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Journal ArticleDOI

Servitization as a driver for organizational change

TL;DR: In this article, the authors provide useful methodological insights into implementation of new service business models and the effect of servitization is industry specific and hence insights from a wide range of industries are included.
Abstract: Servitization is the move towards selling traditional product to selling a wide range of product-service bundle combinations. This movement contributes to firm sustainability and profitability and hence the competitiveness of nations. Key points: 1. Servitization directly effects firm performance and territorial competitiveness. The special issue includes articles at both levels of analysis. 2. The effect of servitization is industry specific and hence insights from a wide range of industries are included here; among them engine production, construction, the music industry and cloud computing 3. The reduction of cost and the maximization of revenues are the main drivers of servitization. Contributions provide useful methodological insights into implementation of new service business models.

Summary (2 min read)

Introduction

  • Traditional business models used by manufacturers that exclusively focus on exploiting economies of scale are frequently proving unsuitable for growth, profitability, and firm survival.
  • The addition of service offerings to the portfolio of traditionally product-oriented companies is of growing importance and this special issue publishes work which addresses this observed industry phenomenon dubbed ‘servitization’ (Vandermerthe authors and Rada, 1988; Neely, 2008).
  • Next section will review the state-of-the-art of servitization literature and further sections will summarize the academic contributions published in this issue.
  • Different terms have been employed to define the concept in the management literature.
  • In the following sections the authors give more detail of each paper and their relation to theory.

Industry level

  • The first paper by Redding presents a strategy development method which leads to greater understanding of an organisations competitive space and facilitates alignment of service offerings, structure, level of technical monitoring support, and the products position in the value chain - the main link to value creation (Holweg and Helo, 2014).
  • The method allows detailed assessment and understanding of the customer need, internal and external organisational requirements, technologies to support intelligent products and service strategies and aligned service delivery systems.
  • The long time period illustrates the impact of servitization on the industry, driven by disruptive innovations (Tidd and Bessant, 2005) which have replaced physical format music with digital music product service systems (Parry et al., 2012).
  • Consistent with previous literature on the topic (Vendrell-Herrero et al., 2014) analysis confirms there is a link between the fall in industry revenues and firm profits and shows that decrease in profits were greater for local firms than multinationals.
  • Galera-Zarco et al. contribute with an analysis of servitization in the construction sector with an examination of Project Based Firms (PBFs), an organizational challenge in business model design and business structure in itself (Davies and Brady, 2006).

Cost and revenue efficiency

  • Thenent et al. provide a paper examining the challenge of costing service systems.
  • Thenent et al. point out that cost estimators methods traditionally focus upon predicting how much something costs using aggregate data and drawing on past experience.
  • The work discusses a costing methodology which is suitable for address the problem and context.
  • Action and practical implementation of service strategies may be undertaken based on claims made for potential cost savings or increased revenue through service.
  • Without addressing the concerns raised in the paper such actions may be imprudent.

Territorial competitiveness

  • Current literature is silent with regards analysis of how public policies could encourage the development of service-oriented strategies in companies to foster territorial competitiveness.
  • In fact, while there is burgeoning research on innovation policy and innovation policy mix (Flanagan et al., 2011), there is little explicit analysis of how innovation policy mixes might relate to servitization processes.
  • Kamp and Alcalde present an analysis of the Basque region of Spain and the readiness of firms there to servitize.
  • The analysis focuses on the value of knowledgeintensive services (KIS) as a proxy for the readiness for servitization of businesses.
  • The analysis highlights a number of issues and areas where investment and support for the region may help firms servitize to reach the stated goals of competing in national and international markets in the knowledge-intensive service area.

Digital technology

  • Sultan examines the Cloud Computing phenomenon, a disruptive innovation that has servitized the IT industry (Vendrell-Herrero and Lafuente, 2014).
  • Cloud computing as a disruptive innovation requires organisations and computing service providers undertake a fundamental and cultural shift in the way they view their IT use and requirement.
  • Enterprise Resource Planning (ERP) systems are core IT systems for firms which integrate manufacturing processes and functions with parts and orders in the supply chain (Cannon and Homburg, 2001).
  • The paper contributes to the literature by examining, through a single case context, bolt-on software extensions.
  • Findings indicate that firms engaging in a process of servitization may benefit from CRM and SRM bolt-ons and that these should be integrated into the ERP system to strengthen and facilitate customer and supplier integration.

