Submission 015-0249
Challenges in Transforming Manufacturers into Integrated Product-Service Providers
Björn Claes
(bjorn.claes@cranfield.ac.uk)
Centre of Business Performance
Cranfield School of Management
Cranfield, Bedford, MK43 0AL
England
Veronica Martinez
(v.martinez@cranfield.ac.uk)
Centre of Business Performance
Cranfield School of Management
Cranfield, Bedford, MK43 0AL
England
POMS 21st Annual Conference
Vancouver, British Columbia, Canada
May 7 to May 10, 2010
Challenges in Transforming Manufacturers into Integrated Product-Service Providers
ABSTRACT
The last decades have shown an increasing interest in servitization strategies. Important
advances have been reported in the understanding of this phenomenon. Whilst research has
extensively highlighted the design and benefits of integrated goods-service strategies, much
less attention has been dedicated to the difficulties that companies experience when
transforming their “goods only” strategies to integrate services. Experience shows that
servitization constitutes a major managerial challenge because it alters the core business
model of an organization. Adaptation problems can seriously delay the implementation of
changes. Recognizing this research gap, this paper addresses the lack of understanding of the
servitization related change processes. We empirically identify factors that are obstacles in
the transformation process towards servitization. We theoretically validate these obstacles by
mapping them onto the antecedents and tenets proposed by the organizational ecology
theories. We conclude by discussing the significance of our findings and highlight the
opportunities for further research.
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Purpose: The purpose of this paper is to analyse the challenges experienced by the UK
manufacturing companies striving to integrate services into their traditionally products-based
offering. To gain better understanding of the factors that may hinder the integration process
we analyse four (related) companies that have transformed themselves from product
manufacturers only to product-service providers. We base our analysis on the organizational
ecology / structural inertia theories.
Design/methodology: The paper uses an exploratory multiple-case study approach
based on semi-structured interviews and archival data. Twenty-two senior managers were
interviewed from the product-service provider and its two suppliers, resulting in more than
400 pages of interview data. Data was analysed through an inductive research analysis by an
emergent identification of patterns.
Findings: The findings of this paper are twofold. First of all we find that the existing
body of literature on product service systems is largely composed of conceptual paper and
case based studies provides very little theoretical support for the analysis of the issues
encountered in the transformation processes that companies need to go through to become
integrated product service providers. Secondly, we find that many of the hindrance factors
faced by our focal companies can be partially or entirely explained by the organizational
ecology/ structural inertia theories. We summarize our observations in a table that relates the
specific hindrances observed in the servitization process of our case studies with the
antecedents for structural inertia identified by the organizational ecologists.
Practical implications: Experience learns that many difficult hurdles need to be
overcome when integrating services into a products-based offering, internally and along the
supply chain. Changing a company’s business model often leads to internal resistance and
loss of external credibility and should therefore be implemented with great care. A good
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understanding of the potential factors that may threaten the transformation is therefore
imperative. We argue that our findings will facilitate companies to address these impediments
(or prevent them altogether) and hence enable them to obtain the benefits of integrated
products-service based strategies suggested in the literature.
Originality: Over the last two decades much research has been dedicated to the design
and benefits of integrated product-service offerings. Research into the changes that
companies may need to implement to their business models to facilitate this integration has
thereby largely been overlooked. This paper provides a valuable overview of the factors that
potentially hinder companies’ efforts to integrate services into their traditionally productbased offering. By doing so, this paper not only addresses an important gap in the
servitization literature, it also provides an explanation of the issues that potential keep from
reaping the benefits of servitization suggested by the literature. Lastly this paper makes an
important contribution to the servitization literature by strengthening the theoretical
foundation on which this literature is based.
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INTRODUCTION
One of the most important goals of integrating products and services into a single
offering, known as the process of servitization (Vandermerwe and Rada, 1988), is to better be
able to fend off exclusively priced-based competition and creating a more sustainable
competitive advantage. Although the servitization phenomenon has been observed for more
than 150 years (Schmenner, 2009), particularly the last two decades have shown a surge in
interest in servitization strategies. Important advances in the understanding of this
phenomenon have been reported applying multiple perspectives in (see Baines, Lightfoot,
Benedettini & Kay, 2009, for a comprehensive overview). Whilst research has extensively
highlighted the design and benefits of integrated product-service strategies (Oliva &
Kallenberg, 2003; Cohen, Agrawal & Agrawal, 2006; Newman & Cowling, 1996,
Vandermerwe & Rada, 1988), much less attention has been dedicated to addressing the
difficulties that companies face when transforming their “products only” strategies to
integrate services. Yet experience shows that servitization constitutes a major managerial
challenge (Oliva & Kallenberg, 2003).
