Transitioning to Service
Laura Smith, Roger Maull, Irene Ng
Background
• Changing nature of the economy and competition has resulted in the
‘servitization’ of manufacturing.
• Neely (2008) shows that servitization is not always a profitable strategy as
it requires a fundamental change in value proposition and supporting
business model
• Literature is calling for an investigation into the operational implications
of servitization (e.g. Pawar et al., 2009; Johnstone et al., 2009; Oliva &
Kallenberg, 2003 )
• This presentation will show findings from an exploratory study on value
propositions in servitization and their implications for operations
management.
Product-Service Systems (PSS)
• PSS represents combinations of product and service offering observed in
the product to service transition.
• Baines et al (2007) PSS is “an integrated product and service offering that
delivers value in use”
• PSS in management literature has observed motivations and categories
(e.g. Tukker, 2004)
• OM discusses the challenge of seeing value through the eyes of the
customer and designing and managing PSS operations accordingly
(Johnstone et al, 2009; Pawar et al, 2009; Brady et al., 2005).
S-D Logic - Value Creation
• PSS traditionally takes a GDL view of value e.g. Tukker (2004) suggests
‘added’ value through service makes the client willing to pay more
• Lapierre (1997) show that value created during exchange transactions
represents only one level of the service value proposition, a second
level is created in use.
• General consensus is that customer value is inherent in use, is
perceived by the customer and is the result of a trade-off (Woodruff,
1997).
• Therefore, value can only be proposed to the customer by the provider
and co-created in use (Vargo & Lusch 2004:2008)
Case Design
Research Questions:
• What PSS value propositions are offered in the P-S transition?
• What are the implications of PSS value propositions for operations design?
Case Study:
• UK OEM supplying durable capital equipment and service
• service revenue has grown by three times in a decade and over 50% in the
last five years
• Servitized offerings characterised by whole-life support; availability
performance indicators; Price-per-unit of equipment use; full, partial and
non- ownership options
• Data – 28 interviews with customers and employees, 5 years of ERP data,
process documentation
P-S Attributes
Value Proposition Attributes
Asset
• Asset Performance
Recovery
• Query Resolution
• Concessions
• Equipment Repair Service
Availability
• Equipment Maintenance Service
• Parts Forecasting & Provision
• Through-Life and Obsolescence Planning
• Capability Planning
• Equipment Operating Advice
Outcome
• Advice for operational and contextual capability
Design of Service System
• Technical complexity, this includes the complexity of the task, the
knowledge required to do the task and the range and variety of the tasks
• Discretion, this includes the workers element of choice and their ability to
exercise judgment in carrying out a task.
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•
•
•
•
Series,
Parallel,
Specialisation
Top Down
Bottom Up
Service Design
Value
Proposition
Asset
Attribute
Recovery
Technical Query
Resolution
Bottom-up,
Technical Variance
Bottom-up
Equipment Repair
Service
Parallel or
Series
Equipment
Maintenance Service
Series
Component
Forecasting &
Provisioning
Top Down
Through-Life and
Obsolescence
Forecasting
Top Down
Equipment is produced to a customer
specification agreed in advance with the
customer, multiple workers perform
separate tasks.
Customer requirements are unknown
the complexity of the diagnosis
increases.
Customer requirements are unknown
and complexity increases
Customer requirements are unknown
and equipment might pass between
various workers all be repaired by a
single worker.
Customer requirements are known in
different workers perform separate
tasks.
Customer requirements are negotiated
with senior staff and complexity
decreases as it passes down the
organisation hierarchy.
(As per component forecasting)
Capability Forecasting
& Planning
Recommendations
Top Down
(As per component forecasting)
Equipment Operating
Advice
Equipment
Configuration Advice
for Operational and
contextual Capability
Top Down
(As per component forecasting)
Top Down
Customer requirements are negotiated
with senior staff and complexity
decreases as it passes down the
organisation hierarchy.
Availability
Outcome
Equipment
Performance
Process
Design
Series,
Explanation
Research Propositions
• As a firm transitions from product to service (P-S) contextual use
variety increases.
• Resources to absorb or attenuate contextual use variety in P-S are
both customer and firm human resources
• Delivery of availability and outcome value propositions requires
customer resource integration
• P-S value propositions are interdependent
• Service process design varies according to the PSS value
proposition(s). Lower level propositions have a more structured
process design than higher level propositions.
Summary
•
•
•
•
P-S transition is complex
Firms looking to ‘add value’ cannot treat service as a bolt-on
Value propositions are interactive they cannot be optimised discretely
P-S transition increases variety in the provider system
Thank you…