Guest editorial

Citation

Gustafsson, A., Brax, S. and Witell, L. (2010), "Guest editorial", Journal of Service Management, Vol. 21 No. 5. https://doi.org/10.1108/josm.2010.08521eaa.001

Guest editorial

Article Type: Guest editorial From: Journal of Service Management, Volume 21, Issue 5

About the Guest Editors Anders Gustafsson is a Professor of Business Administration in the CTF (Service Research Center) at Karlstad University, Sweden. Dr Gustafsson is the author of nine books, including: Competing in a Service Economy: How to Create a Competitive Advantage through Service Development and Innovation (Jossey-Bass, 2003), Improving Customer Satisfaction, Loyalty and Profit: An Integrated Measurement and Management System (Jossey-Bass, 2000), and Conjoint Measurement – Methods and Applications (Springer, 2003 3rd edition). Dr Gustafsson has also published over 100 academic articles, book chapters, and industry reports.

Saara Brax is a Senior Researcher in Business Innovation Technology (BIT) Research Centre at Aalto University School of Science and Technology, Finland. Brax has published research articles on industrial and business-to-business services and service infusion in industrial firms, integrated solution offerings, service innovation and service productivity, and is manager for a research program on service operations management in industrial and business-to-business firms.

Lars Witell is an Associate Professor in the CTF (Service Research Center) at Karlstad University, Sweden. Dr Witell researches product and service development, customer orientation, and service infusion in manufacturing industries. He has written approximately 40 book chapters and papers in scientific journals.

Setting a research agenda for service business in manufacturing industries

Introduction

This special issue addresses the global business trend of service infusion in manufacturing industries. Companies are increasingly shifting their activities from a focus on pure manufacturing to a combination of manufacturing and services. For companies such as Kone and IBM, revenue from services has grown to 50 per cent or more of their total business. This shift in focus is a matter of financial and competitive necessity (Oliva and Kallenberg, 2003; Neu and Brown, 2008) that is often driven by market turbulence. While manufacturers have offered basic services for long, their strategic emphasis on service has mainly developed during recent years.

In competitive industries, it is no longer sufficient for an industrial company to offer excellent goods and support them with traditional customer services. Manufacturers must offer “solutions” in the form of integrated combinations of goods and services that solve their customers’ problems (Davies, 2003). The perspective of value creation has shifted from transactions to long-term co-creation and relationships (Vargo and Lusch, 2004), a shift that will have a great impact on both company strategies and on organisational structures and arrangements (Gebauer et al., 2010).

Fostering service infusion and growth is a central theme in service research (Ostrom et al., 2010). Despite the increasing interest in exploring various aspects of service business in manufacturing industries, existing service research on the subject remains limited (Ostrom et al., 2010) and spread over different academic disciplines. The scarcity of scholarly research on such an important research area is one of the main reasons for this special issue. Our intention is to identify a research agenda for service business in manufacturing industries and to show a number of promising research initiatives that are taking place in academia.

The state of research on service business in manufacturing firms

The empirical phenomenon of service business in manufacturing firms has been variously referred to as the emergence of “product-service systems” (Tukker and Tischner, 2006), “servitization” (Neely, 2008; Baines et al., 2009), “integrated solutions” (Davies et al., 2006) and “service infusion in manufacturing firms” (Nilsson et al., 2001; Brax, 2005; Ostrom et al., 2010). These differences are reflected in the origin and the emphasis of each concept. “Service infusion in manufacturing” is the most widely accepted term within service management and we feel that it also accurately captures the empirical phenomenon.

Research quality

The research on service business in manufacturing firms is distributed across a relatively large variety of research communities. Academic contributions are found in journals in service management, operations management, industrial marketing, environmental management and service engineering. A majority of these articles are explorative case studies (Jacob and Ulaga, 2008). In addition, many managerial pieces have been published in journals such as Sloan Management Review and Harvard Business Review. This focus on the empirical phenomenon has been beneficial but has also hampered the focus on scholarly publications.

