Servitization Explained: How Manufacturers Mature from Products to Ecosystems

Saturated markets, rapid technological advancements, evolving customer expectations, and more severe sustainability regulations over the past years have pushed the traditional manufacturing model to transform. The game in the manufacturing world has changed. Selling more product items no longer guarantees increased profitability. Shifting to service-centric models, where manufacturers deliver ongoing customer value, does. Customers stay longer, margins are higher, and revenue becomes predictable and recurring.

In a nutshell, servitization is all about turning one-time sales into recurring revenue through ongoing service relationships. For example, instead of selling just an HVAC system, manufacturers offer “comfort-as-a-service”. Customers pay a monthly fee for consistent indoor comfort, while manufacturers take over equipment performance, maintenance, upgrades, and additional optimization services. In this model, success is defined not by the sale of a machine but by delivering lifetime service and sustaining profitable margins.

Although servitization is gaining widespread attention today, the concept isn’t new. For most of the time, however, it remained largely within the reach of Fortune 500 companies. Companies like Rolls-Royce, Caterpillar, and General Electric have been working with servitization for years, investing millions in technologies and learning through trials and errors.

However, even with these advantages, servitization isn’t an overnight change. It’s a transformation that takes time, effort, and investment. Hence, you need a structured plan to make things manageable and accelerate progress. The first step in that plan should be understanding your current maturity level. Your priorities and next moves heavily depend on where you stand today.

Servitization Maturity Model

The servitization journey varies from company to company due to their unique business differentiators and processes. However, successful transformations follow consistent, proven patterns that have already helped industry leaders to evolve. In the big picture, the servitization journey can be mapped into four maturity stages.

Stage 1: Product Manufacturer

This is where most manufacturers start, and many operate today. At this phase, the business model is straightforward: build equipment, deliver it, and move on to the next sale. Revenue depends on increasing production volumes or cutting unit costs. Customer relationships typically end at the point of sale, except when a product breaks and requires repair or replacement parts.

In this traditional approach, products exist as isolated units without built-in connectivity to collect equipment performance metrics. Product manufacturers focus on industrial machinery improvements, keeping connectivity to the cloud and customer metrics tracking out of sight. They usually use data on the level of physical products’ repair time, such as MTTF or MTBF, for reactive statistics.

Although this model worked successfully for decades, it now fails to adapt to the evolving market conditions. Thus, many traditional product manufacturers are starting to transform their businesses.

For example, Carrier Global Corporation, a traditional HVAC equipment manufacturer, kicked off the transformation journey in 2022-2023. The company gradually integrated IoT sensors and connectivity into their commercial HVAC systems and launched “Carrier i-Vu” connected building platform. The platform allowed Carrier Global Corporation to offer remote monitoring, predictive maintenance, and energy performance guarantees, which significantly improved their customer loyalty.

Stage 2: Value-added Manufacturer

The first real step toward servitization happens at the mindset level. Companies begin seeing themselves not just as equipment suppliers, but as service providers who wrap services around products.

This is exactly what value-added service providers do, pairing their physical products with extended warranties and service plans that build customer loyalty. Rather than ending at the point of sale, companies maintain ongoing interactions with clients through scheduled service visits and regular check-ins.

At this stage, companies develop IT service capabilities and start collecting simple operational data. Yet, their technology infrastructure remains relatively basic and cannot support predictive maintenance.

Value-added manufacturers see maintenance as a profitable service opportunity that generates recurring revenue. Thus, they continuously improve their offering while progressing through maturity levels.

Cadillac’s Book program showed this in action. The program allows customers to use any Cadillac model for a monthly fee. The subscription is also complemented by insurance, maintenance, and registration services. Clients can even swap cars up to 18 times a year. Over 7,000 people joined the waiting list, proving customer loyalty beat occasional big-ticket sales.

Stage 3: Full-Service Provider

This is where companies leverage connected devices, IoT sensors, and data analytics to deliver predictive services. Instead of waiting for machines to fail, companies predict issues before they happen. Maintenance becomes smarter, faster, and more cost-effective.

Technology becomes central to operations, with IoT sensors collecting real-time performance data directly from products. Cloud-based analytics platforms process this information to identify patterns, predict maintenance needs, and optimize equipment performance remotely. Full-service providers invest heavily in data science capabilities and develop sophisticated monitoring systems that can track equipment health and create a feedback loop to improve functionality.

