Paper to be presented at the

35th DRUID Celebration Conference 2013, Barcelona, Spain, June 17-19

Servitization: The Extent of and Motivations for Service Provision amongst

UK based ManufacturersElif Bascavusoglu-Moreau

University of CambridgeCentre for Business Research

E.Bascavusoglu@cbr.cam.ac.uk

Bruce TetherManchester Institute of Innovation Research and Business School

Bruce.Tether@mbs.ac.uk

AbstractServitization is the provision of services to clients by manufacturing firms. For over twenty years, servitization has beenadvocated as a strategy by which manufacturers in high cost locations can compete against rivals based in low costlocations, as providing services implies closer customer relations, and moving from a transactional approach based onmaking and selling goods, to an more relational approach which may involve providing tailored packages of productsand services, sometimes as integrated solutions. Little is known, however, about the extent to which manufacturersprovide services, their motivations for so doing, or the organizational arrangements associated with providing services. Drawing on a bespoke survey of 256 manufacturers in the UK, this paper provides evidence where previously there waslittle. We reveal that manufacturers typically provide several services, and these are commonly packaged with products.Most UK manufacturers in our sample are therefore service-enhanced, rather than service oriented. We also examinefirms' motivations for providing services, and the characteristics of firms most likely (and least likely) to provide services.

Jelcodes:M10,L60

1

Servitization:

The Extent of and Motivations for Service Provision

amongst UK based Manufacturers

Abstract

Servitization is the provision of services to clients by manufacturing firms. For over twenty

years, servitization has been advocated as a strategy by which manufacturers in high cost

locations can compete against rivals based in low cost locations, as providing services implies

closer customer relations, and moving from a transactional approach based on making and

selling goods, to an more relational approach which may involve providing tailored packages

of products and services, sometimes as integrated solutions. Little is known, however, about

the extent to which manufacturers provide services, their motivations for so doing, or the

organizational arrangements associated with providing services. Drawing on a bespoke

survey of 256 manufacturers in the UK, this paper provides evidence where previously there

was little. We reveal that manufacturers typically provide several services, and these are

commonly packaged with products. Most UK manufacturers in our sample are therefore

service-enhanced, rather than service oriented. We also examine firmsげ motivations for providing services, and the characteristics of firms most likely (and least likely) to provide

services.

Key Words: Manufacturing; Service Provision; Servitization

2

1. INTRODUCTION

Manufacturing is usually defined as the making of goods, articles or products, especially in factories

and H┞ ｷﾐS┌ゲデヴｷ;ﾉ ﾏW;ﾐゲ ﾗヴ ヮヴﾗIWゲゲWゲく M;ﾐ┌a;Iデ┌ヴｷﾐｪ Iﾗﾐ┗Wﾐデｷﾗﾐ;ﾉﾉ┞ け;SSゲ ┗;ﾉ┌Wげ H┞ デヴ;ﾐゲaﾗヴﾏｷﾐｪ raw materials into semi-manufactured and final goods, the utility of which is embodied in the

product; this process of transformation typically involves a series ﾗa けゲデWヮゲげが with the production of intermediate goods as components or sub-assemblies, within a value chain. Because final and

intermediate manufactured goods typically embody utility that is retained for some time they can

usually be produced at considerable distance from their place of their final consumption.1 In this,

archetypal manufacturing differs markedly from archetypal or classic services, which cannot be

stocked, are co-produced by the producer and consumer acting together, and are therefore

provided in close physical proximity to the user.

The declining cost and increased speed of transportation, coupled with political changes and

deregulation, is encouraging the globalization of production, and more particularly the migration of

relatively labour intensive manufacturing from high cost locations, such as the United States and

Western Europe, to low cost production locations, such as China an Eastern Europe. Furthermore,

manufacturing firms are also increasingly offshoring and outsourcing higher-value company

functions including research and development (BIS, 2010, p.7)

These and other forces have seen a relative decline of manufacturing in the UK, as a share of the

economy, and as a share of world production.2 YWデ デｴW UK ヴWﾏ;ｷﾐゲ デｴW ┘ﾗヴﾉSげゲ ヶth largest manufacturer by value of output, and moreover real manufacturing output has grown in value in

most years since the early 1980s. This implies a substantial growth in productivity - real output per

employee - which increased by almost 50% in the twenty years between 1987 and 2007. This

growth is due to investment in capital equipment, new tools and technologies, some up-skilling and

new working practices such as outsourcing, and innovation (PWC, 2009).3

The financial crisis of 2008 and the recession that followed led the UK government recognize the

danger of over-reliance on financial services, and the need to けヴWH;ﾉ;ﾐIeげ デｴW WIﾗnomy, with a particular focus on manufacturing. TｴW Iｴ;ﾉﾉWﾐｪW ｷゲ IﾗﾐゲｷSWヴ;HﾉWく TｴW UKげゲ H;ﾉ;ﾐIW ﾗa デヴ;SW ｷﾐ manufactured goods has been consistently negative for the past 25 years, and became larger in the

past decade. Moreover, recessions tend to be particularly harmful to manufacturing, with past

trends showing that manufacturing jobs lost in recessions rarely reappear when growth returns.

The usual remedies to revive manufacturing include a greater focus on knowledge and high value

added, through increased investments in R&D (which is being encouraged by the provision of R&D

tax credits), training (which is being encouraged by the provision of modern apprenticeships), and

quality. This paper examines another strategy, which is a move towards services, which complement

products and production. It is frequently observed that the distinction between manufacturing and

1 Exceptions arise where transport costs are prohibitive (e.g., iron and steel mills) and/or where the product is highly

perishable (e.g., bakeries). 2 Employment in UK based manufacturing has also declined from around one in four jobs in 1980 to one in ten in 2008; a

loss of around 4 million jobs. The UK remains particularly successful in some sectors of manufacturing, such as aerospace,

where the UK accounts for 15% of world output. 3 Profitability in manufacturing has however declined steadily since 1997.

3

services is becoming less distinct, or blurred, with more and more companies operating in both

areas, bundling goods and services together in customized packages for clients. The aero-engine

manufacturer Rolls Royce is the archetypal example (Johnstone et al., 2009; The Economist, 2009).

Rolls Royce has made a significant and successful transition from HWｷﾐｪ けa pure manufacturWヴげ to being an integrated solutions provider. It now generates around half of its revenue from services,

and looks to capture value throughout the lifecycle of its products. Another example is Xerox, which

has ﾏｷｪヴ;デWS aヴﾗﾏ HWｷﾐｪ ; ﾏ;ﾐ┌a;Iデ┌ヴWヴ ﾗa ヮｴﾗデﾗIﾗヮｷWヴゲが デﾗ HWIﾗﾏｷﾐｪ ; けSﾗI┌ﾏWﾐデゲ Iﾗﾏヮ;ﾐ┞げく

It is thought that many other companies, both large and small, old and new, are or have the

potential to do the same. But we know very little about the extent to which this is occurring. One

reason for this is that official sources are poor at capturing the range of a firmげs activities. Firms are typically classified by their main line of activity. So Rolls Royce is an aircraft engine manufacturer,

and its engine maintenance activity is therefore unrecognised in most official sources.4 Some

businesses have been reclassified as their profile of activities has changed. IBM was considered a

manufacturer of computer hardware, but the growth of its software and consultancy business,

coupled with the sale of its personal computer division to Lenovo, means that IBM is now considered

a service company, even though it still manufactures mainframe computers (Gerstner, 2002).

However, some firms are け┘ヴﾗﾐｪﾉ┞ IﾗSWSげく Dyson Ltd, for example, is a renowned producer of domestic appliances (especially vacuum cleaners) and is classified as a manufacturer. However, all

ﾗa D┞ゲﾗﾐげゲ production is undertaken in Malaysia: R&D, engineering and support activities are undertaken in the UK.5 This raises the question as to how to define manufacturing. Some, such as

the Institute for Manufacturing at the University of Cambridge, call for a broad definition which

Iﾗ┗Wヴゲ さデｴW ┗;ヴｷﾗ┌ゲ activities that need to be coordinated and performed in order to deliver a ヮｴ┞ゲｷI;ﾉ ヮヴﾗS┌Iデざ ふIFMが ヲヰヰヶぶ; others would say that classifying Dyson as a manufacturing company in the UK is misleading.

In our study, we adopt a more strict definition of manufacturing sector and only consider firms

whose manufacturing activities are based in the UK. By doing so, we seek to contribute to the

understanding of the drivers of competitiveness of the UK manufacturing firms, by exploring their

servitization strategies, often seen as the future of manufacturing (Barclays/Mark Lee, 2011) . The

aim of this paper is to examine the extent to which manufacturing firms based in the UK are engaged

in the provision of services to their customers, their motivations for so doing, and the organizational

implications of providing services. The paper is structured as follows. Section 2 provides a

discussion of servitization as a concept, its theoretical underpinnings, and the existing evidence on

the extent of servitization amongst manufacturing firms based in the UK and other advanced

economies. Section 3 outlines the methodology and provides a preliminary analysis. Section 4

provides a detailed analysis of the survey results. And section 5 provides the conclusions.