Servitization often significantly alters the core business model of an organization.
Adaptation problems (organizational unrest and resistance) can seriously delay the
implementation of the proposed changes or even jeopardize them altogether. Indeed, Neely
(2008) identified some initial evidence of companies previously on a servitization course now
seemingly reversing their efforts. Gebauer, Fleisch and Friedli (2005) recognize that it takes
time to build up the profitability of integrated technology-services offering. Time however is
an increasingly scarce commodity. Most companies are under permanent pressure to stay
ahead of their competitors and to do so they must continuously evaluate the opportunities and
costs for exploring new business models (including servitization) against those better
exploiting the opportunities in their current business models (March, 1991).
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It comes therefore as no surprise that companies struggle to define a clear strategy to
realize the benefits promised by the advocates of servitization strategies. Identifying this gap
in the literature, this paper set out to address this lack of understanding of the servitization
related change processes. To gain insight in the specific issues related to organizational
transformation, we set out on an explorative mission. Using a multiple case analysis
(Martinez, Bastl, Kingston and Evans, 2010) we empirically identified factors that are
experienced to be obstacles in the transformation process towards servitization. We then
turned to the servitization literature to find theories that would support our understanding and
explain these hindrance factors only to find that this literature, though very rich in anecdotal
evidence, case studies, untested conceptual frameworks and insightful opinions, proved to be
lacking a valid theoretical foundation to guide its research efforts. We were surprised by this
absence, particularly considering the fact that research efforts have been taking place for
nearly a quarter of a century and the increasing attention and growth in the broad area of
servitization research.
We subsequently turned to the more traditional theories on organizational change. Of
those, we found in particular the organizational ecology and structural inertia theories to be
very applicable and helpful to understand the problems that organizations where facing in
restructuring their business to become more servitized.
Then, following a similar approach as Rungtusanatham and Salvador (2008), we then
evaluate these obstacles and the corresponding generalizations by mapping them onto the
antecedents and tenets proposed by the organizational ecology/structural inertia theories
(Hannan & Freeman, 1977, 1984, 1988)..
In addition to addressing an under-research aspect of servitization, this paper makes an
important contribution in that it strengthens the theoretical foundation of the servitization
6
literature, which is found to be rich in empirical evidence and practical anecdotes but much
lighter in theory.
The rest of this paper is structured as follows: we first elaborate on the phenomenon of
servitization and the potential that it may have for the strengthening the competitiveness of
traditionally goods based manufacturers. We then delve deeper into the specific problems that
companies face when transforming their organizations to become servitized followed by a
relate of the important research gaps we identified in the servitization literature. Subsequently
we provide a brief overview of the traditional theories of change and highlight the
applicability on one of them, Organizational Ecology. We conclude with a brief discussion of
the importance of our findings and highlight the opportunities for future research.
SERVITIZATION
Many manufacturers offer services, but may not use services as the basis of their
competitive strategy. Servitization is defined as the strategic innovation of an organisation’s
capabilities and processes to shift from selling products to selling an integrated product and
service offering that delivers value in use (Vandermerwe & Rada, 1988; Baines et al., 2007).
Servitization is occurring across many business sectors and has implications across all
organizational functions (Gummesson, 1995). For instance, in operations this change has
been heralded by an increased focus on services operations, supply chain relationships,
outsourcing, and has seen a shift from the supplier perspective - and the means of production
- to a customer perspective and a focus on utilization.
There are various forms of servitization. Tukker (2004) for example proposes
categorizations ranging from products with services as an ‘add-on’, to services with tangible
7
goods. Servitized offerings tend to be delivered using customer-centric strategies in order to
provide ‘desired outcomes’ for the customer. This customer orientation consists of two
distinctive elements (Oliva & Kallenberg, 2003). Firstly, a shift of the service offering from
product-oriented services to ‘user process oriented services’: i.e. a shift from a focus on
ensuring the proper functioning and/or customer’s use of the product, to pursuing efficiency
and effectiveness of the end-user’s processes related to the product). Secondly, a shift of the
nature of customer interaction from transaction-based to relationship-based: i.e. a shift from
just selling products to selling complete solutions through long relationships. Servitization
frequently occurs as a response to financial difficulties, new customer demands and strategic
product differentiation (Mathieu, 2001a, Oliva and Kallenberg, 2003; Gebauer et al., 2006). It
has been observed in successful cases that when organisations gain insight into their
customers’ needs, they are able to develop more tailored offerings (Mathieu, 2001; Mallaret,
2006).
