managing the transformation towards advanced service provision
TRANSCRIPT
DOCTORA L T H E S I S
Department of Business Administration, Technology and Social SciencesDivision of Innovation and Design
Managing the Transformation Towards Advanced Service Provision
A Multilevel Framework of Servitization
Sambit Lenka
ISSN 1402-1544ISBN 978-91-7790-017-7 (print)ISBN 978-91-7790-018-4 (pdf)
Luleå University of Technology 2017
Sambit Lenka M
anaging the Transform
ation Towards A
dvanced Service Provision
Entrepreneurship and Innovation
Managing the Transformation Towards
Advanced Service Provision
A Multilevel Framework of Servitization
Sambit Lenka Entrepreneurship and Innovation
Department of Business Administration, Technology and Social Sciences
Luleå University of Technology
Printed by Luleå University of Technology, Graphic Production 2017
ISSN 1402-1544 ISBN 978-91-7790-017-7 (print)ISBN 978-91-7790-018-4 (pdf)
Luleå 2017
www.ltu.se
To Adi
Abstract
Product-oriented firms are increasingly moving towards providing services to
customers in a bid to differentiate their offerings, increase customer loyalty, and
achieve higher, more stable revenue streams. This trend of servitization is becoming
ubiquitous in manufacturing firms. These firms increasingly invest resources to offer
basic and advanced services. Basic services focus on supporting the functioning of the
product and increasing its efficiency. But advanced services focus on helping
customers achieve their desired outcomes. Providing advanced services holds
potential of greater benefits for the manufacturing firms, but a closer look indicates
that most firms still largely offer basic services. This is because, advanced services
demand greater intensity in relationships with customers, a higher degree of
customization, and a sharper focus on assisting customers in their own value creation
processes.
Offering advanced services is more risky, complex, and difficult to execute.
Therefore, significant changes must be made in terms of company culture, structures,
processes, capabilities, and business models. In fact, servitizing firms must transform
almost every aspect of the way they do business – from their business strategy to their
capabilities, organizational structure, culture, mindset, and business logic. This
transformation towards advanced services therefore affects all levels of the firm:
strategic, operational, and individual levels. Although prior studies have explored
many aspects of the challenges involved in the transformation towards advanced
services, they typically focus on function-specific practices without linking initiatives
at other organizational levels. The literature lacks a multilevel understanding of the
transformation process. Such an understanding of the transformation process could
provide a better understanding of how the various aspects at multiple levels within
the firm are linked. To address this gap, this dissertation aims to improve our
understanding of multilevel transformation towards advanced service provision in manufacturing
firms.
Based on extensive qualitative studies with 13 leading Swedish manufacturing firms
engaged in servitization, this dissertation provides a framework that shows how
manufacturing firms experience ambivalence (i.e. the simultaneous pull in opposite
directions) during transformation and how this affects the firm at the strategic,
operational, and individual levels. The dissertation provides specific insights of how
individual actions enable capability building for advanced services and how
capabilities for advanced services help address business model alignment problems,
thereby supporting transformation towards advanced service provision. This
dissertation extends our understanding of how various aspects at multiple levels
within a manufacturing firm are linked during the transformation towards advanced
service provision. It marks one of the initial attempts in the servitization research to
provide a multilevel explanation of firms’ overall transformation from providers of
products to providers of advanced services.
This dissertation also uses the lens of ambivalence to provide insights into co-existing
product and service orientations and their consequences during servitization.
Ambivalence theories have been associated with individuals and have been applied
in the psychology and social psychology literature. This dissertation extends these
theories to the organizational context and the servitization literature. It also identifies
specific capabilities that can help manufacturing firms in their transformation towards
advanced services. Specifically, it redefines digitalization capability and shows how
this capability is one of the most important capabilities that manufacturing firms must
develop to transform into advanced service providers. This dissertation also provides
a capability maturity model that can help guide the capability development process
in manufacturing firms. Finally, this dissertation contributes to our understanding of
the role of individuals in the transformation process within firms. This is one of the
first systematic attempts to provide a microfoundation-based view of individual-level
influences on higher-level outcomes in the servitization literature.
