Service customization in turbulent environments: Service business models and knowledge integration to create capability-based switching costs

Abstract

Prior studies considered external conditions that trigger the adoption of servitization in product firms, but little is known on the decision to provide standardized vs. customized services. We analyze this tradeoff when companies face market and technological turbulence. We follow the capability-based switching costs theory, which considers the cost resulting from customer efforts to create new capabilities related to the solution offered by product firms. We propose that customized services help create these switching costs in turbulent environments. We also consider the mediating role of service-centric business models and the moderating role of cross-functional knowledge integration in these relationships. We combined data from a survey of 104 firms and secondary industry-level data on turbulence and analyzed it with regression techniques. Results show that, in turbulent environments, companies increase service customization instead of standardization and enhance service-centric business models, which benefits customer loyalty (a measure of capability-based switching costs). Companies focused on knowledge integration were less sensitive to technological turbulence and could better develop service activities for customization. We extend the service theory connecting it to the capability-based switching cost view and explain service provision mechanisms in turbulent environments. Managers can learn what to consider to implement a servitized business model in turbulent environments.