ABSTRACT
Purpose: The objective of this paper is to describe, from a series of interviews with managers and leaders in service businesses, the change management challenges they have faced during the servitization journey. The paper builds upon the work presented by West (2014) where a comparative assessment of the service cultures of manufacturing firms in Europe was undertaken and compared with business performance. This is an initial study with the aim to identify some common themes and trends within the firms and highlight new areas for research.
Design/Methodology/Approach: A literature review was carried out to provide the background of the change management challenges in servitization, including an analysis of barriers and facilitators to the change. Six in-depth interviews were conducted with leaders from each of the manufacturing firms resulting in five longitudinal case studies of companies and associated cross-case analysis. Each of the firms was placed within Mathieu’s service model (Mathieu, 2001) and the initial starting position and current state marked.
Findings: Servitization is a complicated cultural change process rather than simply adding a new product to a portfolio. It required significantly different process and mind-sets to deliver a transformation. Using the seven categories of Hou and Neely (2013) it was possible to describe and categorise the main barriers to servitization. The literature reviewed gave relevant information on the barriers, however it focused mainly on the barriers rather than providing leaders with tools to support the change process itself. A number of recommendations for future research are made.
Originality/Value: This paper focuses on manufacturing firms and their transition into services through interviews of their leadership to help shed light on gaps in the current research.
The full paper can be found at: http://www.advancedservicesgroup.co.uk
Driving the servitization transformation through change management: lessons learnt from industrial cases
1. Driving
the
servitization
transformation
through
change
management:
lessons
learnt
from
industrial
cases
Aston
Spring
Servitization
Conference,
May
2016
Dr
Shaun
West
and
Paolo
Gaiardelli
2. West
&
Gaiardelli,
2016
Introduction
The
problem
and
the
purpose
of
this
paper
To
describe
a
series
of
challenges
leaders
in
the
service
business
faced
during
their
servitization
journey
Servitization
as
a
transformational
process
has
major
effects
on
the
cultures,
business
models
and
processes
of
a
firm.
Yet
the
change
management
is
poorly
understood.
To
identify
the
impacts
of
organisational
barriers
on
different
types
of
companies
Purpose
of
this
paper
Preliminary review
on
how
six
firms
in
Europe
navigated
the
servitization
journey
successful
without
tripping
over
barriers
Problem
3. West
&
Gaiardelli,
2016
Introduction
What
does
the
literature
say?
”…is
generally
agreed
that
such
a
transformation
calls
for
organisations
to
radically
innovate
all
components
of
their
business
model…” Gebauer
”…there
is
no
unique,
ideal
servitization
transition,
as
a
successful
transition
to
services
depends
upon
context…” Neely
” …there
are
no
specific
models
for
servitization
as
a
change
process…”
Pawar
Servitization
is
a
change
process
that
impacts
on
the
operation
and
the
culture
of
the
business
4. West
&
Gaiardelli,
2016
Methodology
A
three
step
methodology
was
applied
in
this
study
An
initial
review
to
gather
a
wide
range
of
inputs
and
categorize
them
systematically
Literature
study Interviews
Cross
case
analysis
5. West
&
Gaiardelli,
2016
Results
and
analysis
of
the
literature
review
The
servitization
barriers
were
categorised
according
to
those
defined
by
Hou and
Neely
These
categories
will
be
used
to
help
analyse the
findings
Competitors,
suppliers
and
partners Complex
and
competitive
environment,
involving
different
actors
Society
and
environment Lack
of
policy,
infrastructure
support
and
incentives
Customers Heterogeneous
demand
Economic
and
finance Unexpected
costs
and
difficulties
in
pricing
services
Knowledge
and
information Difficulties
in
knowledge
and
information
management
Products
and
activities
Lack
of
competences
and
infrastructures
Difficulties
in
designing
service
packages
Organisational
structure
and
culture
Preconceived
thoughts
and
resistance
to
change
conflicts
among
different
departments
and
different
hierarchies
in
