Service business development in manufacturing companies

Service Business Development in Manufacturing Companies

Heiko Gebauer

Associate Professor Department Innovation Research in Utility Sectors - Eawag: Swiss Federal Institute of Aquatic Science and Technology

University of St.Gallen (Switzerland)

Karlstad University (Sweden)

Research activities @Competence Center of Managing industrial services

• Vision: Assisting manufacturing companies in the service business development

• Time: 1996 to 2010

• Research approach: engaged scholarship, focus groups, benchmarking projects, and surveys

• Research partners: approximately 350 SMEs and MNEs in Switzerland, South of Germany and Northern Italy, international firms

• Industries: Manufacturing, utilities, consultancies, and others

• Topics: “Everything, but nothing twice”

University of St. Gallen

Institute of Technology Management(Operations Management)

Company examples

Agenda

1) Key challenges in the service business development

2) Future research fields (work in progress)

Theoretical perspectives

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

Service business development (1)

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


Product manufacturers

Manufacturing capabilities

Combinations of products and services

Integration capabilities

Service capabilities Manufacturing capabilitiesOperational

capabilities

Dynamic capabilities

Adapted from Teece et al. (1997), Teece, (2007) Stefano et al. (2010

Individual skills

Sensing Seizing Reconfiguring

Organizational routines (management innovations)

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 phenomenaAttention-based theory of the firm

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•Characteristics•Utilization process•Change agent

Management innovations facilitating

the seizing phase•Characteristics•Utilization process•Change agent

Management innovations facilitating the reconfiguring phase•Characteristics•Utilization process•Change agent

Source: Gebauer (2011)







capabilities




Individual skills


Exploitation or exploration: How toapproach the service business development?

Adapted from Sawhney, 2004

Reconfiguration

Extension

How do service opportunities

appear?)

Primary customer activities

Where do service opportunities appear?

Supplementary customer activities

SalesPre-Sales After-sales

Exploitation or exploration: How toapproach the service business development?

Adapted from Sawhney, 2004, Fischer, Gebauer, Guanjie, Gregory and Fleisch(2010)

Reconfiguration

Extension

How do service opportunities

appear?)

Primary customer activities

Where do service opportunities appear?

Supplementary customer activities

SalesPre-Sales After-sales

Exploration

•Radical improvement

•New value constellation

•Dynamic capabilities

Exploitation

•Incremental improvements

•Value-adding to existing value constellation

•Development of operational capabilities

Parameter Exploration

Example

Organisational adaptation

Radical

Antecedents Dynamic capabilities

Value constellationCreation of a new value

constellation

Value contributionShort-term, significant

increase in service revenue

Exploration of uncontested service marketsExample - Hilti

Exploration

Fischer, Gebauer, Ren, Gregory & Fleisch, 2010

Innovation and dynamic capabilities at Hilti

Fleet management in the car industry

Fleet management for tools

Turn key solutions in power plant industry

Turn key solutions for photovoltaic panels

Sensing, seizing, and reconfiguring

Source: hilti

Exploitation of existing service marketsExample – Bosch Packaging

Fischer, Gebauer, Ren, Gregory & Fleisch, 2010

Exploitation

Parameter Exploitation

Example

Organisational change

Incremental

Antecedents Operational capabilities

Value constellationImproving existing value

constellation

Value contributionLong-term, continuous

increase in service revenue (15 to 30% in 10 years)

Extension of the service business at Bosch Packaging

Products to services Revenue shares

Spare and wear parts, field services and modernizations

Service level agreements, extended warranty, and spare parts packages

Services for competitor products, operational and outsourcing services

Services

Revenue Market share for services

Customers

Third-party service providers

45%

30%

25%

Machines and systems

66%

34%

Hänggi, 2006

Service orientation in the operational capabilities¹A – 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 service strategies related to the exploitation approach (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)

Operational capabilities for service strategies related to the exploitation approach (2)

Service differentiation

Service revenue Service profitability

Based on Fischer, Gebauer, and Fleisch (2012)

Structural equation model on the role of service differentiation (1)

Complexity of customer needs

Customer centricity

Innovativeness

Business performance

H3 (+)


H4 (+)

H2 (+)H1 (+)

H5 (-) H6 (+)H7 (-) H8 (+)

Based on Gebauer, Gustafsson, and Witell (2011)

Structural equation model on the role of service differentiation (2)


Customer centricity

Innovativeness


H3 (+) ✔


H4 (+) ✔

H2 (+) ✔H1 (+) ✔

H5 (-) ✔ H6 (+)✔ H7 (-) ✔ H8 (+) ✔


Stuck in the middle between product and service orientation


Customer centricity

H3 (+)

H2 (+)H1 (+)

H5 (-) H6 (+)H7 (-)

H4 (+)

Innovativeness


H8 (+)



Impact of innovation on business performance


China as an important aspect of service orientation

• China today / future most important single market

• Contribution of services is very little

• Challenges

– Chinese culture (Guanxi, Mianzi, Renqin) hinders service orientation

– Customers consider services as „free“ and add-ons

– Insufficient quality in the basics for earned a living through services (spare parts logistics)

