How servitization has affected change in the industry and what’s next for businesses.
Tim Baines of Aston Business School will tell you that Rolls-Royce was one of the first to do it, with their ingenious “Power by the Hour” program. But what exactly is “it” that they are doing? Probably best known as performance-based logistics (PBL) in the defense industry, but also referred to as servitization by manufacturers across all industries, “it” refers to the “innovation of an organization’s capabilities and processes to better create mutual value through a shift from selling a product to selling product-service systems.”
With the long service lifecycles of aircraft and other complex assets in commercial aviation and defense, original equipment manufacturers (OEMs) and tier 1 suppliers need to find ways to create ongoing revenue streams for better profitability while driving continued improvement and innovation in design. As one of the pioneers of this business model, Boeing, asks its customers what they want to achieve (A: maximize flying time) rather than just asking what they want (A: an aircraft). As a result, they offer GoldCare®, enabling customers to purchase the availability of an aircraft based on a ‘fixed dollar per flying hour’ while Boeing delivers the support that ensures the availability of the aircraft.
The weight that through-life availability carries in the industry today is driven by changing market forces and rising demand. Organizations can no longer operate as stand-alone providers. They now need to work closely with suppliers and customers to adapt to changing business forces and met demand. Busier skies, and an increase in less predictable counter-insurgency military operations, demand increased uptime. Manufacturers’ goals are to minimize mean time to repair and improve first-time fix rates, to provide this availability while maximizing profitability and performance against a contract. The loop between customer demand and aircraft and asset design must also be closed. Continued innovation means increased potential for future contracts and end-user expectation and need must be fed back into the design as that function becomes more intertwined with service.
Servitization in practice
Servitization, as a practice, simply augments service practices that have already been in place in the industry, such as contract for availability (CFA) and performance-based logistics (PBL). The nature of these contracts is intrinsically linked with the features of servitization. When an aviation or defense OEM adopts a servitization approach that no longer consists primarily of products but also consists of value-added services, it fundamentally changes the organization’s business model. At this point, another value stream is added; a service value stream, which runs in parallel with your product value stream. Therefore, to help with service lifecycle management (SLM) in order to meet these new service demands and activities, aviation manufacturers are seeing the need to increase their investments in technology and processes.
What should organizations be doing to prepare for this fundamental shift in business operations?
- Evaluate your current SLM strategy
Having a strong service lifecycle chain is imperative to providing your customers with a powerful combination of products and services as one offering. Optimizing your processes to ensure consistent transfer and delivery of data, as well as integration with customers’ own operations, is imperative.
- Address change management from the top down
Moving from a product to service focus requires organizational transformation and change is required. Buy-in across the board is essential to success, so communicate on an enterprise-wide scale as opposed to communicating through traditional hierarchical passages and collaborate across the organization. Ensure you are employing personnel with humanistic skill sets that will help drive a service-empowered culture. Lastly, ensure your performance measures are aligned with new growth goals and new structuring of your business model.
- Embrace technology and digital transformation
Technology is enabling organizations to provide better products and servicing of those products to deliver better end-value and through-life accountability. The Internet of Things (IoT) allows aircraft themselves to collect and distribute performance data needed to develop better aircraft designs and optimize service schedules. Using these developing technologies to facilitate your shifting business model will only augment adoption when implemented correctly.
How servitization is changing the way we do business
Servitization is already changing the way the commercial aviation industry does business. Besides the above-mentioned example from Rolls-Royce and Boeing, several other OEMs and tier 1 suppliers are adopting servitization practices to transform their traditional offerings and to increase the value-add to their customers. BAE Systems has created lasting value for the UK MOD’s defense equipment and support organization with their ATTAC (Availability Transformation: Tornado Aircraft Contract), which is increasing product quality and reducing the cost of delivery, failure and maintenance. IFS software has helped enable GE Aviation to deliver an award winning PBL contract with the US Navy, providing invaluable optimization of the service lifecycle to empower a servitization approach.
Servitization in the commercial aviation and defense industry implies a different way of managing partnerships and agreement but the benefits are abundant. Enhanced revenue, greater customer satisfaction and more predictable income streams are incentivizing organizations to take through-life asset accountability to the next level, changing business as we know it.
To find out more about servitization in commercial aviation and defense, download the white paper, “Servitization: Transforming asset support in the commercial aviation & defense industry.”
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