Exploring the financial consequences of the servitization of manufacturing

Commentators suggest that to survive in developed economies manufacturing firms have to move up the value chain, innovating and creating ever more sophisticated products and services, so they do not have to compete on the basis of cost. While this strategy is proving increasingly popular with policy makers and academics there is limited empirical evidence to explore the extent to which it is being adopted in practice. And if so, what the impact of this servitization of manufacturing might be. This paper seeks to fill a gap in the literature by presenting empirical evidence on the range and extent of servitization. Data are drawn from the OSIRIS database on 10,028 firms incorporated in 25 different countries. The paper presents an analysis of these data which suggests that: [i] manufacturing firms in developed economies are adopting a range of servitization strategies-12 separate approaches to servitization are identified; [ii] these 12 categories can be used to extend the traditional three options for servitization-product oriented Product-Service Systems, use oriented Product-Service Systems and result oriented Product-Service Systems, by adding two new categories "integration oriented Product-Service Systems" and "service oriented Product-Service Systems"; [iii] while the manufacturing firms that have servitized are larger than traditional manufacturing firms in terms of sales revenues, at the aggregate level they also generate lower profits as a % of sales; [iv] these findings are moderated by firm size (measured in terms of numbers of employees). In smaller firms servitization appears to pay off while in larger firms it proves more problematic; and [v] there are some hidden risks associated with servitization-the sample contains a greater proportion of bankrupt servitized firms than would be expected. © Springer Science + Business Media, LLC 2009.

Conceptual transformation framework for servitization

This paper presents a Conceptual Transformation Framework for Servitization. The challenges experienced by manufacturers on their journey to servitization are investigated in order to develop our understanding of the transformation that traditional manufacturers undergo to become servitized manufacturers. Three change theories are applied to develop the Framework: Lewin's force field analysis, Senge's system thinking and Pettigrew and Whipp's framework of strategic change. The Framework includes the dimensions of the change that takes place and the elements of change when transforming towards Product-Service Systems.

(Non) - Demand driven servitization: strategic implications for suppliers from incorporating their customers up front

Double Degree. A Work Project, presented as part of the requirements for the Award of a Master’s Degree in Management from NOVA – School of Business and Economics and a Masters Degree in International Business, Strategy and Innovation from Maastricht University

Servitization

Servitization is a transformation process in which a manufacturer changes from selling products to selling integrated packages of products and services that are tailored to the specific needs of customers. This concept is particularly important in the context of the service economy, as services play an increasing role in providing value to customers. That is, manufacturers can be more competitive and sustainable by adding a service component to their products, while customers can have their satisfaction levels increased. This entry reviews the concept of servitization, examines its benefits, discusses its implementation challenges, and ends with a presentation of two classic application examples.

Towards an operations strategy for product-centric servitization

Purpose – This paper aims to present a framework that will help manufacturing firms to configure their internal production and support operations to enable effective and efficient delivery of products and their closely associated services. Design/methodology/approach – First, the key definitions and literature sources directly associated with servitization of manufacturing are established. Then, a theoretical framework that categorises the key characteristics of a manufacturer's operations strategy is developed and this is populated using both evidence from the extant literature and empirical data. Findings – The framework captures a set of operations principles, structures and processes that can guide a manufacturer in the delivery of product-centric servitized offering. These are illustrated and contrasted against operations that deliver purely product (production operations) and those which deliver purely services (services operations). Research limitations/implications – The work is based on a review of the literature supported by data collected from an exploratory case study. Whilst it provides an essential platform, further research will be needed to validate the framework. Originality/value – The principal contribution of this paper is a framework that captures the key characteristics of operations for product-centric servitized manufacture.