4 Where firms have several establishments that are engaged in different activities, with for example, on manufacturing

plant, two repair and maintenance establishments, and one separate R&D site, this should be recorded in the Business

Structures Database, which is an establishment rather than a firm level database. However, even here, only the main

activity at each establishment is recorded, so any repair and maintenance undertaken at the manufacturing site will be

hidden in official records. 5 According to its company accounts reported on the FAME database, D┞ゲﾗﾐげゲ ヮrimary SIC (2003) code is 3162

さM;ﾐ┌a;Iデ┌ヴWヴ ﾗa ﾗデｴWヴ WﾉWIデヴｷI;ﾉ Wケ┌ｷヮﾏWﾐデ ﾐﾗデ WﾉゲW┘ｴWヴW Iﾉ;ゲゲｷaｷWSくざ

4

2. SERVITIZATION: THE CONCEPT, THEORY AND EVIDENCE

All manufacturers need to engage in some services (such as administration) to produce their

products, but these services may be for internal purposes only. Servitization occurs when

manufacturing firms provide services to their clients, as part of their value proposition. It includes,

aﾗヴ W┝;ﾏヮﾉWが デｴW ｷﾐゲデ;ﾉﾉ;デｷﾗﾐ ﾗa ヮヴﾗS┌Iデゲが ﾗヴ デｴWｷヴ ﾏ;ｷﾐデWﾐ;ﾐIWが ﾗﾐ ; ヴWｪ┌ﾉ;ヴ ﾗヴ けﾗﾐ SWﾏ;ﾐSげ H;ゲｷゲく

Tｴｷゲ デヴWﾐS ｴ;ゲ HWWﾐ ┗;ヴｷﾗ┌ゲﾉ┞ SWゲIヴｷHWS ;ゲ けゲWヴ┗ｷデｷ┣;デｷﾗﾐげ ふV;ﾐSWヴﾏWヴ┘W ;ﾐS ‘;S;が 1989; Baines et ;ﾉくが ヲヰヰΓぶが けゲWヴ┗ｷIW ｷﾐa┌ゲｷﾗﾐげ ふBヴ;┝が ヲヰヰヵき EｪｪWヴデが ヲヰヱヱぶが けデWヴデｷ;ヴｷ┣;デｷﾗﾐげ ふLWﾗ ;ﾐS PｴｷﾉﾉｷヮヮWが ヲヰヰヱぶが ;ﾐS デｴW ヮヴﾗ┗ｷゲｷﾗﾐ ﾗa けヮヴﾗS┌Iデ-ゲWヴ┗ｷIW ゲ┞ゲデWﾏゲげ ふMﾗﾐデが ヲヰヰヲき T┌ﾆﾆWヴ ;ﾐS TｷゲIｴﾐWヴが ヲヰヰヶき JﾗｴﾐWゲデﾗﾐW Wデ ;ﾉくが ヲヰヰΒぶ ﾗヴ けｷﾐデWｪヴ;デWS ゲﾗﾉ┌デｷﾗﾐゲげ (Davies, 2004; Windahl et al., 2004; Hobday et al., 2005; Davies et al., 2007). The concept ﾗa けゲWヴ┗ｷデｷ┣;デｷﾗﾐげ is normally attributed to Vandermerwe and Rada (1988), who に despite a lack of supporting evidence - ヮヴﾗIﾉ;ｷﾏWS デｴ;デぎ さServitization is happening in almost all industries on a global scale. Swept up by the forces of deregulation, technology, globalization and

fierce competitive pressure, ... ﾏ;ﾐ┌a;Iデ┌ヴWヴゲ ;ヴW ﾏﾗ┗ｷﾐｪ ﾏﾗヴW Sヴ;ﾏ;デｷI;ﾉﾉ┞ ｷﾐデﾗ ゲWヴ┗ｷIWゲざ (Vandermerwe and Rada, 1988, pp. 315). Quinn et al (1990) also argued that in order to gain

competitive advantage aｷヴﾏゲ ゲｴﾗ┌ﾉS ﾏﾗ┗W けHW┞ﾗﾐS ヮヴﾗS┌Iデゲげ ;ﾐS WﾏHヴ;IW けゲWヴ┗ｷIW-H;ゲWS ゲデヴ;デWｪｷWゲげ (c.f., Andersen and Narus, 1995).

Despite these calls, servitization received scant attention in the mainstream management and

engineering literatures before the 2000s, but is now seen as a means by which manufacturing firms

in high-cost locations, can differentiate themselves (Tukker and Halen, 2003; Sawhney et al., 2004;

Davies et al., 2007; Baines et al., 2009).6 By placing a strong emphasis on service, manufacturers, it is

argued, can build stronger relationships with their clients, and so escape commoditisation and

pernicious price based competition. This transition is however considered to be difficult, and may

even risk the survival of the firm (Neely, 2009), for it ultimately involves ; ゲ┘ｷデIｴ aヴﾗﾏ けﾏ;ﾆｷﾐｪ ヮヴﾗS┌Iデゲげ デﾗ けヮヴﾗ┗ｷSｷﾐｪ ゲWヴ┗ｷIWげ, which ヴWケ┌ｷヴWゲ ; ゲｴｷaデ aヴﾗﾏ ; けｪﾗﾗSゲ Sﾗﾏｷﾐ;ﾐデ ﾉﾗｪｷIげ and mindset, to ; けゲWヴ┗ｷIW Sﾗﾏｷﾐ;ﾐデ ﾉﾗｪｷIげ and mindset, and associated changes in organizational architecture and the business model (Normann & Ramirez, 1993; Vargo and Lusch, 2004). As Benedettini and

IﾗﾉﾉW;ｪ┌Wゲ ヮ┌デ ｷデが さDWﾉｷ┗Wヴｷﾐｪ くくく ┗;ﾉ┌W ;SSWS ゲWヴ┗ｷIWゲ ﾏW;ﾐゲ SW;ﾉｷﾐｪ ┘ｷデｴ ; ﾐW┘ ゲWデ ﾗa Iｴ;ﾉﾉWﾐges for ﾏ;ﾐ┌a;Iデ┌ヴｷﾐｪ ﾏ;ﾐ;ｪWヴゲざ ふBWﾐWSWデデｷﾐｷ Wデ ;ﾉくが ヲヰヱヰが ヮく ヲヵぶく TｴWゲW Iｴ;ﾉﾉWﾐｪWゲ ヴWﾉ;デWゲ デﾗ デｴW ゲﾗ I;ﾉﾉWS けゲWヴ┗ｷIW ヮ;ヴ;Sﾗ┝げが ┘ｴWヴWH┞ aｷヴﾏゲ デｴ;デ Sﾗ Wﾐｪ;ｪW in the provision of services often perform less well に at least initially - than otherwise similar firms that do not (Gebauer, et al., 2005; Fang et al., 2008;

Neely, 2009). When fully developed, servitization is thought to be associated with a business model

based on relationships and customer retention, rather than one based transactions, competing on

product characteristics, and the efficiency of production.

That services form an increasing share of advanced economies is not in doubt. And nor can there be

any doubt that manufacturing and services are closely inter-twined and interdependent. For even if

production is the defining activity of a manufacturing company, achieving a manufactured output

inevitably requires a much broader base of activities, involving R&D, design, marketing, distribution,

ゲWヴ┗ｷIW ;ﾐS ゲ┌ヮヮﾗヴデざ ふSchmenner, 2009; Benedettini et al., 2010).7 This does not mean, however, that the same company should undertake all of these activities. They may instead be more

6 Much of the early literature focused on Product Service Systems and was inspired by an environmental or ecological

agenda, rather than an economic or commercial agenda. 7 TｴW ゲ;ﾏW ;┌デｴﾗヴゲ IﾗﾐゲｷSWヴ デｴ;デ さWケ┌;デｷﾐｪ ﾏ;ﾐ┌a;Iデ┌ヴｷﾐｪ デﾗ ヮヴﾗS┌Iデｷﾗﾐ ｴ;ゲ ﾉWS デﾗ ヮWﾗヮﾉW デｴｷﾐﾆｷﾐｪ デﾗﾗ ﾐ;ヴヴﾗ┘ﾉ┞ ;Hﾗ┌デ

┗;ﾉ┌W IヴW;デｷﾗﾐ ;ﾐS ┗;ﾉ┌W ゲ┞ゲデWﾏゲくざ ふBWﾐWSWデデｷﾐｷ Wデ ;ﾉくが ヲヰ10, p. 18)

5

efficiently undertaken by different organizations, or by separate business units within the same

organization. Indeed, declining transaction costs has encouraged increasing specialization and a

growth in the outsourcing of activities previously ┌ﾐSWヴデ;ﾆWﾐ H┞ ﾏ;ﾐ┌a;Iデ┌ヴWヴゲ けｷﾐ-ｴﾗ┌ゲWげ (Langlois, 2003). This is one reason for the growth in services in the economy (Kakaomerlioglu and Carlsson,

1999), and implies the provision of services by specialized service providers is generally superior to

their provision by manufacturers.

However, the relative merits of specialization (focusing as far as possible on manufacturing) or

integration (combining the production of products with the provision of services) varies with

circumstance and technologies, which can change over time (Langlois, 2003). The question, then is

ﾐﾗデが ┘ｴWデｴWヴ け;aデWヴ ゲ;ﾉWゲげ H┌ゲｷﾐWゲゲ ﾗヮヮﾗヴデ┌ﾐｷデｷWゲ exist,8 but whether the manufacturer is in a strong position to capitalize on these. If it is to be successful, servitization ultimately implies finding and

developing complementarities between the production of goods and the provision of services

(Teece, 1986; Milgrom and Roberts, 1990). Without these complementarities, the manufacturer has

no innate advantages over third party, or independent, service providers. Rolls Royce, for example,

has integrated production and service provision by integrating a whole host of sensors into its

engines, which help Rolls Royce to predict when component are likely to fail, and these components

can be replaced under preventive maintenance prior to failure, and at a time convenient to the

airline customer, rather than upon failure, which will typically occur at an inconvenient time, and in

an inconvenient place (The Economist, 2009). Meanwhile, an apparently similar company,

Bombardier, which in the UK manufactures railway trains, has struggled to grow its service business,

and indeed has seen some refurbishment and maintenance work drain away to specialist companies

such as Transys, Wabtec, Hunslett-Barclay and Railcare.

