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Monitor Daily: Evolving with ‘Servitization’: The Days of Buying Equipment Are Numbered

Most of us enjoy the benefits of servitization (also known as managed services or managed solutions) every day. In fact, you may be holding a piece of equipment that includes bundled services in your palm as you read this article. These days, most cell phone contracts are miniature versions of servitization. As users, we pay a monthly fee to enjoy the benefit of using a mobile phone, insurance to cover any necessary maintenance or replacement costs as well as the cost of mobile phone service, text messaging and data.

Take a quick look around your office, and you’ll be sure to find other examples of this trend in action. Servitization may be the latest buzzword in equipment finance, but the concept has been in play since the 1980s. Managed Solutions: Evolutionary or Revolutionary?, a study published by the Equipment Leasing & Finance Foundation and researched by The Alta Group, credits the Xerox Corporation as the first to offer fixed-term financing contracts for copiers on a cost-per-copy basis.

Since the 1980s, the trend has spread to other asset classes, including technology, trucking and healthcare. Today, servitization options exist for just about every asset class. Vernon Tirey, CEO and founder of LeaseQ, an equipment finance marketplace, works with companies that provide servitization financing options for a wide range of industries, including robots and LED lighting, which include installation and ongoing maintenance needs.

With all the terms flying around to describe this type of financing — including SaaS, MST, bundled solutions or pay-as-you go, to name a few — it can be hard to nail down exactly what constitutes servitization. According to DLL’s recent white paper, Servitized Business Models: Organizing for Success, any financing package that creates value by adding services to manufactured products is considered a form of servitization.

This trend is growing at a rapid pace. MarketsandMarkets forecasts the global managed services market will grow from $138.27 billion in 2016 to $257.84 billion in 2022, at a CAGR of 11.1% during the forecast period of 2017 to 2022.

The ELFF forecasts that managed solutions are on track to reach 22% or more of the total equipment leasing and finance industry volumes over the next three to five years.

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Posted with permission from Monitor Daily.