Manufacturing is a big part of the UK’s economy, accounting for nearly 10% of output and half of all exports. It provides jobs for more than 2.5 million skilled workers, who earn good pay and support their local communities. But the sector is facing serious challenges. Cheaper international competitors are making high-quality products, creating difficulties for UK manufacturers to stay competitive. We must find ways to help UK manufacturers compete in a rapidly changing global market. THE PROMISE OF SERVITIZATION One key trend in business today is servitization. This means manufacturers are changing how they operate, focusing on providing results for their customers rather than just selling products. Instead of selling equipment once, they offer services that help industrial clients achieve the outcomes that matter most to them. Rolls-Royce Aerospace’s TotalCare programme is a prime example. Instead of just selling engines, RollsRoyce provides a “power by the hour” service, where airlines pay for guaranteed performance – thrust, uptime, and efficiency, rather than just purchasing hardware. This approach emphasises reliable performance over physical products, aligning better with airline priorities. The focus is on dependability and peace of mind, not just the product itself. In servitization, the product becomes part of a comprehensive system designed to deliver specific outcomes, enhancing value and customer satisfaction. WHY SERVITIZATION MATTERS Servitization offers major benefits for manufacturers, their customers, and the broader industry. Manufacturers gain stability through long-term service contracts and recurring revenue, reducing reliance on one-time sales and avoiding boomand-bust cycles. Focusing on outcomes helps differentiate firms and protect margins against low-cost competitors. For industrial customers, servitization fosters closer strategic relationships with suppliers motivated to innovate and share risks, building trust for deeper, long-term collaborations. Industry-wide, it promotes sustainability and circular economy goals by emphasising design for repair and reuse. Shared responsibility for efficient operations aligns with efforts to reduce greenhouse gas emissions across the supply chain, supporting organisations to meet their Scope 3 emission targets. WHY SERVITIZATION IS DIFFICULT While many manufacturers see the potential of servitization, the primary barriers they face are not technical, but rooted in organisational factors like skills, culture, and mindset. The traditional product-focused approach views services as secondary or ‘necessary evil’ rather than as a strategic differentiator and area of innovation. Transitioning to outcome-based services requires rethinking skills, culture, and structures. This is challenging but achievable. Our team at Lancaster University Management School, in partnership with the Advanced Services Group (ASG), has over a decade of experience in servitization, working with 300-plus manufacturers to solve challenges and develop practical strategies for their transformation. An EPSRC-funded Impact Acceleration Account project allowed us to collaborate with the Morecambe Bay-based ElecTech Innovation cluster, providing collaboration opportunities for manufacturers to work with Lancaster University. A PRACTICAL PATHWAY Our research shows that choosing the right starting point is crucial on the servitization journey. To simplify this process, we created a Servitization Bootcamp that clarifies the concept, offers practical tools to build the business case, and guides the development of projects through three key steps. 1. Apply the concepts The first step is to make servitization concepts practical and relevant for businesses, highlighting opportunities they can exploit. Look at best practice in your industry, with examples from leading companies – large and small. Servitization is not just for large manufacturers. SMEs, with their agility, strong leadership, and close customer connections, are well-placed to benefit from the shift. The step also includes mapping manufacturers’ existing service activities to various service levels, from basic to advanced, to understand current service offerings and how these activities are interconnected. For instance, providing uptime depends on robust repair and maintenance capabilities. Our ElecTech Cluster members found it valuable to identify and compare their current offerings, such as advisory services, although they noted that since these are rarely charged, they are mainly seen as costs rather than sources of revenue or profit opportunities. 2. Build the business case Start building a strong business case for a service-based offering. This is crucial to gaining leadership support and to securing resources for full development. A common challenge manufacturers face is limited insight into customer needs. While they are often product experts, developing services that meet customer needs and profitability objectives demands a much deeper understanding of the customer’s business. Manufacturers need to use customer empathy techniques to understand customer needs, opportunities, and pain points. Based on our experience, mapping out the customer’s economic situation, strategic goals, process hurdles, and product experience is especially effective. These techniques should be employed in collaboration with multiple customers to learn about their broader business challenges. Working with the ElecTech Cluster, we found they struggled to analyse customer businesses deeply, underscoring how crucial this 12 |
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