• Solutions:

– Adaptation of human resource management to cultural characteristics

– State-of-the art logistics solution (bonded / non-bonded warehouse) and logistic processes (temporary borrowing, post-custom clearance)

Gebauer, Kuzca & Wang, 2011; Kuzca and Gebauer, 2011

Service blueprint of an innovative logistic solutions for the Chinese market

Idea of the logistic solutionDetailed blue print

Existing solutions

• Exporting parts (Europe>China)

• Stocking parts in China

• New solutions

– State-of-the art logistics solution (bonded / non-bonded warehouse) and logistic processes (temporary borrowing, post-custom clearance)

– Adaptation of human resource management to cultural characteristics

First summary• Key challenges

• Cognitive phenomena limiting individual skills• Management innovation drives service business development• Balancing exploration and exploitation approaches• Strategies for moving along with the exploitation approach• Service differentiation as an integral part of customer centricity and innovativeness• Innovative solutions for Asian markets

• Future research opportunities (work in progress)







capabilities




Individual skills


MDS of the co-citation analysis

Suppliers Customers

Highly operational (micro-perspective)

Highly strategic (macro-perspective)

Company

Result of multidimensional scaling of the existing contributions (n=127)

Work in progress

Suppliers Customers

Highly operational

Highly strategic

Company

Multidimensional Scaling

Cohen, M., Agrawal, N. and Agrawal, V. (2006), ‘Winning in the aftermarket’, Harvard

Business Review 84 (5), 129-38.

Cohen, M., Agrawal, N. and Agrawal, V. (2006), ‘Winning in the aftermarket’, Harvard

Business Review 84 (5), 129-38.

Windahl, C. and Lakemond, E. (2010). ‘Integrated solutions from a service-

centered perspective: Applicability and limitations in the capital goods industry’, Industrial Marketing Management 39 (8): 1278-90.

Windahl, C. and Lakemond, E. (2010). ‘Integrated solutions from a service-

centered perspective: Applicability and limitations in the capital goods industry’, Industrial Marketing Management 39 (8): 1278-90.

Tuli, K.R., Kohli, A.K. and Bharadwaj, S.G. (2007). ‘Rethinking customer solutions: from product bundles to relational processes’, Journal of

Marketing 71 (3): 1-17.

Tuli, K.R., Kohli, A.K. and Bharadwaj, S.G. (2007). ‘Rethinking customer solutions: from product bundles to relational processes’, Journal of

Marketing 71 (3): 1-17.

Kowalkowski C, et al, Service infusion as agile incrementalism in action, J

Bus Res (2011), doi:10.1016/j. jbusres.2010.12.014

Kowalkowski C, et al, Service infusion as agile incrementalism in action, J

Bus Res (2011), doi:10.1016/j. jbusres.2010.12.014

Davies, A., Brady, T. and Hobday, M. (2007). ‘Organizing for

solutions: systems seller vs. systems integrator’, Industrial

Marketing Management 36 (2): 183−193.

Davies, A., Brady, T. and Hobday, M. (2007). ‘Organizing for

solutions: systems seller vs. systems integrator’, Industrial

Marketing Management 36 (2): 183−193.

Examples

Results of the co-citation analysis

Future empirical fields

a) Strategic decisions such as merger & acquisitions

b) Unit of analysis could be network perspective and

international business structures

Theoretical considerations

c) Christensen‘s Innovators dilemma, boundary of the firm,

and industry dynamic

a) Example for merger & acquisitions

Milestones 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)

In million US dollar

General Electric

Bartlett & Wozny (1999)

c) Examples for alternative theoretical approaches (1)

Performance

Time

High

Low

Christensen‘s Innovators dilemma

3) Examples for alternative theoretical approaches (2)

Founding of Voith Industrial services

Acquisition of Hörmann (technical service specialists for the automotive industry)

Acquisition of Premier Group (technical services for the

automotive industry)

Acquisition of SIS Scandinavian industrial services (technical services for Chemical &

petro chemical industry

Acquisition of the Ermo-Group (technical services for the petro chemical industry and power plants

Acquisition of DIW (German Industrial Maintenance) (technical services for industrial equipment (partly and full)

Acquisition of CeBe Network (engineering services)

2001 2004 2007 2010

Since October 2010 the business of all acquired companies

continued under the name of Voith Industrial Services

Years

Combining

Service specialist

ProductServices

Boundary of the firm

Second summary• Key challenges

• Cognitive phenomena limiting individual skills

• Management innovation drives service business development

• Balancing exploration and exploitation approaches

• Strategies for moving along with the exploitation approach

• Service differentiation as an integral part of customer centricity and innovativeness

• Innovative solutions for Asian markets

• Future research opportunities

• New empirical fields are about M&E activities

• Theoretical perspectives should be extended

Thank you very much for your attention

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