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Florence research-presentation
1. Servitization in manufacturing companies: setting-up
a research agenda
Heiko Gebauer
Associate Professor
Department Innovation Research in Utility Sectors - Eawag: Swiss Federal
Institute of Aquatic Science and Technology
University of St.Gallen (Switzerland)
Karlstad University (Sweden)
2. Servitization in manufacturing companies
Theoretical perspectives Practical illustration
− Transition from product
manufacturers to services
providers
− Moving downstream towards
services
− Servitization in the manufacturing
sector
− Service business development
− Capital equipment manufactures
moving towards high-value
solutions
− Product-service-systems
− Logistic support and
technical advice
− Construction and design of
components
− Design of small volume cars
− Outsourcing services for
manufacturing small volume cars
Selected sources: Wise and Baumgartner, 1998; Davies (2004), Vandermerwe and Rada, 1988, Oliva and Kallenberg (2003), Mathyssens and
Vandendempt (1998 and 2008), Neely (2008), Brown, Gustafsson, Witell, 2009
3. Service business extension
Investments into the service business
Service paradox
Ad-hoc service
support
Dominated by
products
Value
contribution
Maintenance contracts
Performance-based
Business consulting
Integration services
Dominated by
services
4. Servitization receives an increasing
research attention
Cummulative number of citations (extracted
from scopus september 2011)
Vandermerwe & Rada, 1998
Matthyssens &
Vandendempt, 1998
Mathieu, 2001
Oliva & Kallenberg, 2003
Davies, 2004
Tukker, 2004
Neu & Brown, 2005
Gebauer et al., 2005
Brax, 2005
5. Arguments for extending the service business
Marketing benefits
– Augmenting the product offering
– Intensity of customer relationship
– Lock-in effect for customers
– Long-term customer relationship (strategic partnerships)
Strategic benefits
– Differentiation opportunities
– Comparison of offerings is more complex
– Collaborative innovation between customer and supplier
– Services as entry barrier for competitors
– Service competencies more difficult to imitate
Financial benefits
– Higher margins (product: -1% to 3%; services: 5% to 20%)
– Stable source of revenue
– High installed base
– Size of the service market (service market 2 to 10x bigger than product market)
6. Example – IBM‘s move from products
to services (1)
Major milestones
In 2001, Global Services (40.7%), Hardware (38.9%),
Software (15.1%), Global financing (4.0%), Enterprise
Investments/Other
• Management commitment
• Management and financial system
• Recruiting new and intensive training
of existing employees
• Incentive system for services
• Formulation & implementation of a
service strategy
• Creation of IBM Global Services as
strategic Business Unit
• Continuous service innovationen
(Network, data storage, e-Business)
Revenues
in billion US dollar
8. Example – IBM‘s move from products to
services (3)
Revenue structure in 2010
9. Contributions to servitization in
manufacturing companies
Unit of analysis
Manufacturing companies extending
the service business
4) Service strategies4) Service strategies1) Models for moving
towards services
1) Models for moving
towards services
2) Capabilities for
managing the service
business
2) Capabilities for
managing the service
business
3) Service offerings3) Service offerings
Product-related
services
Customer support
services
1)
Oliva & Kallenberg, 2003;
Cohen et al., 2006; Gebauer et
al., 2005; Reinartz & Ulaga,
2008; Auguste et al., 2004
4
Raddats and Easingwood, 2010;
Davies, 2004; Windahl and
Lakemond, 2010; Sawhney et al.,
2004; Wise & Baumgartner, 1999
2
Neu & Brown, 2004 and
2008; Baines et al.,
2007, Davies et al.,
2007 etc.)
