

Dario Dallefrate – global product manager – controllers & safety

Roxana Suteu – strategic marketing project manager

 

Let’s start at the beginning; what exactly is servitization?

Dario Dallefrate (DD): Servitization is basically a shift from offering just products to offering additional services too. These are often based mainly on software tools. For instance, it’s part of the IoT and Industry 4 trend because suppliers are offering more smart devices able to collect data coming from the production system. However, they also need to get meaning from the data. In order to do that suppliers provide a software platform to analyse the data.

Systems can now collect historical data and, using this data, can understand how the system is behaving and if the system needs maintenance or is producing error messages. It can also predict if a problem could be forthcoming in the future – this is called predictive maintenance.

So the shift towards servitization means providing not just products, but full services.

Andrea Annunziata (AA): As a general trend it’s also going in the direction of offering things like software-as-a-service (SaaS). This trend of moving from selling a product to selling the outcome.

So is there a general trend among what are traditionally hardware companies like ours towards offering software?

Paul Rowlett (PR): No, I think they’re still hardware companies by and large but they realise that what their customers really want is the outcome that comes from the data their hardware produces. Servitization is essentially a means to sell that product.

Similar to the old Rolls Royce analogy that you don’t buy a Rolls Royce engine, you buy ‘hours in the sky’?

DD: Yes, but remember the goal of Rolls Royce is still to sell their hardware products.

AA: In order for Rolls Royce to sell you so many hours in the sky, they sell you a contract to service the engines, provide spare parts, maintenance etc – all services which complement the product.

What is Servitization

So what sort of examples have you noticed of where companies are using this approach well?

DD: There was an example I noticed at SPS involving a drives manufacturer and a well-known computer company. It made use of an AI engine – the AI was able to offer insights for the machinery.

PR: The hardware was profiled using existing documentation, and this information was fed into the AI. The user could then interact with the device using a chat interface, both in full English and in error codes.

Roxana Suteu (RS): Chatbots are an emerging trend. The customer initiates the conversation with a bot and if required a human can step into the conversation at a later point. It frees employee’s time – a lot of conversations don’t necessarily go anywhere so the AI can comfortably take care of the part and, when it’s necessary, the human takes over. It’s big in the B2C world but also offers huge potential in the B2B space.

PR: It’s interesting because it all ties into a trend we noticed a few years ago. SPS is essentially a product show but we’re seeing more and more services being offered as well. Companies like Amazon and Microsoft are now putting effort into displaying their capabilities at what is still a show which traditionally shows tangible, physical products.

DD: A lot of companies – like Amazon and Microsoft – are growing in prominence in the industrial world. There was an example at SPS where a company was using Amazon’s Alexa service to command a motor, for instance. Further evidence of how things other than physical hardware are being used to ultimately help us sell product. At the end of the day though the goal remains the same for companies in the drives markets, and that is to sell product.

RS: All companies in our space seem to have made the shift in this direction. If they don’t have the technology in-house then they’ll partner up with third parties to offer what they believe their customers want.

Is it true then, with that in mind, that the goal of a company like ours will always be to sell hardware, and that servitization is effectively just another tool to allow us to do that?

PR: Not necessarily. The goal of any company is to make money. At the moment, it appears servitization is the way that’s being favoured. Consider the PLC, for example. Cloud-based systems are putting traditional hardware PLCs under threat. Low speed applications which don’t need a deterministic response from a PLC could easily go into the cloud, which would save money and space for machine builders. That could be an alternative stream of revenue, instead of selling hardware.

AA: There are two trends. One is increasing importance of software, both as revenue generation but also as a differentiator as hardware becomes more commoditised. The second trend is proper servitization, switching from hardware as your main revenue stream to services as your main revenue stream. Not many businesses in our industry are there yet in terms of servitization as a main revenue source.

What is Servitization

So if we’re all agreed that servitization is growing, what do we think is the driving force behind that growth? Are customers demanding it?

RS: The hardware hasn’t changed much. It’s getting harder to differentiate though. Drives and motors are generally pretty standardized so you need to come up with something that makes you stand out.

PR: Drives, as a product and a market, are relatively mature. The disruptive element of the technology is the interconnectivity that is provided by network structures and finding new ways to leverage that to provide value to customers.

What might put people off buying a ‘service’ over a ‘product’?

DD: On top of security, there is the issue of data ownership. Who owns all the data that is produced by the drive, and where does it go? At the end of the day, the data coming from a machine should be treated as the intellectual property of the machine’s owner. People want to be certain the data will be safe and used properly for its intended purpose.

Where will the future take us? In 10 years’ time, how will working life have been changed by servitization?

DD: I believe that PLCs in their current form will fall in prominence. Especially for logical control of non real-time applications, where cloud based systems could be powerful enough.

PR: More powerful in fact, because they’re scalable and modular.

DD: The cloud doesn’t need to be overseas, for example, it could be a local cloud in each factory. It’s not so futuristic. There are examples like this already in use. It’s definitely a trend. There will be more and more software companies too, definitely.

PR: The nice thing about drives technology is that there’s no way at the moment for motors to be controlled directly from the cloud. You still need that connection from a drive.

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Chris Corfield

Chris Corfield