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MatchingServiceOfferingsandProductOperations:AKeytoServitizationSuccess
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Matching Service Offerings and ProductOperations: A Key to Servitization Success
Marin Jovanovic, Mats Engwall & Anna Jerbrant
To cite this article: Marin Jovanovic, Mats Engwall & Anna Jerbrant (2016) Matching ServiceOfferings and Product Operations: A Key to Servitization Success, Research-TechnologyManagement, 59:3, 29-36
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FEATURE ARTICLE
Matching Service Offerings and Product Operations A Key to Servitization Success Existing conditions, such as product characteristics or market attributes, may determine the success of a move toward servitization.
Marin Jovanovic, Mats Engwall, and Anna Jerbrant
OVERVIEW: Many manufacturers are moving to servitization, but making that move successfully requires considering the underlying business logic of a division or product. Differences in existing conditions, such as product characteristics or other business attributes, may determine success in transition to a services-based business model and create challenges for a firm moving, for instance, from a spare-parts model to advanced service contracts. Our study pinpoints a number of key product attributes that define how far a company can move up the service ladder. The findings suggest that the Power-by-the-Hour model pioneered by Rolls-Royce suits products that constitute critical ancillary input to, and not essential elements of, customers’ core processes; that require low initial investments relative to high total costs of ownership; that are used in controllable operating environments with measurable performance requirements; and that are associated with high risk and high costs in the event of failure. Further, the service delivery system must be integrated and orchestrated to be product-specific—that is, aligned with the function and operating conditions of the product in use.
KEYWORDS: Servitization, Service transition strategy, Case study
When Rolls-Royce transformed its Viper airplane engine business in the early 1960s, by offering customers a contract that guaranteed a fixed operating cost per flying hour rather than selling them an engine, it established a roadmap for manufacturing firms seeking to make the transition to servitization. Indeed, the evolution of the “Power by the Hour” concept followed a path that is now seen as standard: Rolls-Royce began with the provision of spare parts to repair the engines they sold, then moved to providing maintenance and overhaul services, and finally moved into total-care solutions—Power by the Hour (Neely 2008). Such total-care solutions have been described as outcome-based contracts, and they represent what many scholars consider
the most advanced level of servitization a manufacturer can reach (Ng, Ding, and Yip 2013).
A number of scholars have explored the benefits of the move to services through empirical cases from companies such as Alstom, Thales, ABB, Caterpillar, IBM, Rolls-Royce, and Xerox (Miller et al. 2002; Davies, Brady, and Hobday 2007; Baines and Lightfoot 2013). Services can help firms differentiate offerings by creating customer-specific prod-uct-service bundles, which can enable closer customer relationships and generate higher and more stable revenue streams than pure product offerings (Wise and Baumgartner 1999; Cusumano, Kahl, and Suarez 2015). These kinds of benefits have attracted the attention of a number of
Marin Jovanovic is a double-degree PhD candidate in the Department of Industrial Economics and Management at the KTH Royal Institute of Technology (Stockholm), and the Department of Industrial Engineering, Business Administration and Statistics at the Universidad Politécnica de Madrid. He is also a visiting PhD candidate in the Department of Operations, Innovation and Data Sciences at ESADE Business School. His main research focus is the servitization of manufacturing and service transi-tion strategies for product-centric firms. He received an EDIM (European Doctorate in Industrial Engineering and Management) fellowship award in 2013. He holds an MSc in management engineering from Politecnico di Milano. [email protected]
Mats Engwall is a professor of industrial management at the KTH Royal Institute of Technology in Stockholm, Sweden. His research revolves around various aspects of contemporary transformations of industrial businesses, such as servitization, projectification, discontinuous innovation, and mass production of R&D. His research has been published in Harvard Business Review, Research Policy, Organization Studies, Technovation, R&D
Management, and the International Journal of Project Management, among others. He holds a PhD in industrial economics and management from the KTH Royal Institute of Technology. [email protected]
Anna Jerbrant is an associate professor of industrial management at the KTH Royal Institute of Technology in Stockholm, Sweden. Her research aims to increase the understanding of industrial management and the tension between industrialization and innovation. This has led her to do research on management of project-based organizations and servitization, as well as creativity within formalized development processes. Her research has been published in the South African Journal of Economic and Management Science and the International Journal of Project Management, among others. Anna holds a PhD in industrial economics and management from KTH. [email protected]
DOI: 10.1080/08956308.2016.1161403 Copyright © 2016, Industrial Research Institute. Published by Taylor & Francis. All rights reserved.
