1. Servitization in manufacturing companies: setting-upa research agendaHeiko GebauerAssociate ProfessorDepartment Innovation Research in Utility Sectors - Eawag: Swiss FederalInstitute of Aquatic Science and TechnologyUniversity of St.Gallen (Switzerland)Karlstad University (Sweden)

2. Servitization in manufacturing companiesTheoretical perspectives Practical illustration Transition from productmanufacturers to servicesproviders Moving downstream towardsservices Servitization in the manufacturingsector Service business development Capital equipment manufacturesmoving towards high-valuesolutions Product-service-systems Logistic support andtechnical advice Construction and design ofcomponents Design of small volume cars Outsourcing services formanufacturing small volume carsSelected sources: Wise and Baumgartner, 1998; Davies (2004), Vandermerwe and Rada, 1988, Oliva and Kallenberg (2003), Mathyssens andVandendempt (1998 and 2008), Neely (2008), Brown, Gustafsson, Witell, 2009 3. Service business extensionInvestments into the service businessService paradoxAd-hoc servicesupportDominated byproductsValuecontributionMaintenance contractsPerformance-basedBusiness consultingIntegration servicesDominated byservices 4. Servitization receives an increasingresearch attentionCummulative number of citations (extractedfrom scopus september 2011)Vandermerwe & Rada, 1998Matthyssens &Vandendempt, 1998Mathieu, 2001Oliva & Kallenberg, 2003Davies, 2004Tukker, 2004Neu & Brown, 2005Gebauer et al., 2005Brax, 2005 5. Arguments for extending the service businessMarketing benefits Augmenting the product offering Intensity of customer relationship Lock-in effect for customers Long-term customer relationship (strategic partnerships)Strategic benefits Differentiation opportunities Comparison of offerings is more complex Collaborative innovation between customer and supplier Services as entry barrier for competitors Service competencies more difficult to imitateFinancial benefits Higher margins (product: -1% to 3%; services: 5% to 20%) Stable source of revenue High installed base Size of the service market (service market 2 to 10x bigger than product market) 6. Example IBMs move from productsto services (1)Major milestonesIn 2001, Global Services (40.7%), Hardware (38.9%),Software (15.1%), Global financing (4.0%), EnterpriseInvestments/Other Management commitment Management and financial system Recruiting new and intensive trainingof existing employees Incentive system for services Formulation & implementation of aservice strategy Creation of IBM Global Services asstrategic Business Unit Continuous service innovationen(Network, data storage, e-Business)Revenuesin billion US dollar 7. Example IBMs move from productsto services (2) 8. Example IBMs move from products toservices (3)Revenue structure in 2010 9. Contributions to servitization inmanufacturing companiesUnit of analysisManufacturing companies extendingthe service business4) Service strategies4) Service strategies1) Models for movingtowards services1) Models for movingtowards services2) Capabilities formanaging the servicebusiness2) Capabilities formanaging the servicebusiness3) Service offerings3) Service offeringsProduct-relatedservicesCustomer supportservices1)Oliva & Kallenberg, 2003;Cohen et al., 2006; Gebauer etal., 2005; Reinartz & Ulaga,2008; Auguste et al., 20044Raddats and Easingwood, 2010;Davies, 2004; Windahl andLakemond, 2010; Sawhney et al.,2004; Wise & Baumgartner, 19992Neu & Brown, 2004 and2008; Baines et al.,2007, Davies et al.,2007 etc.)3Mathieu, 2001b; Windahl& Lakemond, 2010;Oliva & Kallenberg,2003) 10. Summary of existing contributions and futureresearch agendaMotivation for extending the service business Marketing, strategic, and financial benefitsIncreasing research attention to servitizitationResearch contributions Models for moving towards services Service strategies Capabilities for managing the service business Service offeringsBroaden-up the empirical field Suppliers Project-based firms IT-firms Small and medium-sized enterprises Manufacturing to product-dominant firms1) Misconception in themotivation for extendingthe service business2) Research scope3) Theoretical approacheson service businessextension 11. 1) Misconceptions in the motivation forextending the service businessRevenue structure Gross marginsa) Services are not necessarily more profitable than products 12. a) Services are not necessarily more profitable than productsb) Share of service revenue as an indicator for the maturity of the service businessmight be misleadingc) Services can be a more stable source of revenue, but revenue cycles differ fordifferent types of servicesd) Pay-per-use or performance-based service offering entail major strategic risks andcan initiate a ruinous cost competitione) Clarification on achieving (sustainable) competitive advantages1) Misconceptions in the motivation forextending the service business 13. Summary of existing contributions and futureresearch agendaMotivation for extending the service business Marketing, strategic, and financial benefitsIncreasing research attention to servitizitationResearch contributions Models for moving towards services Service strategies Capabilities for managing the service business Service offeringsBroaden-up the empirical field Suppliers Project-based firms IT-firms Small and medium-sized enterprises Manufacturing to product-dominant firms1) Misconception in themotivation for extendingthe service business2) Research scope3) Theoretical approacheson service businessextension 14. 