3
Mathieu, 2001b; Windahl
& Lakemond, 2010;
Oliva & Kallenberg,
2003)
10. Summary of existing contributions and future
research agenda
Motivation for extending the service business
– Marketing, strategic, and financial benefits
Increasing research attention to servitizitation
Research contributions
– Models for moving towards services
– Service strategies
– Capabilities for managing the service business
– Service offerings
Broaden-up the empirical field
– Suppliers
– Project-based firms
– IT-firms
– Small and medium-sized enterprises
– Manufacturing to product-dominant firms
1) Misconception in the
motivation for extending
the service business
2) Research scope
3) Theoretical approaches
on service business
extension
11. 1) Misconceptions in the motivation for
extending the service business
Revenue structure Gross margins
a) Services are not necessarily more profitable than products
12. a) Services are not necessarily more profitable than products
b) Share of service revenue as an indicator for the maturity of the service business
might be misleading
c) Services can be a more stable source of revenue, but revenue cycles differ for
different types of services
d) Pay-per-use or performance-based service offering entail major strategic risks and
can initiate a ruinous cost competition
e) Clarification on achieving (sustainable) competitive advantages
1) Misconceptions in the motivation for
extending the service business
13. Summary of existing contributions and future
research agenda
Motivation for extending the service business
– Marketing, strategic, and financial benefits
Increasing research attention to servitizitation
Research contributions
– Models for moving towards services
– Service strategies
– Capabilities for managing the service business
– Service offerings
Broaden-up the empirical field
– Suppliers
– Project-based firms
– IT-firms
– Small and medium-sized enterprises
– Manufacturing to product-dominant firms
1) Misconception in the
motivation for extending
the service business
2) Research scope
3) Theoretical approaches
on service business
extension
14. 2) Extending the research scope
Suppliers Customers
Highly operational (micro-perspective)
Highly strategic (macro-perspective)
Company
Result of multidimensional scaling of the existing contributions (n=127)
Work in progress
15. Suppliers Customers
Highly operational
Highly strategic
Company
Multidimensional Scaling
Cohen, M., Agrawal, N. and
Agrawal, V. (2006), ‘Winning
in the aftermarket’, Harvard
Business Review 84 (5),
129-38.
Cohen, M., Agrawal, N. and
Agrawal, V. (2006), ‘Winning
in the aftermarket’, Harvard
Business Review 84 (5),
129-38.
Windahl, C. and Lakemond, E. (2010).
‘Integrated solutions from a service-
centered perspective: Applicability and
limitations in the capital goods
industry’, Industrial Marketing
Management 39 (8): 1278-90.
Windahl, C. and Lakemond, E. (2010).
‘Integrated solutions from a service-
centered perspective: Applicability and
limitations in the capital goods
industry’, Industrial Marketing
Management 39 (8): 1278-90.
Tuli, K.R., Kohli, A.K. and Bharadwaj,
S.G. (2007). ‘Rethinking customer
solutions: from product bundles to
relational processes’, Journal of
Marketing 71 (3): 1-17.
Tuli, K.R., Kohli, A.K. and Bharadwaj,
S.G. (2007). ‘Rethinking customer
solutions: from product bundles to
relational processes’, Journal of
Marketing 71 (3): 1-17.
Kowalkowski C, et al, Service infusion
as agile incrementalism in action, J
Bus Res (2011), doi:10.1016/j.
jbusres.2010.12.014
Kowalkowski C, et al, Service infusion
as agile incrementalism in action, J
Bus Res (2011), doi:10.1016/j.
jbusres.2010.12.014
Davies, A., Brady, T. and Hobday,
M. (2007). ‘Organizing for
solutions: systems seller vs.
systems integrator’, Industrial
Marketing Management 36 (2):
183−193.
Davies, A., Brady, T. and Hobday,
M. (2007). ‘Organizing for
solutions: systems seller vs.
systems integrator’, Industrial
Marketing Management 36 (2):
183−193.
2) Extending the research scope
17. 2) Extending the research scope
Milestones Merger & acquisitions
• Employers Reinsurance Corp.
• Decimus (computer leasing)
• Polaris (aircraft leasing)
• Genstar (container leasing)
• Gelco (portable building leasing)
• Penske Leasing (truck leasing)
• Financial Guaranty Insurance Co.