Ultimately, the interesting question then is when do manufacturers hold an advantage in the

provision of services, or (how) can they attain an advantage, and when do independent businesses

or business units hold the advantage. In other words, when are production and service activities

complementary economic activities best undertaken by the same business? These are complex

issues, which we cannot fully examine here. The aim of this paper is instead to shed light on the

extent to which manufacturers are engaged in the provision of services, their motivations for so

doing, and to explore the organizational implications of this. We now review the existing empirical

evidence on the extent to which manufacturers are engaged in providing services.

The Existing Empirical Evidence

We know remarkably little about the extent to which manufacturers provide services, or indeed the

extent to which predominantly service firms manufacture goods. As mentioned earlier, this is

largely because firms and establishments are classified in official statistics by their principal

economic activity: secondary and tertiary activities are often hidden.9 The aggregate extent of non-

production activities within manufacturing is known to be increasing, ┘ｴｷﾉゲデ けゲｴﾗヮ aﾉﾗﾗヴげ ┘ﾗヴﾆ ｷゲ contracting. Less than half of the workforce in UK manufacturing is now engaged in production. Of

the other half, 15% is engaged in R&D, sales and marketing, 7% in distribution and logistics, and 28%

8 And indeed some pre-production business opportunities, such as in design and development.

9 Sometimes secondary and further codes are provided, but very often these do not cover the full range of activities

undertaken by the firm.

6

in けsupport servicesげく “ﾗﾏW ﾗa デｴWゲW ゲ┌ヮヮﾗヴデ ゲWヴ┗ｷIWゲ ;ヴW ｷﾐデWヴﾐ;ﾉ ;Sﾏｷﾐｷゲデヴ;デｷﾗﾐが H┌デ ﾗデｴWヴゲ ;ヴW externally oriented.10 This ゲｴｷaデ ｷﾐ デｴW けﾏ;ﾐ┌a;Iデ┌ヴｷﾐｪげ labour force away from production is understandable for two reasons. First, productivity improvements, such as replacing labour with

capital, have tended to easiest in production itself, and second, with the increased importation of

lower-value added components and sub-assemblies, the roles that remain in the UK are increasingly

concentrated in non-production activities such as design, management, R&D and customer support.

Because official statistics shed little light on the phenomenon, the evidence base on the extent of

servitization is very largely based on surveys. One survey conducted in 2007 by the Confederation of

British Industry (CBI, 2007) asked UK based manufacturers to identify their three leading sources of

competitive advantage. This found that production and assembly ranked highest, followed by

service provision, and design and development.11 The significance of production and assembly was

however found to be declining, whilst the significance services, including logistics and integration,

was rising. Two years later, a survey by the Engineering Employers Federation (EEF, 2009) found the

same activities to be the most important sources of competitive advantage amongst UK

manufacturers. The CBI and EEF surveys reflect broad trends に and hint at complementariites between production and service activities, but they do not provide evidence of servitization at the

level of individual firms. Most existing academic studies of servitization have instead examined case

studies of individual companies. By contrast, Neely (2009, see also Gebauer, 2007; Antioco et al.,

2008; Fang et al., 2008) undertook a large scale analysis of the extent of servitization amongst

manufacturers. Using the OSIRIS database (which, like the FAME dataset we used for our survey, is

maintained by Bureau van Dijk), and by examining デｴW けSWゲIヴｷヮデｷﾗﾐ ;ﾐS ｴｷゲデﾗヴ┞げ aｷWﾉS aﾗヴ ﾃ┌ゲデ ﾗ┗Wヴ ヱヰがヰヰヰ けﾏ;ﾐ┌a;Iデ┌ヴｷﾐｪ aｷヴﾏゲげ with at least 100 employees and incorporated in 23 countries,12 Neely found that almost 30% of manufacturing firms report providing services, with a further 1.7% being

ｷSWﾐデｷaｷWS ;ゲ けヮ┌ヴW ゲWヴ┗ｷIWげ aｷヴﾏゲ ┘ｷデｴﾗ┌デ ヮヴﾗS┌Iデｷﾗﾐ ;Iデｷ┗ｷデｷWゲ ふSWゲヮｷデW HWｷﾐｪ IﾗSWS ;ゲ manufacturers). Over two-thirds (68.7%) were however classified as けヮ┌ヴW ﾏ;ﾐ┌a;Iデ┌ヴｷﾐｪげ with no reported services. けDesign and developmentげ, けsystems and solutionsげ, けretail and distributionげ, and けmaintenance and supportげ were the most widespread types of services provided.

Neely also found substantial differences between countries, with 58% of the manufacturing firms

incorporated in the United States offering services, compared with just 2% of Chinese firms. He

found that a quarter of UK manufacturers were providing services, a smaller proportion than

amongst German and US manufacturers. However, in a second study, Neely and colleagues

(Neely et al., 2011) found that the extent of service provision amongst UK based manufacturing

firms had increased to 40%. Also notable is that the extent of servitization amongst Chinese

manufacturers was found to have increased to 19%. Yet overall, the level of servitization in all

countries had not increased markedly, indicating that the growth amongst UK and Chinese

manufacturers has been exceptional.

10

Interesting also are differences in educational attainment between the workforce engaged in production, distribution

and trades within support services, amongst which just under half had obtained an NVQ level 3 or above, with less than

one in ten holding a degree or equivalent, compared with R&D, sales and marketing and professional support staff,

amongst whom nearly two thirds held an NVQ level 3 or above, and nearly one third held a degree. 11

The other sources examined were research, logistics and integration, brand and marketing, and sales. 12

Fﾗヴ W┝;ﾏヮﾉWが デｴW H┌ゲｷﾐWゲゲ SWゲIヴｷヮデｷﾗﾐ aﾗヴ “ｷWﾏWﾐゲ ゲデ;デWゲ デｴ;デ デｴ;デ aｷヴﾏ ｷゲ さヮヴWSﾗﾏｷﾐ;ﾐデﾉ┞ ｷﾐ┗ﾗﾉ┗WS ｷﾐ WﾉWIデヴﾗﾐｷIゲ ;ﾐS WﾉWIデヴｷI;ﾉ WﾐｪｷﾐWWヴｷﾐｪが H┌デ ヮヴﾗ┗ｷSWゲ ; ┘ｷSW ┗;ヴｷWデ┞ ﾗa Iﾗﾐゲ┌ﾉデｷﾐｪが ﾏ;ｷﾐデWﾐ;ﾐIW ;ﾐS ﾗデｴWヴ ゲWヴ┗ｷIWゲざく HWﾐIW “ｷemens in classified as a servitized firm, specifically coded as engaged in consulting and maintenance.

7

Using trade or business descriptions in databases designed primarily for other purposes (such as the

provision of financial information), may however severely understate the true extent that

manufacturers provide services, not least because the data provider has no particular reason to

provide a full picture of the activities of the firm. Other scholars have used bespoke surveys to she

light on the extent of sertivization. Baines and colleagues (2009) targeted 500 UK-based

manufacturing firms with turnovers in excess of £10 million. They received 55 responses. Amongst

this small sample, the provision of services was near universal, with over 80% of the firms providing

each of five services to customers: training, delivery, spare parts, repair, and a customer helpdesk.

Other frequently provided services (i.e., provided by 60%+ of the firms) included installation, labour,

spare parts remanufacture, preventive maintenance, and system integration. Relatively infrequently

provided services (provided by

8

generally very good. This sample represents just over 10% of the original target population, or

ヱヱくヵХ ｷa デｴW aｷヴﾏゲ aﾗ┌ﾐS デﾗ ｴ;┗W けｪﾗﾐW ;┘;┞げが ﾗ┌デ ﾗa H┌ゲｷﾐWゲゲが ﾗヴ ﾐﾗデ デﾗ HW Wﾐｪ;ｪWS ｷﾐ ﾏanufacturing are excluded from the sampled population. This response rate is comparable with those achieved by

other, similar surveys.

Table 1 provides an overview of the sample of responses to the survey. The firms are of various

sizes, fairly evenly divided between four size classes. Just over half are independent firms, with 45%

being subsidiaries of larger company groups. Nearly 80% were established before 1991, with only

5% having been established since 2001. The firms are also active in a variety of industries, with

ﾏ;IｴｷﾐWヴ┞が WﾉWIデヴｷI;ﾉ ;ﾐS WﾉWIデヴﾗﾐｷIゲ ;ﾐS デｴW ﾏｷゲIWﾉﾉ;ﾐWﾗ┌ゲ けﾗデｴWヴ ﾏ;ﾐ┌a;Iデ┌ヴｷﾐｪげ ;IIﾗ┌ﾐデｷﾐｪ aﾗヴ 70% of the sample. Table 2 provides further descriptive statistics on the variables we include in the

modelling below. This shows that correlations between variables are generally low, and there are no

problems of multicollinearity, as the highest Variance Inflation Factor (VIF) amongst the variable is

2.63.

---- INSERT TABLE 1 ABOUT HERE ----

---- INSERT TABLE 2 ABOUT HERE ----

The questions and responses were all been coded in SPSS. Using logistic regressions, we modelled

the response against the target population. This found that whilst there is some variation in the

pattern of response, with lower response rates for transport equipment firms (SIC 34 and 35), and

for firms based in Northern Ireland, overall there were no statistically significant differences in the

propensity to respond by firm size (as measured by employment), 2 digit industry, or by region. The

model as a whole was not significant.13 On these criteria at least, the sample is reasonably

representative of the population of firms from which it is drawn. In the analysis that follows we use

the dataset as a simple sample, and no attempt is made to adjust the sample to the population.

