Servitization describes the journey that manufacturers take towards advanced services. It is a move away from earning revenues through product sales, towards viewing products as a platform for engaging customers in long term, highly profitable, and mutually beneficial relationships. While the benefits are appealing, most companies struggle with the complexity they encounter when they move away from their core business and enter the messy world of service ecosystems. Design thinking can help. It provides a collection of tools and practices based on human-centred design, which help to structure and tackle complexity. Using it effectively requires a fresh perspective and a willingness to change.
What is design thinking?
Over the last decade or so, design thinking has gone from a phrase used at product design consultancies such as IDEO, to an approach applied by companies as diverse as AirBnB, IKEA, Netflix, Tesla, PepsiCo and IBM. Research over many years has shown that when companies invest more in design they tend to outperform their competitors. In the past, that applied mainly to effort spent on making products work better. Now, the importance of service quality and customer experiences, even for industrial manufacturers, means the focus has shifted from product design to human-centred design thinking. Among the many practices this entails, three in particular stand out.
Firstly, at its core, design thinking involves reframing problems through empathy with stakeholders. Secondly, since complex problems affect and are affected by multiple stakeholders, the solutions must involve these stakeholders. Thirdly, it encourages rapid experimentation and prototyping, followed by scale-up. Designers are taught to use these practices in their workshops and studios, while applying tools for understanding users, investigating problems and creating solutions.
Successful businesses that rely on scale and standardisation may find design thinking inefficient and wasteful. These businesses focus on exploiting their core capabilities profitably, using them to create new product innovations that customers want. While that works when customers, suppliers and competitors behave predictably, if things change, these capabilities become rigidities that stop the business from adapting. As Roger Martin argues, businesses can sustain their success when they use design thinking to tackle new problems only if they are able to standardise and scale up the solutions. Despite the inefficiency that comes with iterative testing of solutions and defining problems, design thinking can be used to address new challenges, and even to update capabilities, in other words to innovate the way that businesses innovate.
Based on over a decade of research into design thinking and servitization, here are three tips on how an organisation can make the most of both.
Define value from the customer’s perspective
As Professor Ted Levitt famously argued, customers do not set out to buy products, they seek the value these products provide. If an organisation does not have an effective product innovation process or products that customers want to buy, then servitization may not work. On the other hand, if it does create successful, innovative products, its next move may be to shift the focus away from selling more products and towards creating more value for customers.
The questions you should ask are what outcomes customers want to achieve and how much you are helping them reach these outcomes? If you are offering services, that is a good start. Are your services and products achieving the outcome, or leaving customers to put the pieces together? What is missing from your current value proposition? To answer these questions, apply design thinking tools that allow you to empathise with users. Create customer journey maps and personas to help understand their pains and potential gains.
For example, Goodyear, a tire manufacturer, discovered that for customers such as haulage companies, time and cost pressure left little time for checking and maintaining tire pressure. Goodyear’s innovation team developed services to proactively monitor customers’ tires, including through sensors and digital technologies. Empathy with the customer, rather than technological breakthroughs were the key.
Distribute your problem solving to an ecosystem
Having defined what customers want and what you are currently offering, you then need to design ways of solving customers’ problems. This might mean designing a new product. More likely it means leveraging your organisation’s capabilities and partnering with other organisations that can fill in gaps. Technological innovations are often described as disruptive, but in reality, their ability to disrupt depends very much on the strength of their ecosystem. Seek to apply divergent thinking, to identify all the possible ways of overcoming the pains, however impractical these initially seem. Design a solution, and identify the capabilities needed to deliver it. This might mean creating a new ecosystem, with partners from outside of your industry, to help create a full package. Service providers, technology developers, and others can pool their resources if they are aligned around the value proposition and if the business model incentivises them to work effectively.
For example, Caterpillar sought to define its customers pains, but also instigated closer collaboration with its dealer network and with customers themselves. It recognised the importance of coordinating manufacturing and service functions, and of ensuring dealer networks and service engineers were equipped to better manage contact with customers. Moreover, it segmented its customers according to three levels of support, in order to streamline and scale its service agreements.
