Service Business Development in Manufacturing Companies
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Service Business Development in Manufacturing Companies
- 1. Service Business Development in Manufacturing Companies Heiko Gebauer 3rd International Research Symposium in Service Management (IRSSM-3) Center of Innovation Research in Utility Sectors Swiss Federal Institute of Aquatic Science and Technology (EAWAG) Zurich, Switzerland
- 2. Traditional service research is beyond its peak Service Management & Marketing1 Number of articles 1 - Scopus data base, Inquiry “service, management and/or marketing” – June 2012
- 3. Service business in manufacturing firms … … has been an emerging topic Number of articles Service Management & Marketing1 100 80 60 40 20 0 Service business in manufacturing companies2 2 - Scopus data base, Inquiry “product-service systems, industrial services, services in manufacturing companies, servitization – June 2012
- 4. … is a response to the third industrial revolution & the globalization of manufacturing firms Number of articles Service Management & Marketing 100 80 60 40 20 0 Service business in manufacturing companies
- 5. Service business development relates to various theoretical perspectives − Transition from product manufacturers to services providers − Moving downstream towards services − Servitization in the manufacturing sector − Capital equipment manufactures moving towards high-value solutions − Product-service-systems − Solution providers − Service infusion or growing for service solutions − Hybrid offerings Selected references: Wise and Baumgartner, 1998; Davies (2004), Vandermerwe and Rada, 1988, Oliva and Kallenberg (2003), Mathyssens and Vandendempt (1998 and 2008), Neely (2008), Brown, Gustafsson, Witell, 2009
- 6. Service business development changes the value contribution through services Investments into the service business Service paradox Ad-hoc service support Low Value contribution through services Maintenance contracts Performance-based Business consulting Integration services High
- 7. Contributions to service business development in manufacturing companies Unit of analysis Manufacturing companies extending the service business 4) Service strategies4) Service strategies1) Models for moving towards services 1) Models for moving towards services 2) Capabilities for managing the service business 2) Capabilities for managing the service business 3) Service offerings3) Service offerings Product 1) Oliva & Kallenberg, 2003; Cohen et al., 2006; Gebauer et al., 2005; Reinartz & Ulaga, 2008; Auguste et al., 2004 4 Raddats and Easingwood, 2010; Davies, 2004; Windahl and Lakemond, 2010; Sawhney et al., 2004; Wise & Baumgartner, 1999 2 Neu & Brown, 2004 and 2008; Baines et al., 2007, Davies et al., 2007 etc.) 3 Mathieu, 2001b; Windahl & Lakemond, 2010; Oliva & Kallenberg, 2003) Services
- 8. Example – IBM‘s move from products to services Major milestones • Management commitment • Management and financial system • Recruiting new and intensive training of existing employees • Incentive system for services • Formulation & implementation of a service strategy • Creation of IBM Global Services as strategic Business Unit • Continuous service innovationen (Network, data storage, e-Business) Revenues in 2010
- 9. Beyond MNEs, there are also SMEs moving towards services 9 Major milestones • Management commitment • Management and financial system • Recruiting new and intensive training of existing employees • Formulation & implementation of a service strategy • Creation of business unit for services & components • Service centers • Service innovations and continuous service improvements Revenues In Million CHF
- 10. Qualitative case studies drive the research field Article Authors Citations Research method 1 Oliva & Kallenberg (2003) 240 Case studies 2 Vandermerwe & Rada (1998) 113 Case studies 3 Davies (2004) 103 Case studies 4 Tuli et al. (2004) 95 Case studies 5 Mathieu (2001a) 84 Case studies 6 Mathieu (2001b) 81 Conceptual 7 Sawhney et. al (2004) 73 Case studies 8 Davies et al. (2007) 68 Case studies 9 Neu & Brown (2004) 67 Case studies 10 Gebauer et al. (2005) 65 Case studies … … … …
- 11. Stronger theoretical frameworks are necessary Product manufacturers Manufacturing capabilities Solution providers Combinations of products and services Integration capabilities Service capabilities Manufacturing capabilitiesOperationa l capabilitie s Dynamic capabilities Adapted from Teece et al. (1997), Teece, (2007) Stefano et al. (2010) Individual skills Sensing Seizing Reconfiguring Organizational routines (management innovations)
- 12. Cognitive phenomena limiting individual skills • Overemphasize tangible and obvious elements • Disbelief in economic opportunities • Risk aversion for compete with customers • Fundamental attribution error (pushing people, instead of setting up structures) • Aggressive goals Source: Ross, 1974; Gebauer and Friedli, 2004; Gebauer 2009Source: Ocasio, 1997 Cognitive phenomenaCognitive theories
- 13. Succeeding through the service strategies opens-up the potential of providing solutions After-sales service provider Customer support service provider Development partner Outsourcing partner Source: Gebauer, Fischer and Fleisch (2010) Solution provider •Key capabilities: •Balancing different business models •Integration of different business models •Flexibility across different business models •Customer proximity to understanding requirements according to the business model
- 14. Service orientation in the operational capabilities¹ A – abstract value of services, B – role understanding, C – personnel recruiting, D – training, E – compensation, F – distinction product and service organization, G –proximity to customers Operational capabilities for executing service strategies (1) After-sales service providers Customer support service providers Development partners Outsourcing partners Legend (0 – low, 1 – high – cluster means)¹ Source: Gebauer, Gustafsson, Edvardsson and Witell (2010), Neu and Brown (2005 and 2008)
