The process of Sertivization among Dutch

manufacturers












Introduction
The rise of the Korean economy has been one of the most spectacular ones in modern history. While
the manufacturing export led-growth model provided the Koreans with the current welfare, the
strategy seems to be outdated. With the highest college attendance among the OECD-countries, the
system fails in providing high skilled jobs. Therefore the unemployment rate of 3,9 % can be
considered somehow misleading.
1

High lack of high skilled jobs partly derives from the underdeveloped service industry. Among the
OECD countries, it leaves behind only Poland considering the development of the service economy.
The Korean manufacturing products are already competitive on the world stage and the growing
competition boosted by upcoming markets, suggest that the Korean policy makers should consider to
transform their economy which is merely based on manufacturing into a model based on services.
The Korean service sector is not only small compared to other countries with a similar income level,
the productivity is also lacking behind. When comparing large and small companies we can see that
the productivity of small companies is even way lower than the bigger ones.
2

The SME sector is underdeveloped when looking at the size and the productivity and also the output
of the service industry when looking the overall service sector added value by employee is 30 57 %
lower than the U.S., U.K. or Germany. The financial service industry in the U.K. for example, account
for more than 7 % of the GDP while in Korea this comes to 4,7 %.
Policy makers should leave the thought of focusing too much on the real economy like heavy
industries and manufacturing. In this stage of the economy the service industry not only supports the
real economy anymore, but can boost economical growth and create high skilled jobs.
The goal set by the new Park government indicated two goals concerning the Korean labor market:
Creative economy focused on jobs and the second goal is Customized employment and welfare.
When looking at the Dutch economy we can conclude that the Dutch have their problems as well.
Although the Dutch have their problems too (discussing them is beyond the scope of this paper),
their service sector seems to be more developed than the service sector in Korea.
Talking about the service industry is not possible, because in advanced economies like the
Netherlands the service industry refers to almost 75 % of the whole economy. While generalizing
economical data and policy advices among two different economies is hardly impossible, this article
tries to find some tangible information about Dutch efforts to improve their service sector. In order
to try to stay as close as possible to the Korean circumstances, we take a closer look at the initiative
of servitization among Dutch high tech manufacturers.
This article mainly looks at the Dutch policies and initiatives among their manufacturers. Although
this can provide some insights, it is no surprise that the generalization is very limited. increasing the
service sector is a very broadly defined goal and one cannot see this apart from other economical
circumstances like geography, institutional maturity, tax laws, institutional pressure and the like.

1
http://www.mckinsey.com/insights/asia-pacific/beyond_korean_style
2
http://www.iie.com/publications/interstitial.cfm?ResearchID=2249
1 Economical structure comparison between the Netherlands and Korea.
When looking at the composition of the sectors (GDP nominal) of both countrys economies, we can
conclude that the service industry in the Netherlands is much larger than the service industry in
Korea. When looking at the global ranking of the highest service industry, the Netherlands is ranked
8
th
between Italy and Spain, while Korea is ranked 28
th
between Colombia and Norway.


Agriculture 2,7 % 2,8 %
Industry 39,8 % 24,1 %
Service 57,5 % 73,2 %
CIA-2012

In the figure below we can see how the different sectors in both countries developed over the recent
years.
:

:

Other countries and the structure of their economies:
Country Agriculture Industry Services

1,2 % 27,5 % 71,4 %

1,2 % 19,1 % 79,7 %

10,1 % 45,3 % 44,6 %

0,7 % 21,1 % 78,2 %

13,3 % 34 % 52,7 %

0,8 % 28,1 % 71,1 %

14,3 % 46,9 % 38,8 %


2 Improving services in the Netherlands by servitization
Also in the Netherlands, companies and industries keep emphasizing that the process of servitization
is important in order to meet customer demands, improving company results and obtain competitive
advantages. The term services can be applicable to many sectors of the economy. The following
definition of the word servitization can be used:
Servitization is a transformation process wherein product companies embrace a service orientation
and / or develop more and better services, with the aim to
3
:
- satisfy customers needs
- enhance the firms performance
- achieve competitive advantages
The Old business model
In the old model, Dutch manufacturers produce their products, invest in R & D and bring new
products on the market. This model seems to be outdated. Due to the increasing competition, a
shorter developing time and the pressure on the R & D budgets companies are forced to look for new
business models. There are already Dutch manufacturers who changes their business model into one
in which services and maintenance account for 40 % of a companys revenue.
4


Source: The servitization of manufacturing: An International Perspective A.Neely
5

The Service Business Acceleration
The increasing of service jobs at Dutch manufacturers; an initiative called Service Business
Acceleration was launched. The project was initiated by de Brabantse Ontwikkelings Maatschappij
6
,

3
Servitization in Product Companies Creating Business Value Beyond Products Atos Consulting p 6
4
http://www.innovatiezuid.nl/roadmap/service_business/
5
http://www.cambridgeservicealliance.org/uploads/downloadfiles/121020-
Korean%20Development%20Institute.pdf
Industriebank LIOF
7
, Economische Impuls Zeeland
8
, Syntens
9
, Dutch Institute World Class
Maintenance (DI-WCM)
10
en Dutch Institute for Advanced Logistics (Dinalog)
11
, met ondersteuning
vanuit Innovatie Zuid.
On this platform, companies are able to share experiences about developing business services among
companies from other sectors or companies from other places in the chain. The main target of this
initiative is to bring Dutch manufacturers together and share their experiences about providing
services next to only manufacturing.
12

