Exploring the financial consequences of the servitization of manufacturing

Abstract

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 ProductService 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.

Service innovation in manufacturing firms: Evidence from Spain

“…Interestingly, we find that service innovation in manufacturers is also positively influenced by firm size. This evidence is in line with Neely (2008), who finds that larger firms, measured both in terms of numbers of employees and revenues, tend to servitise more than smaller firms.…”

“…Notwithstanding the augmentation of services provided along with the corresponding increases in revenue firms are still unable to translate the returns from the new activity into profits. In line with this, Neely (2008) identifies a paradox of servitisation with his finding that servitised firms in the US generate higher revenues but deliver lower profits than pure manufacturing firms.…”

Strengthening Knowledge Based Services in Argentina

“…post-sales services) (National Board of Trade, 2010). In both cases, firms servicify their goods to be more competitive, to offer differentiated products (Baines & Kay, 2009), stimulate consumer loyalty, increase benefits (Neely, 2008) (Suarez et al, 2013) (Visnjic et al, 2014), reduce vulnerability to economic fluctuations, get higher prices (Ariu, 2014) and improve market access (Lodefalk, 2015).…”

Alliance strategy: context, process, and requirements

“…Terminal values keep evolving as organizations push their strategic innovation agendas. We found organizations struggling with the organizational implications of new strategic concepts (e.g., 'servitization' (Neely, 2008)) and new strategic realities (e.g., budget reductions in the Navy). Conflicting intra-organizational values are an early sign of business discontinuity and upcoming change, having an effect on the alliance coherence.…”

“…how does an asset support operational customer functions such as ´power´ for transporting). These notions have surfaced in the literature on procurement and industrial marketing (Bacharach et al, 1996;Grönroos, 2011a;Neely, 2008). Value for customers takes center stage rather than an offering by itself (Chandler and Vargo, 2011).…”