Non-linear relationship between industrial service offering and sales growth: The moderating role of network capabilities

TL;DR: In this article, the impact of the industrial service offering on sales growth and the moderating role of network capabilities was analyzed. And the results indicated that the active development of a comprehensive service offering should be implemented in conjunction with the development of organizational capabilities such as network capabilities to create value and promote improved performance.

About: This article is published in Industrial Marketing Management.The article was published on 2013-11-01 and is currently open access. It has received 260 citations till now. The article focuses on the topics: Sales management & Service (business).

Summary

1. Introduction

• Industrial firms are striving both to complement their products with a set of value-added services and to re-position themselves as solution providers (Davies, Brady, & Hobday, 2007; Helander & Möller, 2008; Meier, Völker, & Funke, 2011; Vargo, Maglio, & Akaka, 2008).
• Studies have proposed that industrial services provide additional revenues throughout the product life cycle and increase product sales to ensure success (Gebauer & Fleisch, 2007; Oliva & Kallenberg, 2003).
• The existing research is mostly qualitative or normative (Jacob & Ulaga, 2008), providing modest and suggestive empirical 358 6324 8195. tamäki), V. Parida), ghts reserved.
• Overall, these conflicting accounts suggest that the relationship between industrial services and firm performance is far more complex than has been anticipated by previous empirical studies.
• In brief, this study responds to calls for research on the performance impact of industrial services (Fang et al., 2008; Gebauer et al., 2012) and the enabling effect of organizational capabilities.

2. Theory and hypotheses

• Below, the authors review the literature related to their main constructs before detailing their hypotheses development, suggesting that service offering may be positively associated with sales performance (albeit in a non-linear form).
• Consistent with previous studies (e.g., Homburg et al., 2003), the authors view an emphasis on the sales and marketing of industrial services as integral to the concept of a service offering.
• From the studies listed in Table 1, the authors can identify different classifications of industrial services.
• The existing research on industrial services has provided mixed results in terms of their performance effects.
• Therefore, building on this general definition of capabilities, the authors consider that network capabilities enable the use of strategic resources for improved value creation (Kohtamäki et al., 2013; Theoharakis et al., 2009).

2.3.1. The influence of the industrial service offering on sales growth

• Prior studies have suggested that providing industrial services offers more stable revenue than products because services generate revenue throughout the product life cycle and also in periods of economic recession when product sales may suffer (Gebauer, Edvardsson, & Bjurko, 2010; Gebauer, Edvardsson, Gustafsson, et al., 2010; Gebauer, Fischer, et al., 2010; Oliva & Kallenberg, 2003).
• Recent studies reveal that the relationship between industrial services and firm performance is far from simple, and it should be noted that the limited existing empirical research provides mixed evidence in terms of the service-firm performance link (Gebauer et al., 2012; Jacob & Ulaga, 2008; Neu & Brown, 2005).
• The authors believe that their literature review establishes that this view merits more attention.
• This implies a non-linear relationship between the service offering and sales performance is expected, as narrow or moderate range of add-on services are likely to be insufficient to generate a perception of highly valuable integrated solutions among the customer base.
• In such cases, a broader service offering can also support product differentiation, making the offered solutions more attractive to large customers likeminingfirms that require large operational plantfleets and value reduced risk of breakdowns and the associated downtime.

2.3.2. The moderating role of network capabilities

• Prior studies often consider service organizations as a ‘black box’ calling for research on structures and capabilities thatmoderate theperformance impact of industrial services (Gebauer, Edvardsson, and Bjurko, 2010; Gebauer, Edvardsson, Gustafsson, et al., 2010; Gebauer, Fischer, et al., 2010; Raddats & Burton, 2011).
• Finally, Raddats and Easingwood (2010) suggested the increasing importance of relational capabilities when the complexity of exchanges increases.
• From low to moderate levels of service offering, service exchanges are simple and can be managed without facilitation of network capabilities, but from moderate to high levels, where complexity of exchanges increases, network capabilities are needed.

3.1. Data collection, response pattern and respondents

• Detailed data are needed to analyze the influence of service offering on service sales performance and firm sales growth because no public database provides such knowledge.
• The authors sample consists of all machine and equipment manufacturing firms that are liable to pay the value-added tax and that employ 20 or more employees.
• Before sending the questionnaires, the authors contacted the targeted firms by phone to request their participation in this study.
• The authors received 122 firm responses, of which they excluded five questionnaires that were incomplete and two cases of outliers based on the interpretation of scree-plot images (Tabachnick & Fidell, 2007).
• The authors can conclude that the respondent firms and the industry as a whole are at an early stage of transformation toward a servicedominant business model because the average value for the service share of revenuewas approximately 16%.

3.2. Analysis method and measurements

• The constructs and items were adapted from prior studies and then translated and back-translated (English–Finnish–English) by another researcher to confirm translation equivalence (Brislin, 1970).
• The authors evaluated the validity of the construct using the content validity index (average I-CVI), with all dimensions topping the threshold of .8 (Davis, 1992; Polit et al., 2007).
• In the factor analysis, all of the items loaded above .40 onto their main factors without significant side loadings (b .40).
• As a result of the explorative factor analysis, the authors identified six dimensions, including maintenance services, R&D services, product-information-sharing services, finance and insurance services, performance services, and procurement services.
• The authors controlled for the effect of the product business on firm sales growth.