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Faced with the choice to lower prices or
pursue a differentiation strategy, the
company made the strategic decision to
create superior value through
servitization.
manufacturers and prompted them to move from tran-saction-based services (for instance, spare parts sales) to outcome-based contracts targeting users’ processes (Oliva and Kallenberg 2003).
However, the move from products to outcome-based contracts—that is, from selling engines to selling flying hours, from compressors to compressed air, from pavers to pavement—is neither simple nor easy. A number of studies show that transforming a production company into a product-service provider can be very challenging, and may even endanger the company’s survival (Benedettini, Neely, and Swink 2015). Manufacturers seeking to develop advanced service offerings often encounter implementation problems (Suarez, Cusumano, and Kahl 2013; Visnjic Kastalli and Van Looy 2013), which sometimes result in a decline in overall performance (Gebauer, Fleisch, and Friedli 2005).
This paradox suggests that an outcome-based service strategy may not be generally applicable—some products and some firms may not benefit from this kind of servitiza-tion approach. While previous research has identified industry maturity, the nature of competition, and R&D intensity as factors affecting firms’ decisions to move to services (Teece 1986; Cohen, Agrawal, and Agrawal 2006; Cusumano, Kahl, and Suarez 2015), it is unclear what factors influence firms’ decisions about what types of ser-vices to offer (Gebauer et al. 2012; Eggert, Thiesbrummel, and Deutscher 2015). Researchers have investigated services with respect to whether they support products or customer needs (Mathieu 2001). While product-oriented services require understanding of the product technology and aim at improving product performance, customer- oriented services require knowledge of the customer’s business model and the challenges associated with the use of the product (Raddats, Burton, and Ashman 2015). However, product-service interdependencies entail com-plex product-specific preconditions that affect the process of making a successful shift to advanced service contracts.
We sought to unpack this process via a comparative case study of two service transition initiatives undertaken by a global industrial manufacturer in two different product lines. Both product businesses sought to “climb the service ladder”—that is, move from selling spare parts to providing advanced, output-based service contracts (Visnjic Kastalli, Van Looy, and Neely 2013). However, although both
businesses shared the same corporate and managerial contexts, the two initiatives had opposite outcomes: one product division successfully moved up to outcome-based contracting, while the other division did not manage to change much at all, remaining stuck in its sales-based business model. Close analysis of these two cases revealed important preconditions and key product attributes for a successful transition to a Power-by-the-Hour–type outcomes-focused services model.
The Study The exploratory nature of our research prompted us to conduct a comparative case study (Eisenhardt 1989) of two product divisions of the same major manufacturing company: the compressor division and the construction equipment division of a global heavy equipment manu-facturer. These two cases offered sufficient similarities and dissimilarities to allow us to identify contrasting empirical patterns (Eisenhardt and Graebner 2007). Because the divisions shared the same corporate context, were struc-tured according to the same organizational principles, and implemented the same servitization strategy—including following the same roadmap for the servitization journey—the consequences of differences in executing the strategy were clear.
Both divisions were grouped around product families; at the outset of the servitization strategy, service units were separated from traditional product units within each division (Figure 1). This structure allowed the service processes and culture to emerge, while at the same time integrating services with the product business at the senior management level. Within each division, a Service Business Line Manager was appointed for orchestrating the service functions supporting the division’s products. Service busi-nesses had the same composition and skill sets in both divi-sions. In addition, both divisions applied the same two-fold servitization strategy: first, to increase the ratio of services provided to product units sold, and then to move gradually toward offering more advanced service contracts. The strategy was communicated from the company headquar-ters to all its local subsidiaries.
The service transition strategy was first implemented in the compressor division, which initiated its transformation in early 2001. Service sales and operations were organiza-tionally separated from products in 2003. In 2007, the division’s service business was fully developed, with 72 percent of aftermarket revenues coming from service contracts. The company tried to replicate this success with the construction equipment division in 2008, deploying the same strategy, organization structure, and roadmap the compressor division had used to drive its transform-ation. However, in February 2014, at the inception of this study, the construction equipment division remained stuck at the early stages of servitization.