The types of services provided by manufacturers
As the figure describes the old business model mostly provides services that are related to the
product. These services include: Beginning of life services, lifetime services, life extension services,
end of life services and third-party services. A new business model also includes the so called
business services. Those services not only provide high level jobs, it can also increase a companys
competitive advantage. Examples of business services can be: consulting, financial services,
business process outsourcing and operational process outsourcing.
13




6
http://www.bom.nl/welcome
7
http://www.liof.com/
8
http://www.impulszeeland.nl/en
9
http://www.syntens.nl/syntens/Wat-doet-Syntens.aspx
10
http://www.worldclassmaintenance.com/
11
http://www.dinalog.nl/en/home/
12
http://intranet.bom.nl/include/Flyer_Service_Business_Acceleration_programma_Zuid-Nederland_def.pdf
13
http://www.innovatiezuid.nl/roadmap/service_business/
The advantages of providing business services
In a technological environment the competition among technical advanced companies is increasing
more and more. This not only covers the fast technological developments, but the globalization of
the competition makes it hard for companies to obtain competitive advantage and maintain profit
margins. A development of additional business services:
- The costs of developments are relatively low compared to products
- The profit margins are higher compared to products
The development of the above called business services is currently occurring among Dutch high tech
companies, but it seems that bigger companies are ahead of the SMEs. Currently Dutch high tech
companies earn a 10% average of their revenues by services. Bigger and middle sized companies like
Philips Healthcare
14
, Oc
15
and Vanderlande
16
Industries already achieved a 20-30% revenue earned
by services. Some companies among the Dutch high tech companies pronounced the ambition to aim
at a 50% revenue by services in the near future with profit margins that exceed the product profit
margins by 3 to 5 times.
The starting point is customer centric
Acknowledging and pronouncing the importance of developing businesses is still on step before
succeeding. From the practical examples the core principle in being successful is the customer
centric way of thinking. This approach is the core principle while developing business services.
Companies should be aware that they are (as manufacturers) in the top of the chain and that their
services can make a difference for customers and their customers.
Some practical examples of developing business services by Dutch High tech companies
A striking example of this way of thinking comes from WP HATON
17
( a manufacturer of bakery
equipment), who developed the the blue value service package
18
saying that they dont make
machines, but bread.
19

Vanderlande Industries
20
and Bosch Rexroth
21
made appointments with their customers which were
performance based. The systems works with rewards and penalties in which the payment of the
customers is based on the performances of the system.
The office manufacturer Ahrend
22
these days is not only developing office furniture, but provides
services in all stages of the process. This includes workplace advice, financial advice and even recycle
services. Different departments are cooperating closely and visit customers together in order to
provide them with information about all stages.

14
http://www.healthcare.philips.com/kr_ko/
15
http://global.oce.com/
16
http://www.vanderlande.com/
17
http://www.wp-haton.com/
18
http://www.wp-haton.com/old/eng/blue-value.html
19
http://www.innovatiezuid.nl/roadmap/service_business/
20
http://www.vanderlande.nl/home-com.htm
21
http://www.boschrexroth.co.kr/country_units/asia/korea/en/index.jsp
22
http://www.ahrend.com/en/Services/
Also organizational changes were made. FEI
23
company appointed a new position with the name
service technology director and was appointed to smoothen the cooperation between the
manufacturing and the service department. A similar move was made by Assembleon
24
, who
connected the technology and marketing executive members
A blueprint for servitization by Syntens
One of the participants of the Service Acceleration Program is Syntens. Syntens
25
is a non-profit
organization in order to help SMEs to develop innovative strategies. Below we see the developed
roadmap for manufacturing companies in the Netherlands who start developing business services.
Innovatie Zuid Survey p 25
Step Action
1 Ambition and Vision motives, competencies, trend and developments
2 Serviceanalyses Current packages and character of services, targetgroups and the
balance of power
3 Customer insights Customerimage, customersystem and customercommunication
4 Desired position Customer ratio and customervalue
5 Promise Options, businessmodel and making choices
6 Concretization of the of the serviceconcept Proposition, price and proces
7 Bring it in practice Implementation and organization


23
http://www.fei.com/default.aspx
24
http://www.assembleon.com/
25
http://www.syntens.nl/syntens/Wat-doet-Syntens.aspx
As the arrows suggest, one should evaluate the process at several moments. The left arrow
emphasized that the need for an evaluation at stage 5. Is the promise made in step 5 still compatible
with the one formulated during the starting point. The right arrow suggest that companies should
constantly monitor if the strategy they are implementing is still in line with the customers demands.


Marks Ramselaar et al The framework
The relation between the different concepts
Mc Kinsey showed
26
that the small amount of entrepreneurs and the small amount of SMEs is one of
the reason that Korea is lacking behind in the creation of high skilled jobs, which are so welcomed
when looking at the high level of education among Koreans and the amount of people working below
their educational level. Servitization of the economy can be a measure to tackle this problem. A
Dutch report
27
showed that the development of services has is causing an increase in the number of
companies and a decrease of the size of the companies. More different companies are involved in
the process of satisfying customer demands. In this new model companies contribute to the parts in
which they are specialized and are able to create as much as added value for the customers.

26
http://www.mckinsey.com/insights/asia-pacific/beyond_korean_style
27
http://files.welzijn-21e-eeuw.nl/InnovatieplatformDienstenInnovatie.pdf