In recent years, with the evolution of technology and changing global trends, the business world has undergone tremendous change. One of these changes is an increase in “servitization.”
Servitization is a business model that focuses on the sale of services instead of or in addition to products. Recently, there has been a shift from consumption of tangible goods to consumption of intangible things.
Take the automobile industry as an example– automobile manufacturers sell cars to consumers. Essentially, the consumer is paying to physically possess a car. However, the experiences drivers get from their car– like listening to a high quality sound system, and being able to travel to various destinations– are actually what provides significant value. The broad “service” one buys when buying a car also includes all of the experiences connected with it, including customer service, repairs, and the resale or disposal of the car when the driver no longer wants or needs it.
So, how is this service-centered mind set playing a role in our current economy? In this article, we’ll walk through the possibilities of services and the role design plays in service success based on global statistics, and how you might be able to improve your services through service design.
Service Industry Statistics
Let’s take a look services as a whole and trends in the service industry.
Here, we’ve collected statistics on domestic and overseas service industries and servitization.
The global service industry has grown rapidly since the 20th century and now accounts for 65% of the world’s GDP and 70% of Japan’s GDP (Figures 1 and 2). In addition, the ratio of the service industry to GDP has continued to increase year by year. Although there have been concerns about the impact of COVID-19, it has maintained an upward trend.
Next, data on servitization (Fig. 3). An international survey conducted in 2019 found that out of 190,000 manufacturers, 38% provide services as well as products.
70% of the world’s economy is now made up of service businesses.
At the IFS World Conference 2018, Mark Brewer (Vice President of Service Industries at IFS) stated that 70% of the world’s economy is now made up of service businesses, and that despite service representing around 20% of companies’ revenue, the service segment has a 60% profit margin.
In other words, services has become the main traded “good” in both the global and Japanese economies, and it seems that it is becoming an inseparably tied to numerous fields, including industries like manufacturing.
Possibilities for Business & Design
So we know services are dominating the economy. But we should also note that not all services are created equal– some perform better than others. Let’s take a look at how improving services, especially through design, can actually affect a company’s performance.
Improving services is shown to have a significant impact on business outcomes, as evidenced by a 5% increase in customer retention and a 25% to 95% increase in profits.
So how can you improve your service? One approach is to use design methodologies.
In the field of service design, we regard customer experience and the experience of all stakeholders involved in the business as services, and try to design these interactions holistically. Service design is characterized by dealing with qualitative data as well as quantitative data to explore the characteristics of customers.
It has been shown that companies that incorporate design into their management have better outcomes (Figure 2), and the relationship between business and design is of growing interest globally.
Figure 2-1 is taken from the “Business value of design” published by McKinsey & Company. This report surveys the financial data of 300 listed companies around the world and measures related to design, and indexes them with the McKinsey Design Index (MDI). The survey covered three sectors: healthcare technology, consumer manufacturing, and retail banking.
Figure 2-2 shows the results of a survey conducted by the Design Management institute. This survey looks at stock price volatility in 16 of the S & P 500 companies that focus on design and others. It shows that the stock prices of design-focused companies have grown 2.1 times above average in the 10 years since 2005.
It’s clear from the statistics that improving services through design methodology has had a positive effect on overall business performance.
As competition accelerates, it is increasingly important to figure out how to create added value. Companies that provide “services” as added value are realizing higher profit margins, and market differentiation and design is bolstering these efforts, while bringing a new perspective to the business.
We hope these infographics provided you with new insights about servitization and design!
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This blog was translated to English by Elena Iwata.
Service Design Intern
Rei is currently a student at Tokyu University of Foreign Studies, majoring in French and Sociolinguistics. She is passionate about understanding society and culture, with a current focus on Service Design and sustainability.