The survey asked the firms about their engagement in services. We also examined the extent to

which they were engaged in services using two other approaches. Firstly, using a methodology

similar to Neely (2009), we examined the trade descriptions provided in the FAME dataset for

mentions of services of various types. For example, one company is described as being engaged in:

さTｴW ｷﾐゲデ;ﾉﾉ;デｷﾗﾐが ヴWﾐデ;ﾉ ;ﾐS ﾏ;ｷﾐデWﾐ;ﾐIW ﾗa WﾉWIデヴﾗﾐｷI ゲWI┌ヴｷデ┞ ゲ┞ゲデWﾏゲ ;ﾐS デｴW ﾏ;ﾐufacture and ゲ;ﾉW ﾗa ゲWI┌ヴｷデ┞ ヮヴﾗS┌Iデゲくざ Tｴｷゲ Iﾗﾏヮ;ﾐ┞ ┘;ゲ IﾗSWS ;ゲ HWｷﾐｪ Wﾐｪ;ｪWS ｷﾐ けｷﾐゲデ;ﾉﾉ;デｷﾗﾐ ゲWヴ┗ｷIWゲげが けヴWﾐデ;ﾉ ゲWヴ┗ｷIWゲげが けﾏ;ｷﾐデWﾐ;ﾐIW ゲWヴ┗ｷIWゲげ ;ﾐS ゲ;ﾉWゲく B┞ Iﾗﾐデヴ;ゲデが ;ﾐﾗデｴWヴ aｷヴﾏが SWゲIヴｷHWS ;ゲ HWｷﾐｪ Wﾐｪ;ｪWS ｷﾐぎ さThe manufacture of a wide range of tooling, incorporating industrial diamond and other superabヴ;ゲｷ┗Wゲざが ┘;ゲ IﾗSWS ;ゲ ﾐﾗデ providing any services to customers.

We coded the services described in the trade descriptions of the 256 firms into eight categories:

けSｷゲデヴｷH┌デｷﾗﾐ ;ﾐS SWﾉｷ┗Wヴ┞げ ふｷﾐIﾉ┌Sｷﾐｪ ﾉﾗｪｷゲデｷIゲぶが けヴWヮ;ｷヴ ;ﾐS ﾏ;ｷﾐデWﾐ;ﾐIWげが けふゲ┌ヮヮﾉ┞ ﾗaぶ ゲヮ;ヴW ヮ;ヴデゲげが けﾉW;ゲｷﾐｪげが けゲ┌ヮヮﾗヴデげが けIﾗﾐゲ┌ﾉデｷﾐｪげが ;ﾐS ; ﾏｷゲIWﾉﾉ;ﾐWﾗ┌ゲ I;デWｪﾗヴ┞ ﾗa け┗;ヴｷﾗ┌ゲ ﾗデｴWヴ ゲWヴ┗ｷIWゲげく Iﾐ addition, we coded whether the firm was described as being engaged in R&D, design and/or

development. Usually it was unclear whether these activities were undertaken solely for internal

purposes, or whether they were made available to clients as services. Similarly, sales and marketing

13

A second model used turnover for firm size rather than employment. This found that larger firms were slightly less likely

to respond, but again no significant differences in the pattern of response were found by region or industry, and overall the

model was not statistically significant.

9

activities were identified and coded, and presumably these activities were undertaken to promote

;ﾐS ゲWﾉﾉ デｴW Iﾗﾏヮ;ﾐ┞げゲ ﾗ┘ﾐ product, but it is conceivable that they could be applied to products produced by others, with the surveyed firm acting as an agent or distributor.

---- INSERT FIGURE 1 ABOUT HERE ----

Our review of trade descriptions found that with R&D, design and development (RDD) and sales and

marketing (S&M) all included, almost 80% of the firms were identified as being engaged in services

(Figure 1). With RDD and S&M excluded, the proportion of firms identified as engaged in services

fell to just under half, with distribution and delivery being the most widespread, followed by repair

and maintenance services, and installation services. Interestingly the proportion of firms identified

as providing at least one service (excluding RDD and S&M) exceeds the 40% found by Neely et al.げゲ (2011) analysis of UK manufacturing firms found on the OSIRIS database.

Secondly, we reviewed the websites of each of the businesses, and found websites for all but two of

the firms. We coded two デｴｷﾐｪゲく Fｷヴゲデが ┘ｴWデｴWヴ デｴWヴW ┘;ゲ ; ヮヴﾗﾏｷﾐWﾐデ ゲWヴ┗ｷIW ﾗヴ ゲ┌ヮヮﾗヴデ けH┌デデﾗﾐげ on the home page, which, if clicked, took the viewer to a page outlining the services or product

support provided by the firm. In the absence of this, we coded whether or not the firm mentioned

providing services, or having a service orientation. No attempt was made to code the particular

services provided.

We found that almost half (120: 47%) the firms had the provision of services prominently displayed

ﾗﾐ デｴWｷヴ ｷﾐデWヴﾐWデ ｴﾗﾏW ヮ;ｪW ふｷくWくが ┘ｷデｴ ; け“Wヴ┗ｷIWげ ﾗヴ け“┌ヮヮﾗヴデげ IﾉｷIﾆ;HﾉW さH┌デデﾗﾐざが デ;ﾆｷﾐｪ デｴW ┗ｷW┘Wヴ to a special section). And almost another third (79: 31%) mentioned services as being part of what

they provide. We found no reference to services on the remaining websites (55: 22% of companies).

This indicates that at least 80% of the firms provide services to customers, considerably more than

was revealed by our ふ;ﾐS NWWﾉ┞げゲぶ analysis of trade descriptions. We now turn to the survey results, the analysis of which constitutes the empirical heart of this paper.

4. ANALYSIS OF THE SURVEY RESULTS

The Extent of Service Provision

Our survey asked the firms whether or not they provided 15 different services. All but two of the

firms reported providing at least one of these, with the most widespread being delivery services,

whilst the least widespread was product leasing, with or without operatives. Interestingly, our けデﾗヮ aｷ┗Wげ ゲWヴ┗ｷIWゲ are the same as those identified by Baines et al. (2009), i.e., training, delivery, spare parts, repair, and customer helpdesks. Like Baines et al, we also find widespread provision of

installation services, but less provision of systems integration, preventive maintenance and

condition monitoringく Tｴｷゲ ﾏ;┞ HW S┌W デﾗ デｴW ｪWﾐWヴ;ﾉﾉ┞ ﾉ;ヴｪWヴ ゲｷ┣W ﾗa aｷヴﾏゲ ｷﾐ B;ｷﾐWゲ Wデ ;ﾉげゲ ゲ;ﾏヮﾉW. By contrast, we find greater provision of financial services, and more consulting. The survey results

indicate that all of the main services identified in the trade descriptions were much more frequently

provided than is indicated by the trade descriptions. In other words, trade descriptions under record

service provision.

---- INSERT FIGURE 2 HERE ----

10

To analyse which firms provided these services, and which did not, we estimated a series of logistic

regressions. In each model, we included:

[Firm size] the size of the firm, measured by the natural log of its employment. [Sector] ; ゲWデ ﾗa ｷﾐSｷI;デﾗヴ ふﾗヴ けS┌ﾏﾏ┞げぶ ┗;ヴｷ;HﾉWゲ aﾗヴ ゲWIデﾗヴ ﾗa ;Iデｷ┗ｷデ┞が ┘ｷデｴ けﾗデｴWヴ

manufact┌ヴｷﾐｪげ acting as the reference sector. [Ownership] an indicator variable identifying subsidiary firms owned by others (with

independent firms acting as the reference group).

[Age] an indicator variable for relatively young firms established after the year 2000. [Type of Product] an indicator variables for firms that manufactured stand alone appliances

or equipment, and another for those that manufactured systems, often tailored to particular

customers needs, that combine a large number of components (here, the manufacture of

けIﾗﾏヮﾗﾐWﾐデゲ ﾗヴ ヮ;ヴデゲげ ┘;ゲ デｴW ヴWaWヴWﾐIW I;デWｪﾗヴ┞ぶく [Unit Cost of Product] a set of indicator variables relating to the unit cost of the firms main

ヮヴﾗS┌Iデゲく Tｴｷゲ ┗;ヴｷWS aヴﾗﾏ けﾉWゲゲ デｴ;ﾐ グヱヰ ヮWヴ ┌ﾐｷデげ ふデｴW ヴWaWヴWﾐIW I;デWｪﾗヴ┞ぶ デｴヴﾗ┌ｪｴ デﾗ けﾗ┗Wヴ グヱヰヰがヰヰヰ ヮWヴ ┌ﾐｷデげが ┘ｷデｴ aﾗ┌ヴ ｷﾐデWヴﾏWSｷ;デW I;デWｪﾗヴｷWゲく

[Main Customer Dependency] an indicator variable for firms for which their largest customer accounted for at least half their total revenues. And a second indicator variable was

included for other firms whose five largest customers accounted for half or more of their

income.

[Competition] an indicator variable for firms that claimed to have no more than two competitors. A second indicator variable for firms with over 10 competitors. Firms with 3 to

10 competitors were the reference group.

We estimated individual regressions for thirteen of the services, with an additional conflated model

for leasing with or without operatives. In four cases に delivery, consulting, managed services, and leasing - the overall models were not significant, meaning that the variables outlined above failed to

explain any of the variation in whether or not the firms provided these services. Because these

models were insignificant, we do not therefore report their results. Models for ten of the services

were significant, meaning that some of the variation in whether or not firms provide these services

can be attributed to these variables.

