This presentation shows the strategic importance of services for the manufacturing industry.

1. The strategic importance of servic
for manufacturing companies
HeikoGebauer
Associate Professor for Service Management at the Institute of Technology
Management (University of St.Gallen) in Switzerland
Guest Professor at the Service Research Center (Karlstad University) in Sweden

2. Meaning of services in
manufacturingcompanies (1/2)
Theoretical perspectives
Practical illustration
Transition from product
manufacturers to services providers
Outsourcing services for
manufacturing small volume cars
Moving downstream towards
services
Construction and design of
components
Design of small volume cars
Servitisation in the manufacturing
sector
Service business development
Logistic support and
technical advice
Capital equipment manufactures
moving towards high-value
solutions
Product-service-systems
Sources: Wiseand Baumgartner, 1998; Davies (2004), Vandermerwe and Rada, 1988, Oliva and Kallenberg (2003), Mathyssens and
Vandendempt (1998 and 2008), Brown, Gustafsson, Witell, 2009

3. Meaning of services in manufacturing
companies (2/2)
Theoretical perspectives
Practical illustration
Transition from product
manufacturers to services providers
Outsourcing services
Service leverage (logistics or IT)
Moving downstream towards
services
Service for other products
Full services (service level
agreements, extended
warranty)
Servitisation in the manufacturing
sector
Service business development
Parts, field service,
modernization
Capital equipment manufactures
moving towards high-value
solutions
Product-service-systems
Sources: Wiseand Baumgartner, 1998; Davies (2004), Vandermerwe and Rada, 1988, Oliva and Kallenberg (2003), Mathyssens and
Vandendempt (1998 and 2008), Brown, Gustafsson, Witell, 2009

4. Why should companies move into the service
business?
Anecdotal evidences
"The [service] market is
bigger than we ever
dreamt“, Jack Welch the
former CEO of General
Electric
Siemens announced the
goal to create 50% of the
total revenue through
services
IBM extended the service
business (1993, 35.7%
to. 60.2% of revenue
attributed to services in
2003).
Financial
Strategic
Service opportunities
Marketing
Augmenting the
product offering
More intense customer
relationship
Additional revenue
Higher profitability than
products
More resistant to
economic cycles
Sources: Mathieu, 2001, IBM Annual reports, Simon, 1993
Adressing more
comprehensive
customer needs
Co-created
competences as
resource barrier

5. Companies face strong challenges by
extending the service business
Anecdotal challenges
Industry challenges
ThyssenKruppsells its industrial
service business because it could
create synergies with its other
business units.
Service offerings are mainly
restricted to basic services for
the installed product base
Comau increased the share of service
revenue from 14 to 19% (2005-2008),
but the corporate revenuedeclined
about 29%
Dürrprovided outsourcing services,
but the corresponding challenges led
to the decision to sell the service
unit.
Sources: Belzet al. 1997, Gebauer et al. 2005, Neu and Brown 2005
Investments in the service
business do not create the
corresponding returns leading to
the “service paradox”
Service are often given “free”
during the negotiation of the
product
Service approach lack sufficient
professionalization and
systematization
Despite expectations of about 50%
revenues created through service,
most companies still achieve less
than 20%

6. Objectives on service business development
Today
Future
New service in more than 5 years
New services in 3 to 5 years
Parts and field services
Increased service contribution
Increase total service revenues
Higher share of service revenues
Increase service profitability
Increase customer satisfaction
Parts and field services
Learning objectives
Potential barriers for service business
development
Strategic paths for service business
Implementation of these paths

7. Understanding the complexity of service
business development
Learning
objectives
Barriers
Strategic paths
Implementation
Service business is more complex than the product business
Parameter
Product business
Service business
Nature of demand
More predictable, can
better forecast
Always unpredictable,
sporadic
Required response
Standard, can be
scheduled
as soon as possible
Number of product
generations
Limited
10 to 15 times higher
Cognition can limit the extension of the service business
Strategy
formulation
Overemphasis on tangible features
Disbelief in the economic potential of services
Considering services as too risky
Strategy
implementation
Overemphasis on tangible features
Focus on employees and not the service system
Aggressive goals undermine credibility
Sources: Cohen et al. 2006, Gebauer 2009

8. Identifying strategic paths through
visualizing service opportunities
Learning
objectives
Barriers
Reconfiguration
Strategic paths
Implementation
How do
service
opportunities
occur?)
Pre-Sales
Sales
After-sales
Extension
Primary customer
activities
Supplementary customer
activities
Where do service opportunities occur?
AdaptedfromSawhney, 2004