TRANSFORMATION TO SERVITIZED ORGANIZATIONAL FORMS
Organisations such as IBM, General Electric, Xerox, Cannon and Parkersell have had
a significant share of revenues and profits from services since the middle of 1990s; this is
attributed to a shift from product to service perspective (Quinn, Doorley and Paquette, 1990).
In theory, the transformation to product-service systems leads to higher revenues and margins
(Cohen et al 2006; Rosen et al, 2003; DTI 2002; Newman and Cowling, 1996; Chase and
Garvin, 1989), but in practice it takes times to build up profitability (Gebauer, Fleisch and
Friedli, 2005). The adoption of product-service based strategies requires significant
investments in capacity building consisting of things such as acquiring the required
information technologies and attracting (or training) people with the right skills and
capabilities (Reinartz and Ulaga, 2008). As a consequence, it is often a challenge to realize
the advocated revenues from the implementation of servitization strategies in the short term;
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it may only be in the longer term that the integration of products and services into a single
offering will deliver on its promises.
Researchers like Oliva and Kallenberg (2003), Davies (2003) and Araujo and Spring
(2006) have observed that when transforming their traditionally product based offering to a
combined product-service offering, organisations have to change their strategies, adapt their
operations, re-evaluate their value chains, update their (information) technologies, extent
their employees’ expertise and improve their system integration capabilities. However,
research shows that the transformation processes from a product centric strategy to a
combined product-service strategy are complex and remain poorly understood (Voss et al,
2005; Davies, 2003; Miller, et al 2002; Tukker, 2004).
This literature however, despite growing (see table figure 1) and increasingly rich in
anecdotal evidence, case studies, untested conceptual frameworks and insightful opinions,
proves to be starved of theory that would help to understand and explain the predicaments
that plague the implementation of servitization strategies (see figure 1). Valid (i.e. tested)
theories are imperative for guiding the research efforts in an emergent body of literature (Van
de Ven, 1989).
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Figure 1: Papers published on
sertivitzation in the last 25 years
Figure 2: Published research by
theory application or
development
13
10%
6%
8
7
5
4
4
3
5
4
84%
3 3
2
1 1 1 1
1
1 1
Explicit use / development of theory
Theories referred to in the paper
No explicit use/development of theories
IMPORTANCE OF THEORIES
Organizational theories are the valid theoretical foundations that allow the coproduction of compelling and sound scientific knowledge. They facilitate the understanding,
explanation and predictions of functional and behavioural problems of organizations (Miner,
1984) and guide research towards crucial questions (Van de Ven, 1989). Whereas the
servitization literature is rich on anecdotal processes of transformations (Wilkinson, Dainty
and Neely, 2009) it has largely failed to ask the basic organizational, transformation related
questions that would set the stage for the creation of organizational servitization centred
theories. The majority of the servitization studies that we identified lacked clearly defined
research questions, in even fewer studies relevant theories were applied to guide the research
(see appendix 1) and none of the studies explicitly states testable hypothesis. Furthermore,
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the empirical papers that we identified predominantly applied case study methodologies of
analysis to explore the various aspects of servitization and to build theory from the
observations. Very few papers applied other methods of analysis such as survey based
research or research based on archival data and only one paper applied a blend of research
methodologies. A well balanced approach in the use of research methodologies is imperative
for truly advancing knowledge and understanding. Appendix 1 lists the papers that we
reviewed for this research. Out of the 70 published papers on servitization, 50% describes
empirical research. Of these, 75% are based on case studies (as the dominant method of
analysis). Figures 3 and 4 provide an overview of the type of research that is published and
the dominant methodologies that are used.
Figure 3: Publication by type
Figure 4: Published research by
dominant methodology
5%
10%
30%
5%
50%
20%
81%
Empirical research
Case based research
Conceptual research
Research based on archival data
Discussion and review papers
Survey based research
Research based on Multiple methods
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Whetten (1989) argues that theoretical contributions should have explicit constructs,
concepts or variables expressed in research questions or testable hypotheses that provide
direction to the research. Testable hypotheses and research questions (and the inherent set of
assumptions) allow comparison between different research studies and generalization of the
findings. The question therefore that we, researchers in the field of servitization, should ask
ourselves is whether we are following the right strategy to provide scientifically valid
theoretical contributions to our field? Does our research sufficiently cover all the dimensions
of the research spectrum presented in figure 5?