Conclusions and future research

  • The present special issue contributes to a growing literature on service management, product service systems and servitization.
  • The theoretical developments and the qualitative and quantitative evidence provided offer valuable lessons for academics, managers and policy makers.
  • In particular this issue offers relevant and detailed developments on gap analysis , Cost analysis (Thenent et al.), and Enterprise resource planning (Opazo-Basaez et al.).
  • The inclusion of service offering may be forced upon a sector via disruptive innovation.
  • The papers published provide insights into servitization from different perspectives, highlighting areas where there is a need for further research.

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Servitization as a driver for organizational change
1
Ferran Vendrell-Herrero
Birmingham Business School, University of Birmingham, Birmingham, United Kingdom
Glenn Parry
Faculty of Business & Law, University of the West of England, Bristol, United Kingdom
Oscar F. Bustinza
Faculty of Economics and Business, University of Granada, Granada, Spain
Nicholas O’Regan
Faculty of Business & Law, University of the West of England, Bristol, United Kingdom
Correspondence to:
Dr Ferran Vendrell-Herrero
Birmingham Business School, University of Birmingham, Edgbaston, Birmingham, B15
2TT, United Kingdom
e-mail: f.vendrell-herrero@bham.ac.uk
One sentence summary:
Servitization is the move towards selling traditional product to selling a wide range of
product-service bundle combinations. This movement contributes to firm sustainability and
profitability and hence the competitiveness of nations. This article summarizes the
contributions published in this special issue containing academic research on the topic.
Key points:
1. Servitization directly effects firm performance and territorial competitiveness. The
special issue includes articles at both levels of analysis.
2. The effect of servitization is industry specific and hence insights from a wide range of
industries are included here; among them engine production, construction, the music
industry and cloud computing
1
J.E.L. classification codes: D21 (Firm Behavior);M21 (Business economics)

3. The reduction of cost and the maximization of revenues are the main drivers of
servitization. Contributions provide useful methodological insights into implementation
of new service business models.
Introduction
Traditional business models used by manufacturers that exclusively focus on exploiting
economies of scale are frequently proving unsuitable for growth, profitability, and firm
survival. The addition of service offerings to the portfolio of traditionally product-oriented
companies is of growing importance and this special issue publishes work which addresses
this observed industry phenomenon dubbed servitization(Vandermerwe and Rada, 1988;
Neely, 2008). Servitization is formally described as the process of seeking additional value
through taking services propositions to market, and is an academic theme of increasing
interest and relevance (Barnett et al., 2013; Bustinza et al., 2013a). This special issue seeks to
advance the understanding on the transition undertaken by many firms, not just
manufacturers, towards more innovation-based and difficult-to-imitate business models
offering bundles of products and services.
The research articles summarized here aimed at both academic and practitioner
audiences. The articles were blind reviewed and most were presented at the Second
International Conference on Business Servitization, held in Granada, Spain
(www.servitization.org) which allowed both formal and informal discussion of specific
aspects of the developing research between authors and guest editors. Next section will
review the state-of-the-art of servitization literature and further sections will summarize the
academic contributions published in this issue.
Theoretical Background

Vandermerwe and Rada (1988) define servitization as “the increased offering of fuller market
packages or ‘bundles’ of customer focused combinations of goods, services, support, self-
service and knowledge in order to add value to core product offerings” (p. 314). The
servitization process has affected a wide range of activities from manufacturing (Neely,
2008), innovation activity (Eggert et al., 2011) and the creative industries sector (Bustinza et
al., 2013b; Parry et al., 2012). Different terms have been employed to define the concept in
the management literature. Servitization describes how companies consciously transform
their businesses into services to gain competitive ground (Vandermerwe and Rada, 1988).
Baines et al. (2007) identify five terms used to discuss the phenomenon: Servitization,
Product Service Systems, Service Marketing, Service Operations, and Service Science.
According to Wise and Baumgartner (1999), the drivers of servitization are
attractiveness of downstream business, importance of customer relationship and power of
distribution channel. These drivers use service elements to differentiate manufacturing
offerings and provide important competitive opportunities (Gebauer and Fleisch, 2007).
Competitive advantage achieved through services is potentially more sustainable since, being
less visible and more labour dependent, services are more difficult to imitate (Gebauer et al.,
2006) than other strategies focused on product innovation, technological superiority or low
prices, making it an important source of competitive advantage. Nevertheless, current
empirical research is silent on the organizational change that a firm may experience during
the implementation of servitization strategies and its subsequent financial costs and benefits
(Pettigrew et al., 2001).
When reading the submissions for the special issue the editors noted the different units
of analysis employed, with examples taken from individual firms, groups of firms, regions
the support services which facilitate business. This special issue examines the breadth of the
impact of servitization across different levels of analysis. The issue begins with industry level