---- INSERT TABLE 3 HERE ----

The results are reported in Table 3. The figures reported are the exponents of the coefficients,

which means that if there is no significant influence of the characteristics then this number is one, or

not significantly different from one. If firms with this characteristic are more (less) likely to provide

the service in question then the figure will be greater (less) than one. For example, firm size and the

five largest customers accounting for over half of total sales have no significant impact on the

provision of spares parts or consumables (Exp(B) = 0.99 and 1.06 respectively). However, firms

making appliances and systems are roughly three times as likely to provide spare parts or

consumables as firms that only produce components or parts (Exp(B) = 3.31 and 2.83 respectively).

Meanwhile, young firms, and those with fewer than three competitors, are much less likely than

otherwise similar firms to provide spares or consumables (Exp(B) = 0.14 and 0.25 respectively).

11

Oliva and Kallenberg (2003) distinguish between product and client-process oriented services, and

drawing on this distinction we have grouped the models into those that relate primarily to the

product and its maintenance (spares, repair & maintenance on demand, scheduled maintenance,

condition monitoring and preventive maintenance, and regular product or systems upgrades) and

those that relate to helping the client use the product or system (training, installation, and systems

integration), as well as more general services (help desk and financial services).

These models, which implicitly assume each of these services is provided independently of the

others, show a variety of factors influence the provision of services amongst manufacturing firms.

The nature of the product is often important. Firms that make stand-alone appliances are three

times more likely than those that make components to provide spares or consumables and a

customer helpline, and twice as likely to provide financial services such as insurance and warranties.

Those that manufacturer systems are at least 2.5 times more likely than those that make

components to provide all of these services except a customer helpline and financial services. They

are roughly seven times more likely to provide systems integration services. The sector of

production also matters, with metal product firms being less likely to provide most of these services.

Most probably, this relates to the robust and static nature of most metal products, such that they

require little after-sales servicing. Electrical and electronics firms are three times more likely to

provide systems integration services, and twice as likely to provide regular product or systems

upgrades. Instruments companies are four times more likely to provide regular upgrades. The cost

of the product (which probably reflects its complexity), has a strong influence on whether or not the

firms provide almost all of these services, the two exceptions being a customer helpline and financial

services. With all the other services the manufacturers of the most expensive products are several

times more likely to provide the service than manufacturers of the least expensive products. This

stands to reason, as low cost product are typically discarded and replaced when worn out or

damaged, whereas expensive equipment is repaired and maintained. Generally the provision of

services increases incrementally with the cost of the product. This is true of all services except

customer helplines and financial services, and spares and consumables, the provision of which

appears most widespread amongst producers of medium-cost products. This suggests that whilst

the customer or a third party often carry out repairs on mid-cost products, the manufacturer

typically provides repairs and maintenance on the highest cost equipment.

Firms that are highly dependent on a small number of customers, and especially one customer, seem

to be less likely to provide some of these services, including scheduled maintenance services,

training, installation and set-up services, systems integration and a customer helpline. These firms

are however more likely to provide spare parts and consumables. We had not anticipated these

findings, and one possible interpretation of them is that these firms are relatively weak. With the

possible exception of spares, there is no evidence that customers in powerful positions are forcing

manufacturers to provide additional services, which is sometimes suggested (Spring and Araujo,

2009).

Meanwhile, firms with very few competitors are less likely to provide spares or regular product or

systems upgrades, but are more likely to engage in systems integration. Indeed, this may be

endogenous, as engaging in systems integration may limit competition. Firms that face an unusually

high number of competitors are more likely to provide spare parts or consumables, but do not

otherwise differ from those with a normal number of competitors.

12

Perhaps surprisingly, firm size has very little effect. We had anticipated that larger firms would tend

to provide more services, but firm size is only significant for the provision of regular product or

systems upgrades. It is thought that smaller firms are not disadvantaged in the provision of services

(which are typically difficult to scale up), and our findings support this conclusion.

Firm age and ownership also had very little effect. With respect to ownership, the only significant

difference found was that subsidiary firms are less likely to provide systems integration. Again, this

implies that independent firms are not generally disadvantaged in providing services relative to firms

that are part of larger groups. With regard to age, we found that young firms were much more likely

to be engaged in systems integration, and much less likely to provide spare parts. These findings are

surprising, and may indicate that the young firms in our sample are unusual. Young firms were not

more or less likely to provide any of the other services.

As mentioned earlier, the analysis reported above which is based on a set of individual logistic

regressions implicitly assumes that the provision of each of these services is independent of the

provision of the others. Instead, firms might provide several services which complement one

another. To explore this, we undertook multiple correspondence analysis on the incidence of the

various services. If services are closely related they should appear close together, and the various

けデ┞ヮWゲげ ﾗa ゲWヴ┗ｷIWゲ ゲｴﾗ┌ﾉS Iﾉ┌ゲデWヴ デﾗｪWデｴWヴ ふTWデｴWヴ ;ﾐS T;ﾃ;ヴが ヲヰヰΒぶく Wｴｷﾉゲデ デｴis analysis did show that the services are more or less related to each other, it did not reveal any strong clusters of

ゲWヴ┗ｷIWゲ H┞ けデ┞ヮWげが ゲ┌Iｴ ;ゲ デｴW けデ┞ヮWゲげ ｷSWﾐデｷaｷWS H┞ Oﾉｷ┗; ;ﾐS K;ﾉﾉWﾐHWヴｪ ふヲヰヰンぶく14 Instead, pursuing the assumption of independence, we calculated the probability that a firm would provide any

number of these services between 0 and 15, based on the naive assumption that the provision of

each is independent of the other. We then compared this with the observed distribution based on

the count of services provided. This revealed that デｴW けW┝ヮWIデWS ﾐ┌ﾏHWヴげ ﾗa ゲWヴ┗ｷIWゲ ｷゲ ;ヴﾗ┌ﾐS seven, and that many firms provide fewer than this, whilst others provide more than this. We then

classified the firms into three groups: those providing no or feweヴ デｴ;ﾐ けW┝ヮWIデWSげ ゲWヴ┗ｷIWゲ ふｷくWくが ヰ デﾗ ン ゲWヴ┗ｷIWゲき Nく Э ヴΑ ふヱΒくヶХぶぶき デｴﾗゲW ヮヴﾗ┗ｷSｷﾐｪ ﾏﾗヴW デｴ;ﾐ デｴW けW┝ヮWIデWSげ ﾐ┌ﾏHWヴ ﾗa ゲWヴ┗ｷIWゲ ふｷくWくが ヱヰ デﾗ ヱヵき Nく Э Αン ふヲΒくヵХぶぶき ;ﾐS デｴﾗゲW ヮヴﾗ┗ｷSｷﾐｪ ;ヴﾗ┌ﾐS デｴW けW┝ヮWIデWSげ ﾐ┌ﾏHWヴ ふｷくWくが ヴ デﾗ Γき Nく Э ヱンン (52.6%)). Later in the paper we examine the factors that distinguish those with no or limited service

provision and those with extensive service provision, from those in the middle.

Motivations: Why Do Firms Provide Services?

Another interesting question is why do firms provide services? and the survey asked the

respondents about this. Specifically, we ;ゲﾆWS さHﾗ┘ ｷﾏヮﾗヴデ;ﾐデ ;ヴW デｴW aﾗﾉﾉﾗ┘ｷﾐｪ ヴW;ゲﾗﾐゲ aﾗヴ ┞ﾗ┌ヴ ヮヴﾗ┗ｷゲｷﾗﾐ ﾗa ヮヴﾗS┌Iデ ゲ┌ヮヮﾗヴデ ;ﾐS ゲWヴ┗ｷIWゲざが ┘ｷデｴ デｴｷヴデWWﾐ ゲデ;デWﾏWﾐデゲ デｴWﾐ ヮヴﾗ┗ｷSWSが ┘ｴｷIｴ デｴW respondents scored on a 5-ヮﾗｷﾐデ ゲI;ﾉW HWデ┘WWﾐ けﾗa no importanceげ ;ﾐS けIヴ┌Iｷ;ﾉげ (Figure 4). Six of these motivations can be considered aggressive or offensive reasons (improving understanding of

┌ゲWヴゲげ ﾐWWSゲき ｴWﾉヮｷﾐｪ デﾗ SｷaaWヴWﾐデｷ;デW デｴW ﾗaaWヴき ｷﾐIヴW;ゲｷﾐｪ ﾗヮヮﾗヴデ┌ﾐｷデｷWゲ aﾗヴ I┌ゲデﾗﾏｷゲ;デｷﾗﾐき increasing opportunities for cross-selling; increases total turnover; increases profitability),15 whilst

five others can be considered defensive (required to comply with regulations; necessary because key

14

i.e., product-ﾗヴｷWﾐデWS ゲWヴ┗ｷIWゲ ;ﾐS IﾉｷWﾐデゲげ ヮヴﾗIWゲゲ-oriented services, as well those that are transactional versus those that are relational. 15

PヴｷﾐIｷヮ;ﾉ CﾗﾏヮﾗﾐWﾐデゲ Aﾐ;ﾉ┞ゲｷゲ aﾗヴ デｴW けOaaWﾐゲｷ┗W “ｷ┝げ ヮヴﾗS┌IWゲ ; ゲｷﾐｪﾉW IﾗﾏヮﾗﾐWﾐデ ゲﾗﾉ┌デｷﾗﾐが ┘ｷデｴ ;ﾐ EｷｪWﾐ┗;ﾉ┌W ﾗa ンくヴΒが which accounts for 58% of the variance. Individual item loadings range between 0.73 and 0.80. The Cronbach also for this

set is 0.85.