Key Words: Servitization, Advanced Services, Multilevel, Transformation,
Ambivalence, Microfoundations, Capabilities
Acknowledgements
When I arrived in Luleå on a cold winter evening, I was looking forward to my
journey as a PhD student at the Luleå University of Technology. It has proved to be
an enjoyable as well as a fulfilling journey for me. I have many happy memories,
filled with warmth and love, which I shall cherish for the rest of my life. As I reach
the end of my PhD journey, I must say that this would not have been possible
without the support and encouragement from others. A very big thank you to all
who have made this journey possible for me.
Above all, I must thank my supervisors: Joakim, Johan, Vinit, and David. Thank you
for believing in my potential and preparing me for an academic career. Thank you,
Joakim, for your sharp insights and always encouraging me with your positive spirit
and supporting me whenever I was in need of help. Without your help, I would not
have made it this far. Thank you, Johan, for your insightful feedback, which has
helped provide many interesting breakthroughs in my papers when I was struggling
with them. Thank you, Vinit, for always being there when I was in need of help,
both personally and professionally. You have been my most active co-author, and
you have helped me greatly in facilitating the data collection for my papers. This
dissertation would not have been possible without your support. Thank you, David,
for being a calming influence around me throughout my doctoral studies, especially
through this dissertation writing process. I really appreciate your guidance and
support as a co-author and my principal supervisor for the last few years. I must also
thank Professor Marko Kohtamäki for providing feedback and helpful comments as
my ‘Paj Discussant’ on an earlier daft of this dissertation.
My gratitude also goes out to all my colleagues at the Entrepreneurship and
Innovation group for always keeping their doors open for discussions and happy
times that we have shared together.
I must also thank VINNOVA for their financial support, without which this
dissertation would not have been possible. Thanks to all the firms in my doctoral
studies who have provided access and respondents, giving up their valuable time for
the interviews and workshops.
Apart from academic life, I must thank all the people in Luleå who have made this
journey possible for me. My heartfelt gratitude goes to the Parida family: Professor
(Col) Aditya Parida, Meenakhi Parida, Gabi, Mira, and Aryan for making this home
away from home. I must also thank the entire Indian community in Luleå, with
whom I have celebrated many festivities and happy times together.
I am ever grateful to my parents, Dr Rameswar Lenka and Geeta Lenka, for their
selfless love, countless sacrifices and encouragement to pursue my dreams. My sisters
Swagatika and Mousumi and the entire gang: Pradip Swain, Sanchayan Sahani,
Ahwan, and Eesha for always being my protective shield in life. My in-laws: Dr
Ganesh Bhatkuly and Lata Bhatkuly for believing in my abilities and encouragement
in everything I do. A special thanks goes out to my wife, Sonal, for leaving it all
behind to come with me to Luleå. She has stood by me without questioning my
long days at work and tolerating the cold dark winters. She has been my strongest
supporter. Without her love, patience, and belief in me, this dissertation would not
exist. Finally, to Adi, my son: Thank you for being the reason why I do what I do.
For your unconditional love that reminds me every day of the most important thing
in my life.
Thank you all so very much!
Luleå, January 2018
Sambit Lenka
Appended Papers
Paper 1 Lenka, S., Parida, V., Sjödin, D. R., & Wincent, J. (In Press),
Servitization and co-existing product and service orientations:
Triggers, manifestation, and consequences of organizational
ambivalence. International Journal of Operations & Production Management
Paper 2 Lenka, S., Reim, W., Frishammar, J., & Parida, V. (Under peer
review). Achieving alignment in business model for product-service
systems provision: Insights from global manufacturing firms
Paper 3 Parida, V., Sjödin, D. R., Lenka, S., & Wincent, J. (2015).