- 15. Management innovation drives service business development Sensing routines (n=7) •Down-stream-analysis •Utility maps •Service scenarios •.. Seizing routines (n=5) •Strategy guide and handbook •Service portfolio management •... Reconfiguring routines (n=7) •Cost-accounting systems •Service innovation process •Performance measurement •… Management innovations facilitating the sensing phase •Motivation, theorizing & labeling •External > internal change agent Management innovations facilitating the seizing phase •Invention & implementation •External = internal change agent Management innovations facilitating the reconfiguring phase •Motivation •Implementation •Internal >> external change agents Source: Gebauer (2011)
- 16. Summary Service business development is an emerging research and management topic Qualitative research drives the theoretical extension, but future research should concentrate more on quantitative studies and unique qualitative research fields Research from emerging markets such as China, India, or Brazil are highly welcome Alternative theoretical perspective facilitate the research contributions 16
- 17. Thank you very much for your attention If you have any further questions, please contact me: heiko.gebauer@eawag.ch
- 18. More information can be found in following book
Notas do Editor
- Basic idea on service business in manufacturing companies can be described in the following way. There is an transition line from products to services, companies can move along the transition line by investing into the service business. Through investing into the service business, manufacturing companies can increase the importance of service for the value contribution. Increasing the importance of services for the value contributions is means that financial indicators such as revenue or profit or non-financial indicators such as customer satisfaction or quality of the customer relationship are increasingly attributed to services. For exampe, share of service revenues in companies such as Xerox (manufacturing copy machines) or Rolls-Royce (jet engines) is more than 50%, and about 60% of the profit comes from services. There are three arguments why companies move along the transition line. First, strategic argument, Second, financial, and Third, marketing arguments. Moving along the transition line changes the business logic. It might startt with offering products and adding services to ensure product functionality. For example, repair services in case of waching machine of TV breaks down or has a failure. Business logic migh change to sell with offer product also a long-term maintenance services, or offering a customer specific solution. It might even lead to changing the business logic towards pay-per-use or performance-based business approaches. The latter mean that for example that instead of paying for copy machines and maintenance services, customer pay only for every printed page, or instead Moving along the tranition line is far from easy. We observed that companies face strong difficulties and are confronted with various obstacles. Instead of moving along the transitions line and increasesing the value contribution of services they will end up in a service paradox. Service paradox is an empirical phenoma that companies invest in the service business, but do not generate the expected return. It means they have high costs, but low service revenues and profits.
- Basic idea on service business in manufacturing companies can be described in the following way. There is an transition line from products to services, companies can move along the transition line by investing into the service business. Through investing into the service business, manufacturing companies can increase the importance of service for the value contribution. Increasing the importance of services for the value contributions is means that financial indicators such as revenue or profit or non-financial indicators such as customer satisfaction or quality of the customer relationship are increasingly attributed to services. For exampe, share of service revenues in companies such as Xerox (manufacturing copy machines) or Rolls-Royce (jet engines) is more than 50%, and about 60% of the profit comes from services. There are three arguments why companies move along the transition line. First, strategic argument, Second, financial, and Third, marketing arguments. Moving along the transition line changes the business logic. It might startt with offering products and adding services to ensure product functionality. For example, repair services in case of waching machine of TV breaks down or has a failure. Business logic migh change to sell with offer product also a long-term maintenance services, or offering a customer specific solution. It might even lead to changing the business logic towards pay-per-use or performance-based business approaches. The latter mean that for example that instead of paying for copy machines and maintenance services, customer pay only for every printed page, or instead Moving along the tranition line is far from easy. We observed that companies face strong difficulties and are confronted with various obstacles. Instead of moving along the transitions line and increasesing the value contribution of services they will end up in a service paradox. Service paradox is an empirical phenoma that companies invest in the service business, but do not generate the expected return. It means they have high costs, but low service revenues and profits.