9. Exploration and forming a new value
constellation
Learning
objectives
Hilti has formed a new value constellation through its fleet management
Barriers
New value constellation
capturing nearly all customer
activities
Strategic paths
Implementation
After-sales service
provider or customer
support service provider
Dynamic capabilities
Sensing opportunities beyond existing
industry barriers
Seizing the business model
Reconfiguring companies assets and
structure

10. Exploitation and the corresponding
service strategies
Learning
objectives
Development
partner
Barriers
Strategic paths
Implementation
After-sales
service provider
Customer support
service provider
Outsourcing
partner
Source: Gebauer, Fischer and Fleisch (forthcoming 2010)

11. Service strategies and the corresponding
service offerings and value proposition
Learning
objectives
Barriers
Service strategy
Service offerings
Value proposition
After-sales service
providers
Spare parts, repairs,
inspections, hotline,
installation, training
React as soon as
possible to product
failures in customer
processes
Customer support
service providers
Preventive
maintenance, process
optimization, and aftersales services
Preventing product
failures in the customer
process
Outsourcing partners
Operational services,
operating customers
maintenance function
Reduce fix costs in the
customer processes
Development partners
Design and construction
services
Apply development
competencies to
improve customer
processes
Strategic paths
Implementation
Source: Fischer, Gebauer, Gustafsson and Witell (forthcoming 2010)

12. Operational capabilities for implementing
the service strategies
Learning
objectives
Barriers
Strategic paths
Implementation
Service orientation in the operational capabilities¹
A – abstract value of services, B – role understanding, C – personnel
recruiting, D – training, E – compensation, F – distinction product and
service organization, G – proximity to customers
Development partners
A
1
G
B
Customer support
After-sales
0.5
service providers
service providers
0
A
A
F
C
1
1
G
B
G
B
0.5
0.5
E
D
Outsourcing partners
0
0
F
C
F
C
A
1
E
D
E
D
G
B
0.5
F
0
E
Legend (0 –low, 1 – high –cluster means)¹
Source: Gebauer, Gustafsson, Edvardsson and Witell (forthcoming 2010), Neu and Brown (2005 and 2008)
C
D

13. Illustration of implementation actitivies
Learning
objectives
Barriers
Strategic paths
Strategic paths
Implementation of operational capabilities
After-sales service
providers to
customer support
service providers
Changing the awareness from service as add-on to
services as essential part of value creation
Changing the employee’s roles from reliable trouble
shooter to preventing failures
Setting-up a separate SBU for services
Increasing the service responsiveness in the human
resource management
Changing from central to decentralized service delivery
Customer support
service providers to
outsourcing
partners
Turning the service SBU into an independent company
Focusing on recruiting former employees of customers
Training the role of reliable performance enablers
Customer support
service providers to
development
partners
Set-up an integrated R&D team for design services
Enhance service orientation in values, behaviors as well
as human resources (recruiting, training, and
compensation)
Train behavioral and customer-focused attitudes
Implementation
Source: Gebauer, Gustafsson, Edvardsson and Witell (forthcoming 2010), Neu and Brown (2005 and 2008)

14. Objectives on service business development
Today
Future
New service in more than 5 years
New services in 3 to 5 years
Parts and field services
Increased service contribution
Increase total service revenues
Higher share of service revenues
Increase service profitability
Increase customer satisfaction
Parts and field services
Learning objectives
Potential barriers for service business
development
Strategic paths for service business
Implementation of these paths

15. Reflecting the learning objectives
Potential barriers for service business development
Managers often underestimate the complexity
Cognition limits management efforts in formulating and implementing
the service strategies
Strategic paths for service business
Service opportunities arise around primary and supplementary
customer activities as well as extension and reconfiguration of
customer activities
Service opportunities can be either exploited or used to explore new
value constellations
Exploitations arises around extension and primary customer
activities, whereas exploration focuses on the reconfiguration and
the supplementary activities
Exploitation creates strategic paths around after-sales service and
customer support service providers as well as development and
outsourcing partners
Implementation of these paths
Exploitationrequires the development of operational capabilities
(culture, human resources and organizational structure)
Explorations requires dynamic capabilities (sensing, seizing and
reconfiguration)

16. Thank you very much for your
attention
Any questions?
Heiko Gebauer
Associate Professor for Service Management at the Institute of Technology
Management (University of St.Gallen) in Switzerland
Guest Professor at the Service Research Center (Karlstad University) in Sweden