Anecdotal  Data used  Empirical
Figure 5: The research spectrum along the dimensions of data and theory use
Theory building
papers; their
contribution is
conditional to the
relevance and clarity
of their research
questions and
testable hypothesis
Papers that test and
validate theory and
generalize findings; True
advance of knowledge
Discussion and
review papers;
Provide contribution
when they identify
knowledge gaps
delineate future
research directions
Conceptual and theory
building papers; their
contribution is
conditional to the
relevance and clarity of
the formulated research
propositions
NO  Explicit use of Theory  YES
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In the absence of valid and applicable theories in the servitization literature, we turned
to the wider literature on organizational change, in search for theories that would advance our
understanding of the issues related to the implementation of servitization strategies.
CHANGE MANAGEMENT LITERATURE
A large body of literature reports on the research that has been devoted to
understanding organizational change. Organizational change however has many different
facets and consequently researchers have approached it from a wide range of perspectives
(Kelley & Amburgey, 1991). This paper aims to illustrate the potential of these theories for
increasing our understanding and ability to explain the change processes that companies go
through when implementing servitization strategies and in particular the factors that
potentially impede the or even jeopardize their implementation.
Three theoretical perspectives that make different predictions about the relationship
between organizational change and organizational survival, or, as in our case, the success of
the servitization efforts can be identified in the literature (Singh, House & Tucker, 1985;
1986); Random Organizational Action theory, Organizational Adaptation Theories and
Organizational Ecology/ Structural inertia theory.
Proponents of the Random Action Theory content that there is no relationship between
organizational change and organizational success (or the lack thereof). More specifically,
they argue that “in a complex world the enactment of the organizational environment is
inaccurate, leading to organizational actors believing in the existence of cause-effect relations
that are in effect non-existent” (Singh et al, 1986). When put like that, one indeed may argue
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that organizational actions to strengthen organizational success that are based upon such an
inaccurate enactment of the environment are in fact relatively random.
The advocates of Organizational Adaptation Theories subscribe to the notion that
organizational change is primarily reflects the decisions and strategies of leaders and
dominant coalitions in organizations in response to changes in environmental threats and
opportunities. Change (when implemented correctly) corresponds to a lower level of
organizational failure (Singh et al, 1986). Different variations have evolved from the central
organizational adaptation theme including Contingency Theory (e.g. Thompson, 1967 and
Lawrence & Lorsch, 1967), Resource Dependence Theory (e.g. Adrich & Pfeffer, 1976 and
Pfeffer & Salancik, 1978), Institutionalization Theory (e.g. Meyer and Rowan, 1977 or
Dimaggio & Powell, 1983), the Theory of Organizational Strategy (e.g. Miles & Snow, 1978
or Minzberg, 1978) or Organizational Learning Theory (e.g. Levinthal and March, 1981 or
Nelson and Winter, 1982). The central argument across all of them is that organizations that
survive are those that developed the appropriate routines given the environmental
contingencies.
Followers of the tenets of Organizational Ecology/Structural Inertia Theory by Hannan
and Freeman (1984:156) content that the possibilities for implementing changes in the core
features of organizations are often strongly constrained. Compared to the challenges that need
to be overcome when implementing changes in the peripheral features, the challenges when
making modifications in the core business models of the organization are considerable and
the probability of success much lower (Hannan & Freeman, 1984). According to this theory,
structural inertia varies with the extent to which organizations are able to overcome a series
of internal and external constraints.
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To understand and explain the problems that companies face when implementing
servitization strategies, identified in the case studies, we found Organizational Ecology
theories to be most helpful. Whereas the Organizational Adaptation theories focus on the
match between environment and organizational structure, the Organizational Ecologists focus
on the problems of inertia when implementing change, irrelevant of whether the proposed
change is optimal in the light of organizational success.
