Servitization – the shift from selling products to providing services – is a strategy that has proven effective in driving business growth and strengthening customer relationships. One Telford-based business demonstrates its transformative potential.
Servitization is the process of moving beyond selling just products to offering additional services, such as maintenance, upgrades, consultancy and support. This approach creates added value for customers and provides more stable, predictable revenue income, helping to regulate ‘peak and trough’ revenue streams.
Also called product-service integration, value-added services or a service-centric business model, servitization is essentially selling X-as-a-Service. What ‘X’ is will depend on your business and product portfolio. Manufacturers have successfully applied this model to offer pay-per-use for everything from cherry pickers and carpets to razor blades.
This outcome-based approach is by no means a new concept. Rolls-Royce has provided ‘Power by the Hour’, its pioneering approach to aviation engine maintenance, for almost 65 years. Similarly, machine tool manufacturers have long provided ‘guaranteed uptime’ services. Recently, however, interest – particularly among small manufacturers – has been growing, and for good reason.
During times of economic uncertainty, squeezed margins and increased competition, servitization offers companies a way to create competitive advantage, integrate into the supply chains of large OEMs and generate more predictable and secure cash flows. Indeed, research by Aston Business School’s Advanced Services Group shows that manufacturers can achieve sustained annual business growth of between 5% and 10% by offering services to customers.
Transicon’s Servitization Journey
One notable example of servitization in action is Transicon, a global provider of cutting-edge electrical control systems, drive systems and industrial automation. Since its founding in 1967, this family-owned business has established a strong reputation for designing, manufacturing and installing bespoke control systems that integrate AC, DC and Servo Drives, PLCs and SCADA Systems.
Seeking greater stability and growth, Transicon decided to expand its service offering. At a recent Monthly Industry Meet-up, Jennifer Hughes, General Manager at Transicon, shared the dramatic impact this shift has had.
“A year ago, I attended the Monthly Industry Meet-up and heard Tony Sartorius discussing the benefits that servitization had brought his business, Alucast. In the subsequent Discussion Group, we spoke about knowing when was the right time to take the plunge. I only made one note. It said, ‘Get on with it!’ So, we did.”
In December 2023, Transicon introduced a dedicated 24/7 service team, starting with two automation engineers. This team has since expanded to three members and is expected to grow further in the coming months. Already, the team’s efforts have led to an annualised service revenue of £500,000 – roughly 10% of total turnover. “We anticipate that service revenues will grow from 10% to 20% of our business within the next three years,” Jennifer explained.
Industrial control systems are complex, and customers often need support maintaining their production facilities. Previously, Transicon’s service offering was limited to standard weekday hours, primarily focused on control systems the company had delivered. As the skills gap in industry widened, companies struggled to find qualified engineers, leading to maintenance departments being downsized or removed entirely.
With automation know-how becoming scarcer within industry, Transicon re-evaluated its service strategy. "We used to divert engineers from project work to handle breakdowns," Jennifer noted. "With the skills gap, our customers needed more frequent support, putting additional strain on our engineering team."
Servitization’s Impact on Revenue and Growth
To overcome these issues, Transicon recruited two experienced service engineers and developed a comprehensive service strategy. This includes onsite control system maintenance, PLC and drive backups, planned obsolescence, and support services such as preventative maintenance, energy surveys and remote monitoring.
"We now approach breakdowns with a broader perspective, not only fixing immediate problems but also working to prevent future issues," Jennifer explained.
This new model has allowed Transicon’s customers to invest incrementally in controls engineering, streamlining processes and minimising downtime. The service team has become a crucial point of contact, fostering closer customer relationships and enabling more effective resource allocation.
"Being available 24/7 has also attracted new customers and changed the type of enquiries and orders we receive," Jennifer added. “We're getting more orders for operational expenditure level projects, which customers would traditionally have done in-house, while we focused on capital investment projects. Now, customers get our expertise through all levels of their business, and we’ve seen an increase in project turnover.”
Servitization's Impact on Operations and Culture
Having a dedicated service team has also had a notable impact on Transicon’s overall operations and team morale. "Our existing engineering department can now focus on their core projects without being pulled away for service calls," Jennifer noted. "This has improved project lead times and client satisfaction, creating a more collaborative environment."
In closing, Jennifer advised others “to evaluate areas of under-utilisation within your business where delivering services could complement your existing portfolio, or whether, like Transicon, you could leverage your unique knowledge as a value-added service. Most importantly, listening to your team's challenges can reveal new opportunities for growth and innovation.”
Common Servitization Barriers
Adopting servitization can offer substantial benefits, but doing so can present several challenges. Following Jennifer’s presentation, a Discussion Group with Made Members explored the most common obstacles and how to overcome them.
Transition: Many businesses find servitization too challenging and complex to adopt. Start small with a pilot programme to test the waters and demonstrate initial success. Use these early wins to build confidence and refine the approach before scaling up.
Service Desk Management: Managing a service desk effectively is challenging, especially when service engineers are remote and frequently on the road. Invest in robust service management software to streamline operations and ensure efficient scheduling and communication. Regularly train service engineers on best practices and maintain strong coordination between the service desk and field engineers.
Worker Wellbeing: Offering 24/7 support can lead to overwork and burnout among service engineers. Implement a rotational on-call schedule to ensure engineers have regular breaks and time off. Promote a culture of work-life balance and provide support resources to maintain employee wellbeing.
Pricing Models: Transitioning to a service-based revenue model can be complex and may initially result in reduced profitability. Develop flexible pricing models that reflect the value provided by the services. Offer subscription-based, pay-per-use or outcome-based pricing to provide customers with options that suit their needs.
Customer Expectations: Customers may have high expectations for service levels, making it difficult to meet demands consistently. Set clear expectations with customers from the outset and maintain open communication. Develop service level agreements (SLAs) to define performance metrics and ensure accountability.
Scalability: Scaling service offerings to meet growing demand can be challenging. Design scalable service models from the beginning, with flexible processes and systems that can be adapted as demand increases. Use automation and digital tools to enhance efficiency and manage growth effectively.
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*All images courtesy of Transicon