|By Kohtamäki, Marko|
Results of a large-scale survey suggest that a thorough and comprehensive organizational transformation is required to support the transition to servitization.
OVERVIEW: Traditional manufacturing companies are increasingly offering industrial services in order to secure their position in the globally competitive environment. However, little is known about the extent and effect of this transition. Based on a large-scale survey of Finnish manufacturing companies, this study offers descriptive statistics for current industrial service offerings. Merely adding on simple services to a current product offering is shown to be negatively associated with financial performance. Rather, our statistical analysis suggests a thorough and comprehensive organizational transformation is required to generate significant financial value. In addition, qualitative data from globally recognized Swedish and Finnish frontrunner manufacturing companies offer insights into how these market leaders have successfully navigated the organizational challenges of such a transformation to offer successful industrial product-service systems. Based on the data, we outline four distinctive capabilities and associated key learning activities required to facilitate a successful transition toward becoming a high-value industrial product-service provider.
KEYWORDS: Product-service systems , Servitization , Business models , Capabilities , Manufacturing industry
In the last decade, as a response to increasing global competition, manufacturing companies have increasingly shifted from manufacturing products to offering industrial product-services. As researchers have increasingly noted, this servitization movement has advanced beyond offering simple add-on services, such as technical user training or product demonstrations, to more complex, high-value-added services, such as product optimization or maintenance (
Several factors have motivated this shift. First, offering product-services can lead to financial benefits, in the form of higher profit margins and more stable income. Companies such as GE,
However, the shiftto a product-service approach, as opposed to a pure product-oriented manufacturing model, does not come without challenges, a reality reflected by the findings of a 2004 survey study. Only 21 percent of companies surveyed achieved financial success with an industrial service strategy and most participating companies abandoned their service strategy after a few years ( Baveja, Gilbert, and Ledingham 2004 ). The company seeking to make such a shiftmust engage in an organizational transformation in the way it creates, delivers, and captures value. This requires the development of new processes, routines, and capabilities. In particular, this revised approach, with its reliance on customized solutions, requires an increased focus on co-creating value with service delivery partners (such as dealers or distributors) and customers.
Although the number of studies on servitization has increased, most work continues to be conceptual or based on case studies. Little is known about the magnitude of the transition from manufacturer to industrial productservice provider or the types of industrial services that are offered by those who make the transition successfully. Consequently, the current literature lacks illuminating details on how product-service combinations are packaged and sold through different business models and how different product-service/business model combinations impact performance.