ORGANIZATIONAL ECOLOGY AND SERVITIZATION
In their earliest formulation of the ecological theory of organizational change Hannan
and Freeman posited that “for wide classes of organizations there are strong inertial pressures
on structure arising from both internal arrangements (for example internal politics) and from
the environment (for example public legitimation of organizational activity).” (Hannan &
Freeman, 1997: p. 957). The desire of the management to transform the product-focused
business model into one that is based on an integrated product-service offer often implies
significant changes in the company´s organizational structure and processes (Oliva &
Kallenberg, 2003). In order to reduce the negative consequences that may arise from the
redistribution of managerial attention and financial resources and the unavoidable
introduction of new capabilities, metrics and incentives, management must identify and take
into account these inertial pressures. In the subsequent section we categorize the potential
constrains to the implementation of servitization strategies that managers may have to deal
with. Eight categories are identified; four categories of constraints arising from internal
pressures and four arising from the environment in which the company operates.
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Internal constraints
Internal constraints to the implementation of servitization strategies refer to the specific
hindrance factors that come from inside the organization. Particularly it refers to potentially
impeding factors such the investments business-model-specific assets (sunk costs), imperfect
information, internal politics and the consequences of past success and finally the company’s
and the effect that this has on the ability and willingness to embrace changes.
Sunk Costs. Sunk costs refer to the investments in plants, equipment and skilled
personnel enable the production of products, companies invest in plants. These
manufacturing assets tend to be highly focussed on the production of new products and are
generally not easily transferable to perform other tasks such as the provision of service.
Information constraints. The information on the activities within the organization the
organization that is available to the decision makers with than organization is often nowhere
near complete (Hannan & Freeman 1977). Within this context of bounded rationality (Simon
1991), manufacturers have learned to deal with the uncertainties caused by the market
volatility where is concerns planning and scheduling the manufacturing task. Shifting the
business model to include services may pull the organization and its members out of their
known reality (their “comfort zone”) and create unrest resulting in resistance to change.
Past success and internal politics. Implementing servitization strategies implies
making significant organizational changes and these changes upset known structures and
internal political equilibriums. Unless new resources are available to facilitate the integration
of services, the implementation of servitization strategies will imply a redistribution of
influence and resources (Hannan & Freeman, 1977). The areas of the organization that see
their influence and resources dwindle are likely to oppose the new business model.
Particularly when organizations have historically been successful in their markets,
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servitization strategies may end up being rejected despite their potential benefits for the entire
organization.
Organizational age, history and institutionalization. Organizations and their inherent
structures and processes gain intrinsic value over time. When that happens their perpetuation
becomes an end on itself, regardless of their utility for the companies’ survival (Scott, 1987).
Therefore the older a company, the more difficult it will be to change procedures and the
more resistance can be expected from its members (Hannan & Freeman, 1984, 1988).
External constraints
The external constraints to the implementation of servitization strategies refer to factors
beyond the boundaries of the organization and include factors such as network dependency
and regulatory barriers, imperfect market information, legitimacy and the organizations’
competitive environment.
Dependency and legal barriers. Two important categories of stakeholders need to be
taken into account when devising a servitization strategy. Companies can rarely implement
changes without taking their network partners into consideration. Because companies often
bound to entities in the wider network, they are likely to face constraints imposed upon by
corporate or long-term contractual commitments that restrict their freedom and flexibility in
responding to environmental pressures (Kelley, 1990; Rungtusanatham & Salvador, 2008).
Organizations must also remain within the boundaries imposed upon by the legislative
institutions in the countries in which they operate. As a consequence companies may face
legal and fiscal barriers to market entry or exit and/or restrictions to hiring and firing people
17
with skills that might have become redundant which are imposed upon them by the policy
makers of the country in which they operate.
Limited market information. Like the constraints caused by the imperfect information
on the activities within their companies, incomplete information about the market puts
constraints on the efforts of integrating a service component into a traditionally productsbased product offering. Acquiring information about customers’ expectations and the abilities
and limits of network partners so support a servitization strategy is costly, especially in
strained and volatile markets where this information is most essential.
Reliability, accountability and other legitimacy constraints. In a world of uncertainty,
clients tend to value reliability over price. Every change in a company’s business models
potentially puts an organization’s reliability at risk. Hannan and Freeman (1984) refer to this
potential loss of reliability due to the novelty of the activity as the “reliability of newness”.
Product-centric manufacturers who introduce a service component into their product offering,
introduce an activity in which they often lack the experience. Any problem in delivering this
service component may reflect negatively upon the traditional product based offering.
Accountability is important because resource providers want to assure that their time, money
and efforts are not wasted. However when companies, embark on servitization strategies,
accountability gets another dimension that may directly impact the performance of the
organization as well as the perceived reliability in the market. Shifting focus from
manufacturing only to the integrated provision of products and services makes accountability
a key component for being able to al in order to provide “value-in-use” over time.