17. Research proposal
HeikoGebauer
Associate Professor for Service Management at the Institute of Technology
Management (University of St.Gallen) in Switzerland
Guest Professor at the Service Research Center (Karlstad University) in Sweden

18. Research proposal: Service management in
manufacturing industries
Research activities
Research fundings
• Basic funding from the University
10%)
Faculities (internal)
• SNF (Swiss National Science
Foundation)
• Industry foundations (GebertRueff
foundation)
International
cooperation
Other faculities
• EU-Project
• KTI (commission for technology and
innovation management)
• Industry projects
• Guest professorship
Contributions
• Scientific contributions (publications in selected academic journals)
• Contributions for managers and companies (publications in management journals)
(5-

19. Research approach
Theoretical perspectives
Contingency theory
Resource-based view and capabilities
Service-Dominant Logic (Value Creation)
Behavioral theory of the firm
Cognition theory
Industries
Manufacturing sector
Infrastructure sectors
Public transport
Energy utilities
(Smart Grid)
Research methods
- Empirical and not conceptual driven
- Empirical includes both qualitative
and quantitative research
approaches

20. Research agenda -
1) The development of operational capabilities in the service business towards core
capabilities
2) The impact of dynamic capabilities in the service business development
3) The role of market-orientation in the service business development
4) The organization theories on organizational structures.

21. Lecture concept
Managing service operations
HeikoGebauer
Associate Professor for Service Management at the Institute of Technology
Management (University of St.Gallen) in Switzerland
Guest Professor at the Service Research Center (Karlstad University) in Sweden

22. Managing Service Organisations (1)
Content
Chapter 1: Characteristics and categorization of services and their
implications on managing services, customer integration
Chapter 2: Strategic perspective on services – service strategies, strategic
approaches to achieve differentiation opportunities and cost advantages,
resource-based and market-based view in the context of services
Chapter 3 and 5: Operational perspective on services
Service innovation – innovation process, innovation approaches and
tools
Service delivery – service operation, service delivery, service recovery
Service marketing – moments of truth, gap-model and communication
of services
Chapter 6: International perspective on services – international service
strategies, internationalization process and market entry, cultural impact on
service innovation, service delivery and service marketing
Chapter 7: Leadership perspective on services – management processes,
human resource management, performance measurement systems
Chapter 8-9: Service management in specific industries
Manufacturing industry
Health care services
Energy sector
Banking and insurance industry

23. Managing Service Organisations (2)
Learning
objectives
Guidance for developing service strategies and to achieve sustainable
competitive advantages through services and in service industries
Usages of tools and decision support systems to analyze strengths and
weaknesses in the service innovation, service delivery and service
marketing processes
Understanding of potential challenges and conflicts in the leadership
process
Guidance for driver, limitations and strategies for the internationalization of
services
In-depth application of these competencies in selected industries
Didactics
Attendance in class is favored
Interactive learning processes
Theoretical knowledge is presented through the actual application
Practical examples to illustrate the argumentation
Case studies

24. Thank you very much for your
attention
Any questions?
Heiko Gebauer
Associate Professor for Service Management at the Institute of Technology
Management (University of St.Gallen) in Switzerland
Guest Professor at the Service Research Center (Karlstad University) in Sweden

25. Exploitationorexploration: How to
approachtheserviceopportunities?
Learning
objectives
Barriers
Exploration
Reconfiguration
• Radical improvement
• New value
constellation
• Dynamic
capabilities
Strategic paths
Implementation
How do
service
opportunities
appear?)
Extension
Pre-Sales
Sales
After-sales
Exploitation
• Incremental improvements
• Value-adding to existing value constellation
• Development of operational capabilities
Primary customer
activities
Supplementary customer
activities
Where do service opportunities appear?
AdaptedfromSawhney, 2004, Fischer, Gebauer, Guanjie, Gregory and Fleisch. (forthcoming 2010)

26. Exploitationorexploration: How to
approachtheserviceopportunities?
Learning
objectives
Barriers
Exploration
Reconfiguration
• Radical improvement
• New value
constellation
• Dynamic
capabilities
Strategic paths
Implementation
How do
service
opportunities
appear?)
Extension
Pre-Sales
Sales
After-sales
Exploitation
• Incremental improvements
• Value-adding to existing value constellation
• Development of operational capabilities
Primary customer
activities
Supplementary customer
activities
Where do service opportunities appear?
AdaptedfromSawhney, 2004, Fischer, Gebauer, Guanjie, Gregory and Fleisch. (forthcoming 2010)