Developing global service innovation capabilities: How global
manufacturers address the challenges of market
heterogeneity. Research-Technology Management, 58(5), 35-44.
Paper 4 Lenka, S., Parida, V., & Wincent, J. (2017). Digitalization
Capabilities as Enablers of Value Co-Creation in Servitizing
Firms. Psychology & Marketing, 34(1), 92-100.
Paper 5 Lenka, S., Parida, V., Sjödin, D. R., & Wincent, J. (In Press),
Exploring the microfoundations of servitization: How individual
actions overcome organizational resistance. Journal of Business Research
Table of Contents
1. Introduction …………………………………………………………………...1
1.1. Background………………………………………………………………..1
1.2. Research problem………………………………………………………....3
1.3. Research purpose……………………………............................................8
2. Theoretical background…...…………………………………………………...9
2.1. Servitization and advanced services……………………………………......9
2.2. Servitization and the co-existence of product and service orientations…..12
2.2.1. Understanding co-existing orientations and ambivalence theory.....15
2.3. Challenges of organizational transformation towards advanced service
provision………………………………………………………………….16
2.3.1. Strategic challenges in transforming the business model for advanced
service provision……………………………………………………..17
2.3.2. Operational challenges in transforming capabilities for advanced
service provision……………………………………………………..19
2.3.3. Individual challenges in transforming for advanced service
provision……………………………………………………………..21
2.4. Understanding organizational transformation challenges through a
multilevel view...…………………………………………………………23
3. Research methods…………………………………………………………….25
3.1. Research background…………………………………………………….25
3.2. Research approach………………………………………………………..25
3.3. Literature review…………………………………………………………26
3.4. Case selection…………………………………………………………….27
3.5. Data collection……………………………………………………………28
3.6. Data analysis………………………………………………………………29
3.7. Research quality………………..……………..........................................30
3.8. Methodological overview of dissertation…………………………………32
4. Overview of appended papers………………………......................................33
4.1. Paper 1……….…………………………………………………………...33
4.2. Paper 2………..…………………………………………………………..34
4.3. Paper 3………..…………………………………………………………..35
4.4. Paper 4……….…………………………………………………………...37
4.5. Paper 5……………………………………………………………………38
5. Towards a multilevel servitization framework ………………………….........40
5.1. Introduction to the framework ………………………………………….40
5.2. Detailed explanation of the framework…………………………………..42
5.2.1. Servitization transformation triggers organizational ambivalence….42
5.2.2. Strategic level transformation - business model for advanced service
provision……………………………………………….…………….42
5.2.3. Operational level transformation – capabilities for advanced service
provision……………………………………………………………..44
5.2.4. Individual level transformation – tactics for advanced service
provision……………………………………………………….........45
6. Discussion……………………………………………………………………..47
6.1. Theoretical contributions………………………………………………...47
6.1.1. Servitization and manifestation of ambivalence…………………....47
6.1.2. Servitization and transformation of business model………………..49
6.1.3. Servitization and development of capabilities …………………….50
6.1.4. Servitization and understanding its microfoundations …….………51
6.2. Managerial implications…………………………………………………..53
6.3. Suggestions for future research…………………………………………...55
References………………………………………………………………………..57
PART I
1
1. Introduction
This chapter explains the motivation for undertaking this research. The background section describes the area
of research, and this is followed by a more detailed discussion of the research problems. This is then followed
by the research purpose and the specific research questions that motivated this dissertation.
1.1. Background
Manufacturing firms are revising their strategies for offering services to customers.