The organization’s competitive environment. Lastly, the competitive environment in
which companies operate can be an important constraint for implementing servitization
strategies. As argued previously, integrating services into a traditionally product-based
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offering constitutes a mayor managerial challenge and will demand dedication of the
appropriate resources (time and money). Unless new resources are obtained, servitization will
imply a partial shift of resources from the traditional activities towards serviced based
activities. In highly competitive markets this redirection of resources may however put the
organization at risk in its traditional markets. The Red Queen paradox (Van Valen, 1973)
suggests that organizations must not only cope with the present environmental conditions but
they must also out-evolve competing organizations over time (Fombrun, 1988)1. The Red
Queen paradox forces companies to dedicate resources to exploitative changes (changes that
make them better adapted to the present context) rather than to explorative changes (changes
that will move the organization in new directions) (Barnett and Pontikes (2008). Companies
that aspire to servitize may find that modifying their business models may not be feasible
without putting their competitive position in the markets at risk.
ILLUSTRATING THE RELEVANCE OF ORGANIZATIONAL ECOLOGY
To illustrate the relevance of Organizational Ecology Theory for understanding and
explaining the predicaments in the transformation processes toward servitized business
models, we mapped the hindrance factors observed in the case described by Martinez et al
(2010) onto the antecedents and tenets of the organizational ecology and structural inertia
theories (Hannan & Freeman, 1977, 1984; Kelly & Amburgey, 1991).
We summarize this theoretical mapping in Table 1. Matching the constraints to change
described above with the hindrance factors identified in the case studies, proved to be very
straightforward. For example, the hindrance factor pertaining to the alignment of investments
In Lewis Carroll’s classic story Through the Looking Glass the Red Queen explains the running Alice her
relative stability in a contexts of other who are running. To actually get ahead she would have to run ever so
much faster.
1
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and service delivery and the reasons why these investments are so difficult to align to service
delivery is explained very well by the legacy and routinization constraint as well as by the
constraint caused by sunk costs. The constraints pertaining to imperfect information clarify
that product-based performance metrics fail to provide full information to decision makers to
manage product-service organizations. The imbalanced view towards engineering processes
can be traced back to past organizational successes and how these can prevent the adoption of
new service delivery processes and practices.
Organizational Ecology Theory is found to be a highly relevant theoretical lens through
which the factors that complicate the integration of product and service offerings that were
indentified in the case studies can be analysed. As such this is a good example of how the
application of valid theory can help advancing the servitization literature.
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Table 1: Theoretical Mapping of the Hindrance Factors onto the Organizational Ecology and
Structural Inertia Theories
Hindrance Factors in Servitization
Organizational Ecology and Structural Inertia:
Internal Constraints
Alignment of investments to service delivery
In the process of transforming towards provision of an integrated
offering it has become clear that without specific infrastructure an
organisation will not be able to deliver what has been promised to the
end customer.
“At that point it became very clear that we did not have the
infrastructure in place to provide the support we contracted”. (ServPro,
Customer Services Manager).
An integrated offering implies a greater number of customer touchpoints, with the result that a broader range of personnel are being
exposed to the customer than previously.
“…because ... they’re [customer-facing people] doing those jobs but they
can’t deliver, all they can do is an acceptance, it’s the rest of the
company that has to deliver and if the rest of the company is still sitting
believing that we’re an OEM organisation that has months and years to
resolve issues and respond to challenges ... then we’ve failed because
our competitors aren’t necessarily having to deal with those issues”
(ServPro, HR Manager).
Sunk costs:
An organization’s investment in plants, equipment and specialized
personnel constitutes assets that are not easily transferable to other
tasks and functions
Performance information management
Metrics which were designed for a “product-centred” organisation
require re-alignment when organisations transform towards provision of
an integrated offering.
“The metrics in the individual functionalities that make up ServPro aren’t
really aligned... ...you don’t see how that’s aligned through the metric to
actually deal with the integrated offering”. (ServPro, Supply Chain
Manager).
“We operate too much in silos and our metrics are based on how we
service one side against the other without recognition for how we are all
collectively serving the end customer”. (ServPro, Project Manager).
There is a lack of tools and techniques to use for the purposes of
assessing the internal capabilities of organisations to design and deliver
product-service offerings.