- Basic idea on service business in manufacturing companies can be described in the following way. There is an transition line from products to services, companies can move along the transition line by investing into the service business. Through investing into the service business, manufacturing companies can increase the importance of service for the value contribution. Increasing the importance of services for the value contributions is means that financial indicators such as revenue or profit or non-financial indicators such as customer satisfaction or quality of the customer relationship are increasingly attributed to services. For exampe, share of service revenues in companies such as Xerox (manufacturing copy machines) or Rolls-Royce (jet engines) is more than 50%, and about 60% of the profit comes from services. There are three arguments why companies move along the transition line. First, strategic argument, Second, financial, and Third, marketing arguments. Moving along the transition line changes the business logic. It might startt with offering products and adding services to ensure product functionality. For example, repair services in case of waching machine of TV breaks down or has a failure. Business logic migh change to sell with offer product also a long-term maintenance services, or offering a customer specific solution. It might even lead to changing the business logic towards pay-per-use or performance-based business approaches. The latter mean that for example that instead of paying for copy machines and maintenance services, customer pay only for every printed page, or instead Moving along the tranition line is far from easy. We observed that companies face strong difficulties and are confronted with various obstacles. Instead of moving along the transitions line and increasesing the value contribution of services they will end up in a service paradox. Service paradox is an empirical phenoma that companies invest in the service business, but do not generate the expected return. It means they have high costs, but low service revenues and profits.
- Ergänzung der Produktorientierung mit der Dienstleistungsorientierung als Ausweg aus der Beschränkung bisheriger produktorientierter Geschäftsmodelle. Weg zur Dienstleistungsorientierung verschiedene Entwicklungsstufen. Historisch – Dienstleistungswüste, Produktverkauf hiess noch Vertrieb und es ging eher darum Kunden ausreichend viele Produkte zur Verfügung zu stellen und Nachfrage zu befriedigen. Vertriebsfunktion zur Vertriebs/Service-Funktion gewandelt, Service-Funktion –ad-hoc unterstützung. Waschmaschinen läuft aus oder Fernseher ist kaputt. Dann Servicetechniker bezahlt man für Reparatur und Ersatzteile (Fixpreis oder variable ja nach Aufwand). Service-Funktion in Marktorganisation aktiv versucht Dienstleistungen zu verkaufen. Typisches Beispiel sind Serviceverträge für eine bestimmten Zeitraum 1 oder 2 Jahre, alle Servicetätigkeiten und Ersatzteile für einen bestimmten Festbetrag. Serviceveträge findet man heute auch teilweise bei Waschmaschinen (V-Zug), Werkzeugmaschinen). Weitere Ausbau hat jedoch ein Risiko, statt die Dienstleistungswüste in einen Dienstleistungsgarten zu verwandeln. Einen Garten der gut gepflegt ist und einen schönen Ertrag erwirtschaften, landen Sie im Dienstleistungsdschungel. Dienstleistungsdschungel heisst, die ausuferndes Dienstleistungsangebot, mangelnde Kostentransparenz, Kunden verlieren die Übersicht über das Dienstleistungsangebot und den –nutzen. Am Ende investieren sie in das Dienstleistungsgeschäfts, aber die erwarteten Return-on Investments in den Dienstleistungsbereich sind geringer als erwartet. Vermeidung des Dienstleistungsdschungels durch Professionelles und systematisches Dienstleistungsmanagement Service als strategisches Instrument und Wandel zu Performance-based Geschäftsmodellen oder pay-per-use. Beispiel Flugzeugturbine, GE & Rolls-Royce neue Turbinengeneration, günstiger im Unterhalt, und leichte Verbesserung der Leistung, niemand wollte aber die Turbine, Marktflop. Kurz vor dem Scheitern. Ausweg Power-by-the