Research suggests that most large European firms now offer services (Dachs et al.,
2014), as do more than half of US firms (Neely, 2009). Accordingly, service-led
growth in manufacturing firms has become an important research focus in recent
decades. Manufacturing firms’ shift from offering value to customers through
products towards offering value through increasingly complex combinations of
products and services is known as ‘servitization’ (Vandermerwe and Rada, 1988,
Baines et al., 2009a; Story et al., 2017). According to scholars, the drivers of this
servitization are multiple and varied. Servitization helps build stronger customer
relationships and increase customer satisfaction (Cohen et al., 2000; Gebauer et al.,
2006; Akehurst 2008; Johnstone et al., 2009; Ostrom et al., 2010). The profitability
of services is deemed to be higher than that of products, and revenue streams are
expected to be more stable than income from selling products alone (Wise and
Baumgartner, 1999; Gebauer and Fleisch, 2007; Aas and Pedersen, 2010; Kohtamäki
et al., 2013). Also, in an environment of growing competition and commodification
of products, servitization is a way to innovate and differentiate offerings, thereby
giving firms a competitive advantage (Fang et al., 2008; Gebauer et al., 2011; Neely
et al., 2011; Cusumano et al., 2015).
In recent years, manufacturing firms have introduced services of an increasingly
advanced nature that not only help improve efficiency and the life of their products,
but also help customers achieve their desired outcomes. These services have been
classified into various dimensions designed to capture their nature and complexity.
In this dissertation, a distinction is drawn between basic services such as installation,
repair, and maintenance and advanced services such as R&D services, fleet
management, life-cycle solutions and offering results associated with the product.
2
Advanced services are defined as complex, flexible offerings that build on the product
capabilities to engage the supplier and customer in a relational process with a view
to supporting the customer’s outcomes (Vandermerwe and Rada, 1988; Mathieu,
2001; Martinez et al., 2010; Baines et al., 2017; Salonen et al., 2017; Sousa and
Silveira, 2017; Story et al., 2017). Examples of advanced services are Volvo
Construction Equipment’s offering of uptime services for its equipment (Volvo,
2017), Ericsson’s offering of life-cycle services to manage customers’
telecommunication networks (Ericsson, 2017), Rolls-Royce’s ‘Power by the Hour’
service, which offers customers effective runtime of jet engines (Koudal, 2006; Smith,
2013), and MAN’s trucks & buses offering of pence-per-kilometre to address
customers’ shipping requirements (David, 2015).
Despite this growth in service offerings, further examination indicates that most firms
still largely offer basic services (Gebauer et al., 2017; Shi et al., 2017), and most
continue to struggle in their efforts to provide advanced services (Baines and
Lightfoot, 2014; Kowalkowski et al., 2015). The challenges of providing advanced
services differ from those of providing basic services. In basic services, the focus is on
supporting the functioning of the product and increasing its efficiency. Examples
include product maintenance, repairs, and overhaul services. In advanced services,
however, the focus shifts to helping customers achieve their desired outcomes.
Advanced services require a more intense relationship with customers and a higher
level of customization, with a focus on helping customers in their own value creation
processes (Kowalkowski, 2010; Grönroos and Voima, 2013; Ståhlbröst, 2013).
Offering advanced services is therefore more risky, complex, and difficult to execute,
and it requires substantial organizational transformation (Antioco et al., 2008; Nordin
et al., 2011; Reim et al., 2016; Salonen et al., 2017). In this dissertation,
transformation refers to a process of change in the basic character of organizational
constituents such that this process helps move the organization along a desired
direction. In fact, firms that attempt to provide advanced services must transform
almost every aspect of the way they do business – from the business model to
capabilities, organizational structure, culture, skills, and mindset (Oliva and
Kallenberg, 2003; Brax, 2005; Brady et al., 2005; Ulaga and Reinartz, 2011; Reim
et al., 2015; Martinez et al., 2017; Baines et al., 2017). Therefore, transformation
3
must be enacted across multiple levels of the firm to enable advanced service
provision (Oliva and Kallenberg, 2003; Baines et al., 2017).