Ostrom et al. (2010) highlighted a number of reasons for the limited research on service infusion in manufacturing firms. They argued:

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  that a long tradition of service scholarship is absent in the area;

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  that some researchers and practitioners erroneously believe that existing goods-based business models can be applied to service; and

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  that the intangibility of many services makes it challenging to develop and implement approaches for research and practice.

In addition, we note that the research on service business in manufacturing industries is divided into different research communities, which also reflects the above mentioned differences in terminology. Some researchers from traditional goods disciplines that have addressed the research issue have overlooked the work that has been done within service management. Some service researchers, on the other hand, have conducted their research without a full understanding of the manufacturing context and technology. To resolve this situation, the number of cross-disciplinary contributions should increase. Regardless, there are several opportunities to pursue new and fruitful research in this area.

The scope of the research

A review of existing research reveals an emphasis on normative research and the development of conceptual models of service infusion (Martin and Horne, 1992; Mathieu, 2001), a focus on classification (Boyt and Harvey, 1997), and case studies that report on the challenges and opportunities (Oliva and Kallenberg, 2003; Brax, 2005; Neu and Brown, 2005). It is also worth noting the lack of well-grounded empirical studies based on a quantitative research tradition. There are a few exceptions on survey research, however, that have extended and validated conceptual models. These include Fang et al. (2008), Neely (2008), Antioco et al. (2008) and Gebauer et al. (2010).

Furthermore, studies on service business in manufacturing industries rely on different theoretical foundations (Pawar et al., 2009), such as the resource-based view (Fang et al., 2008), contingency theory (Neu and Brown, 2005), service and relationship marketing (Holmlund, 1998; Homburg and Garbe, 1999), industry-level supply chains (Wise and Baumgartner, 1999; Davies, 2003) and game theory (Cohen and Whang, 1997). The majority of articles, however, focus on the empirical phenomenon and lack a stronger theoretical foundation. We feel that there is a need for empirical studies that build on one another in order to create a strong theoretical foundation upon which to study service infusion in manufacturing firms. Thus, a strong theoretical foundation upon which to study service infusion in manufacturing firms can be built by studies that:

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  use and extend existing theories on service infusion;

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  apply theories from other areas related to service infusion; and

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  develop new theories to explain the empirical phenomenon.

Future topics

There are several opportunities and directions for research on service infusion in manufacturing firms. Below, the editors of the special issue raise a number of issues in which there is an expressed need from industry and to which academia has not devoted sufficient attention.

First, most of the existing research has studied large companies such as IBM, SKF, or Siemens. As these large firms change their offerings, what happens to their suppliers, which are often much smaller in size? There is anecdotal evidence that the larger firms rely on their suppliers to a greater degree to develop offerings and let them become development partners. However, service infusion in the manufacturing industry is expected to influence the whole supply chain or value creating network.

Second, it is necessary for a company that becomes a service provider to understand how it can best organise itself. One of the major problems is that product companies not only tend to feel that service is easy to implement but that the service offering is easy to develop, at least compared to products. Often the goods part is considered more important than the service part, which can create tension if both the service and the hardware function of the organisation remain together. However, keeping the two functions separate also create problems.

Third, research must move into the service development process in manufacturing firms. Service innovation has traditionally focused on technology, while the key to success can be found in understanding the customers’ business and creating new business models. This will challenge the industry to adopt new methods and ways of working in service development, while academia must rise to the challenge of developing new methods and tools that are suited to manufacturing firms.

Fourth, identifying a business model and accurately pricing the service is truly challenging and manufacturers need to consider many aspects in this process. Often, neither the provider nor the customer is ready for a shift in business model. The physical product has traditionally been the price carrier and the services are seen as the mere sales facilitators that have been connected to additional costs. Success in elevating service as the price carrier depends on customers’ and the providers’ readiness for this shift.

The fifth issue is that almost all of the companies that develop conceptual models for service infusion in manufacturing firms offer their customers a range of offerings from pure goods to pure services. The same machine can be sold directly to a customer, sold together with a maintenance contract or sold as a guarantee of certain production volume (utilising the machine) and so on. In practice, the range of offerings from one single company covers the whole goods-to-services continuum at the same point in time, which means that a provider probably have to organize differently based on what they ended up selling. Again, academia must rise to the challenges faced by industry and understand how this problem can be solved.