4. Results

• In the following paragraphs, the authors begin their analysis by presenting a correlation matrix of the constructs that are included in this study and then continue the analysis by presenting the regression models.
• Table 3 presents the correlations between the given constructs and control variables and demonstrates that the highest correlation between the independent variables is moderately low at .35.
• The fourth model adds the linear interaction, whereas the fifth model enters the non-linear interaction into the model and tests the moderating role of network capabilities on the non-linear effect of the service offering on sales growth.
• Instead, the interaction effect should be studied by plotting the effect and testing the significance of marginal effects, which demonstrate the true significance of interactions (Brambor et al., 2006).
• The effect of a high level of network capabilities becomes significant between the service offering levels 0.83 and 1.33 and remains significant until 4.33.

5.1. Theoretical contribution

• The existing industrial service business research presents relatively little evidence on the relationship between service offering policy and Table 4 The results of hierarchical regression analysesa.
• First, this study highlights the importance of service offering activity to firms' sales growth, demonstrating a non-linear relationship.
• We believe that this result is based on two underlying reasons.the authors.
• Second, from moderate to high levels of service offering, customer segments of higher expectations demand for integrated solutions requiring co-production of service and solutions offering and cocreation of customer's experience.

5.2. Managerial contribution

• For managers of industrial firms, these results highlight the importance of the industrial service offering when combined with network capabilities enabling value creation from the service offering.
• To avoid the ‘commoditization trap’, industrial servicefirmsmay consider adding services as part of their total offering.
• The development of industrial service capabilities begins with a service offering policy (Antioco,Moenaert, Lindgreen, et al., 2008) and continues with an emphasis on organizational and relational capabilities.
• This study highlighted the importance of a strong service offering that can be bundled with products, to create integrated solutions, to serve customers of highest expectations.
• Thisfinding alsomeans thatfirms should decide on and implement a clear service strategy to achieve the desired performance outcomes.

5.3. Limitations and suggestions for further research

• As with every study, the current research is not without its limitations.
• Nevertheless, further evidence from large multinational firms would be useful.
• The current study considers the service offering of a firm to be a reflection of its industrial service strategy.
• Organizational network research can still contribute a great deal to establishing the importance and effects of network capabilities in combination with other organizational capabilities, and how they align with solution, service, and customization strategies.
• The authors regularly discuss with their partners how they can support one another in their success Relational skills.

6. Conclusion

• The current study contributes to the literature by presenting evidence on the positive but non-linear effect of a firm's service offering on its sales performance and the positive moderating role of network capabilities.
• It appears that network capabilities enable the service offering to exert a positive non-linear effect on sales growth, suggesting an increased emphasis on the service offering and the necessary organizational capabilities to co-produce service and solution offering and to co-create customer's experience.
• The authors know their partners' strengths and weaknesses Internal communication.
• In their organization, employees develop informal contacts among themselves.
• In their organization, communication is common across projects and subject areas Sales growth Sales growth rate 2008–2011 (Objective measure) Control variables Number of patents Breadth of customer base (Number of customers) Product performance (Product share of revenue) Slack resources (Current ratio).

Figures

Fig. 1. The non-linear effect of service offering on sales growth (95% confidence intervals).

Fig. 2. The non-linear interaction of service offering and network capabilities on sales growth (95% confidence intervals).

Table 2 The construct of service offering.

Table 1 Dimensions of industrial services in prior studies.

Frequently asked questions

Q1. What have the authors contributed in "Non-linear relationship between industrial service offering and sales growth: the moderating role of network capabilities" ?

In this paper, the authors proposed that the relationship between the service offering and sales growth is positive but can be non-linear, which would imply that performance effects arising from an expanded industrial service offering may only pay off after a certain point. 

Q2. What future works have the authors mentioned in the paper "Non-linear relationship between industrial service offering and sales growth: the moderating role of network capabilities" ?

Future research could consider how to improve the measurement of an industrial service strategy. In addition, future industrial service studies should use both quantitative and qualitative methods to examine the organizational factors that affect the relationship between service strategy and performance. Thus, the authors would encourage further development of the network capabilities construct and its measurement. However, the authors believe that their measurement method is more finegrained than the methods used in prior studies because it measures the degree of activeness in offering services. 

Q3. What is the effect of network capabilities on sales growth?

It appears that network capabilities enable the service offering to exert a positive non-linear effect on sales growth, suggesting an increased emphasis on the service offering and the necessary organizational capabilities to co-produce service and solution offering and to co-create customer's experience. 

Q4. What are the dimensions of network capabilities?

According to Walter et al. (2006), network capabilities include four inter-related dimensions: coordination, relational skills, market knowledge and internal communication. 

Q5. Why is the current study more fine-grained than the methods used in prior studies?

the authors believe that their measurement method is more finegrained than the methods used in prior studies because it measures the degree of activeness in offering services. 

Q6. Why is the measurement method more fine-grained?

Their measurement method is more fine-grained because it measures the promotional emphasis on each service separately and considers the shared variance between service dimensions as a reflection of the existence of an industrial service strategy. 

Q7. What is the definition of a non-linear relationship between the service offering and sales performance?

This implies a non-linear relationship between the service offering and sales performance is expected, as narrow or moderate range of add-on services are likely to be insufficient to generate a perception of highly valuable integrated solutions among the customer base. 

Q8. What is the importance of network capabilities in a service exchange?

network capabilities are particularly important in effective adjustment of the supplier's offering to provide customer solutions without vast transaction costs (Helander & Möller, 2007). 

Q9. What should be the main focus of future industrial service studies?

In addition, future industrial service studies should use both quantitative and qualitative methods to examine the organizational factors that affect the relationship between service strategy and performance. 

Q10. What is the importance of relational skills in a manufacturing firm?

relational skills are of importance from moderate to high levels of service offering, where service and solution exchanges require relational skills.