Servitization in contract manufacturing – evidence from Polar business cases

Abstract

Purpose

This paper aims to contribute to the scholarly debate on the origins and nature of industrial servitization. By resorting to contract manufacturing (CM) as an empirical case, it is posited that any product-service solution that a manufacturing firm is capable of delivering on a competitive basis mirrors its goals in value creation and capture, positioning within its value networks and the pool of assets and competences it holds.

Design/methodology/approach

To support this argument, a comparative case study of two CM firms that represent polar cases in the industry was conducted. The primary data were collected through participatory methodology, observations and semi-structured interviews of company representatives. The business experiences of an industry practitioner provided a distinct contribution to the content analysis and modelling.

Findings

It was concluded that servitization becomes endogenous as contract manufacturers aim for higher profitability through the insource of customer activities and hence extend their offering downstream in the supply chain. The findings suggest that the way out of the servitization trap is a shift toward original design and manufacturing business, where high value-adding modules are insourced and integrated into replicable solutions for various types of customers and market segments.

Research limitations/implications

The generalization of the conclusion is constrained by the limited focus on two cases only. More industry and company data are therefore required to further validate this argument. Particularly valuable will be the data on the intermediate business models between the two polar cases.

Originality/value

Building on contested business practices, this paper outlines the logic of competitive strategy in CM on the basis of specific characteristics and implications of the various business concepts. In this case, the principal drivers of servitization are the acquisition of supporting capabilities and insourcing of customer activities. The case study method integrates theory with academic observation and managerial experiences.

Citation

Viitamo, E., Luoto, S. and Seppälä, T. (2016), "Servitization in contract manufacturing – evidence from Polar business cases", Strategic Outsourcing: An International Journal, Vol. 9 No. 3, pp. 246-270. https://doi.org/10.1108/SO-04-2016-0014