13

customers require them; increase customer loyalty; helps tie customers in; and increases the

stability of turnover).16 Two environmental or ecological reasons were also included (extends the

life of older products; has environmental or ecological benefits), reflecting the fact that the early

literature on product-service-systems (PSS) had strongly links to ecological motivations (Mont, 2002;

Tukker and Tischner, 2006).

---- INSERT FIGURE 3 HERE ----

Interestingly, the defensive motivations tended to be identified as more significant than the

ﾗaaWﾐゲｷ┗W ﾏﾗデｷ┗;デｷﾗﾐゲが ┘ｷデｴ デｴW けenvironmentalげ ﾏﾗデｷ┗;デｷﾗﾐゲ ﾉWゲゲ ｷﾏヮﾗヴデ;ﾐデ ゲデｷﾉﾉく However, further analysis showed that firms tended to provide services for a mix of offensive and defensive reasons

(with the correlation between the scores on the two sets of components being 0.8).

Allowed to associate freely, an exploratory Principal Components Analysis of these responses

identified three components with Eigenvalues greater than one. The first of these (Motivation PC1)

relates primarily to the impact of offering services on the business itself, including items such as

increasing turnover, increasing profitability, increasing the stability of income, and providing

opportunities to cross-sell. The second (Motivation PC2) is related to engaging with customers に increasing customer loyalty, understanding of customers, and increasing the opportunities for

customization and the capacity to differentiate the firms offer. The third component (Motivation

PC3) was weaker, and is related to complying with regulations and ecological benefits.

---- INSERT TABLE 4 HERE ----

Organizational Arrangements for Service Provision

We also asked about the organizational arrangements associated with providing services. It is

sometimes argued that the provision of services requires different organizational arrangements

from those required to produce physical products. Oliva and Kallenberg (2003, p. 161), for example,

ゲデ;デWぎ さTヴ;ﾐゲｷデｷﾗﾐｷﾐｪ aヴﾗﾏ ヮヴﾗS┌Iデ ﾏ;ﾐ┌a;Iデ┌ヴWヴ デﾗ ゲWヴ┗ｷIW ヮヴﾗ┗ｷSWヴ Iﾗﾐゲデｷデ┌デWゲ ; ﾏ;ﾃﾗヴ ﾏ;ﾐ;ｪWヴｷ;ﾉ challenge. Services require organizational principles, structures and processes new to the product

manufacturer. Not only are new capabilities, metrics and incentives needed, but also the emphasis

ﾗa デｴW H┌ゲｷﾐWゲゲ ﾏﾗSWﾉ Iｴ;ﾐｪWゲ aヴﾗﾏ デヴ;ﾐゲ;Iデｷﾗﾐ デﾗ ヴWﾉ;デｷﾗﾐゲｴｷヮ H;ゲWSざく

---- INSERT FIGURE 5 HERE ----

Figure 5 shows the extent to which the firms agreed or disagreed that they had various

organizational arrangements related to providing services.17 Most respondents agreed that there

was close communication between their services activities and production, whilst around half: 1.

16

PヴｷﾐIｷヮ;ﾉ CﾗﾏヮﾗﾐWﾐデゲ Aﾐ;ﾉ┞ゲｷゲ ﾗa デｴW けDWaWﾐゲｷ┗W Fｷ┗Wげ ヮヴﾗS┌IWゲ ; ゲｷﾐｪﾉW IﾗﾏヮﾗﾐWﾐデ ゲﾗﾉ┌デｷﾗﾐが ┘ｷデｴ ;ﾐ EｷｪWﾐ┗;ﾉ┌W ヲくンンが ┘ｴｷIｴ ;IIﾗ┌ﾐデゲ aﾗヴ ヴΑХ ﾗa デｴW ┗;ヴｷ;デｷﾗﾐく Wｷデｴ デｴW W┝IWヮデｷﾗﾐ ﾗa さAざ ふヴWケ┌ｷヴWS デﾗ Iﾗﾏヮﾉ┞ ┘ｷデｴ ヴWｪ┌ﾉ;デｷﾗﾐゲぶが all component ﾉﾗ;Sｷﾐｪゲ ;ヴW HWデ┘WWﾐ ヰくΑヱ ;ﾐS ヰくΑヵ ふAげゲ ﾉﾗ;Sｷﾐｪ ｷゲ ヰくンヶぶく TｴW CヴﾗﾐH;Iｴ ;ﾉヮｴ; aﾗヴ デｴｷゲ ゲWデ ｷゲ ヰくヶヶが ┘ｴｷIｴ ｷゲ デﾗﾗ ﾉﾗ┘く ‘Wﾏﾗ┗ｷﾐｪ さAざ ｷﾐIヴW;ゲWゲ デｴW CヴﾗﾐH;Iｴ ;ﾉヮｴ; デﾗ ヰくΑンく A ゲｷﾐｪﾉW IﾗﾏヮﾗﾐWﾐデ ｷゲ ;ｪ;ｷﾐ aﾗ┌ﾐS ふEｷｪﾐW┗;ﾉ┌W Э ヲくヲヴぶが ;IIﾗ┌ﾐデｷﾐｪ aﾗヴ 56% of the variance. Item loadings range from 0.70 to 0.78. 17

WW ;ﾉゲﾗ ;ゲﾆWS デｴW ヴWゲヮﾗﾐSWﾐデゲ ┘ｴWデｴWヴ デｴW┞ ;ｪヴWWS ﾗヴ Sｷゲ;ｪヴWWS ┘ｷデｴ デｴW ゲデ;デWﾏWﾐデ デｴ;デ デｴWｷヴ aｷヴﾏ ｴ;S け; IﾉW;ヴﾉ┞ SWaｷﾐWS ゲデヴ;デWｪ┞ aﾗヴ ゲWヴ┗ｷIW ヮヴﾗ┗ｷゲｷﾗﾐげ ふヶヰХ ;ｪヴWWSき ヱヵХ Sｷゲ;ｪヴWWSき ヲヵХ ┘WヴW ﾐW┌tral) and that けゲWヴ┗ｷIWゲ ;ヴW ; ﾆW┞ ヮ;ヴデ ﾗa デｴW ┗;ﾉ┌W ヮヴﾗヮﾗゲｷデｷﾗﾐ ﾗaaWヴWS デﾗ I┌ゲデﾗﾏWヴゲげ ふΑヲХ ;ｪヴWWSき ヱヰХ Sｷゲ;ｪヴWWSき ヱΒХ ┘WヴW neutral)

14

agreed that they had a dedicated sales force and technicians dedicated to services activities, 2. that

their service personnel were in near continuous communication with customers, and 3. That their

service personnel were trained and empowered to offer services actively to customers. Only a

minority of firms had different incentives and rewards for their service personnel compared with

their production personnel, or had given their services organization its own profit and loss

responsibility. Examined by Principal Components Analysis, these answers load onto a single

component with an Eigenvalue of 4.4. This accounted for 55% of the variance in the data, and item

loadings varied from 0.61 to 0.82. TｴW CヴﾗﾐH;Iｴげゲ ;ﾉヮｴ; aﾗヴ デｴW ゲWデ ﾗa Wｷｪｴデ ｷデWﾏゲ ┘;ゲ ヰくΒΒく

Modelling the Extent of Service Provision

We now model the extent of service provision. As outlined earlier, we classified the firms in our

ゲ;ﾏヮﾉW ｷﾐデﾗ デｴヴWW ｪヴﾗ┌ヮゲぎ デｴﾗゲW デｴ;デ ヮヴﾗ┗ｷSW aW┘Wヴ デｴ;ﾐ デｴW けW┝ヮWIデWS ﾐ┌ﾏHWヴげ ﾗa ゲWヴ┗ｷIWゲ ふｷくWくが ヰ デﾗ ンぶき デｴﾗゲW デｴ;デ ヮヴﾗ┗ｷSW ;ヴﾗ┌ﾐS デｴW けW┝ヮWIデWS ﾐ┌ﾏHWヴげ ふｷくWくが ヴ デﾗ 9), and those extensive service ヮヴﾗ┗ｷSWヴゲ デｴ;デ ヮヴﾗ┗ｷSW ﾏﾗヴW デｴ;ﾐ デｴW けW┝ヮWIデWS ﾐ┌ﾏHWヴげ ﾗa ゲWヴ┗ｷIWゲ ふｷくWくが ヱヰ デﾗ ヱヵぶく O┌ヴ ;ｷﾏ ｷゲ デﾗ uncover the factors that distinguish firms that provide few and many services, from those in the

ﾏｷSSﾉW デｴ;デ ヮヴﾗ┗ｷSW ; けﾐﾗヴﾏ;ﾉげ ﾐ┌ﾏHWヴ ﾗa ゲWヴ┗ｷIWゲく

We build the models incrementally, starting with the structural characteristics of the firms: i.e., their

sector of activity, size, age and independence. Four sectors are separately identified with dummy

variables, with rubber and ヮﾉ;ゲデｷIゲ ﾏ;ﾐ┌a;Iデ┌ヴｷﾐｪ IﾗﾏHｷﾐWS ｷﾐ ┘ｷデｴ けﾗデｴWヴ ﾏ;ﾐ┌a;Iデ┌ヴｷﾐｪげ ;ゲ デｴW reference category. Size is measured by the natural log of employment (including working

directors). New firms, established after the year 2000, are also identified with a dummy variable.

