News & Events

7th August 2015

Business Growth and Servitization

With customer demand for more value-added services rapidly growing, servitization as a business model and innovation strategy has quickly gained popularity across a number of industries. According to Aston Business School, servitization promises sustained annual business growth of 5 to 10 per cent therefore the concept is now widely used in stimulating organisational change and business growth.

Business Growth and Servitization

The evolution of customer needs combined with growing competition have forced businesses to adopt new business models to secure additional sources of revenue and achieve competitive advantage. As a result, businesses have moved from a pure product orientation towards an integrated product-service offering, providing greater value customers and increasing retention and loyalty. This process, known as servitization, has become a major strategic driver for businesses to remain competitive and satisfy customer needs.

In the context of construction, traditionally the sector has focused predominantly on the design and construction of tangible goods, while services related to the operation and maintenance of buildings were often subsidiary. As the current economic climate has led to falling prices and margins, businesses were forced to rethink their organisational strategy, concentrating on better operational efficiency and building stronger client relationships.  Consequently, faced with a need to encourage growth and increase profitability, businesses embarked on an improvement programme to deliver value added services such as complementary risk advice and property reinstatement cost assessment surveys. Contractors have taken a more holistic approach towards the design, construction, operations, maintenance and post-occupancy of buildings, taking into account the building’s life-cycle and a customer’s unique requirements.

In the service industry companies are looking beyond their traditional offering, assessing the overall needs of customers to broaden the range of services available, such as 24/7 advice or online and application based services. To position themselves as industry leaders, businesses provide customised and personal service that as a result power revenue growth and customer satisfaction. Consequently, extra services are bringing those businesses closer to their customers, building high entry barriers for competitors and enabling overall business growth.

According to the study by Barclays Bank, there is a positive correlation between the adoption of servitization and growth in revenue and profits. Nowadays, when competition is higher than ever before, it has become increasingly difficult for businesses to stand out solely on product or service portfolio. By focusing on adding value, businesses can “servitize” their offering that has a potential to lock the customers in long-term relationships and consequently result in significant year-on-year growth. As stated by Morris Cohen, professor of manufacturing and logistics at the Wharton School of Business at the University of Pennsylvania, “This is the golden age of services, and to survive and prosper every company must transform itself into a service business”.

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