1.2. Research Problem
In the servitization literature, a substantial number of conceptual and empirical
studies have contributed to our understanding of various challenges that relate to
transformation during servitization. Aspects such as culture, structure, capabilities,
networks, and risk management have been discussed at length (Oliva and Kallenberg,
2003; Baines et al., 2009b; Martinez et al., 2010; Parida et al., 2014; Benedettini et
al., 2015; Zhang and Banerji, 2017). However, agreement on the transformational
challenges that are required to move towards advanced services still eludes scholars,
and new contributions constantly challenge some of the initial tenets and
explanations (Bustinza et al., 2017). Additionally, despite the growing focus on this
topic, the servitization research is not yet theoretically mature (Kowalkowski et al.,
2017; Zhang and Banerji, 2017). The literature offers only simplistic explanations of
the phenomenon. These explanations typically focus on function-specific practices,
overlooking the underlying processes and failing to link initiatives at different
organizational levels (Baines and Lightfoot, 2013; Martinez et al., 2017; Rabetino et
al., 2017). Therefore, a better understanding of the overall transformation process
while analyzing key elements across multiple levels is needed. Consequently, the
literature contains several knowledge gaps, and filling these gaps could provide a
more comprehensive understanding of the transformation that firms must undergo
to provide advanced services (Martinez et al., 2017). In this section, we discuss some
of the gaps in the knowledge that relates to needs during transformation towards
advanced service provision.
First, a common assumption in the servitization literature is that manufacturing firms
follow a unidirectional transformation path. This assumed path runs from offering
only products to offering combinations of products and services or advanced services
to customers (Gebauer et al., 2005; Fang et al., 2008; Baines et al., 2009a;
Matthyssens and Vandenbempt, 2010; Kohtamäki et al., 2013; Parida et al., 2015;
Baines et al., 2017). According to this view, firms transform from product
4
manufacturers to ultimately becoming advanced service providers (Oliva and
Kallenberg, 2003). In reality, however, most firms do not become advanced service
providers overnight. Instead, they continue to focus on their product offerings as
well as their new service offerings for a sustained period. Accordingly, firms have co-
existing product and service orientations during their transformation towards
advanced services (Storbacka et al., 2013; Kowalkowski et al., 2015; Martinez et al.,
2017). Yet a product orientation requires a focus on standardization and efficiency
that contradicts the heterogeneity and flexibility that are required for service
orientation (Bowen et al., 1989). Co-existing product and service orientations lead
to conflicting goals, dualities, and tensions as the firm struggles to handle these
contradictory directions (Bowen et al., 1989; Morcos and Henshaw, 2009). There is
a gap in our understanding of how firms manage their resources in this state of
competing attention and conflict and what are the consequences of such a state of
on the transformation process? Indeed, this focus on understanding co-existing
product and service orientations is beginning to attract attention in the servitization
literature. Examining other literatures may help us develop a better understanding of
this phenomenon as researchers call for further study of the implications of such a
state during servitization (Kowalkowski et al., 2017; Martinez et al., 2017)
Second, servitization has been described as a major change in the business model of
manufacturing firms and configuring advanced service business models represent a
key transformational challenge. (Barquet et al., 2013; Kindström and Kowalkowski,
2014; Reim et al., 2015; Kindström and Ottosson, 2016; Adrodegari et al., 2017).
The business model has been described as the logic of ‘how firms do business’ (Zott
et al., 2011) and the overall architecture of how value is created, delivered, and
captured as a holistic description of company activities in aggregate form
(Osterwalder et al., 2005; Teece, 2010; Zott and Amit, 2010; Baden-Fuller and
Mangematin, 2013; Reim et al., 2015; Wirtz et al., 2016). The business model is
considered a strategic-level constituent that links future planning (strategy) with the
operative implementation of the business (Osterwalder et al., 2005; Wirtz et al.,
2016). In the servitization literature, researchers typically adopt idiosyncratic
definitions of the business model to fit the purpose of their studies (Zott et al., 2011;
Velamuri et al., 2013; Wirtz et al., 2016) or consider certain components, thereby
5
restricting our understanding to a small number of aspects that relate to business
models (Boons et al., 2013; Ferreira et al., 2013; Ng et al., 2013; Adrodegari and
Saccani, 2017). Very few studies provide a comprehensive business model framework
that encompasses all three components: value creation, delivery, and capture in
advanced service provision (Al-Debei and Avison, 2010; Kindström and
Kowalkowski, 2014; Adrodegari et al., 2017). An activity-based description (i.e.
specific behaviour and actions) that is necessary to implement a business model, in
these frameworks, is also missing from the literature (Adrodegari and Saccani, 2017).