AﾐS ﾉ;ゲデﾉ┞ デｴW aｷヴﾏゲ け;┌デﾗﾐﾗﾏ┞げ ｷゲ I;ﾉI┌ﾉ;デWSく Tｴｷゲ ｷゲ SWヴｷ┗WS aヴﾗﾏ ; ゲ┌ヴ┗W┞ ケ┌Wゲデｷﾗﾐ (inspired by Birkinshaw et al., 1998) with four items, each on a five point scale between strongly agree and

disagree, which asked subsidiary firms the extent to whiIｴ デｴW aｷヴﾏゲげ ﾏ;ﾐ;ｪWﾏWﾐデ デW;ﾏ ｴ;S a┌ﾉﾉ authority to decide on: 1. Changes to product design and engineering; 2. Outsourcing or sub-

contracting of production; 3. Switching to a new manufacturing process; and 4. Adding product

support or services to the firmげゲ ヮﾗヴデaﾗﾉｷﾗ ﾗa ;Iデｷ┗ｷデｷWゲく Principal components analysis found these items loaded onto a single component, with an Eigenvalue of 2.8 and which accounted for 69% of

the variance in the data. Item loadings ranged from 0.78 to 0.87. TｴW CヴﾗﾐH;Iｴげゲ ;ﾉヮｴ; for the set of four items was 0.85. We therefore summed these items and rescaled them such that if the

respondent strongly agreed with all four this was coded 1, and if the respondent strongly disagreed

with all this was coded 0. The mean score amongst subsidiaries is 0.87. Because independent firms

are autonomous by definition, these were assigned an autonomy score of 1.

---- INSERT TABLE 5 HERE ----

Model 1 with only these structural characteristics found nothing statistically significant that

Sｷゲデｷﾐｪ┌ｷゲｴWS aｷヴﾏゲ ┘ｷデｴ ﾐﾗっﾉｷﾏｷデWS ゲWヴ┗ｷIWゲ aヴﾗﾏ デｴﾗゲW ┘ｷデｴ ; けﾐﾗヴﾏ;ﾉげ ゲWヴ┗ｷIW ﾗヴｷWﾐデ;デｷﾗﾐく18 Several factors distinguished firms with an extensive portfolio of services, including being machinery,

instruments or electrical/electronics manufacturers, and having a high level of autonomy. There was

also some indication that young firms are more likely to provide several services (Table 5).

18

The strongest evidence, at 12% significance, was that instruments manufactures are less likely to provide

no/few services.

15

In Model 2 we added in the type of products manufactured に i.e., dummy variables for the manufacture of appliances and of systems, with the manufacture of components acting as the

ヴWaWヴWﾐIW I;デWｪﾗヴ┞く AﾐS ; ゲWデ ﾗa S┌ﾏﾏ┞ ┗;ヴｷ;HﾉWゲが ヴ;ﾐｪｷﾐｪ ┌ヮ デﾗ けﾗ┗Wヴ グヱヰヰがヰヰヰげが ヴWaﾉWIデｷﾐｪ SｷaaWヴWﾐデ ┌ﾐｷデ ヮヴｷIWゲ aﾗヴ デｴW aｷヴﾏげゲ ﾏ;ｷﾐ ヮヴﾗS┌Iデく Tｴｷゲ revealed that systems manufacturers were around half as likely to provide no/few services, whilst firms providing products with mid-range unit

costs (specifically £1,000 to £10,000) were much less likely to provide no/few services. Again, there

was stronger evidence distinguishing firms with extensive service portfolios, with systems

manufacturers and high cost goods manufacturers being much more likely to provide 10 or more

services.

In Model 3 we added in the extent to which the firms dependent on one or a few customers, and the

extent to which they face many or few competitors. With respect to customers, we identified with a

dummy variable those firms which stated that their largest customer accounted for at least half of

their total income (N. = 19), and (excluding these), used a second dummy variable to identify firms

that stated their five largest customers accounted for at least half their total income (N. = 85). We

;ﾉゲﾗ ┌ゲWS S┌ﾏﾏ┞ ┗;ヴｷ;HﾉWゲ デﾗ ｷSWﾐデｷa┞ デｴﾗゲW aｷヴﾏゲ デｴ;デ Iﾉ;ｷﾏWS デﾗ ｴ;┗W ﾐﾗ ﾏﾗヴW デｴ;ﾐ デ┘ﾗ けSｷヴWIデ competitors to their core businessげ ふNく Э ヲヴぶが ;ﾐS デｴﾗゲW aｷヴﾏゲ デｴ;デ Iﾉ;ｷﾏWS デﾗ ｴ;┗W ﾏﾗヴW デｴ;ﾐ ヱヰ direct competitors (N. 36). Most firms (N. = 194) claimed to have between 3 and 10 direct

competitors. Our analysis found however that neither customer dependence nor the extent of

competition had any significant impact on the extent of the service offered by the firms.

In Model 4a, we added in the principal component scores associated with the motivations for

providing services. Here, Motivation PC1 relates primarily to the impact of offering services on the

business itself, including items such as increasing turnover, profitability, the stability of income, and

providing opportunities to cross-sell; Motivation PC2 relates to engaging with customers に increasing customer loyalty, understanding of customers, etc.; whilst Motivation PC3 is weaker, but relates to

complying with regulations and ecological benefits. We find that none of these motivations is

associated with having an extensive portfolio of services, but the first two are significantly associated

with offering services: firms which score highly on these components are much less likely to provide

no or few services.

In Model 4b, we substitute the principal components associated with the motivations for providing

services with the principal component associated with organizational arrangements for service

provision. The results show that scoring highly on this Arrangements PC significantly reduces the

probability that the firms will provide no or few services, and significantly enhances the probability

that it will engage in extensive service provision.

Finally, in Model 5, we reintroduce the three dummy variables for the Motivations, whilst retaining

that for the Arrangements. The reintroduction of the Motivations PC dummies removes the

significance on the Arrangements dummy with respect to the provision of no/few services, but

(unsurprisingly) Arrangements remains important for the provision of an extensive set of services.

Motivations are not significant for the provision of an extensive set of services, but Motivation PC2

(enhancing customer engagement) is important for the provision of some service (i.e. it is negatively

related to the provision of no or few services). Meanwhile, we find that customer dependence and

the extent of competition has no significant impact on the extent of service provision, whilst

structural factors (sector, size, age, autonomy) are generally more important for distinguishing

16

between firms that provide many services (from those that provide around the けW┝ヮWIデWS ﾐ┌ﾏHWヴげぶ than for distinguishing between those that provide none or very few (from those that provide

;ヴﾗ┌ﾐS デｴW けW┝ヮWIデWS ﾐ┌ﾏHWヴげぶく A┌デﾗﾐﾗﾏ┞ ゲWWﾏゲ デﾗ HW ヮ;ヴデｷI┌ﾉ;ヴﾉ┞ ｷﾏヮﾗヴデ;ﾐデ aﾗヴ デｴW ヮヴﾗ┗ｷゲｷﾗﾐ ﾗa an extensive range of services, which is also higher amongst young firms, and those producing

machinery, electrical and electronic products and (more marginally) instruments.

5. CONCLUSIONS

Servitization, the provision of services by manufacturing firms to their customers, and a shift from

けﾏ;ﾆｷﾐｪ ;ﾐS ゲWﾉﾉｷﾐｪ ヮヴﾗS┌Iデゲげ デﾗ ヮヴﾗ┗ｷSｷﾐｪ IﾗﾏHｷﾐ;デｷﾗﾐゲが ﾗヴ ヮ;Iﾆ;ｪWゲが ﾗヴ けｷﾐデWｪヴ;デWS ゲﾗﾉ┌デｷﾗﾐゲげが of products and services, has been advocated for some time as a means by which manufacturers in

high cost locations such as the United States and Western Europe can compete in an era of

globalization and against lower-cost producers in Eastern Europe and East Asia. However,

surprisingly little is known about the extent to which manufacturers in advanced economies such as

the UK provide services, their motivations for so doing, or the organizational implications of

providing services. This paper therefore contributes significant evidence where previously there was

little.

Based on a bespoke survey of manufacturing firms, we have found that almost all manufacturers

provide at least some services to their clients. The extent of service provision is also substantially

greater than that revealed by the analysis and coding of trade descriptions (Neely, 2009; Neely et al.,

2011). The most commonly provided service is delivery of products, followed by the provision of

spare parts and consumables, a customer helpline or support desk, and product or systems training.

Interestingly, these same services were also found to be the most widespread in a previous, but

much smaller survey, undertaken by Baines and colleagues (2009).

In relation to their motivations for providing services, firms tend to cite both defensive and offensive

reasons simultaneously. Defensive reasons include tying customers in, and increasingly the stability

of turnover, whilst offensive reasons include learning about customer needs and increasing turnover

and profitability. Firms also vary substantially in the extent to which they have implemented

organizational arrangements thought favourable to the provision of services, and establishing a

service oriented culture.

We examined the factors that distinguish between firms that provided no or few services, and those

providing many services, both compared with firms providing an average number. Generally

speaking, manufacturers of high value products, of systems, and to a lesser extent of appliances,

were much more likely to provide services than were manufacturers of components. This is

understandable, as cheap goods are normally discarded and replaced, rather than repaired and

maintained, which is the case with expensive, complex equipment. Another factor here is likely to

be the scale of the market. Because there is strong demand for low cost products, the scale of the

market will tend to be large, encouraging an increased division of labour, with third party service

providers often in a stronger position to provide services than the original manufacturer.

Manufacturers of machinery were also more likely to provide many services, which is

understandable due to the dynamic nature of machines. Interestingly, the number of competitors

did not generally influence the extent of service provision, and nor did high dependency on one or a

17

few customers. We did find that firms motivated to learn more about their customers tended to be

more likely to provide at least an average number of services, whilst those that had implemented

service oriented arrangements tended to provide the most extensive range of services.

