A Novel Categorization of Industrial Services - Analysis of Service Offerings of Manufacturing Companies

Abstract

IntroductionService infusion has profoundly changed the scope of business opportunities for modern industrial companies. Whether or not a company is in the service business is not the question, but rather, what is the share of services as opposed to products. An iconic example of servitization is the jet engine manufacturer Rolls Royce whose service sales exceed the sales of the original equipment, and the company has constantly developed new service solutions and business models. This evolution has been depicted by Levitt (1972), Berry and Parasuraman (1991), Vandermerwe and Rada (1988), Bitner et al. (1997), Baines et al. (2009), and Kuzca and Gebauer (2011), among others.There are financial, strategic and marketing benefits for the supplier side in extending the service portfolio. For customers, the growing trend of focusing on core competences increases demand for more and more comprehensive services. However, the transition from a products manufacturer to a full scale service partner is difficult for most suppliers and thus there are fewer success stories than could be predicted despite the anticipated benefits. This 'service paradox' has been discussed by Gebauer et al. (2005) and Neely (2008). The difficulties revolve around the required change in logic towards a more customer centric orientation and developing the particular processes and structures required by a service organization.The Servitization ChallengeThe central terminology in this research is related to servitization literature. Servitization refers to the shift in industrial markets for manufacturers to offer more and more services as a part of their core offering (Vandermerwe & Rada, 1988). Services according to a narrow view are intangible assets that are performed instead of produced as a contrast to tangible and produced products (Baines et al., 2009). From a wider perspective services include also bundles or product-service systems that consist of both tangible and intangible components. Solutions are bundles that create value to customers and are more than sums of their parts (Cova and Salle, 2008; Guiltinan, 1987).The servitization transition process and management challenges have been discussed by Oliva and Kallenberg (2003), Gebauer et al. (2005) and Kindstrom and Kowalkowski (2009). Required new managerial activities are clearly linked with a servitizing company's ability to develop new services, service offering design and a new service-oriented business model (Gebauer et al., 2005, 2009; Baines et al., 2009; Kindstrom, 2010). A major managerial challenge for a manufacturing company is to implement a systematic process and structures for services development. As services initially have been developed and sold ad hoc for different customers, a more comprehensive or strategic service portfolio management has straggled. The extension of the service portfolio should focus on the more intangible services, and bundles of services, with more consideration on customer relationship and customer processes, which makes service development process even more complex compared with the directly product related development of spare parts or maintenance services.One of the problems relating to servitization strategy implementation is that service categorizations remain often too theoretical for the use by companies, and many companies have no clear picture of their service offering (Baines et al., 2009). Most companies have a fragmented service division due to historical reasons of adding the services to product categories. Many services also have evolved from very simple add-on services to complex contracts but are still managed in the same way. Due to this evolutionary service development most industries also lack standardized terminology that makes comparing offerings between companies much more difficult. Kindstrom and Kowalkowski (2009) argue that many manufacturing companies have a number a services in their portfolios, but they are unstructured and often supplied free of charge to increase product sales. …