• Burton Group Financial Services
• Travelers Mortgage (mortgage services)
• Chase Manhattan Leasing
• Itel Containers (container leasing)
a) Future research should consider the extension of the service business in the
context of strategic decisions such as merger & acquisitions
In million US dollar
General Electric
Bartlett & Wozny (1999)
18. 2) Extending the research scope
a) Future research should consider the extension of the service business in the context
of strategic decisions such as merger & acquisitions
b) Future research should consider the service provision from a network perspective
(strategic and operational level) and international business strategies
c) Future research should gain insights into collaboration arrangements in supplier-
buyer relationships, services as vertical integration or services considering industry
dynamics
19. Summary of existing contributions and future
research agenda
Motivation for extending the service business
– Marketing, strategic, and financial benefits
Increasing research attention to servitizitation
Research contributions
– Models for moving towards services
– Service strategies
– Capabilities for managing the service business
– Service offerings
Broaden-up the empirical field
– Suppliers
– Project-based firms
– IT-firms
– Small and medium-sized enterprises
– Manufacturing to product-dominant firms
1) Misconception in the
motivation for extending
the service business
2) Research scope
3) Theoretical approaches
on service business
extension
20. Cumulative number of citations (extracted from
scopus September 2011)
Oliva & Kallenberg, 2003
Vandermerwe & Rada (1998)
Matthyssens & Vandendempt (1998)
Mathieu (2001)
Tukker (2004)
Davies (2004)
Neu & Brown (2005)
Brax (2005)
Gebauer, Fleisch, & Friedl (2005)
Vargo & Lusch (2004)
Goods-dominant to
service-dominant
logic
a) Current research attention on embedding the transition from products to
services into the service-dominant logic should be considered more carefully
3) Theoretical approaches on service business
extension
21. 3) Theoretical approaches on service business
extension
a) Current research attention on embedded the transition from products to services into
the service-dominant logic should be considered more carefully. Side effects of the
service-dominant logic are purely understood.
Performance
Time
High
Low
Application of Christensen‘s Innovators dilemma
22. 3) Alternative theoretical approaches on
service business extension
a) Current research attention on embedded the transition from products to services into
the service-dominant logic should be considered more carefully.
b) Alternative theoretical perspective such as “boundary of the firm”, “organizational
capabilities”, or “resource-based view” might be more appropriate
Founding of Voith
Industrial services
Acquisition of Hörmann (technical service
specialists for the automotive industry)
Acquisition of Premier Group
(technical services for the
automotive industry)
Acquisition of SIS Scandinavian industrial
services (technical services for Chemical
& petro chemical industry
Acquisition of the Ermo-Group (technical services
for the petro chemical industry and power plants
Acquisition of DIW (German Industrial Maintenance) (technical
services for industrial equipment (partly and full)
Acquisition of CeBe Network
(engineering services)
2001 2004 2007 2010
Since October 2010 the
business of all acquired
companies continued under the
name of Voith Industrial
Services
Years
Combining
Service specialist
Product Services
23. Conclusions
• Various meaning of servitization in manufacturing companies, but common
sense is the extension of the service business
• Servitization does not only receives an increasing research attention, but
has also create significant contributions
• Besides the existing contribution, there exist strong future research
opportunities
• Future research should ...
... overcome misconceptions in the motivation for extending the service
business
... extend the research scope
... apply alternative theoretical approaches on service business extension
24. Thank you very much for your attention
If you have any further questions, please
contact me:
heiko.gebauer@eawag.ch
Euroma Conference No academic community – No scholar – Someone helping manufacturing companies to servitise or to extend the service business. Diverse knowledge – Disadvantegous / advantegous I favor the advantegous, becoming an expert in this field. I started the explorartion of this research field 12 years ago.
