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Value - Procurement Framework in the Context of Servitization

It all started in the attempt to understand the theoretical concept of servitization, i.e., the transformational shift from a product-centric to a service-centric business model and logic that we observe extensively in the area of IT procurement, in particular.

In our earlier posts, we analyzed the notion of XaaS (Anything-as-a-Service) in the context of outsourcing. 

Eventually, the research path led us to the notion of servitization, and we went even further this time.   

IT servitization and procurement

IT servitization has gained significant traction in the procurement landscape in recent years, revolutionizing how businesses approach their IT needs. It refers to transforming traditional IT products into service-oriented offerings, wherein the focus shifts from merely selling hardware or software to providing comprehensive solutions and ongoing support.

Rather than investing in expensive hardware or software licenses upfront, businesses can now opt for subscription-based models, allowing them to align their IT expenses with actual usage and scale resources as needed.

IT servitization fosters long-term partnerships based on close relationships between vendors and their clientele. Service-oriented offerings ensure that businesses can benefit from the latest technologies without the burden of managing them internally.

In essence, IT servitization represents a paradigm shift in how organizations approach IT procurement, emphasizing outcomes over ownership and promoting a more strategic and collaborative approach to technology management. 

In this post, we suggest extending the context beyond the IT domain to most of morern industrial offerings of platforms, solutions, or systems, as opposed to "bare" products and commodities.

Servitization and value delivery

Servitization is a transformation that creates customer value by offering a broader range of solutions, including the physical product bundled with value-added services, such as maintenance, repairs, training, customization, and consulting.

The concept of servitization recognizes that customers often seek outcomes or solutions rather than just products. By offering services that support the product throughout its lifecycle, companies can enhance customer satisfaction, build long-term relationships, and differentiate themselves in competitive markets. Ultimately, they attempt to secure new revenue streams.

Value delivery in the context of servitization refers to providing value to customers through combining products and services. This involves understanding customer needs and preferences, designing service offerings that meet those needs, and delivering those services effectively and efficiently (cost- and process-wise.)

Critical elements of value delivery in servitization include:

Understanding Customer Needs

Companies must deeply understand their customers' needs to develop valuable service offerings.

Designing Service Offerings

This involves designing services that complement and enhance the core product, addressing specific pain points, or adding convenience and efficiency for customers.

Integrating Products and Services 

Successful servitization requires seamless integration between products and services, ensuring customers receive a complex solution that meets their needs as a whole instead of a collection of tangible and intangible deliverables. 

Delivery and Execution 

Companies must effectively deliver services to customers, ensuring reliability, quality, and responsiveness throughout the service delivery.

Continuous Improvement 

Value delivery in servitization is an ongoing process that requires continuous monitoring, evaluation, and improvement to adapt to changing customer needs and market conditions.

Overall, servitization and value delivery go hand in hand, with companies leveraging service offerings to enhance the value proposition of their products and deliver superior value to customers.

Value-Procurement Framework for the Services Sourcing

So, we just gradually reached the familiar ground of value delivery. This is where the main topic of this post resides.

Suppose we summarize the process of value delivery about services. In that case, we may propose the following framework, differentiating services by their orientation (process or product) and the promise of productivity or cost-efficiency gains.

Once you map a service you're about to source in any of the four proposed quadrants, you may identify the value promise and procurement strategy, as presented below. Yet another tool for your sourcing and category management to consider applying.
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My Udemy course "Modern Approach to Cloud Software (SaaS) Negotiations."

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More information on this and other exciting topics can be found in "The Technology Procurement Handbook." It represents 23 years of experience, billions of dollars worth of successful sourcing projects, and 1000s hours spent on research, analysis, and content creation for the most demanding professional readers.
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This post first appeared on The Good Spending, please read the originial post: here

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Value - Procurement Framework in the Context of Servitization


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