Exploring the experience of a large industrial manufacturer that has successfully moved into services.
It builds on the presentation on servitization, a diversification strategy of manufacturers in services, made by Professor Andy Neely on 22 October (also available in the interview series). While Professor Neely discussed the performance effects of servitization on the large sample of manufacturing firms, this seminar explores the experience of a large European equipment manufacturer that has successfully moved into services.
Contrary to the expected economic and strategic benefits of servitization, some of the more recent case studies indicate that firms face serious problems in implementation. Presuming that this lack of clarity on the benefits of servitization is caused by separate conceptual treatment of external/marketing and organizational/operational dimensions of the strategy, we propose an integrated framework to evaluate the overall impact of servitization on the performance. Quantitative assessment of this framework based on internal, subsidiary-level data of firm under study shows that servitization has a positive impact on both, growth and profitability.
After in-depth case studies are conducted in order to reveal managerial practices that underpin subsidiary performance, it becomes clear that the balance of incentives and thus, the organizational design of product and service activities are the precursors of the successful implementation. “Partnership of equals” emerges to be the best organizational arrangement for products and services- subsidiaries that give more focus and organizational autonomy to services, while maintaining the close relationship with products, seem to be more successful. As the previous research seems to suggest, the consequences of misunderstanding or failing to “strike the balance”- either by prioritizing products or isolating product and service strategies- can be far reaching. Good managerial practices, as well as potential pitfalls will be discussed.