Mapping Servitization Strategy for Original Equipment Manufacturers: Essential Steps for a Smooth Transition

The Renaissance in OEM Business Models

In the vast expanse of the modern business landscape, Original Equipment Manufacturers (OEMs), whether operating as providers of standalone products or the manufacturers of crucial components in other OEMs products, find themselves on the precipice of transformation. Traditional models, built around product-centric ideologies, are now undergoing profound evolution. Modern markets, sculpted by rapidly evolving customer demands and an accelerating push for integrated solutions, are compelling OEMs to restructure and refine their strategies. One approach that has increasingly emerged as a game-changer is Servitization in Manufacturing.

At its core, servitization in manufacturing intertwines services with traditional manufactured product offerings, blurring the lines and creating holistic solutions. An insightful study from Harvard Business Review sheds light on this significant shift, emphasizing the need for businesses to seamlessly weave in integrated solutions for staying competitive and relevant.

Crafting an Effective Servitization Strategy for OEMs

The transformative journey of servitization for manufacturers isn’t a one-size-fits-all strategy. It’s a multifaceted path that calls for adaptability, foresight, and collaboration. One of the cornerstones in this evolution is the emphasis on strategic partnerships. Collaborative ventures with fellow OEMs or complementary entities in the broader business ecosystem can unravel fresh avenues for innovation, co-development, and cross-industry synergies.

For component-based OEMs, the potential to tap into this shift is vast. Their intrinsic knowledge of their products, coupled with insights into how these components function within overarching systems, can be a unique selling point. By utilizing this profound understanding, OEMs can create a suite of services, ranging from performance optimization and predictive maintenance to integration solutions, each of which adds layers of value to their core product offering. 

It’s also hard to ignore the digital wave sweeping across industries. Digitization and the Internet of Things (IoT) hold transformative potential for OEMs. As highlighted by a Forbes article, IoT’s intersection with manufacturing is paving the way for richer, data-driven, and real-time insights. Such advancements, when harnessed efficiently, can revolutionize value propositions, enhance customer relationships, and birth entirely new business models.

Navigating the Future: Vision for OEMs in a Servitized Landscape

The horizon ahead, while brimming with opportunities, demands precise navigation from OEMs. This involves a symbiotic integration of their intrinsic product knowledge with the nuances of contemporary service management, customer relationship dynamics, and the intricacies of the digital age.

Diving deeper with an illustrative example, we can consider John Deere, a household name in the world of agricultural machinery, as a compelling case study in the realm of servitization. Traditionally known for its iconic green tractors and farming equipment, the company has recognized the potential of diversifying beyond mere machinery sales.

In recent years, John Deere has tapped into the transformative power of digital technologies and IoT, integrating these advancements into their product line. They launched the “John Deere Operations Center“, a digital platform offering farmers real-time insights into their machines’ performance, soil conditions, and crop health. Through this platform, farmers can monitor equipment location, analyze yield data, and even receive predictive maintenance alerts. Such services transcend the bounds of what was once a simple machinery sale. By intertwining the physical and digital, John Deere equips farmers with tools to optimize operations, enhance productivity, and, consequently, maximize profitability.

This shift towards servitization not only expanded John Deere’s revenue opportunities but also repositioned them as a holistic solution provider for the agricultural industry, attuned to the evolving needs and challenges of modern-day farming.

The Importance of Efficient Service Contract Management in Servitization for Manufacturers

Competent service contract management is of utmost importance in a time when service-oriented businesses are taking over many industries. Service agreements encompass the complexity and wide-ranging services provided by many OEMs. However, there is a problem: How can specialized manufacturers use advanced service contracts to steadily increase their profitability?

Traditional Configure-Price-Quote (CPQ) tools, designed initially for manufacturers of machineries, frequently fall short. These tools primarily emphasize physical assets like machinery, ignoring the priceless intangibles that are essential to service businesses like human resources and performance. This narrow perspective, which is equivalent to trying to fit a square peg into a round hole, is inadequate for a service-centric business environment. Modern service contract management solutions, however, change the emphasis. 

These solutions accommodate both tangible and intangible assets, offering an unmatched level of flexibility, in recognition of the fact that services aren’t just peripheral components but rather the core of the modern economy. They are more than just CPQ tools; they stand for a revolutionary designing, configuring, pricing, and delivering services.

With cutting-edge service contract management solutions, businesses can:

  • Adapt and Configure: Unlike traditional tools that confine services to fixed templates, modern solutions enable businesses to craft service contracts reflecting their unique value propositions. This ranges from basic maintenance services to sophisticated performance- and outcome-based offerings.
  • Financial Vigilance: Profit isn’t just about revenue; it entails astutely managing costs and maximizing margins. These tools provide mechanisms to monitor profitability metrics, offering pricing engines for strategic decisions, advanced forecasting tools, and mechanisms to ensure margins remain robust.
  • Real-time Monitoring: Upholding service delivery to align with contractual obligations is crucial. Modern solutions, complete with advanced functionalities and integrations, allow businesses to maintain an ongoing overview of their services, swiftly pinpointing and rectifying any discrepancies.

For OEMs transitioning towards servitization, sustainable profitability hinges on proficient service contract management. A well-orchestrated and flexible service contract can drive efficiency, minimize waste, and optimize revenue streams. Conversely, poorly managed contracts can erode trust, diminish margins, and hamper profitability. With the right service contract management tools, businesses can harness their services as pivotal drivers of sustainable profitability, meeting the ever-evolving demands of the modern marketplace.


All in all, OEMs stand at a pivotal juncture. The forthcoming years, fortified by a servitization-driven approach, herald a business landscape that’s more interconnected, customer-centric, and innovative. With astute strategies, an openness to evolution, and a commitment to aligning with market dynamics, OEMs can forge a future trajectory that’s not just profitable but also aligned with evolving global demands.