The contributions of the special issue to research

The seven contributions in this special issue come from scholars with different backgrounds. The editors have sought contributions building on one another while also illustrating the breadth of the area at present. The issue covers aspects such as measuring and capturing value, service/business development, outcome/performance based contracting, visualising service constellations, and a service transition model. One paper is based on a larger dataset and thus conveys an overview of current practices.

Adopting a service logic in manufacturing: conceptual foundation and metrics for mutual value creation

The paper develops a framework for measuring mutually created value in business relationships in the manufacturing sector to support the sharing of value between suppliers and customers. By matching supplier and customer practices – and thereby aligning corresponding processes, resources and competencies – suppliers can support their customers’ business more effectively. This will enable both parties to create incremental value that can be shared. The paper shows the possibility of creating and using metrics for calculating joint productivity gains, and for sharing these gains in the form of additional value for the business partners, through a price mechanism.

Exploitation or exploration in service business development? Insights from a dynamic capabilities perspective

The paper explores how dynamic capabilities of sensing, seizing, and reconfiguring shape the development of service business in different capital goods industries. Two different approaches to service business development are found. The first can be described as exploitation of service opportunities through temporal expansion of the service business along the primary customer activity chain. The second focuses on the exploration of service opportunities through spatial expansion and reconfiguration along the adjacent customer activity chain. In other words, it is about searching and discovering new service business opportunities by enhancing companies’ autonomy to innovate new services.

Clarifying the concept of performance-based contracting in manufacturing industries: a research synthesis

Although performance-based contracting (PBC) is becoming increasingly important in manufacturing industries, research on the topic is still in its infancy. The paper suggests a conceptual model and identifies three important topics in PBC that are largely neglected in research. First, while the research has considered PBC primarily with regard to manufacturers, independent service providers also offer PBC. Second, closely related to ownership, financing constitutes an essential issue in PBC. Third, PBC can include both maintenance and operations.

Outcome-based service contracts in the defense industry – mitigating the challenges

This case study explores the risks and challenges in implementing outcome-based MRO services contracts in the defense industry and identifies ways to address and reduce them. The challenges and risks include complexity and unpredictability of costs, customer’s dependence on the provider in service delivery and the associated cultural change. The results revealed 11 factors that could mitigate these challenges and risks, with the most important being mutual expectations, teamwork, shared information, and materials, as well as the firm’s access to customer resources.

Comparing provider-customer constellations of visibility-based service

The paper introduces a representation scheme for original equipment manufacturers and their customers demonstrating different constellations of visibility-based service. Increased visibility in service infusion results from improved tracking, retention, and sharing of the evidence behind the service requirements. Based on specific types of visibility, the authors conceptualise a representation model of three distinct provider-customer constellations: collaborative service supply chain management, condition-based maintenance as a service, and visibility-based asset management. The constellations vary in terms of the type of visibility the customer provides, the provider’s use of this visibility and the potential benefits and costs of transitioning between constellations.

Service addition as business market strategy: identification of transition trajectories

This study shows how manufacturers evolve when they seek to increase customer value by taking the service addition path. Specifically, it identifies drivers and hindrances as well as trajectories to reach “ideal” service addition types. This multiple case study of the machine building industry identified four service strategy types. Diverse drivers push companies to higher degrees of customisation and to less tangible offerings via different trajectories.

Relevance of service in European manufacturing industries

This broad European survey analyses both the influencing factors and the extent to which service infusion has affected manufacturing industries. While the vast majority of the surveyed companies offer services, the turnover generated by services is low and the service strategies seem immature. The most significant determinant for service sales was the breadth of services offered. Other relevant explanatory factors include the characteristics of the type of products sold, while the position in the supply chain does not seem to influence service infusion.

Anders Gustafsson, Saara Brax, Lars WitellGuest Editors