Different meanings – basic idea is that manufacturing companies extend the total offering by adding services to products. Service business development in manufacturing companies Practical description – Magna –component manufacturer (drive system or seat systems) – step-by-step extension of the service bsuiness. Magna constructs cars, (low volume cars), even it produces cars, Buying BMW X5 or a Renault Capriolet means that these cars are manufacturered by Magna. By the way -, enabled Magna to make a serious offer for Opel (subsidary of General motors), Theroretical perspective describe this phenomenon as transition from product manufacturer to service provider (23% of the total revenue comes from the service business)
Ergänzung der Produktorientierung mit der Dienstleistungsorientierung als Ausweg aus der Beschränkung bisheriger produktorientierter Geschäftsmodelle. Weg zur Dienstleistungsorientierung verschiedene Entwicklungsstufen. Historisch – Dienstleistungswüste, Produktverkauf hiess noch Vertrieb und es ging eher darum Kunden ausreichend viele Produkte zur Verfügung zu stellen und Nachfrage zu befriedigen. Vertriebsfunktion zur Vertriebs/Service-Funktion gewandelt, Service-Funktion –ad-hoc unterstützung. Waschmaschinen läuft aus oder Fernseher ist kaputt. Dann Servicetechniker bezahlt man für Reparatur und Ersatzteile (Fixpreis oder variable ja nach Aufwand). Service-Funktion in Marktorganisation aktiv versucht Dienstleistungen zu verkaufen. Typisches Beispiel sind Serviceverträge für eine bestimmten Zeitraum 1 oder 2 Jahre, alle Servicetätigkeiten und Ersatzteile für einen bestimmten Festbetrag. Serviceveträge findet man heute auch teilweise bei Waschmaschinen (V-Zug), Werkzeugmaschinen). Weitere Ausbau hat jedoch ein Risiko, statt die Dienstleistungswüste in einen Dienstleistungsgarten zu verwandeln. Einen Garten der gut gepflegt ist und einen schönen Ertrag erwirtschaften, landen Sie im Dienstleistungsdschungel. Dienstleistungsdschungel heisst, die ausuferndes Dienstleistungsangebot, mangelnde Kostentransparenz, Kunden verlieren die Übersicht über das Dienstleistungsangebot und den –nutzen. Am Ende investieren sie in das Dienstleistungsgeschäfts, aber die erwarteten Return-on Investments in den Dienstleistungsbereich sind geringer als erwartet. Vermeidung des Dienstleistungsdschungels durch Professionelles und systematisches Dienstleistungsmanagement Service als strategisches Instrument und Wandel zu Performance-based Geschäftsmodellen oder pay-per-use. Beispiel Flugzeugturbine, GE & Rolls-Royce neue Turbinengeneration, günstiger im Unterhalt, und leichte Verbesserung der Leistung, niemand wollte aber die Turbine, Marktflop. Kurz vor dem Scheitern. Ausweg Power-by-the hour. Bezahlung nur für die Verfügbarkeit und die Nutzung der Turbine. Revolution der gesamten Wertschöpfungskette in der Luftfahrt. Boeing und Airbus umgangen, Konzept gemeinsam mit Fluggesellschaften, (Power-by-the-hour – Anstieg ins Finanzierungsgeschäfts für Flugzeuge, Boeing und Airbus erwirtschaften bis heute nur circa 2-3% der Umsatzes mit Dienstleistungen. Turbinenhersteller bis zu 50%. Solchen strategischen Erfolgen von Dienstleistungen stehen jedoch auch strategische Risiken gegenüber. Konsequenz solcher Risiken sehr gut bei Herstellern von Kopiergeräten und Druckern erkennbar. Bereich professionelle Drucker. Performance-based oder pay-per-use. Bezahlung pro Kopie oder gedruckte Seite. Dunkle Seite (Risiko/Gefahr) bei diesem Geschäftsmodell ist Verändertes Kundenverhalten und erzeugte Preistransparenz. Kunden erkennt kaum Qualitätsunterschiede. Gedruckte Seite HP = Xerox, Kopie von Canon = Sharp, kaum qualitative Unterschiede. Kunden erkennt nur, eine Seite 7 Rappen oder 6 Rappen. Kaufentscheid rein vom Preisabhängig. Kostenführerschaft als notwendige Erfolgsposition. Ruinöser Preiswettbewerb, fast keines der Unternehmen wirklich Profitabel war, Verlagerungen in Niedriglohnländer und Zusammenschlüsse. Eventuell Form erklären.
