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How Servitisation and Industry 4.0 are Transforming Business Models for SMEs Manufacturers

As we enter into a new decade, it’s important to reflect on the changes that have taken place in recent years and how they have affected the business landscape. Two major phenomena that have emerged in recent years are “servitisation” and “Industry 4.0”, and both have had a major impact on product firms, not only on big companies but SMEs manufacturing companies.

that have taken place in recent years and how they have affected the business landscape

Servitization describes the trend of industrial companies adding value to the customer experience by providing service-based solutions (demand pull). This contrasts with Industry 4.0, frequently related to adding value to the manufacturing process through digital technologies (technology-push) concepts.

Content Summary

A Framework for Servitization for SMEs Manufacturers
The Baines Framework – ‘PASTA’
PASTA Stage 1: Product-centric
PASTA Stage 2: Add-on Services
PASTA Stage 3: Services-based
PASTA Stage 4: Total Solutions
PASTA Stage 5: Alliance and Ecosystem
Industry 4.0 Technologies
Conclusion

A Framework for Servitization for SMEs Manufacturers

The biggest challenge for servitisation practitioners is transforming a manufacturing organisation into one that offers services. Delivering advanced services requires different capabilities from those used during manufacturing. This is made yet more challenging due to the lack of an established framework for companies wishing to transform their business. Current research from scholars such as Baines seeks to create a roadmap for companies that intend to address the barriers many companies face.

The Baines Framework – ‘PASTA’

“PASTA” – provides a Company self-assessment, which assesses their stage in the servitisation process. There are five stages: Product-centric, Add-on services, Service-based, Total solutions and Alliance & Ecosystems. The completed self-assessment will enable the company to understand where they are on their servitisation journey and what actions need to be taken to progress to the next stage. The main benefits of this approach include; a reduction in manufacturing costs, improved customer engagement and retention and new revenue opportunities.

The Baines Framework – 'PASTA'

PASTA Stage 1: Product-centric

This is the framework’s first stage and is where most organisations start before even considering servitisation. The company, at this stage, only offers products with no additional services other than those that make up the product itself, e.g., installation or delivery. To progress onto the next step, companies should begin by offering customers additional product-related services, e.g., maintenance. This will require changes not just to operations but also in terms of culture and mindset within the company, as selling products alone will no longer be sufficient.

PASTA Stage 2: Add-on Services

At this stage, companies have moved beyond simply selling products and now offer customers additional services that can be delivered alongside the product, e.g., installation, repairs and maintenance. These services are often low risk as they do not require substantial changes to current operations or skillsets and can be easily integrated into existing sales processes. However, in progress further, along the framework, companies should seek to increase customer engagement by offering them personalised service contracts or programmes.

PASTA Stage 3: Services-based

At this point, companies have moved away from purely product sales towards a model where they generate revenue primarily through service contracts, e.g., subscriptions or rental agreements. Manufacturing still plays a role; however, it is now subordinate to service delivery which has become the primary focus of operations —making this transition will require changes not just operationally but across all parts of the business, including HR, IT and marketing. Furthermore, as this model represents a move away from pure product sales, some staff members will likely need retraining, either upskilling or reskilling, to sell and deliver services effectively.

PASTA Stage 4: Total Solutions

In this final stage, organisations offer customers an integrated solution that includes products and services, e.g., Pay per use models or performance-based contracts. These types of arrangements often involve a high degree of risk; however, they also offer the potential for significant rewards such as increased customer loyalty and advocacy. The transition to total solutions will require changes at all levels, including strategy, operations, HR and IT infrastructure, towards the total digital transformation business model.

PASTA Stage 5: Alliance and Ecosystem

To maintain a successful and sustainable business, it is important to have a strong alliance and ecosystem. An alliance is a group of people, organisations, or countries that have joined together for mutual benefit or to achieve some common purpose. On the other hand, an ecosystem is a community of different organisms and their physical environment. Simply put, your alliance and ecosystem are your support system – they provide the foundation upon which your business can grow and prosper.

Industry 4.0 Technologies

The Internet of Things and Big Data technology are essential for servitisation businesses. By collecting data from sensors on machines and other assets, companies can make informed decisions about how to improve performance and efficiency. This can then be used to benefit clients, such as through cost reductions or improved performance.

Conclusion

Product firms that want to stay ahead of the competition must find new ways to innovate their business models. By embracing digital transformation and integrating servitisation and Industry 4.0 into their operations, they can tap into new revenue streams, become more attractive to customers, and differentiate themselves from the competition. These factors will help product firms remain competitive in the marketplace and achieve their business goals.

The PASTA framework provides SME manufacturers with a roadmap and assessment framework for servitisation success. By understanding where they are on their servitisation journey, companies can identify what actions need to be taken to move on to the next stage. Whilst challenges are associated with each step of servitisation, ranging from cultural change within the organisation to developing new skill sets, the potential rewards make these challenges worthwhile. So, if your manufacturing company is looking for a Servitisation model, do not delay and use PASTA to start exploring today! Enjoy your “PASTA”.

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