A notable exception includes Kindström and Ottosson (2016), who identify key
activities for the successful implementation of a business model in the context of
energy services.
Additionally, a business model’s components must be linked and aligned with the
coherent logic of the firm’s overall business strategy (Osterwalder and Pigneur, 2010;
Baden-Fuller and Mangematin, 2013; Saebi et al., 2017). However, the business logic
of providing advanced service differs greatly from the traditional, product-oriented
business logic of manufacturing firms (Kindström, 2010; Ferreira et al., 2013; Reim
et al., 2015). For example, advanced services such as the availability of assets require
firms to retain the risks of operations, which, if poorly managed, can greatly affect
the value that is captured from such offerings (Nordin et al., 2011; Reim et al., 2016).
Therefore, transformation towards advanced services should be accompanied by a
strategic realignment of the firm’s business model components to support advanced
service provision (Kindström, 2010; Kindström and Kowalkowski, 2014; Adrodegari
et al., 2017). Although the literature has emphasized the need for alignment of the
components in implementing a business model (Kindström, 2010; Kujala et al., 2011;
Kindström and Kowalkowski, 2014; Helms, 2016; Adrodegari et al., 2017), few
studies have explored how this can actually be achieved. Therefore, the literature
contains a gap in our understanding of the key activities that are needed for the
implementation of an advanced service based business model and how its
components can be aligned to achieve internal and external fit with the firm’s
business strategy of how it creates, delivers and captures value thorough advanced
services.
6
Third, prior research suggests that transformation towards advanced services requires
the development and application of new capabilities that differ substantially from the
existing capabilities of manufacturing firms (Antioco et al., 2008; Ulaga and Reinartz,
2011; Paiola et al., 2013; Baines and Lightfoot, 2014; Parida et al., 2014; Raddats et
al., 2015; Story et al., 2017). Capabilities can be defined as ‘complex bundles of skills
and accumulated knowledge, exercised through organizational processes, that enable
firms to coordinate activities and make use of their assets’ (Day, 1994, p. 38). Thus,
capabilities help firms carry out their business operations (Cepeda and Vera, 2007;
Helfat and Winter, 2011; Story et al., 2017). In the servitization literature, capabilities
are also seen as helping firms achieve their strategic goals of creating and capturing
value (Visnjic Kastalli and Van Looy, 2013; Storbacka et al., 2016). The servitization
literature shows that the capabilities that are required to provide basic services are not
applicable to advanced services because they have different characteristics and goals
(Mathieu, 2001; Antioco et al., 2008; Ulaga and Reinartz, 2011; Baines and
Lightfoot, 2014). Although numerous studies have identified various necessary
capabilities across organizational themes such as service innovation, efficiency
improvements, risk mitigation, and customer understanding (Cova and Sale, 2008;
Storbacka, 2011; Paiola et al., 2013; Raddats et al., 2015; Shi et al., 2017), our
understanding of the key capabilities that support advanced service provision and
how they can be developed is still under discussion (Baines and Lightfoot, 2014;
Baines et al., 2017; Story et al., 2017).
There has been growing suggestions in the servitization literature that digitalization
capability is a key capability that firms must develop for advanced service provision
(Kowalkowski and Brehmer, 2008; Kowalkowski et al., 2013; Porter and
Heppelmann, 2014; Lerch and Gotsch, 2015; Sjödin et al., 2016a; Guillén et al.,
2017). However, there are gaps in our knowledge of the key skills or resources that
are involved in building such digitalization capabilities, as is the way that these skills
or resources work together to produce this capability. Similarly, little is known about
the capabilities that can help firms provide advanced services globally to a
heterogeneous, broadly spread customer base. A notable exception is Kowalkowski
et al. (2011), who provide four key aspects of global service management.