papers and then challenges the meaning of costs and profit, frequently cited as a driver of
servitization. Then follows a paper providing an analysis of how ready a region is for
servitization, before the final papers explores IT systems and their role. In the following
sections we give more detail of each paper and their relation to theory.
Industry level
The first paper by Redding presents a strategy development method which leads to greater
understanding of an organisations competitive space and facilitates alignment of service
offerings, structure, level of technical monitoring support, and the products position in the
value chain - the main link to value creation (Holweg and Helo, 2014). A gap analysis
approach is employed to provide greater understanding of how the organisation competes
against stakeholder expectation. The method allows detailed assessment and understanding of
the customer need, internal and external organisational requirements, technologies to support
intelligent products and service strategies and aligned service delivery systems. The paper
includes the use of health monitoring in complex engineering systems (see more of this
literature on Benedettini et al. 2009 and Redding 2011). The process has been validated
through application by large multinational firms. The strategy outcomes allow sufficient
flexibility such that new service initiatives emerging during operations may be evaluated and
adopted.
The paper by Parry and Tasker provides three business-to-business case examples of
firms who have moved from provision of manufactured goods to providing service to support
their manufactured assets when they are operated by their customers in the field. They
categorise these offers as Complex Deployed Responsive Services (Parry et al., 2011). The
work provides a framework which acts as a lens for the analysis of the business models used
by the firms to provide their service offering (Baden-Fuller and Morgan, 2010; Teece, 2010).

The elements include the creation of the value proposition; how value is realised in use and
mechanisms of worth capture (Sabatier et al., 2010). The proposed framework helps the value
creators ensure that they can capture the worth from their offerings such that they are
rewarded for their efforts.
Myrthianos et al. examine the evolution of the music industry from 1990 to 2010. The
long time period illustrates the impact of servitization on the industry, driven by disruptive
innovations (Tidd and Bessant, 2005) which have replaced physical format music with digital
music product service systems (Parry et al., 2012). This form of servitization differs from
many illustrated in previous literature -see Baines et al. (2009) for a summary- as purchasers
rarely bought music in both digital and physical formats. The cannibalistic nature of the new
business models causes the industry incumbents to suffer significant declines in total revenue
(Parry et al., 2014). The analysis examines and compares the ability of local firms and multi-
nationals in adapting to the servitization phenomenon. Management literature often uses
revenues as a proxy for performance, whereas this paper uses firm profits as a more powerful
indicator of individual firm success. Consistent with previous literature on the topic
(Vendrell-Herrero et al., 2014) analysis confirms there is a link between the fall in industry
revenues and firm profits and shows that decrease in profits were greater for local firms than
multinationals. The finding contributes to the literature as it suggests that in some cases large
firms may be better equipped to adapt to technological and economic disruptions than smaller
firms, contradicting existing research on the topic see for example Hracs (2013).
Galera-Zarco et al. contribute with an analysis of servitization in the construction sector
with an examination of Project Based Firms (PBFs), an organizational challenge in business
model design and business structure in itself (Davies and Brady, 2006). Project-based firms
are typically temporary organizations established to achieve a specific objective rather than
continuous activities. The paper examines the case of the construction industry, specifically

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Cites background from "Servitization as a driver for organ..."

  • ...It seems, however, that there is limited reporting of in-depth longitudinal studies explaining the details of individual firms’ step-by- step service journeys (Vendrell-Herrero et al., 2014; Baines, Bigdeli, Bustinza, Shi, Baldwin and Ridgway, 2016)....

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  • ...Business transformations and organizational change Servitization is a form of business transformation that calls for organizational change (Vendrell-Herrero et al., 2014)....

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  • ...Table 1: Steps in the transition to services from literature Business transformations and organizational change Servitization is a form of business transformation that calls for organizational change (Vendrell-Herrero et al., 2014)....

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TL;DR: In this article, the authors explored the barriers to servitization within selected Swiss and German utility companies through a series of interviews with utility managers, focusing on the shift from tangible to intangible assets as a major input factor for the value proposition.

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References
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TL;DR: In this paper, the authors explore the significance of business models and explore their connections with business strategy, innovation management, and economic theory, and understand how the enterprise can organize to best meet customers' needs, get paid for doing so, and make a profit.

