Servitization in manufacturing changes who should run the company

The service offer launched on schedule. Eighteen months later, the best salespeople are still selling machines.

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Servitization in manufacturing means selling what a machine does instead of only selling the machine. A company that makes industrial compressors used to sell a unit for €100,000 and step back. Now it sells a five-year maintenance contract, charges by the hour of operation, or guarantees that the compressor will run 98% of the time. The customer is no longer buying equipment. It is buying the certainty that its line will not stop.

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It looks like a product decision. It is a leadership decision first. When revenue moves from a single sale to a contract that runs for years, the people at the top need different skills, different incentives and, in some cases, a different job.

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Picture a mid-sized machinery maker in Lombardy or Baden-Württemberg. The board approves a service strategy. The company launches maintenance contracts, remote monitoring and a pay-per-use option. Eighteen months later, service revenue has barely moved. The offer is good. Salespeople are still paid on machines sold. The service team is still treated as a cost. Finance still judges the business one quarter at a time. Nobody blocked the strategy. The organization kept doing what it was built to do.

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Servitization was one of the topics at last week's World Manufacturing Forum in Milan. This article covers what changes, which leadership roles change first, when to promote and when to hire, and the mistake that stops most service strategies.

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What is servitization in manufacturing, and why does it change leadership?

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Servitization is not one step. It is a path with three main stages.

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Stage one: parts and repairs. The manufacturer sells the machine, then sells spare parts and fixes breakdowns when the customer calls. Each sale is separate.

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Stage two: service contracts. The customer pays a regular fee for planned maintenance, inspections and support. The manufacturer starts to earn steady revenue from machines it has already sold.

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Stage three: paying for results. The customer pays per hour of use, per unit produced, or for a guaranteed level of availability. This is often called product-as-a-service or an outcome-based contract. The manufacturer now carries the risk if the machine underperforms.

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The motive is margin. A McKinsey analysis across 30 industries found that services such as parts, repairs and maintenance earn an average operating margin of 25%, against 10% for new equipment. Deloitte's 2026 Manufacturing Industry Outlook reaches the same conclusion: service margins are more than twice those of equipment sales, and the revenue is steadier.

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That steadiness matters in Europe right now. Eurostat reported that industrial production in the euro area fell for the third month in a row in August 2026, and was 1.1% lower than a year earlier. When new orders slow down, the machines already working at customers' sites become the most reliable source of income a manufacturer has.

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What makes this a leadership question is risk. A company that sells a machine is responsible until the warranty ends. A company that sells uptime is responsible for the whole contract, often five years or more. A business that carries different risks needs leaders who make different decisions.

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How revenue, sales and operations change under outcome-based contracts

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Three things change at the same time. Each one lands on a different person in the leadership team.

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Money arrives later, but for longer. A machine is paid once, at delivery. A contract brings in the same value, and usually more, over several years. In the first two years, results often look worse, not better: upfront sales drop while the company spends to build its service capability. Researchers call this the servitization paradox. A study in the Journal of Operations Management followed 44 national subsidiaries of one global manufacturer between 2001 and 2007. It found early gains, then a drop in profitability that only recovered once the service business reached enough scale. Boards that do not expect this dip often cancel the strategy halfway.

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Selling becomes a different job. A machine sale is a clear process. The buyer is usually a plant engineer or the purchasing team, and the deal closes in a few months. Selling a result takes longer. The buyer is usually an operations director or a CFO, and the conversation is about total cost and shared risk, not technical specifications. A salesperson who closes a machine in one quarter now negotiates a five-year agreement that pays off gradually. If that salesperson is still paid a bonus on machines shipped, the bonus is working against the strategy.

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Operations move outside the factory. Delivering service becomes a business of its own: technicians in the field, spare parts logistics, sensors that monitor machines remotely, and the data that connects all of it. Response time and machine availability stop being internal goals. They become promises written into contracts, often with penalties if they are missed. The World Manufacturing Report 2026, presented at the Forum, found that the main barriers to industrial change are no longer technological. They are data, organization, skills and governance. Servitization is a clear case. The sensors exist. The organization able to act on what they report often does not.

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Manufacturing business model leadership: the three roles that change first

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When the business model changes, not every leadership role changes at the same speed. Three change first, and they decide whether the strategy works.

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The head of sales. The goal moves from selling more machines to keeping customers profitable for years. That means paying the sales team for renewals and contract growth, not only for new units. It means pricing risk, not just products. Many good sales leaders can make this change. Some cannot, and a career built only on unit targets rarely shows which is which.

