Steering Manufacturing Organizations Towards Open Service Innovation: The Role of the Integrated Performance Measurement System

Abstract

In the face of global competition and product commoditization, manufacturing firms are increasingly opening up to opportunities in the service markets. Despite the growing interest, many new product-service providers struggle to deploy open service innovation effectively, not least because they fail to change their performance management systems (PMS) to reflect the presence of service activities. This paper reports the results of an in-depth case-study research, which examines how manufacturers can steer their transition towards open service innovation using PMS. We suggest two performance measures: 'service coverage', which represents the proportion of customers who engage in service relationships; and 'service realization', which tracks the range of services designed to satisfy a customer’s needs. Not only are these two indicators complementary to traditional product business performance measures, such as market share, but the trade-off between them signals the transition that a product-service provider gradually makes from being oriented towards products and standardization to becoming focused on services and customers. Finally, the two service measures are supplemented with a 'complementarity index’, which tracks the relationship between service and product business performance, focusing in particular on whether the relationship is reinforcing or substitutive. Combined, these three indicators allow firms to steer their service activities in an integrated and sustainable manner that creates value for the product-service provider as well as the customer.