servitisation

Servitization is a business strategy in which companies that traditionally sell physical products shift toward offering integrated products and services designed to deliver a defined outcome for the customer. Rather than a one-off sale, firms monetize ongoing value through service components, often via long-term contracts and performance-based pricing.

The concept arose in the late 1980s, with scholars such as Vandermerwe and Rada describing how manufacturers could add services to products. Technologies such as sensors, connectivity, and data analytics, together with the growth of the subscription economy, have accelerated servitization by enabling remote monitoring, predictive maintenance, and bundled outcomes.

Forms of servitization range from product-oriented services (maintenance, spare parts, upgrades) to use-oriented services (leasing, pay-per-use, access models) and, most strategically, result-oriented or outcome-based services in which the provider guarantees a defined performance level. Notable examples include Rolls-Royce’s Power by the Hour, where the engine is sold as a service tied to performance, and other manufacturers that bundle outcomes with equipment.

Benefits include new and more stable revenue streams, improved customer loyalty, and better asset utilization through data-driven service delivery. Challenges encompass organizational and cultural change, investment in service capabilities and data infrastructure, risk in price and performance guarantees, and data governance and security concerns.

Servitization is common in manufacturing, industrial equipment, and aerospace, while software as a service represents a closely related approach. It is associated with broader trends toward outcome economics and sustainable value creation through closer customer partnerships.