With this reliability, manufacturers can offer uptime guarantees and outcome-based models. For example, our Client – a medical technology leader, Siemens Healthineers, demonstrates this approach by offering hospitals and clinics access to advanced medical equipment through subscription or pay-per-use models. Healthcare providers get the latest medical imaging and diagnostic systems while Siemens Healthineers manages equipment maintenance, upgrades, and performance optimization, ensuring high-quality patient care. The company uses a cloud-based monitoring platform that tracks device conditions in real time, collects data for analytics, and triggers maintenance services when equipment needs attention.

Stage 4: Servitization Leader

Full servitization adoption is about completely reinventing a business’s value proposition. Companies at this level shift from selling equipment to outcomes and ecosystems. Their business models transform entirely – customers pay per use or for guaranteed performance, with revenue tied directly to measurable results rather than product sales.

It became possible through comprehensive manufacturing IT ecosystems that allow Servitization leaders to manage value chains, multiple suppliers, technologies, and services. They utilize AI-driven optimization, predictive analytics, and autonomous systems that can self-diagnose and continually enhance equipment. Companies also use digital twins to mirror their customers’ operational environments. This allows them to optimize clients’ system-wide performance, identify bottlenecks, and proactively address issues before they affect customers.

Rolls-Royce TotalCare program shows how this works. Under their engine maintenance program, Rolls-Royce offers airlines a secure pricing model based on engine flying hours. Meanwhile, the company uses advanced IoT-enabled sensors to monitor engine health, product durability, and reliability. With this data, they can optimize maintenance timing – engines now last 25% longer between overhauls. Airlines find value in the program, for instance, Saudia Airlines has just extended their TotalCare deal through 2030.

Why Companies Take Servitization Step-by-Step

Servitization requires a strong backbone – building technological capabilities and organizational skills that support more advanced service models. This foundation allows businesses to keep current operations running while avoiding major disruptions or financial risks during transformation. No matter which phase companies are in, they still have ongoing customer contracts that need to be fulfilled and revenue targets to hit.

According to Gartner, the servitization backbone has 8 pillars.

Each pillar requires complex changes, which happen at different speeds depending on organizational readiness and cannot be switched in a moment. These pillars also can’t be built independently: the changes in the revenue model affect how companies set up teams; digital organization influences sales approaches; tech stack determines what customer metrics to track. That is why changing all at once without strategic planning may cause cascading problems across the organization.

Another factor requiring a gradual transformation is the rigidness of legacy technologies. Traditional manufacturers operate on systems built for product transactions, not ongoing service relationships. So, as companies move toward servitization, these legacy systems can’t support new technologies or proactive service approaches.

How Technology Helps Manufacturers Progress Through the Maturity Model

Unlike a traditional upgrade that swaps out components, servitization affects several organizational layers at once, with technology becoming a key driver for transformation. Given that each maturity stage has different needs, it’s important to implement the right solutions at the right time. Invest too early in advanced tools, and you risk wasting resources. Invest too late, and you fall behind.

Below you’ll find a table with tech recommendations for each maturity stage. The capabilities you build at one level create the foundation for the next, establishing the building blocks needed for more advanced servitization.

While there is no one-size-fits-all playbook for moving to servitization, there is a common action plan that guides businesses through the process. Whether the focus is on building connectivity, a clear data structure, or digital twins platforms, progress tends to follow a disciplined arc.

Intent comes first: what you aim to achieve and how success will be judged. Choose a product line or a site where conditions fit, demonstrate the idea, and measure the result. Capture what made it work: the data required, the interfaces, the controls, the roles, and security by design. Those are the things that will be your foundation for scaling. Then widen the footprint with care, turning a single win into a capability that can be reused across products and plants.

The diagram that follows reflects the typical path for such initiatives. It moves from an initial project roadmap to a proof of concept, an enterprise-level solution, and into ongoing support and improvement.

Wrapping up

The path towards outcome-based models is an evolutionary process that reshapes industry step by step. That’s why companies that succeed in adopting servitization didn’t rush the transformation but matched investments to their maturity level.

While servitization was a costly experiment for early adopters, today’s companies have two major advantages: lower technology costs and proven success cases to learn from. The opportunity is here – the question is whether you have a strategy in place to seize it.

The transformation begins with understanding where you stand today and what capabilities you need to build next. Explore our Servitization Readiness Checklist to evaluate your current maturity state. If you are ready to start your journey to servitization – don’t hesitate to schedule a Connected Product Strategy Consultation with our team and get expert support in progressing through the servitization maturity levels.

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