Separate, prototype and scale-up
Perhaps the most challenging part of applying design thinking is the need for a fresh perspective. It is challenging to get a successful business to start from scratch. Why should we do something differently when our products are selling well? The answer is that every product falls out of fashion and waiting until sales inevitably decline may be too late. Instead, the best thing to do may be separate a pilot project from the organisation’s innovation process. Bring in the best minds to tackle the complex, wicked problems and devise innovative solutions. Give them the freedom to experiment, prototype and make mistakes. Provide them enough access to customers for them to figure out what works well and only then, when it has been de-risked and proven, should you integrate the solutions into the existing processes.
Nederman, a specialist in air filtration systems, saw an opportunity to exploit digital technologies that enable monitoring and performance improvement. They set up a new division, which developed new services and revenue streams. They achieved this by using empathy mapping and storyboarding techniques to define customers’ pains and gains, before looking to the ecosystem, expanding their service capability through acquisitions. Finally, creating a separate division allows the freedom to expand the value propositions while minimising disruption to the core business.
Following this approach, you should be able to achieve the best of both worlds: processes that are standardised and efficient at scale, which exploit proven solutions, as well as a separate, design thinking process that explores new problems, has freedom to test what doesn’t work, to create and prove solutions that do work. The key is to do the exploration while you are successful, and to update your processes and business model before anyone else.
About the Author
Dr Ahmad Beltagui is a member of the Advanced Services Group and teaches operations management at Aston Business School. His research is concerned with three primary areas: Design Driven Innovation, Servitization & Service Operations Management and 3D Printing.
Further Reading
A study commissioned by the Design Council and conducted at London Business School in the 1990s suggested design intensive firms are more active exporters and found that every additional 1% of turnover invested into design was associated with a 3-4% increase in profit over 5 years. More recently, a report by McKinsey found design intensive firms outperformed competitors in revenue and shareholder returns by as much as 2 to 1. Sentance, Andrew, and James Clarke. 1997. The Contribution of Design to the UK Economy, Design Council, Research Programme, Centre for Economic Forecasting, London Business School, 1-44. https://www.mckinsey.com/business-functions/mckinsey-design/our-insights/the-business-value-of-design
Dorst (2011) offers an example of crime in a nightclub district in Australia. Originally framed as a law and order problem, the solution involved more security and police. A human-centred approach reframed the problem as one of transport availability – the time delay between night clubs’ closing time and the first public transport meant people on the street with nothing to do, starting fights. Seen as a transportation problem, the solution becomes making more buses available.
Leonard-Barton, D. (1992). Core capabilities and core rigidities: A paradox in managing new product development. Strategic Management Journal, 13(S1), 111–125.
Martin, R. L. (2009) The design of business: why design thinking is the next competitive advantage. Boston, MA: Harvard Business School Press.
Pawar, K. S., Beltagui, A. and Riedel, J. C. K. H. (2009) ‘The PSO triangle: Designing product, service and organisation to create value’, International Journal of Operations and Production Management, 29(5). https://doi.org/10.1108/01443570910953595.
Beltagui, A. (2018) ‘A design-thinking perspective on capability development: The case of new product development for a service business model’, International Journal of Operations and Production Management, 38(4). https://doi.org/10.1108/IJOPM-11-2016-0661.
Levitt, T. (1960). Marketing myopia. Harvard Business Review, 38, 45–56.
Beltagui, A., Candi, M., & Riedel, J. C. K. H. (2016). Setting the stage for service experience: design strategies for functional services. Journal of Service Management, 27(5). https://doi.org/10.1108/JOSM-08-2015-0234.
Beltagui, A., Rosli, A., & Candi, M. (2020). Exaptation in a digital innovation ecosystem: The disruptive impacts of 3D printing. Research Policy, 49(1). https://doi.org/10.1016/j.respol.2019.103833
Osterwalder, A., Pigneur, Y., Smith, A. and Etiemble, F., 2020. The Invincible Company: How to Constantly Reinvent Your Organization with Inspiration From the World's Best Business Models. John Wiley & Sons.
