Servitisation in construction
The idea of increasing the worth of a product by overlaying additional services – ‘servitisation’ for shorthand – is something that progressive business leaders in the construction industry are beginning to offer. Thanks to the progression of technology, it is becoming a no-brainer: construction is big business and represents a significant cost to the client in exchange for a significant, long-lasting asset, so the management of that asset is the next step.
When looking at the impact construction could have, Mark Brewer, global industry director for Service Management IFS says that “For construction companies looking to add innovative service and asset management capabilities to their offerings, the benefits are straightforward: enhanced revenue, better margins, sustainable business growth, predictable income streams and higher levels of customer satisfaction. Customers want to pay for an outcome, for an asset to be productive in the long term, and for a streamlined supply chain. Construction companies taking a servitisation approach from the ground up can build that outcome into every stage of a project - from design, to delivery, to ongoing service.”
Construction companies taking a servitisation approach from the ground up can build that outcome into every stage of a project - from design, to delivery, to ongoing service
Servitisation is popular in a raft of other industries, mostly because of its ability to add value for both the supplier and the consumer. Indeed, the term was coined in 1988 by authors Sandra Vandermerwe and Juan Rada in their book Servitization of business: Adding value by adding services.
“There is a growing portfolio of examples where advanced services are delivering benefits,” says Professor Tim Baines of the operations and information management department at Aston Business School. “Rolls-Royce, for instance, offers power-by-the-hour on gas turbines, and partially because of this the engineering giant earns over 50 per cent of its revenues from services.
“These days, society’s appetite for services greatly outstrips its appetite for product. Recent innovations in digital technologies are starting to provide businesses with platforms that de-risk and enable more advanced services, although some businesses are quicker than others to recognise this opportunity. They do, though, encounter obstacles in their adoption of servitisation – the most prominent being those associated with change and internal innovation issues.”
Asked whether contracting should be based on its outcomes, Prof. Baines says: “It depends on the situation. If your own home required decorating and you chose to contract a painter, would you pay them for the time they take to do this by time and materials, or would you rather fix a price for the complete job to an agreed standard, i.e. the outcome? It all comes down to risk: if it is high, and visible, the manufacturer is best positioned to manage that, rather than the customer. If that is the case then it is a good idea to both offer and adopt an advanced service.”
Prof. Baines believes “there is significant potential” for servitisation to develop in the construction industry, “especially in the B2B context”. He says: “This is particularly prevalent in building infrastructure. Air-conditioning systems are one example where outcome contracts have taken hold. The same potential exists for many building systems – electrical, heating, water.”
Software organisation Canonical has recently conducted research into how the Internet of Things (IoT) is impacting the construction industry, and servitisation in particular. Jamie Bennett, vice president of engineering, IoT and devices at Canonical, suggests constructors should take advantage of artificial intelligence-infused predictive maintenance software and developments in robotics – not least because it is what the consumer has come to expect and, moreover, demand.
“Servitisation is the result of a culture dominated by immediacy and macro-access,” he says. “Music streaming, car leases, and rolling energy tariffs have all shown that choice is more important than ownership in today’s world. And it’s no different in construction, with suppliers moving away from singular business transactions in favour of ongoing, subscription-based offerings.
Servitisation is the result of a culture dominated by immediacy and macro-access
“Servitisation suits an industry experiencing a digital revolution, and as construction evolves alongside three-dimensional printing, robotics, and smarter supply chains, a business model designed to maximise the worth of every purchase reigns supreme.”
Outlining the advantages, Mr Bennett continues: “Successful construction relies on end-to-end efficiency, and servitisation will enable the integration of smarter systems and devices into that overall journey. Although servitisation could pose a threat at first – rolling updates and beta products promote choice, not quality – it also allows new technologies such as big data and the IoT to elevate operations.
“Predictive maintenance, achieved through a web of connected sensors and nodes, will help construction businesses extend the life cycles of heavy equipment; monitoring temperature fluctuations and excessive strains in real-time, resulting in less downtime and better results.”
“Servitisation also allows buyers to incorporate tracking features into their operations. This means that contractors today can streamline the development of prefabricated buildings from production line to construction and, more accurately, report on deliverables in the process. In the future, on-site robots and fleets of autonomous drones will assess challenges at a micro level, and respond in a highly targeted, per use basis.”
Servitisation can only be viable or profitable for construction companies when the organisation has a true understanding of the services it provides throughout its life cycle
However, Jennifer Major, head of IoT at SAS in the United Kingdom and Ireland, warns: “Servitisation can only be viable or profitable for construction companies when the organisation has a true understanding of the services it provides throughout its life cycle. This means knowing every aspect of the throughput cost, logistics, environmental operations, performance degradation and more.
“In simple terms, it’s about understanding the operational footprint a device or service has. This provides the insight needed to effectively manage and cost a servitisation offering effectively. Many organisations are familiar with the term ‘big data’ that represents data in volume, variety and velocity, but very few know how to manage this data and extract the right level of insight and value to adopt this type of strategy.”
Mr Bennett is more positive, and adds: “Construction is increasingly an exact science and servitisation can more accurately marry investment to outcome. By analysing the exact usage of a product within an IoT network, businesses can pay only for what they use, while suppliers can also benefit from recurring payments and a more engaged customer-base.
“This form of lean construction promotes a greater deal of flexibility, whereby data-driven services more accurately assess the outcome of any construction project. The anything-as-a-service model that IoT enables means that construction companies will adapt to offer increasingly bespoke solutions, with constantly evolving outcomes replacing finite contracts.”