organisations
Lack
of
service-‐based
organisational
structure
and
service-‐oriented
culture
6. West
&
Gaiardelli,
2016
Results
and
analysis
cross
case
analysis
Overview
of
the
six
firms
selected
for
interviews
Firm Segment HQ OEM
tier
Service
emplyees
1
Equipment
for
trains
GER 2nd 540
2
Marine
and
power
CHE 2nd
1,300
3 Textiles CHE 1st
,
2nd
400
4
Logistics
equipment
NLD 1st 1,200
5
Video
surveillance
ITL 1st,
2nd 540
6 Energy CHE 1st,
2nd 3,200
-‐ The
objective
to
get
insights
from
manufacturers
-‐ Diversity
measured
by
-‐ Segment
-‐ Geography
-‐ Position
of
OEM
business
in
supply
chain
-‐ Size
-‐ Interviewees
requirements
-‐ Long-‐term
experience
of
the
firm
-‐ Senior
management
-‐ Detailed
feedback
provided
to
the
firms
A
wide
range
of
manufacturing
firms
were
targeted
for
interviews
8. West
&
Gaiardelli,
2016
Results
and
analysis
of
the
interviews
Mathieu’s
index
provided
a
useful
framework
-‐ The
businesses
were
delivering
services
-‐ There
was
a
strategic
move
to
grow
services
-‐ Overtime
the
transition
becomes
cultural
-‐ Firms
1-‐5
were
initially
doing
service
’because
they
had
to…’
-‐ Firm
6
was
acquired
as
a
service
base
to
allow
access
to
a
new
markes
Having
started
the
journey
there
is
a
drift
to
cultural
organizational
intensity
Initial
2016
Initial
2016
Initial 20166
1+5
9. West
&
Gaiardelli,
2016
Results
and
analysis
of
the
cross
case
analysis
Competitors,
suppliers
and
partners
Lessons
learnt
-‐ Partners
as
a
key
service
resource
was
important
-‐ Ecosystem
view
helps,
but
this
needs
a
mind-‐set
shift
The
move
to
ecosystem
innovation
was
important
for
the
servitization
journey
“…we
prefer
to
encourage
our
partners
to
do
it
directly!
Actually,
such
a
strategy
involves
losing
part
of
our
service
profits,
but
it’s
the
best
way…”
Firm
5
“…we
must
use
an
ecosystem
view
to
help
us
work
together
better,
but
this
is
a
mind-‐set
change!”
Firm
1
Implications
-‐ Cooperation
with
partners
critical
-‐ Trading
value
in
the
ecosystem
for
relationships
10. West
&
Gaiardelli,
2016
Results
and
analysis
of
the
cross
case
analysis
Society
and
environment
Local
rules
and
’norms’
can
make
create
barriers
to
service
delivery
Lessons
learnt
-‐ Cannot
always
charge
for
services
-‐ Local
legal
and
tax
issues
Implications
-‐ Smaller
firms
encounter
larger
investment
barriers
-‐ Different
solutions
needed
for
different
firms
-‐ Impact
on
firm’s organisation
and
processes
“…tax
is
becoming
a
major
problem
for
transfer
of
pricing...”
Firm
1
“…we
have
to
offer
free
of
charge
solutions
to
support
the
loyalty
of
final
customers
and
help
to
strengthen
our
relationship
with
the
front-‐end
partners…”
Firm
5
“…some
regions
were
harder,
because
some
managers
don’t
think
of
service
as
the
real
business.
However,
some
other
regions
were
easier,
because
management
support
came…”
Firm
4
11. West
&
Gaiardelli,
2016
Results
and
analysis
of
the
cross
case
analysis
Customers
Important
to
learn
to
work
and
use
customer
pull
to
support
servitization
Lessons
learnt
-‐ Training
to
help
to
improve
customer
understanding
-‐ Customer
pull
to
move
into
services
-‐ Co-‐creation
creates
opportunities
-‐ Customer
is
more
or
as
important
as
technology
Implications
-‐ Northern
firms
transforming
relationships
with
customers
(culture)
-‐ Southern
firms
identify
services
and
a
business
opportunity
(strategy)
“…we
look
for
our
customers
problems…
we
moved
our
target
to
offer
service
as
a
product,
to
what
is
customer
value…”
Firm
1
“…we
are
well
aligned
with
key
customers.
We
do
co-‐
creation
…
to
enter
the
unknown
and
test/pilot
new
offers
before
selling
them
more
widely…”
Firm
4
“…transition
is
hard,
especially
when
the
market
is
very
cost
focused
rather
than
reliability
focused…we
will
need
more
customer
integration...”
Firm
2
12. West
&
Gaiardelli,
2016
Results
and
analysis
of
the
cross
case
analysis
Economic
and
finance
Service
pricing,
sale
growth,
margins
and
retention
are
critical
success
factors
Lessons
learnt
-‐ Pricing
is
important
in
services
-‐ Revenue
growth
and
margin
growth
important
for
senior
management
-‐ Measure
impact
on
customer
retention
and
customer
margins
Implications
-‐ Firm’s
efforts
are
focussed
on
creating
awareness
on
strategic
relevance
(profitability)
-‐ Southern
firms
could
have
a
size-‐related
issue
“…we
need
to
work
more
to
be
efficient
and
that
is
the
plan
over
the
coming
years:
growth
in
sales
with
no
growth
in
white
collar
FTEs...”