The field study lasted from February to July 2014, with some additional interviews conducted through 2015. Data were collected from three primary sources: semi-structured
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interviews with informants within the two divisions, observation of day-to-day operations in each division, and archival data from internal company documents, such as organizational charts, quarterly update reports, customer lists, and marketing reports. In each division, interviews began with the management and progressed to the rest of the organization to include employees in diverse roles, using the snowballing technique of interviewee identifica-tion. Our 19 informants, which included technicians, engineers, technical support specialists, and managers, provided a comprehensive picture of each division and its servitization journey. In addition, we conducted several field visits at the service workshops where the divisions provided repair, maintenance, and overhaul services. Finally, we interviewed representatives of two major indus-trial contractors that used the products of both divisions to complement and verify the picture provided by company informants.
Data analysis followed the grounded theory approach (Glaser and Strauss 1967), which involved initial coding of notes, followed by the development of case histories and then second-order coding, pattern identification, and theor-etical integration (Corbin and Strauss 1990). Specifically, we started from initial coding and categorization of data (first-order codes) and moved to writing and revising memos to describe each subsidiary’s transformation path-way. Then, we created case histories that mapped the most important events and actors associated with changes during service transition (for instance, hiring people, changing roles, introducing new systems). This exercise was followed by the identification of second-order categories from the literature. We then classified the first-order codes into the theoretical second-order categories. Finally, we undertook a cross-case comparison to identify distinguishing patterns.
Diverging Service Transition Outcomes Our study examined the servitiza-tion journeys of two divisions of a multinational corporation manufac-turing an array of high-value capital equipment, such as compressors, construction and mining equipment, power tools, and various types of assembly systems. The company has been in business for more than 140 years and is well respected for its high-quality products and its long tradition of technological innov-ation; it is known as a product supplier for professional customers that require high product quality and a well-developed infrastructure of maintenance and service work-shops. As a result, the company has enjoyed stellar financial perform-ance for much of its history.
However, in the early 2000s, global competition began to threaten the company’s pos-ition. Its high product quality meant high product prices; a growing number of aggressive, primarily Asian, competitors flooded the market with similar products that offered lower, but still acceptable, quality at significantly lower prices. Faced with the choice to lower prices or pursue a differenti-ation strategy, the company made the strategic decision to create superior value for customers through servitization.
The company’s product portfolio offered considerable potential for servitization. Its large, installed base of products required spare parts, ad-hoc repairs, periodic main-tenance, and occasional overhaul—all needs that can be met with service contracts. With this in view, the company expanded its value proposition, aiming to provide product- service systems that bundled physical products together with service offerings. In general, top management saw this mar-ket strategy as the necessary step for the company to retain its status as the premium brand in the future. As a service manager explained, “We are not the cheapest on the market. Actually, we have the highest product prices, and we have also the highest service prices, and if you reduce everything down to the prices of spare parts, you can miss all of the added value that surrounds our products! That’s why we’re trying to bundle it with the products in many ways.”
The company began its journey with its compressor division, which offered clear potential for servitization: a customer’s initial purchase of a compressor accounts for just 5 percent of the machine’s total lifecycle costs; the rest of the costs come in maintenance and repairs, which are amenable to servitization. Initially, the service business was separated from the dominant product business in order to increase its status and legitimacy, as services had traditionally been subordinate to product sales. The division’s sales function was divided into separate, specialized units, one for product
FIGURE 1. Division organizational structures
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The construction equipment business
proved to be significantly more difficult to
transform.
sales and one for service sales. Service operations, service marketing, and technical support functions were created to support the service sales function with specialized expertise. The service business line manager coordinated all service functions and served as an integration point with the product business and the general managers.
The company’s aim was to gradually build up a service presence in the market by adding technicians to strengthen customer relations and then develop more advanced service options over time. That gradual process allowed the division to build both customer acceptance and internal expertise. Reflecting on this development process, the general manager of the division explained, “We began only with [spare parts at] fixed prices. Then we moved to labor contracts, and it was very good and profitable. Then we moved to contracts including the labor and parts. Then we moved to total responsibility contracts.” Service offer-ings gradually became more sophisticated, from primarily providing spare parts, to reaching some of the highest steps of the service ladder, such as outcome-based contracts. The divison’s service manager described it like this: “In the compressor business, we managed to sell a cubic meter of air; we set a pay-as-you-go model.” By 2014, service revenues accounted for 37 percent of total revenues. More importantly, in 2014, the division covered 39 percent of its installed base with advanced service contracts.
With the compressor division reporting a growth in its service business of 147 percent between 2001 and 2007, the company decided in 2008 to implement the same strategy in all of its divisions, including the construction equipment division. However, the construction equipment business proved to be significantly more difficult to trans-form. Despite strong commitment to the servitization roadmap—the same strategic approach used by the compressor division—little progress was made in pushing customers to more advanced service offerings. Between 2008 and 2014, more advanced services for construction equipment did not grow at all. In 2014, 80 percent of the division’s service revenues still came from spare parts, 16 percent from ad hoc repairs, and 4 percent from services contracts. More sophisticated service offerings, like out-come-based contracts, did not exist at all.