“It’s the tools to assess our ability to meet a service level of agreement
just as the joiner’s arm is about to put pencil to a piece of paper”
(ServPro, Service Operations Director).
Information provided to decision makers (DM):
Research shows that DM fail to receive full information on the activities
in the organization and in the relevant environment. Hence,
- The actual structure may depend on random events (history).
- The pursuit of efficiency may lead to rigidity and unresponsiveness
to further change.
Imbalance view towards engineering processes as opposed to service
processes
There is a tendency in the organisation to revert to a focus on product,
rather than the whole integrated offering (particularly when under
stress).
“We are now a global company and we are going through huge growing
pains, I mean absolutely enormous growing pains, we are struggling, our
supply chains are struggling and focus goes on the sexy new products”
(ServPro, Repair Engineering Manager).
“Normally a new service is actually adding onto an existing product
design” (ServPro, Operations Centre Manager).
“Guys that do product change are not involved at all in service change, so
guess why we decided service has to be aligned very much along the
process and product change” (ServPro, Operations Centre Manager).
Internal politics & past success
Altering structures and processes upset political equilibriums. Negative
political response generates short run political costs high enough to
forgo planned reorganizations; “The disutility of a loss of a certain
magnitude is greater than the utility of a gain of the same magnitude
(Kahneman, Slovic & Tversky, 1982)
Furthermore organizations that historically have been successful tend to
reinforce certain behaviors deemed to have contributed to that success.
Hence opposition to change is likely to be greater in these organizations
as change will upset the standardized operating procedures and routines
that are considered sustained the historical success.
Engineering-based cultural tradition
Strongly embedded traditional manufacturing culture in the organisation
is observed to hinder transition towards provision of an integrated
offering. An interviewee said “Culturally, people still think that at the end
it’s still just a big bloody product that comes in and gets overhauled."
(ServPro, DS).
Organizational history (age)/institutionalization):
Over time standards of procedure and the allocation of tasks/authority
become the subject of normative agreement (this is particularly the case
in organization that historically have been successful). Normative
agreements constrain in 2 ways:
1) The provide legitimate justifications for those opposing the change
2) They preclude serious consideration of many responses to threats
and opportunities in the environment.
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Hindrance Factors in Servitization
Organizational Ecology and Structural Inertia:
External Constraints
Customers expectations
Misunderstandings may occur on the part of both the provider and the
customer, and this may lead to an imbalance in expectations.
“…you have to accept...that they think they are paying for a certain level
of service meaning they want a team of people sitting on their doorstep”
(ServPro, Services Executive).
“One of the issues that we have… customers think well if I take some of
these things out of the [name of PSS offering package] offering, my price
comes down, that’s evident so if I can take that out, if I don’t have the
logistics part and take that out, I don’t want that bit and that bit then
surely my cost will come down but it’s actually the opposite is true in my
view, we may have these things like controlling of assets but actually
they are the things that enable the cost to be that low, you start to take
that out and the price should start going up and we need all those levers
to allow us to deliver” (ServPro, Repair Engineering Manager).
Dependency and Legal and fiscal constraints
Organizations that are part of a large corporate structure or otherwise
bound to entities in the larger business network are likely to experience
constraints or undergo long-term contractual commitments that restrict
its freedom and flexibility in responding to environmental pressures
(Kelley 1990, Rungtusanatham & Salvador 2008)
Furthermore companies may face legal and fiscal barriers to market
entry or exit and or restrictions to hiring and firing people with skills that
might have become redundant.
Suppliers’ communication management
Suppliers lack of information to better manage their forward planning.
Information availability
Acquiring information about relevant environments is costly.
“We don’t receive [from ServPro] any forward planning or strategy of
roles going to their market place and trying to win more business into
integrated offering. We read it in the newspaper”. (ServSup-1, Customer
Service Manager).
Employees tend to specialize in using certain information channels even
when other, newer, channels would provide superior information (such
specialization limits the range of info that an org can obtain and hence its
possibilities to adapt.
“I think the only thing I would like to see is a lot more information off
ServPro to enable us to manage the risk, so they can provide us more
information on their sustaining engineering bills, their modification bills.”
(ServSup-2, Production/Operations Director).
Contracts and accountability
Legitimacy constraints (reliability & accountability and Routinization)
Introduction of new types of offering can cause issues in terms of their
definition (in contracts, in negotiations, in understanding of what is
required).
Organizations receive public legitimating and social support as agents for
accomplishing specific and limited goals (Hannan & Freeman 1984).
