Servitization: Disentangling the Impact of Service Business Model Innovation on Manufacturing Firm Performance

Abstract

As manufacturing businesses operate in an ever more competitive, global economy where products are easily commoditized, innovating by adding services to the core product offering has become a popular strategy. Contrary to the economic benefits expected, recent findings pinpoint implementation hurdles that lead to a potential performance decline, the so-called 'servitization paradox'. In this paper, we analyze this paradox by disentangling the value creation and value appropriation processes of 44 national subsidiaries of a global manufacturing firm turned product-service provider, in the 2001-07 period. Our findings show that the firm under study is able to successfully transcend the inherent substitution of products by services and to enact complementary sales dynamics between the two activities. Moreover, labor-intensive services such as maintenance, which imply higher levels of customer proximity, further enhance product sales. Empirical results also reveal a positive yet non-linear relationship between the scale of service activities and profitability: while initial levels of servicing result in a steep increase in profitability, a period of relative decline is observed before the positive relationship between the scale of services and profitability re-emerges. These findings suggest the presence of initial short-term gains but also indicate the existence of a 'profitability' hurdle; profitable growth seems feasible only to the extent that investments in service capability are translated into economies of scale. In helping to clarify the performance implications of service innovation, our findings suggest pathways to sustainable growth through servitization for manufacturing firms.

Servitization for territorial competitiveness: taxonomy and research agenda

“…The study also concludes that, regardless of the reason underpinning the managerial decision to servitize, there is a positive and significant relation between the implementation of services and firm performance. This result contributes to the current empirical debates on this topicin line with Neely (2008) and Visnjic and van Looy (2013), while challenging Benedettini et al (2015) or Kowalkowski et al (2015) -and is used to justify arguments for public policy that can support the implementation of service strategies among manufacturing firms as means of boosting competitiveness.…”

“…Organizational processes Baines and Lighfoot (2013), Cusumano et al (2015), Vandermerwe and Rada (1988) QUADRANT II Firm Performance Benedetti et al, (2015), Neely (2008), Visnjic and Van Looy (2013) QUADRANT III Digitization Parry et al, (2012), Heppelmann (2014, 2015), Suarez et al (2013), Schroeder and Kotlarsky, 2015) QUADRANT IV…”

“…It is widely posited that competitive advantages achieved through service-based strategies are more sustainable, as being less visible and more labour-dependent, services are more difficult to imitate than other strategies focused on product innovation, technological superiority or low prices. While much of the empirical literature finds a positive link to competitive advantage and firm performance (Neely, 2008;Visnjic and van Looy, 2013), recent research has also emphasized that service implementation can increase risks and lower flexibility (Benedettini et al, 2015), which, in some cases, can provide motivation for de-servitization (Kowalkowski et al, 2015).…”

Territorial servitization: Exploring the virtuous circle connecting knowledge-intensive services and new manufacturing businesses

“…The scholarly debate on servitization has focused on the driving forces of adopting servitization strategies (Vandermerwe & Rada, 1989;Wise & Baumgartner, 1999;Matthyssens & Vandenbempt, 2008;Lee et al, 2016), on the implementation process of servitization (Oliva & Kallenberg, 2003;Cook et al, 2006;Parry et al, 2012), and on the organizational benefits resulting from the adoption of servitization strategies (Neely, 2008;Visnjic & Van Looy, 2013).…”

“…Also, servitization can be seen as a mechanism to develop innovation capabilities and enhance customer engagement by realizing a shift from products to product-service systems (Visnjic & Van Looy, 2013;Lee et al, 2016;.…”