The management attributed this outcome to a number of factors. Initially, the traditional warranty period was the main barrier for moving from a spare parts model to more advanced service agreements. For the compressor division, routine inspection visits had served as a lead for selling spare parts and labor services, which later evolved into service
contracts. But construction equipment customers tended to maximize service during the warranty period and were reluc-tant to buy long-term service contracts after the warranty expired. Thus, the main focus of the division in its initial for-ays into services was to close the gap between the warranty end point and the next purchase or maintenance and overhaul request with advanced services and extended war-ranties. In the words of one of the service sales engineers, “Our preventative maintenance agreements, which include visits, spare parts, and labor, are mainly sold for the old machines.” As the service support manager explained, “We are working with the division and trying to increase the prevalence of extended warranties. We introduced a pos-ition, Keep Fit Manager, in charge of extended warranties, care programs, and service agreements.” However, the division was unable to demonstrate the value it provided with the extended warranty contract. Customers were not con-vinced either that the company’s product operations expert-ise was superior to their own or that the services offered had the potential to improve machine availability and allow them to reduce their inventory of spare parts and equipment.
In addition, the new “cover care” programs—the com-pany’s name for preventive maintenance contracts—were extremely costly to the company to provide. A service engineer explained, “So, cover care . . . every 500 hours or 250 hours or what is written in the manual, we visit the machine, inspect, and do the maintenance. We had major losses with such contracts. For example, it could be a small thing, for example the start button doesn’t answer, so we travel for two hours to change the little button, we spend 30 minutes there, two hours back, and it could cost us €600. If such service is included for a small construction machine, it is not profitable for us at all. We are very careful about what is covered in the contracts.” Preventive main-tenance contracts could not be priced at a level that both attracted customer interest and allowed the company to recoup its costs. This experience confirms and extends Reinartz and Ulaga’s (2008) conclusion that “value-added services can turn front-office service customization into a delivery-costs nightmare” (p. 94).
Furthermore, service responsiveness was found to be a particularly challenging issue in the construction equipment business, where downtime can be quite costly. As a senior manager put it, “Customers [for construction equipment] have huge costs in the case of a breakdown! However, it’s not so much money, so it is worth buying an extra paver, a backup paver. If you compare the [construction] industry with stationary compressors . . . they lose €400,000 per hour; that means one paver per hour!” Apart from mainten-ance, services also evolved around logistics. Providing the response these customers required presented significant organizational challenges, as the service manager described:
We have had lots of problems with spare parts, and finding the critical parts. We can’t just say to the cus-tomer, ‘We will deliver the spare part next week.’ We need to deliver it the next day. We hired one person
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to be the asphalt master—he has authority way above his salary—if something is wrong with a paver in the field, he needs to escalate the awareness, like a hotline, for this particular question. We cannot follow the usual organizational hierarchy, as it can take too long. We need to be much quicker!
Thus, the high costs of downtime coupled with the inability of the service network to respond quickly made it inefficient for customers to invest in a service contract that might force them to wait for a repair technician or a spare part, or even to take a machine out of service for preventive maintenance.
The service organization that had worked for the compressor division also proved to be unsuitable for the construction equipment business. In part, this was because the servicing of construction equipment was not as easy to scale up; developing the capacity to service construction equipment required much larger investments in personnel than had been needed for servicing compressors. Further, the variability of the equipment made economies of scale significantly more difficult to achieve, as did variability in the operational environments in which the equipment operated. As the service business line manager explained, “If you look at industrial compressors, you go there and push the button and it takes care of itself. If you take a paver, or some other products within the construction equipment portfolio, there’s someone driving the machine all the time. This variable is external; there is a high variabil-ity of how the products are used and where they are used.” Consequently, service contracts that guarantee perform-ance or availability backed up by, for instance, preventive maintenance were not practical because the reliability of the machine was hard to measure and control.
This inability of the company to assess and control the context of a machine’s use effectively hindered the advancement of sophisticated service offerings and hampered the service marketing unit’s efforts to develop customized service offerings. The service marketing man-ager suggested that the division could “find some kind of strategy that will cover 60–70 percent of the products and then we make local adjustments for the other ones.” How-ever, the division was lacking in the kind of product-specific customer relationship building that might have made this approach work. This was seen as critical; as a senior execu-tive told us, “We should consider the customers as part of our organization; we should understand their preferences, what their [product] applications are. We should connect them with good stories, support them to build their education and knowledge, but in connection with the product application.” However, other actors in the business ecosystem, mainly distributors and large construction contractors, outperformed the company in this respect.