Research put increasing attention to serviitization topic Historically, started with Vandermerwe & Rada (1998) article introducing the term servitization. Same year an article preseted by Matthyssens & Vandendempt discussion how service can create competitive advantages. This article identfies triggers for competitive advantages based on services. Mathieu (2001) – strategic avenues – different types of services – services ensuring the product functionality (services supporting the product), services spporting the customer. Break through with the Oliva & Kallenberg (2003) article on transition line – product manufacturer move from products to services through a dedicated sequences of four phases. Phase description. 2004 – PPS and Davies (2004) service strategies (integration services, operational services, and business consulting) Neu & Brown (2005) organizational elements Saara Brax – Gebauer et al. (2005) – service paradox. Main message – increasing attention to servitization in manufacturing companies
Common perspective is the motivation
IBM – Extremfall / Paradebeispiel für den Wandel von einer Produkt- zur Dienstleistungsorientierung. IBM vor 20 Jahren, Technologiesprünge (verschlafen), Mainframes, zu spät im PC Geschäft, Software-Trend (verschlafen), 90 und 91 erste Entlassungen, einmalig bis dato in IBM Firmengeschichte. Zerschlagung des gesamten Konzerns, in sogenannte IBM Baby Blues, in Anlehnung an Baby Bells, Auflösung der Telefongesellschaften in den USA. Titelblätter des Economist und Fortune setzten eine grosses Fragezeichen hinter den zukünftige Entwicklung von IBM. Erste Turn-arounds mit der Fortführung der Produktorientierung gescheitert. Einmalig war dann Berufung von Louise von Gerstner in auf dem Posten des CEO. Aussenstehender, Service-Bereich. Mit ihm kam ein extremes Commitment zum Wandel im Geschäftsmodel von der Entwicklung, Produktion und Verkauf von Mainframes zu Wertgenerierung für Kunden mittels Dienstleistungen. Ganze Management & Finanzsystem wurde radikal an die Rahmenbedingungen für Dienstleistungsorientierung angepasst. Extreme Mitarbeiterfluktuation und –ausbildung. Jahr mit 10‘000 neuen Mitarbeitern im Servicebereich. Formulierung einer Dienstleistungsstrategie und die Gründung von IBM Global Service sind weitere Meilensteine auf dem Weg von IBM zum Dienstleister. Durch Strategie und Organisation wurden die notwendige Voraussetzungen geschaffen, für kontinuierliche Service Innovationen. Mittels Service Innovationen Aufbau neuer strategischer Geschäftsfelder. Ergebnis all dieser Meilensteine 2001, Service-Umsatz, grösster Umsatzanteil. Kurz darauf – Verkauf der Laptop-Sparte an Lenovo. Einmalig, IBMs Registrierung an New York Stock Exchange.
IBM – Extremfall / Paradebeispiel für den Wandel von einer Produkt- zur Dienstleistungsorientierung. IBM vor 20 Jahren, Technologiesprünge (verschlafen), Mainframes, zu spät im PC Geschäft, Software-Trend (verschlafen), 90 und 91 erste Entlassungen, einmalig bis dato in IBM Firmengeschichte. Zerschlagung des gesamten Konzerns, in sogenannte IBM Baby Blues, in Anlehnung an Baby Bells, Auflösung der Telefongesellschaften in den USA. Titelblätter des Economist und Fortune setzten eine grosses Fragezeichen hinter den zukünftige Entwicklung von IBM. Erste Turn-arounds mit der Fortführung der Produktorientierung gescheitert. Einmalig war dann Berufung von Louise von Gerstner in auf dem Posten des CEO. Aussenstehender, Service-Bereich. Mit ihm kam ein extremes Commitment zum Wandel im Geschäftsmodel von der Entwicklung, Produktion und Verkauf von Mainframes zu Wertgenerierung für Kunden mittels Dienstleistungen. Ganze Management & Finanzsystem wurde radikal an die Rahmenbedingungen für Dienstleistungsorientierung angepasst. Extreme Mitarbeiterfluktuation und –ausbildung. Jahr mit 10‘000 neuen Mitarbeitern im Servicebereich. Formulierung einer Dienstleistungsstrategie und die Gründung von IBM Global Service sind weitere Meilensteine auf dem Weg von IBM zum Dienstleister. Durch Strategie und Organisation wurden die notwendige Voraussetzungen geschaffen, für kontinuierliche Service Innovationen. Mittels Service Innovationen Aufbau neuer strategischer Geschäftsfelder. Ergebnis all dieser Meilensteine 2001, Service-Umsatz, grösster Umsatzanteil. Kurz darauf – Verkauf der Laptop-Sparte an Lenovo. Einmalig, IBMs Registrierung an New York Stock Exchange.
IBM heute- Software - Zwei grosse Service Division und Hardware nur noch 18.0%, Verknüpfung von Software, Services & Hardware, Software als wichtiger Lock-in für Kunden, Gesamtlösung Lesson‘s Learned – IBM einmalig IBM braucht eine Krise, um Notwendigkeit der Dienstleistungsorientierung zu erkennen? Bitte nicht bis zur Krise warten, um dann einen fundamentalen Wandel einzuleiten? IBM zeigt typische Erfolgsfaktoren für Dienstleistungsorientierung. Management-Commitment, Strategie, Organisation, Kultur, Personalmanagement, Management- und Finanzsystem. Dienstleistungsorientierung stellt das gesamte Unternehmen auf dem Kopf, alles ist betroffen. Wenn alles betroffen ist, dann gibt es auch über all Bedenkenträger und Widerstand. Sind Sie sich dieses Widerstandes bewusst und passen sie ihr vorgehen darauf an.