All told, this paper sheds considerable light on the provision of services by manufacturing firms. This

understanding provides a valuable platform upon which to understand strategies and managerial

choices. Too often, in our view, bold or sweeping statements are made, such as this one:

さIﾐ デﾗS;┞げゲ H┌ゲｷﾐWゲゲ ﾉ;ﾐSゲI;ヮWが ﾏ;ﾐ┌a;Iデ┌ヴWヴゲ ;ヴW ｷﾐ┗Wﾐデﾗヴゲが ｷﾐﾐﾗ┗;デﾗヴゲが ゲ┌ヮヮﾉ┞-chain managers and service providers, as well as producers .... Firms in the UK must respond

[to the competitive threat of China, etc.] by constantly adapting their business

models, product offerings, processes and service systems in order to stay competitive

H┞ SWﾉｷ┗Wヴｷﾐｪ ｴｷｪｴWヴ ┗;ﾉ┌W ﾏ;ﾐ┌a;Iデ┌ヴｷﾐｪくざ ふBenedettini et al, 2010, p. 6),

Change comes at a price に it has costs as well as benefits. It makes considerable sense for manufacturers of expensive systems to have and to develop a services strategy, but the same

strategy would not be sensible for a manufacturer of low cost components, or highly durable metal

products. But the provision of services can also have spillover benefits. For example, by engaging in

installation and training the manufacturer can gain considerable insight into how its products are

used, which can lead to further product improvements (Orr, 1996). The key here is to exploit the

complementarities that can arise when offering both products and services. In this context, it may

even be sensible to provide services at a loss in order to gain market intelligence. A full

consideration of these matters is beyond the scope of the present paper, as is an analysis of the

performance implications of providing services, which we will address in a companion paper.

18

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VｷゲﾐﾃｷIが Iく ;ﾐS V;ﾐ Lﾗﾗ┞が Bく ふヲヰヰΓぶ さM;ﾐ┌a;Iデ┌ヴｷﾐｪ Fｷヴﾏゲ Dｷ┗Wヴゲｷa┞ｷﾐｪ ｷﾐデﾗ “Wヴ┗ｷIWゲぎ A CﾗﾐIWヮデ┌;ﾉ ;ﾐS EﾏヮｷヴｷI;ﾉ AゲゲWゲゲﾏWﾐデざが ヮヴﾗIWWSｷﾐｪゲ ﾗa デｴW ヲヰデｴ POM“ IﾗﾐaWヴWﾐIWが Oヴﾉ;ﾐSﾗが FﾉﾗヴｷS;く

21

Figure 1

Figure 2

79%

25%

68%

30%

47%

28%

10% 8% 3% 2% 1% 1%

4%

0%

20%

40%

60%

80%

Services reported in Trade Descriptions

94%

78% 74% 74%

69%

60% 59%

44% 42% 37% 35%

29%

12% 11%

3%

Extent of Service Provision

22

Figure 3

0%

10

%

20

%

30

%

40

%

50

%

60

%

70

%

80

%

90

%

10

0%

Helps Differentiate Our Offer

Aids Understanding Customer Needs

Increases Total Turnover

Increases Firm's Profitability

Increases Opportunities to Cross-Sell

Enables Increased Customisation

Key Customers Require Them

Increases Customer Loyalty

Helps Tie Customers In

Improves the Stability of Tunover

Required to comply with regulations

Extends Life of Older Products

Has Environmental Benefits

Off

en

sive

D

efe

nsi

ve

Ne

utr

al

Motivations for Providing Services

No Importance Minor Importance Quite Important Very Important Crucial

23

Figure 5

0%

10

%

20

%

30

%

40

%

50

%

60

%

70

%

80

%

90

%

10

0%

In Close Communications with Production

Have Dedicated Service Salesforce & Technicans

In Close Communications with Customers

Service Personnel offer Services Actively

Service Operations are Distinct & Separate

IT System used to closely Monitor Services

Service Personnel Rewarded Differently

Service Organization has own P&L Responsibility

Arrangements for Service Provison

Strongly Disagree Disagree Neither Agree Strongly Agree

24

Table 1 に Characteristics of the Sample of Respondents

Industry Firm Size & Ownership Year Established

Rubber & Plastics 6.3% 8 to 49 employees 20.9% Before 1981 59.0%

Metal Products 14.8% ヵヰ デﾗ ΓΓ Wﾏヮげゲ 31.1% 1981-1990 19.5% Machinery 20.3% ヱヰヰ デﾗ ヱΓΓ Wﾏヮげゲ 27.6% 1991-2000 16.4% Electrical & Electronics 18.8% ヲヰヰЩ Wﾏヮげゲ 20.5% 2001-2005 3.1% Instruments 9.4% Independent Firms 55.1% 2006-2010 2.0%

Other Manufacturing 30.5% Subsidiary Firms 44.9%

Table 2 に Descriptive Statistics

Var. # Variable Mean S.D. Min Max. Abs Max

Correl.* VIF

1 Sector: Rubber/Plastics 0.06 0.24 0.00 1.00 0.17 1.32

2 Sector: Metal Products 0.15 0.36 0.00 1.00 0.28 1.35

3 Sector: Machinery 0.20 0.40 0.00 1.00 0.33 1.75

4 Sector: Electr-ical/onics 0.19 0.39 0.00 1.00 0.32 1.58

5 Sector: Instruments 0.09 0.29 0.00 1.00 0.21 1.36

6 Sector: Other Manuf. 0.30 0.46 0.00 1.00 0.33 Ref.

7 Size (Ln Employment) 4.55 0.95 2.08 8.52 0.21 1.16

8 Established after 2000 0.05 0.22 0.00 1.00 0.21 1.19

9 Ownership (Subsidiary) 0.45 0.50 0.00 1.00 0.15 1.69

10 Autonomy Score 0.92 0.16 0.13 1.00 0.16 1.67

11 Manuf. Appliances 0.68 0.47 0.00 1.00 0.15 1.36

12 Manuf. Systems 0.52 0.50 0.00 1.00 0.23 1.31

13 Unit Cost: £10 to £100 0.13 0.33 0.00 1.00 0.26 1.93

13 Unit Cost: £100 to £1k 0.25 0.44 0.00 1.00 0.28 2.52

15 Unit Cost: £1k to £10k 0.15 0.36 0.00 1.00 0.25 2.17

16 Unit Cost: £10k - £100k 0.18 0.39 0.00 1.00 0.28 2.63

17 Unit Cost: Over £100k 0.11 0.31 0.00 1.00 0.24 2.37

18 Top Cust. 50%+ of sales 0.07 0.26 0.00 1.00 0.20 1.36

19 5 Top Custs 50%+ sales 0.33 0.47 0.00 1.00 0.20 1.29

20 < 3 Competitors 0.09 0.29 0.00 1.00 0.13 1.15

21 > 10 Competitors 0.14 0.35 0.00 1.00 0.13 1.17

22 Motivation PC1 0.00 0.96 -3.55 2.39 0.44$ 1.56

23 Motivation PC2 0.00 0.96 -2.72 2.45 0.18 1.23

24 Motivation PC3 0.00 0.96 -2.32 2.98 0.23 1.19

25 Arrangements PC 0.00 0.96 -2.20 2.08 0.44$ 1.89

* Absolute value of the largest correlation between this and any other variable

Note, Ownership and Autonomy Score are correlated at 0.57, but do never appear in the same models. $ Motivation PC1 and Arrangements PC are correlated at 0.44. Their next highest correlations are 0.16 and 0.25 respectively

25

Table 3: Modelling Specific Service Provision に Binary Logisitic Regressions

Spares & Consumables

Repair on

Demand

Scheduled

Maintenance

Condition

Monitoring

Regular

Upgrades

Exp(B) Exp(B) Exp(B) Exp(B) Exp(B)

Size 0.99 1.30 0.94 1.06 1.47**

Rubber & Plastics (d) 0.54 0.45 0.27 0.65 n.a.

Metal Products (d) 1.62 0.38* 0.41* 0.31** 0.21**

Machinery (d) 3.19 0.54 1.28 1.18 1.38

Electrical & Electronics (d) 1.20 0.90 0.76 1.08 2.18*

Instruments (d) 6.26 3.07 2.34 2.20 4.51**

Ownership (d) 1.51 0.91 0.74 0.71 0.80

Young Firm (d) 0.14** 0.58 1.39 1.61 2.40

Firm makes Appliances (d) 3.31*** 1.71 1.64 1.37 0.86

Firm makes Systems (d) 2.83** 2.40** 2.57*** 2.56*** 3.36***

Unit Cost £10-100 (d) 3.49** 3.42** 1.61 1.76 1.69

Unit Cost £100- £1,000 (d) 5.04*** 7.66*** 1.68 2.12 1.27

Unit Cost £1,000-£10,000 (d) 28.86*** 21.19*** 5.43** 5.13** 1.64

Unit Cost £10,000-£100,000 (d) 20.45*** 28.04*** 12.96*** 11.09*** 3.44*

Unit Cost >£100,000 (d) 12.55** 90.11*** 16.72*** 24.67*** 6.10**

Top Customer = 50%+ of Sales (d) 9.85* 0.78 0.27* 0.86 2.40

Top 5 Customers = 50%+ Sales (d) 1.06 0.86 0.50* 0.88 1.11

10 Competitors (d) 3.56* 2.16 1.29 1.45 1.12

Constant 0.14 0.06 0.19 0.06 0.02

Model Chi-square 91.8*** 91.8*** 99.1*** 84.4*** 87.4***

-2 Log Likelihood 169.1 217.7 243.8 246.6 237.8

Nagelkerke R2 0.474 0.432 0.439 0.390 0.405

Training Installation

& Set-up

Systems

Integration

Customer

Helpline

Financi