Developing the appropriate service infrastructure, par-ticularly sufficient numbers of technicians with appropriate training and skills, emerged early on as a crucial factor in successfully moving to advanced service offerings. The division was constantly in need of more people. As a service
This inability to assess and control the
context of a machine’s use hindered the
advancement of sophisticated service
offerings.
business line manager explained, “In a service center, we have 14 technicians and 3 planners. We need to show customers that we have availability . . . That is one of the selling points. We can’t have customers deciding to build their own service capacities because we don’t have enough people. This is especially problematic in some regions, where we really don’t have enough people.” As a conse-quence of the service organization’s low capacity, the com-pany’s distributors started building their own networks of service workshops. The service sales engineer explained, “Distributors tend to fix smaller problems by themselves; they come to us only for more complicated breakdowns.” This practice undermined the company’s efforts to develop its own comprehensive service offerings.
Indeed, the strong network of distributors, primarily major equipment rental companies, and the company’s reli-ance on indirect sales, further hampered the advancement of service offerings. As the general manager explained, the attempt to manage direct versus indirect sales created major tensions in the organization: “A [product] salesman who sells through distributors is responsible for a territory, he has built up some distributors. Then, when he gets a lead, it is easy for him to hand it over to a distributor; the distributor makes the deal, and that’s it for the product salesman. But then, the ser-vice is also for the distributor.” On the other hand, the local presence of the distributors clearly had a major impact on the company’s relationships with customers. Another executive told us, “I think that they [the distributors] can do things that we can’t—flexibility is one. They have the ability to build relationships, they’re very local, they are known, they’re part of the community, they know their customers very well, and they visit their customers on a more regular basis than we can do ourselves. There are these interactions which are completely different, and that makes each one of them unique. I think that this is an area where we have to under-stand how we can better connect with our customers.”
On the other hand, the established network of distribu-tors was effective in building local presence for the company. With this in mind, the company opted to include distributors and partners in the strategy and use both direct and indirect sales channels for construction equipment. As the service business line manager explained, “We have service partners and they have their own technicians, for example a family company, but they don’t serve our whole portfolio; they focus only on construction tools and road construction equipment. That’s the idea! We don’t go 100
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percent with dealers; we don’t go 100 percent ourselves.” The complexity of the service delivery network, created by this mixed approach, prevented the company from stand-ardizing operations and processes and presented another barrier to achieving the economies of scale required to make the servitization model work profitably.
Discussion This study demonstrates how each division’s different busi-ness logic affected its ability to climb the service ladder— that is, to move from simply selling spare parts to providing performance-based service contracts. Our analysis revealed three major groups of factors that affected the success (or failure) of the service transition for these divisions: the role and function of the products in the customers’ operations, the operational environments of the products in customers’ operations, and the provisioning system of the products and related services (Table 1).
The products sold by these two divisions played very different roles in customers’ operations. The compressor division’s products typically provided critical ancillary input to the customers’ value creation processes; they came with high total costs of ownership relative to the initial purchase cost, and breakdowns led to high repair costs. These customers were prone to accepting service contracts, since operating compressors was not a part of their core business and the cost of breakdowns was likely to be higher than the cost of preventive services. Construction equip-ment products, on the other hand, typically constituted core elements of customers’ value creation processes and had low total costs of ownership relative to the initial purchase cost, while breakdowns incurred high financial risks. As a
result, customers tended to own substantial knowledge in operating the construction equipment and it was significantly more difficult to demonstrate the value added by service contracts and to charge accordingly.
The operating environments of the two product types was also very different. The compressor division’s products were generally operated in stable operating environments, compared to the highly variable operational context of construction equipment. Compressors were typically sta-tionary, installed in controlled, in-house environments, and designed with self-contained technology and a high level of automation. This meant that the contextual factors affecting major performance variables could be measured and controlled with a high degree of accuracy, enabling haggle-free service contracts. By contrast, the products of the construction equipment division were primarily operated outdoors, at different construction sites, and—at least for equipment owned by rental companies—by personnel from different construction companies. The difficulty of predicting performance in this highly uncertain environment pre-vented the construction equipment division from developing sustainable service contracts beyond traditional warranties.