Deviating from the original business model may therefore jeopardize this
legitimating. Potential investors want assurance that their investments of
time, effort and resources will not be wasted.
“…grey areas in the contract...and the need for a new mind-set to deal
with this, rather than exploit the opportunity available in having unclear
contracts” (ServPro, Customer Services Manager).
Cultural legacy and lack of external focus
Market environment (the Red Queen argument)
The cultural legacy in the company is inhibiting the transition towards a
servitized strategy. The organisation needs to embrace the thinking of
the end customer.
Competitive pressure in the market may put constraints on how
organizations assign their limited resources. Exploration into new
business opportunities may be restricted by the need dedicate scarce
resources to better exploitation of the existing business model in order
to stay ahead (or even at par) with the competition.
“I think it was traditional ... ponderously slow in the way that we did
things, I think that the drum beat was set by the research and
development programs for the major new product types. I think … we
look back as often as we look forward, everybody knows we’re very old
and there is an awful lot on legacy you know” (ServPro, Human Resource
Manager).
“I think if this organization is ever going to be able to integrate with our
customers we’ve just got to talk like a customer does”. (ServPro,
Customer Services Manager).
22
CONCLUSIONS
We started this paper by highlighting the challenges that organisations face when they
implement servitization strategies. During our research efforts we have found that
servitization researchers faced challenges of their own in terms of gaining better
understanding of the integration of product and service-based offerings. The analysis of the
published literature presented in this paper suggests ample room for strengthening the
theoretical foundation of the increasing academic research efforts in servitization.
The
largest share of the papers we reviewed for our study either presented a vision, a review, a
discussion or a blend thereof. The vast majority of the empirical papers based their findings
on one or several cases studies. Case-based studies are very effective for the exploration of
new or previously under-researched phenomena, for building new theory to explain those
phenomena or for verifying the relevance of theories borrowed from other academic areas.
For testing theories and establishing a sound foundation for knowledge development a
balanced blend of methodologies is called for. Moreover, regardless of research
methodology, it is important that authors explicitly state the research questions that guide
their analysis and define clear and falsifiable research hypothesis. Both the well defined
research questions and hypothesis enable objective comparison of research findings and
facilitate correct replication of the studies in different empirical settings. Replication of
research and correct comparison of its conclusions validate the research findings and
facilitate the development of new theory or the adjustment and extension of existing theories
“borrowed” from other fields. This paper calls for a reflection about the progress achieved to
date in our understanding of the integration of product- and service-based offerings and
invites the research community to strive for a more balanced blend of methodologies to be
applied to study servitisation.
23
Lastly, this paper illustrates how research into that servitization could be advanced by
“borrowing” organisational theories such as Organisational Ecology to formulate and ground
the challenges that organisations face. By doing so we help creating a stronger foundation for
further research into this highly relevant topic.
LIMITATIONS AND FUTURE RESEARCH
No research is perfect and this paper too has its share of shortcomings. First and
foremost, our findings are based on the papers that we managed to identify that specifically
address the integration of product- and service-based offerings. Although we have strived to
be thorough in our literature review, we might have overlooked some papers that do exactly
what we propose in this paper. One reason for this might be the absence of a common
terminology that plagues this field of research. We are, however, confident that these papers
will be few and they therefore will have a negligible effect on our findings. In addition, this
paper more than anything else calls for a critical examination of the way our field is
developing where it concerns the research methodologies. One may argue that an ongoing
process of self reflection is imperative for assuring relevance to practitioners and academics
alike regardless of the current state of research.
Interesting opportunities exist for research that tests the emerging theories that have
evolved from the case studies till date. Borrowing relevant theories from other academic
areas may be another way to advance our understanding of servitization processes.
Lasty, interesting opportunities exist for researching servitization using other
methodologies than case studies. A more balanced approach with regards to the use of
24
research methodologies may ensure a comprehensive approach towards capturing all the
issues relevant to the phenomenon of servitization and the generalizability of the findings.
ACKNOWLEDGMENTS
The authors would like to acknowledge the support of the EPSRC/IMRC under grant
number [IMRC 154], which is supporting Product Service Systems research. We also would
like the comments by Prof. Mark Jenkins of the Cranfield School of Management for his
helpful comments with regards to the arguments presented in this paper.
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APPENDIX 1 – THE PUBLICATIONS ANALYZED FOR THIS PAPER2
2
References of the literature list are available upon request from the authors.
29