Firm
2
“…giving
the
top
management
the
growth
story
of
service
business
was
the
best
argument
to
convince
them
to
get
on-‐board…
“
Firm
2
“…analyses
carried
out
by
the
commercial
department
demonstrated
that
service
increases
customer
retention
and
margins…”
Firm
5
13. West
&
Gaiardelli,
2016
Results
and
analysis
of
the
cross
case
analysis
Knowledge
and
information
Internal
sharing
of
know
how
and
customer
process
can
reduce
servitization
barriers
Lessons
learnt
-‐ Project
management
skills
needed
for
delivery
-‐ Understanding
of
customer
processes/value
creation
-‐ Understanding
the
product-‐service
system
-‐ Sharing
knowledge
important
Implications
-‐ Product-‐focused
firms
need
to
focus
on
understanding
their
customer
processes
-‐ More
servitized firms
need
to
address
problems
of
knowledge
management
“…move
to
cross
learning
from
the
“ad
hoc”
knowledge
management
systems
of
today.”
Firm
3
“…How
do
we
move
to
’service
as
a
product'
rather
than
just
customer
services?
Through
a
PSS
based
on
Knowledge
Management…” Firm
3
“…technology
and
service
skills
are
the
main
areas
we
are
likely
to
invest
in
the
next
18
months…” Firm
1
14. West
&
Gaiardelli,
2016
Results
and
analysis
of
the
cross
case
analysis
Products
and
activities
Basic
data
and
understanding
is
required
before
moving
to
more
advanced
product-‐service
systems
Implications
-‐ Basic
building
blocks
not
always
in
place
-‐ Understand
the
technology
around
the
product
-‐ Smaller
firms
focus
internally
rather
than
on
relationships
Lessons
learnt
-‐ Installed
base
critical
data
for
supplying
services
-‐ Standardisation
supported
professionalisation
-‐ Focus
on
services
only
once
PSS
is
understood
-‐ Services
supports
new
equipment
sales
“…keepworking
on
the
installed
base
and
improving
market
data,
this
is
key...”
Firm
3
“…add
service
to
create
a
PSS
that
has
positive
feedback
loop
to
NPD
has
been
our
biggest
challenge
in
our
service
transformation
journey...”
Firm
4
“…new
products
drive
our
world
and
we
need
to
overcome
design
problems
and
provide
service/upgrades
that
are
of
value
to
our
customers.”
Firm
1
15. West
&
Gaiardelli,
2016
Results
and
analysis
of
the
cross
case
analysis
Organisational
structure
and
culture
The
businesses
must
have
their
own
P&L
and
support
of
HR
to
deliver
the
change
Lessons
learnt
-‐ Need
top
management
as
a
sponsor
-‐ Separate
service
business
unit/P&L
needed
-‐ Service
R&D
to
address
the
equipment
lifecycle
-‐ HR
is
needed
to
help
change
behaviours
Implications
-‐ Efforts
should
focus
on
creating
management
buy-‐in
-‐ Product-‐based
firms
need
to
overcome
a
goods-‐
centric
culture
-‐ Learn
to
work
with
and
educate
HR
“… support
from
HR
is
needed
to
drive
business
thinking
in
a
knowledge
management
rich
environment...”
Firm
2
“…
by
being
separate
we
are
able
to
be
effective
for
the
customer…”
Firm
1
“Culture
is
everything,
attitude
and
behaviour…”
Firm
1
“…local
empowerment
is
a
hard
to
achieve
but
it
means
effective
and
efficient
service
provision...”
Firm
3
16. West
&
Gaiardelli,
2016
Conclusions
Servitization
transformation
through
change
management
is
an
important
theme
Servitization
transformation
is
a
complicated
change
process
Hou/Neely’s
model
allowed
the
change
barriers
to
be
categorised
All
of
the
firms
had
contextual
differences:
there
were
similarities
Every
firm
starts
from
a
different
starting
point
and
therefore
experiences
their
own
journey.
There
cannot
be
a
single
recipe
for
change
management.
Not
all
servitization
journeys
require
the
same
change
management
17. West
&
Gaiardelli,
2016
Recommendations
More
research
servitization
transformation
change
management
is
needed
More
research
is
needed
on
”servitization
change
management”
The
aim
to
identify
servitization
change
management
best
practice
Practical
tools
are
needed
to
identify
service
opportunities
There
is
a
need
to
undertake
specific
research
into
servitization
change
management
to
help
firms
to
navigate
this
complex
transformation.
Understanding
of
a
journey
with
different
starting-‐ and
end-‐points