6,242 citations

Book
21 Dec 2020
TL;DR: The purpose of this study is to provide the knowledge to understand and the skills to manage innovation at the operational and strategic levels to improve the competitiveness of firms and effectiveness of other organizations.
Abstract: Now in its seventh edition, Managing Innovation: Integrating Technological, Market and Organizational Change enables graduate and undergraduate students to develop the unique skill set and the foundational knowledge required to successfully manage innovation, technology, and new product development. This bestselling text has been fully updated with new data, new methods, and new concepts while still retaining its holistic approach the subject. The text provides an integrated, evidence-based methodology to innovation management that is supported by the latest academic research and the authors’ extensive experience in real-world management practice. Students are provided with an impressive range of learning tools—including numerous case studies, illustrative examples, discussions questions, and key information boxes—to help them explore the innovation process and its relation to the markets, technology, and the organization. “Research Notes" examine the latest evidence and topics in the field, while "Views from the Front Line" offer insights from practicing innovation managers and connect the covered material to actual experiences and challenges. Throughout the text, students are encouraged to apply their knowledge and critical thinking skills to business model innovation, creativity, entrepreneurship, service innovation, and many more current and emerging approaches and practices.

4,450 citations


"Servitization as a driver for organ..." refers background in this paper

  • ...The long time period illustrates the impact of servitization on the industry, driven by disruptive innovations (Tidd and Bessant, 2005) which have replaced physical format music with digital music product service systems (Parry et al., 2012)....

    [...]

  • ...The long time period illustrates the impact of servitization on the industry, driven by disruptive innovations (Tidd and Bessant, 2005) which have replaced physical format music with digital music product service systems (Parry et al....

    [...]

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TL;DR: In this article, the authors assess the main motives driving corporations to servitization, and point out that its cumulative effects are changing the competitive dynamics in which managers will have to operate.

2,228 citations


"Servitization as a driver for organ..." refers background in this paper

  • ...Servitization describes how companies consciously transform their businesses into services to gain competitive ground (Vandermerwe and Rada, 1988)....

    [...]

  • ...companies is of growing importance and this special issue publishes work which addresses this observed industry phenomenon dubbed ‘servitization’ (Vandermerwe and Rada, 1988; Neely, 2008)....

    [...]

  • ...The addition of service offerings to the portfolio of traditionally product-oriented companies is of growing importance and this special issue publishes work which addresses this observed industry phenomenon dubbed ‘servitization’ (Vandermerwe and Rada, 1988; Neely, 2008)....

    [...]

Journal ArticleDOI
01 Oct 2007
TL;DR: A Product-Service System (PSS) as mentioned in this paper is an integrated combination of products and services that embraces a service-led competitive strategy, environmental sustainability, and the basis to differentiate from competitors who simply offer lower priced products.
Abstract: A Product-Service System (PSS) is an integrated combination of products and services. This Western concept embraces a service-led competitive strategy, environmental sustainability, and the basis to differentiate from competitors who simply offer lower priced products. This paper aims to report the state-of-the-art of PSS research by presenting a clinical review of literature currently available on this topic. The literature is classified and the major outcomes of each study are addressed and analysed. On this basis, this paper defines the PSS concept, reports on its origin and features, gives examples of applications along with potential benefits and barriers to adoption, summarizes available tools and methodologies, and identifies future research challenges.

1,820 citations


"Servitization as a driver for organ..." refers background in this paper

  • ...Baines et al. (2007) identify five terms used to discuss the phenomenon: Servitization, Product Service Systems, Service Marketing, Service Operations, and Service Science....

    [...]

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Abstract: This article presents several studies that examine organizational change. The authors note that certain issues should be addressed when examining the studies including an examination of the multiple contexts and levels of analysis in studying organizational change, the inclusion of time, history, process and action, the link between change processes and organizational performance, the investigation of international and cross-cultural comparisons, the study of receptivity, customization, sequencing, pace and episodic versus continuous change and the partnership between scholars and practitioners in studying change. The authors discuss how these issues are related to the concepts in the studies and note their research has not addressed these issues at this point in time.

1,528 citations


"Servitization as a driver for organ..." refers background in this paper

  • ...Nevertheless, current empirical research is silent on the organizational change that a firm may experience during the implementation of servitization strategies and its subsequent financial costs and benefits (Pettigrew et al., 2001)....

    [...]

Frequently Asked Questions (2)
Q1. What have the authors contributed in "Servitization as a driver for organizational change" ?

A special issue of the second International Conference on Business Servitization this paper provides a broad overview of the literature on service management, product service systems and servitization. 

The papers published provide insights into servitization from different perspectives, highlighting areas where there is a need for further research. In this regard future research may contribute to the development of firms and economies by providing greater understanding of the challenge of servitization and guidance as to how best to proceed in both developing business and research. As a firm ’ s product offering mature they are likely to seek further revenue through provision of services which draw upon their knowledge. The authors believe that the servitization phenomenon will be an area of significant interest for the upcoming years.