hour. Bezahlung nur für die Verfügbarkeit und die Nutzung der Turbine. Revolution der gesamten Wertschöpfungskette in der Luftfahrt. Boeing und Airbus umgangen, Konzept gemeinsam mit Fluggesellschaften, (Power-by-the-hour – Anstieg ins Finanzierungsgeschäfts für Flugzeuge, Boeing und Airbus erwirtschaften bis heute nur circa 2-3% der Umsatzes mit Dienstleistungen. Turbinenhersteller bis zu 50%. Solchen strategischen Erfolgen von Dienstleistungen stehen jedoch auch strategische Risiken gegenüber. Konsequenz solcher Risiken sehr gut bei Herstellern von Kopiergeräten und Druckern erkennbar. Bereich professionelle Drucker. Performance-based oder pay-per-use. Bezahlung pro Kopie oder gedruckte Seite. Dunkle Seite (Risiko/Gefahr) bei diesem Geschäftsmodell ist Verändertes Kundenverhalten und erzeugte Preistransparenz. Kunden erkennt kaum Qualitätsunterschiede. Gedruckte Seite HP = Xerox, Kopie von Canon = Sharp, kaum qualitative Unterschiede. Kunden erkennt nur, eine Seite 7 Rappen oder 6 Rappen. Kaufentscheid rein vom Preisabhängig. Kostenführerschaft als notwendige Erfolgsposition. Ruinöser Preiswettbewerb, fast keines der Unternehmen wirklich Profitabel war, Verlagerungen in Niedriglohnländer und Zusammenschlüsse. Eventuell Form erklären.
- Existing contributions to servitization – four main areas – Models – Oliva & Kallenberg (2003), Ulaga & Reinarz four steps to increase the service profitability, Cohen et al. (2006) article six steps in setting-up an after-sales service business. Capabilities – Organizational capabilities (dynamic and operational capabilities) – dynamic come from the evolutionary theory of the firm – ability to respond to changing business environments. In this dynamic context, it is about sensing service opportunities and threats, seizing the sensed opportunities. Seizing means finding the reight business model for approaching the service opportunities. Another dynamic capabilities, which has been discussed in this context is the ability to reconfigure the operational capabilities. Operational capabilities is a static perspective on how a company can operate in a stable business environment. It is about earing the living in the service business. Service offerings As I mention. SSP & SSC, basic services for the installed base,advanced services, maintenance services, outsourcing services. Differrent types of service offering used to describe different service strategies -
- IBM – Extremfall / Paradebeispiel für den Wandel von einer Produkt- zur Dienstleistungsorientierung. IBM vor 20 Jahren, Technologiesprünge (verschlafen), Mainframes, zu spät im PC Geschäft, Software-Trend (verschlafen), 90 und 91 erste Entlassungen, einmalig bis dato in IBM Firmengeschichte. Zerschlagung des gesamten Konzerns, in sogenannte IBM Baby Blues, in Anlehnung an Baby Bells, Auflösung der Telefongesellschaften in den USA. Titelblätter des Economist und Fortune setzten eine grosses Fragezeichen hinter den zukünftige Entwicklung von IBM. Erste Turn-arounds mit der Fortführung der Produktorientierung gescheitert. Einmalig war dann Berufung von Louise von Gerstner in auf dem Posten des CEO. Aussenstehender, Service-Bereich. Mit ihm kam ein extremes Commitment zum Wandel im Geschäftsmodel von der Entwicklung, Produktion und Verkauf von Mainframes zu Wertgenerierung für Kunden mittels Dienstleistungen. Ganze Management & Finanzsystem wurde radikal an die Rahmenbedingungen für Dienstleistungsorientierung angepasst. Extreme Mitarbeiterfluktuation und –ausbildung. Jahr mit 10‘000 neuen Mitarbeitern im Servicebereich. Formulierung einer Dienstleistungsstrategie und die Gründung von IBM Global Service sind weitere Meilensteine auf dem Weg von IBM zum Dienstleister. Durch Strategie und Organisation wurden die notwendige Voraussetzungen geschaffen, für kontinuierliche Service Innovationen. Mittels Service Innovationen Aufbau neuer strategischer Geschäftsfelder. Ergebnis all dieser Meilensteine 2001, Service-Umsatz, grösster Umsatzanteil. Kurz darauf – Verkauf der Laptop-Sparte an Lenovo. Einmalig, IBMs Registrierung an New York Stock Exchange.