Existing contributions to servitization – four main areas – Models – Oliva & Kallenberg (2003), Ulaga & Reinarz four steps to increase the service profitability, Cohen et al. (2006) article six steps in setting-up an after-sales service business. Capabilities – Organizational capabilities (dynamic and operational capabilities) – dynamic come from the evolutionary theory of the firm – ability to respond to changing business environments. In this dynamic context, it is about sensing service opportunities and threats, seizing the sensed opportunities. Seizing means finding the reight business model for approaching the service opportunities. Another dynamic capabilities, which has been discussed in this context is the ability to reconfigure the operational capabilities. Operational capabilities is a static perspective on how a company can operate in a stable business environment. It is about earing the living in the service business. Service offerings As I mention. SSP & SSC, basic services for the installed base,advanced services, maintenance services, outsourcing services. Differrent types of service offering used to describe different service strategies -
Let me shortly summarise the existing contributions – Common approach to the motivation – Citation rates indicate an increasing attention to services Despite the previous contributions, I want to propose three issues for a future research agenda. First, I strongly believe that we are facing a misconception on the motivation to extend the service business. We have to carefully reframe and re-craft the motivation for manufacturing moving towards services. Instead of mentioning these three as a common motivator, we need a more detailed approach. Second, despite an increasing number of contributions, I strongly believe that there are uncontested and interesting research area. These research areas can be substantiated by comparing the content of the existing contributions to the actual real world of companies extending the service business. We don‘t not fully cover the practical issue when it comes to guiding manufacturing companies to move from being a product manufacturer towards a service provider. Third, I strongly see the need to think about the theoretical approachesinvestinging for moving towards services.
Services are more profitable tha products – IBM example, actually most profitable is software, hardware is also more profitable than the two main service business units. Single example, but the reconsiderating of service being more proftable than products is applicable to many industries. Machine & equipment, the statement depends on where you book your spare parts revenue and profits. If you book it into the product business, - or service business. Car manufacturer – don‘t get profit from selling cars, car insurance is more profitable. Statement again does not tell the whole truth, a product as to cover the whole R&D cost, costs for distribution. Insurance only included the costs for providing the insurance policy, This goes with the product sales, No development cost, no overhead costs. Such a cost structure does not reflect any reality. So, my message is be careful with the statement car insurance are more profitable. Germany – example HUG
Share of service revenue – easies way - low quality – product is not reliable – Financial – legal – distributors, labor costs – Volatiliy – services more stable only applies for maintenance – installations follows the same cycle, modernization is a counter-cycle. Pay-per-use – you follow the cycle of your customer. Condering the whole supply chain – Service revenue & profit bullwhip effect. Unitl now, manufacturing works with a order back-log, which function as a buffer for down-turns. Performance-based or pay-per-use means this buffer is gone. I have doubt that works with a Copy manufacturer – Better answer to how to avoid the imitation of service competencies. Example SEFAR
Magna vertical integration. Industry dynamics an so on
Tendency to frame moving from a product manufacturer to a service provider in the service-dominant logic. Cross-reference – moving from products to services does not necessarily mean to change from a GDL to SDL. Pure citations does not bother me. What bother me is that the application of the unreflective SDL can cause companies to fail.
Company failure is caused by the side effects of the SDL. I call it the dark side. Star wars – Darkvader or dark side becomes evident by considering innovators dilemma. Explains why big companies fail. It is about disruptive innovation / technology. Technology is business approaches. Disruptive business innovation. Causes to close to the customers. Now, let‘s consider the two of the holy ten premises of SDL. The customer is always the co-creator of value. Firms are resource integrators. Considering these fundamental premises, from the Innovators dilemma. Customers guiding R&D resources. SDL can create a strategic exposure to a disruptive change. SDL makes companies vulnarable for disruptive changes. Company Wetrok – SDL can create a strategic risk, empore of good-dominat firms can strike back. Don‘t get me wrong here-