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The head of service. In a product company, service is usually run by a capable manager who controls costs, often two levels below the CEO. In a servitized company, the same team brings in a growing share of revenue. It needs a leader who can run it as a business with its own profit and loss: forecasting renewals, keeping contract promises, and managing a team spread across many customer sites. This is the role companies most often underestimate, and the one where a wider scope, a higher reporting line and sometimes a new person make the biggest difference.

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The CFO. Finance faces new questions. In pay-per-use models, the machine may stay on the manufacturer's balance sheet instead of the customer's. Cash comes in more slowly. Pricing a contract that guarantees results means estimating breakdowns, usage and possible penalties years in advance. Finance moves from reporting what happened to deciding which risks the company can afford to take.

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The return on getting these roles right is significant. Porsche Consulting's research on industrial goods companies found that the leaders in servitization can grow service revenue to as much as a third of total revenue, and deliver double the shareholder return of their peers. The same research notes that larger service transformations need their own operating model.

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This is a narrower question than the overall executive profile European industry needs, which we covered in why Europe's reindustrialization needs a new executive profile. Here the focus is which roles change when the way the company makes money changes.

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Should manufacturers build or hire their service leadership?

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Most manufacturers already have part of what they need. Service engineers know the machines in the field better than anyone, and customers trust the people who have kept their lines running. Promoting from within works well for the head of service when the internal candidate already manages contracts and has run a budget with real revenue attached, even a small one.

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Hiring from outside becomes necessary when nobody inside has done the job before. Leading a sales team on recurring revenue, pricing contracts based on results, and managing the financial side of long contracts are often new to a product company, simply because it never needed them. The best candidates often come from sectors that made this shift earlier: medical devices, aircraft engines, elevators, industrial software. They bring the know-how. They do not always bring credibility with a field team that has spent decades selling and fixing machines.

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A practical approach is to hire one experienced person from outside and build an internal team around them. Bring in the role nobody inside has done, usually the head of service business or a sales leader with recurring revenue experience, and develop internal successors next to them. When interviewing, three questions separate real experience from nearby experience. Have they run a business where revenue came in over years, not at delivery? Have they priced and managed contracts with penalties attached? Have they moved a sales team from one bonus system to another, and kept the best people through it?

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Data skills sit underneath all three roles. Contracts that guarantee results only work if the company can monitor its machines, predict failures and act in time. This connects closely to the shift we described in how AI is reshaping manufacturing leadership. The shortage is real: the World Manufacturing Report 2026 points to the skills gap, which the World Economic Forum names as the main obstacle to transformation in 52 of the 55 economies it studied.

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The most common mistake: launching a service model with a leadership team built to sell products

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The company announces a service strategy and leaves the organization that has to deliver it exactly as it was. The offer is new. The bonuses, reporting lines and targets are not.

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It shows up in three ways. Salespeople are still paid on machines sold, so they sell machines and give service away as a discount to close the deal. The service team is still seen as a cost, so its budget is the first to be cut when results are tight. And the board still reviews sales and shipments every quarter, so the early dip that the servitization paradox predicts looks like failure instead of the normal cost of the transition.

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Two years later, leadership concludes that customers did not want the service. In most cases, customers never saw a serious version of it.

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The fix starts before launch, not after. Change sales bonuses at the same time as the new offer, not a year later. Give the service team its own profit and loss and a seat at the leadership table. Agree with the board on three-year targets, such as the share of revenue from services, the contract renewal rate and the share of installed machines under contract, so that the first difficult quarters are judged fairly. Then decide, role by role, whether the current leader can run the new model or whether the job needs someone who has done it before.

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In the industrial searches Future Manager World runs across Europe, the service strategies that succeed are the ones where these decisions were taken at the same board meeting that approved the strategy. Changing the business model and changing the leadership team are the same decision, taken in the same room.

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Key Takeaways

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• Servitization in manufacturing means selling what a machine does, through contracts, pay-per-use or guaranteed results, instead of only selling the machine.
• Services are more profitable: McKinsey found average operating margins of 25% on services against 10% on new equipment, and Deloitte's 2026 outlook confirms service margins more than double those of equipment sales.
• Expect the servitization paradox: results often get worse before they get better, and boards that do not plan for it tend to cancel the strategy halfway.
• The head of sales, the head of service and the CFO are the three roles that change first. The head of service is the one most often underestimated.
• The most common mistake is launching a service model with bonuses, reporting lines and targets built to sell products. Change them before launch, not after.

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Future Manager World works with CEOs, boards and CHROs of industrial companies moving to service-based business models. Talk to our team.