Trends Towards Servitisation

Abstract

After gaining insights on the German business practice of service productivity management this chapter written by Andy Neely will investigate the servitization development in Germany. In particular the chapter looks at the German experience using a data sample of 4,080 firms located in Germany. The chapter looks at the reasons why firms servitise, and the range and extent of services offered by German firms. The data on the German firms are contrasted with data from other European countries and are also compared to data from the BRIC countries. The chapter offers a glimpse into the future and asks what role services might play in the future of German manufacturing success.

The former dichotomy between product and service has been replaced by a service-product continuum. Many products are being transformed into services. To give one example: The software manufacturer IBM treats its business as a service business. Even if they still manufacture computers, IBM sees all physical goods as an element of the “business solutions” industry. One reason for that development is that the price elasticity of demand for “business solutions” is much less than for hardware. So there has been a corresponding shift to a subscription pricing model. As a result, IBM is now receiving a steady stream of revenue for ongoing contracts, rather than receiving a single payment for a piece of manufactured hardware.