Servitization within manufacturing:exploring the provision of advanced services and their impact on vertical integration

Purpose – The debate about services-led competitive strategies continues to grow, with much interest emerging around the differing practices between production and servitized operations. The purpose of this paper is to contribute to this discussion by investigating the vertical integration practice (in particular the micro-vertical integration, otherwise known as the supply chain position) of manufacturers who are successful in their adoption of servitization. Design/methodology/approach – To achieve this the authors have investigated a cross-section of four companies which are successfully delivering advanced services coupled to their products. Findings – Manufacturers who have embraced the servitization trend tend to retain capabilities in design and production, and do so because this benefits their speed, effectiveness and costs of supporting assets on advanced services contracts. Research limitations/implications – These are preliminary findings from a longer term research programme. Practical implications – Through this research note the authors seek to simultaneously contribute to the debate in the research community and offer guidance to practitioners exploring the consequences of servitization. Originality/value – Successful servitization demands that manufacturers adopt new and alternative practices and technologies to those traditionally associated with production operations. A prevailing challenge is to understand these differences and their underpinning rationale. Therefore, in this research note, the authors report on the practices of four case companies, explore the rationale underpinning these, and propose an hypothesis for the impact on vertical integration of successful servitization.

The move to servitization (from a product service system point of view)

Product Service Systems (PSSs) emphasize the substitution of products with services. The term “Servitisation” was introduced by Sandra Vendermerwe in the 80s to represent the addition of services to increase a company’s competitive edge. Key to PSS, and Servitisation more generally, is the “informated product”. The informated product enables health monitoring of the product in use and can be key to a workable PSS. This paper reviews the evolution of servitisation and the associated business benefit. It also then reviews the concept of informated product reconfiguration techniques and remote services that enables PSS to be delivered.

Servitization of manufacturing

The servicisation agenda is arguably one of the most important facing western manufacturers. In a world of severe international competition, it can be the basis of distinct competitive advantage, and a means to differentiate a company's products from goods produced in low cost economies. The concept of Product Service Systems (PSS) is, in particular, a special case of servicisation. With PSS, the market proposition is designed as a system that exploits synergies between products and services while, at the same time, seeks to reduce the economic and environmental costs of delivery. Although key to sustaining western manufacturing operations, major issues arise with design and management of engineering, manufacturing and supply chain activities for successful implementation of such a service-led competitive strategy. This session includes presentations which examine the opportunities and challenges associated with servicisation in more detail.

Servitization within manufacturing operations:an exploration of the impact to facilities practices

Servitization is a growing area of interest amongst practitioners, policymakers, and academics, and much is still to be learnt about its adoption in practice. This paper makes a contribution to this debate by identifying the key facilities practices that successful servitizing manufacturers appear to be deploying, and the underlying rationale behind their configuration. Although these are preliminary findings from a longer-term research programme, this short communication seeks to highlight the implications for manufacturing professionals and organizations who are considering the servitization of their operations.

The adoption of servitization strategies by UK-based manufacturers

Almost all manufacturers offer services, but some use these as the basis for their competitive strategy. This is a growing area of interest among practitioners, policy makers, and academics, yet little is known about the adoption of servitization by UK manufacturers. In this paper a survey is presented that has been used to explore the extent, motivations, challenges, and successes of servitization within the business-to-business sector. The findings indicate, for example, that many manufacturers are succeeding with their service strategies, that they are attracted to these as a source of customer focus and revenue growth, and that such strategies require less organizational change than might be expected. Although the findings from the survey should be treated as preliminary, and further work is needed to confirm their reliability and insight, they indicate that servitization is proving to be a powerful competitive weapon for many companies.

The servitization of manufacturing:a review of literature and reflection on future challenges

Purpose – The purpose of this paper is to report the state-of-the-art of servitization by presenting a clinical review of literature currently available on the topic. The paper aims to define the servitization concept, report on its origin, features and drivers and give examples of its adoption along with future research challenges. Design/methodology/approach – In determining the scope of this study, the focus is on articles that are central and relevant to servitization within a wider manufacturing context. The methodology consists of identifying relevant publication databases, searching these using a wide range of key words and phrases associated with servitization, and then fully reviewing each article in turn. The key findings and their implications for research are all described. Findings – Servitization is the innovation of an organisation's capabilities and processes to shift from selling products to selling integrated products and services that deliver value in use. There are a diverse range of servitization examples in the literature. These tend to emphasize the potential to maintain revenue streams and improve profitability. Practical implications – Servitization does not represent a panacea for manufactures. However, it is a concept of significant potential value, providing routes for companies to move up the value chain and exploit higher value business activities. There is little work to date that can be used to help practitioners. Originality/value – This paper provides a useful review of servitization and a platform on which to base more in-depth research into the broader topic of service-led competitive strategy by drawing on the work from other related research communities.