- R&D and innovation competencies Logistic & purchasing competencies Manufacturing competencies Assembly and production skills Understanding of customer’s technical, business, and operational needs Combination of product and services into customer-specific solutions Engineering competencies R&D and innovation competencies Logistic & purchasing competencies Manufacturing competencies Assembly and production skills Engineering competencies Recognizing and dealing with service opportunities and threats Service-oriented values and behavior Service-oriented personnel recruitment, development, and compensation Service-oriented organizational structures (e.g., separate business unit for services, service innovation processes) Exploiting the sensed opportunities and fending off threats Modifying operational capabilities Over the years and responding to some criticism of the approach (see especially Priem and Butler, 2001), the RBV was developed and enriched. It started to deal (once again) more explicitly with how a firm’s external environment is influencing the process of managing resources and how a firm’s resources are transformed into value. Sirmon et al. (2007) for example recently proposed a dynamic resource management model of value creation. Bingham and Eisenhardt (2008, p. 242) contributed to the RBV by arguing that “competitive advantage stems from both the characteristics of individual resources as497 well as the linkages among the resources”. Then they apply the VRIN criteria basically to the combinations of resources and especially see inimitability as the key criterion for gaining competitive advantage. Instead, dynamic capabilities or “the firm’s ability to integrate, build and reconfigure internal and external competencies to address rapidly changing environments” (Teece et al., 1997, p. 516) are seen as key and perceived as the cornerstone of competitive advantage. Dynamic capabilities (still following Teece et al., 1997, pp. 518-24) are based upon highly firm-specific managerial and organizational processes (or routines) and are shaped to a considerable degree by its specific asset position (current specif Teece has recently developed the dynamic capability framework considerably in another landmark study (2007 and included in 2009). Here, he more deliberately attempts to weave an “umbrella framework that highlights the most critical capabilities needed to sustain the evolutionary and entrepreneurial fitness of the business enterprise” (Teece, 2007, p. 1322). He proposes three categories of dynamic capabilities that he sees as most critical for sustaining evolutionary and entrepreneurial fitness [10], i.e. the capacity to sense and shape opportunities and threats, to seize opportunities and dynamic capabilities to maintain competitiveness through enhancing, combining, protecting and, when necessary reconfiguring the business enterprise’s intangible and tangible assets (Teece, 2007, p. 1319). “ the capability of an organization to perform a coordinated set of tasks utilizing organizational resources, for the purpose of achieving a particular end result”. They stress that “dynamic capabilities do not directly affect output for the firm in which they reside, but indirectly contribute to the output of the firm through an impact on operational capabilities”. Winter has formulated the basic difference between zero-level and higher order capabilities nicely. He refers to the first as “how we earn a living now capabilities” and in contrast, the others as “capabilities that would change the product, the production process, the scale, or the customers (markets) served” (p. 992).
- Model of attention and firm behavior to explain is not surprising that, having created a success- ful company by making a superior product, management continues to be oriented toward the product rather than the people who con- sume it. It develops the philosophy that contin- ued growth is a matter of continued product innovation and improvement. Because electronic products are highly complex and sophisticated, managements be- come top-heavy with engineers and scientists. This creates a selective bias in favor of research and production at the expense of marketing. The organization tends to view itself as making things rather than as satisfying customer needs. Marketing gets treated as a residual ac- tivity, “something else” that must be done once the vital job of product creation and produc- tion is completed. Engineers and scientists are at home in the world of concrete things like machines, test tubes, production lines, and even balance sheets. The abstractions to which they feel kindly are those that are testable or manipulat- able in the laboratory or, if not testable, then functional, such as Euclid’s axioms. In short, the managements of the new glamour-growth companies tend to favor business activities that lend themselves to careful study, experimenta- tion, and control—the hard, practical realities The latter occupy a stepchild status. They are recognized as exist- ing, as having to be taken care of, but not worth very much real thought or dedicated at- tention.
- Frequently executed Minimal causal ambiguity between action and outcome Moderate heterogeneity of tasks for executing the routines Executed only occasionally Minimal causal ambiguity between action and outcomes High heterogeneity of tasks for executing routines Executed continuously High causal ambiguity between actions and outcomes Low heterogeneity of tasks for executing routines