2) Extending the research scopeSuppliers CustomersHighly operational (micro-perspective)Highly strategic (macro-perspective)CompanyResult of multidimensional scaling of the existing contributions (n=127)Work in progress 15. Suppliers CustomersHighly operationalHighly strategicCompanyMultidimensional ScalingCohen, M., Agrawal, N. andAgrawal, V. (2006), Winningin the aftermarket, HarvardBusiness Review 84 (5),129-38.Cohen, M., Agrawal, N. andAgrawal, V. (2006), Winningin the aftermarket, HarvardBusiness Review 84 (5),129-38.Windahl, C. and Lakemond, E. (2010).Integrated solutions from a service-centered perspective: Applicability andlimitations in the capital goodsindustry, Industrial MarketingManagement 39 (8): 1278-90.Windahl, C. and Lakemond, E. (2010).Integrated solutions from a service-centered perspective: Applicability andlimitations in the capital goodsindustry, Industrial MarketingManagement 39 (8): 1278-90.Tuli, K.R., Kohli, A.K. and Bharadwaj,S.G. (2007). Rethinking customersolutions: from product bundles torelational processes, Journal ofMarketing 71 (3): 1-17.Tuli, K.R., Kohli, A.K. and Bharadwaj,S.G. (2007). Rethinking customersolutions: from product bundles torelational processes, Journal ofMarketing 71 (3): 1-17.Kowalkowski C, et al, Service infusionas agile incrementalism in action, JBus Res (2011), doi:10.1016/j.jbusres.2010.12.014Kowalkowski C, et al, Service infusionas agile incrementalism in action, JBus Res (2011), doi:10.1016/j.jbusres.2010.12.014Davies, A., Brady, T. and Hobday,M. (2007). Organizing forsolutions: systems seller vs.systems integrator, IndustrialMarketing Management 36 (2):183193.Davies, A., Brady, T. and Hobday,M. (2007). Organizing forsolutions: systems seller vs.systems integrator, IndustrialMarketing Management 36 (2):183193.2) Extending the research scope 16. Suppliers CustomersCompanyMultidimensional Scaling2) Extending the research scopeHighly operational (micro-perspective)Highly strategic (macro-perspective) 17. 2) Extending the research scopeMilestones Merger & acquisitions Employers Reinsurance Corp. Decimus (computer leasing) Polaris (aircraft leasing) Genstar (container leasing) Gelco (portable building leasing) Penske Leasing (truck leasing) Financial Guaranty Insurance Co. Burton Group Financial Services Travelers Mortgage (mortgage services) Chase Manhattan Leasing Itel Containers (container leasing)a) Future research should consider the extension of the service business in thecontext of strategic decisions such as merger & acquisitionsIn million US dollarGeneral ElectricBartlett & Wozny (1999) 18. 2) Extending the research scopea) Future research should consider the extension of the service business in the contextof strategic decisions such as merger & acquisitionsb) Future research should consider the service provision from a network perspective(strategic and operational level) and international business strategiesc) Future research should gain insights into collaboration arrangements in supplier-buyer relationships, services as vertical integration or services considering industrydynamics 19. Summary of existing contributions and futureresearch agendaMotivation for extending the service business Marketing, strategic, and financial benefitsIncreasing research attention to servitizitationResearch contributions Models for moving towards services Service strategies Capabilities for managing the service business Service offeringsBroaden-up the empirical field Suppliers Project-based firms IT-firms Small and medium-sized enterprises Manufacturing to product-dominant firms1) Misconception in themotivation for extendingthe service business2) Research scope3) Theoretical approacheson service businessextension 20. Cumulative number of citations (extracted fromscopus September 2011)Oliva & Kallenberg, 2003Vandermerwe & Rada (1998)Matthyssens & Vandendempt (1998)Mathieu (2001)Tukker (2004)Davies (2004)Neu & Brown (2005)Brax (2005)Gebauer, Fleisch, & Friedl (2005)Vargo & Lusch (2004)Goods-dominant toservice-dominantlogica) Current research attention on embedding the transition from products toservices into the service-dominant logic should be considered more carefully3) Theoretical approaches on service businessextension 21. 3) Theoretical approaches on service businessextensiona) Current research attention on embedded the transition from products to services intothe service-dominant logic should be considered more carefully. Side effects of theservice-dominant logic are purely understood.PerformanceTimeHighLowApplication of Christensens Innovators dilemma 22. 3) Alternative theoretical approaches onservice business extensiona) Current research attention on embedded the transition from products to services intothe service-dominant logic should be considered more carefully.b) Alternative theoretical perspective such as boundary of the firm, organizationalcapabilities, or resource-based view might be more appropriateFounding of VoithIndustrial servicesAcquisition of Hrmann (technical servicespecialists for the automotive industry)Acquisition of Premier Group(technical services for theautomotive industry)Acquisition of SIS Scandinavian industrialservices (technical services for Chemical& petro chemical industryAcquisition of the Ermo-Group (technical servicesfor the petro chemical industry and power plantsAcquisition of DIW (German Industrial Maintenance) (technicalservices for industrial equipment (partly and full)Acquisition of CeBe Network(engineering services)2001 2004 2007 2010Since October 2010 thebusiness of all acquiredcompanies continued under thename of Voith IndustrialServicesYearsCombiningService specialistProduct Services 23. Conclusions Various meaning of servitization in manufacturing companies, but commonsense is the extension of the service business Servitization does not only receives an increasing research attention, buthas also create significant contributions Besides the existing contribution, there exist strong future researchopportunities Future research should ...... overcome misconceptions in the motivation for extending the servicebusiness... extend the research scope... apply alternative theoretical approaches on service business extension 24. Thank you very much for your attentionIf you have any further questions, pleasecontact me:heiko.gebauer@eawag.ch 25. More information can be found in following book