Finally, the sales channels for the two product lines deter-mined the success of the service transition. The compressor division served a market that encompassed companies of various size and types, and in various types of industries; it had direct sales channels to these customers and could access the operators of the equipment. The construction equipment division, on the other hand, specifically targeted major companies in the construction industry—either major building contractors or major rental companies. In both cases, the construction equipment division had only indirect
TABLE 1. Comparison between compressors division and construction equipment division
Characteristic Compressors Construction Equipment
Product Function
Role of product in customer’s business
Critical ancillary input to customers’ value creation processes
Core element of customers’ value creation processes
Total cost of ownership vs. initial investment
Significant Not significant
Financial risk in case of breakdown Very high Low
Product Operation
Operating environment Stationary, indoors Movable, outdoors, often at remote locations
Level of automation High. Self-contained product technology
Low to medium. Customer operates products and fixes minor breakdowns
Variance in operations Low High
Product performance Direct relation between performance and customer cost savings
Operators affect performance significantly
Connectedness Yes. Measurements of equipment performance
No
Product Provisioning
Primary customers Industrial companies of any size or type
Major building contractors, equipment rental companies
Sales channels Direct Indirect to contractors via distributors or rental companies
Service provision Direct Major contractors operate in-house services. Local workshops at distributors and rental companies
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connections to the operators of its products, while the operations-specific service network, made up of local work-shops and on-site service personnel, was run either by the major contractors themselves or by distributors and rental companies. Thus, the upstream value chain position of the construction equipment prevented the company from building the necessary customer relationships that would allow them to offer advanced service contracts.
These cases demonstrate that differences in existing conditions in the two divisions set the limits for successful service advancement. The first step away from the transac-tional spare part model of service provisioning requires close customer proximity and labor-intensive services, which often bind significant financial resources. Servitization also entails the introduction of service-specific values, like heterogeneity and flexibility, which contradict the manu-facturing logics of standardization and production efficiency (Bowen, Siehl, and Schneider 1989). Thus, our findings suggest that where customer relationships and product operating environments allow for standardization, and where the conditions of product use make customers willing to outsource maintenance and services, a servitization strat-egy has a higher probability of success. In cases where the nature of customer relationships and product operating environments militate against standardization and custo-mers are not willing to pay for advanced service contracts, a servitization strategy will be less likely to succeed, or at least it will evolve less rapidly.
This analysis suggests that for some companies, servitiza-tion can be approached as a progression based on the inter-action between the design of the service delivery system and the product operations (Figure 2). In this framework, a product firm may begin to expand its service offerings by extending the sales of spare parts, often through distributors and wholesalers. The next step is to leverage the firm’s prod-uct-specific competencies, add generic service personnel, and demonstrate service capabilities and service presence to the customer. The third step is to professionalize the back office by adding specialized service personnel, while narrowing the focus of service offerings to a single product type that allows economies of scope. Reaching the most advanced levels of servitization requires advanced product automation and a primary focus on product performance. Finally, internalizing the customer’s risk through outcome- based service contracts requires the development of a service delivery network that is integrated into the company and fully accountable for service delivery.
In our cases, while the compressor division successfully reached the highest steps, the construction equipment div-ision fought to climb to step three in the model. The differ-ences in success were an outgrowth of differences in product type and use context. In other words, to assure success in servitization, the orchestration of service delivery must be product-specific—that is, aligned with the function and operation of the product in the customer’s context. Thus, taking these aspects into account when designing products
increase the possibility to reach higher stages on the service transition ladder.
Conclusion Our case study, which explores how servitization proceeded in two divisions of a major equipment manufacturer, suggests that services need to be aligned with product char-acteristics for servitization to advance. Thus, the servitiza-tion effort can succeed only in specific contexts, with particu-lar types of products that play specific roles in customers’ operations. Assessing these preconditions can help manu-facturers avoid the servitiza-tion paradox and help them design servitization strategies that fit both their strengths and their customers’ needs. Assessing the preconditions at each service-advancement step will help companies create competitive product-service offerings. FIGURE 2. The relationship between product operations and the service delivery system
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These cases demonstrate that differences
in existing conditions in the two divisions
set the limits for successful service
advancement.
This paper was produced as part of the EMJD European Doctorate in Industrial Management (EDIM) funded by the European Com-mission. The authors would like to thank the editors, MaryAnne Gobble and James Euchner, and four anonymous reviewers for their constructive comments.
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36 j Research-Technology Management Matching Service Offerings and Product Operations
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