7
Despite the growing interest in the identification and understanding of how
capabilities support advanced service provision, the literature lacks a well-described
capability maturity model of these capabilities for advanced services (Bustinza et al.,
2017). It is important to understand the evolutionary capability development
pathways (i.e. steps) because such an understanding provides grounded insights for
their development. Doing so can be very useful for practitioners, especially from an
implementation guidance perspective (Bustinza et al., 2017).
Finally, individuals play a key role in organizational transformations (such as
servitization). Individual decisions and their interactions with processes affect the
achievement of organizational outcomes (Abell et al., 2008; Felin et al., 2015). Yet,
research that explains how individuals contribute or influence the servitization
process is scarce in the literature. Resistance to change from individuals, groups and
organizational functions, is a common underlying theme in the servitization
literature, which has identified many strategic, structural, procedural, and cultural
forms of resistance to change in manufacturing firms during the transformation
process (Neu and Brown, 2008; Martinez et al., 2010; Ferreira et al., 2013; Sjödin et
al., 2016b). In the context of overcoming this resistance to change, individual agency
plays an important role in shaping organizational outcomes. Thus in practice,
servitization transformation is often built on individual actions that work towards
overcoming the resistance to change in the firm. However, the importance of
individuals has been largely neglected in servitization research. Although a large body
of research focuses on resistance to change during servitization and provides
suggestions on how organizational responses can address this challenge, few studies
have focused on the role of individuals in addressing the challenge. An explicit focus
on individuals is rare in the servitization research. Notable exceptions include
Gebauer et al. (2005) and Ulaga and Loveland, (2014), who have outlined certain
individual motivation factors that support servitization within firms. Consequently,
there is a gap in our understanding of how individuals are affected by change or how
individuals affect the outcomes of the change process to support a firm’s
transformation towards advanced service provision.
8
1.3. Research Purpose
Increasingly manufacturing firms are moving towards offering advanced services to
their customers. Progressing towards this objective has been identified as challenging
because it involves potential uncertainties and requires organization-wide
transformation at all levels of the firm, such as affecting the business model,
capabilities, and individuals (Oliva and Kallenberg, 2003). Thus, firms hesitate or
struggle to transform themselves into advanced service providers (Baines et al., 2017;
Martinez et al., 2010, 2017). Despite a growing understanding of the transformational
imperatives during advanced service provision, there are knowledge gaps in our
understanding of a multilevel perspective of the servitization transformation process.
Therefore, the purpose of this dissertation is as follows:
To improve our understanding of multilevel transformation towards advanced service provision
in manufacturing firms.
Specific research questions focus this overall purpose towards specific research gaps
related to advanced service provision. Four research questions have been formulated
to guide the purpose of this dissertation.
RQ1. How do co-existing product and service orientations affect transformation towards
advanced service provision in manufacturing firms? (Addressed in Paper 1)
RQ2. How can alignment of business model activities enable transformation towards advanced
service provision in manufacturing firms? (Addressed in Paper 2)
RQ3. How can capabilities be developed to enable transformation towards advanced service
provision in manufacturing firms? (Addressed in Paper 3 and Paper 4)
RQ4. How can individual actions enable transformation towards advanced service provision in
manufacturing firms? (Addressed in Paper 5)
9
2. Theoretical Background
This chapter provides the theoretical background for this dissertation by describing the servitization of
manufacturing firms and the transformational challenges involved. First, an overview of the servitization
literature and the conceptualization of advanced services is presented. Next, the various multilevel
transformational challenges relating to conflicting orientations, business models, capabilities and individuals
are discussed. The chapter ends with a discussion on the gap in the literature and the need to develop a
multilevel view of the servitization transformation process.
2.1. Servitization and Advanced Services
Servitization refers to the process wherein manufacturing firms shift from offering
value to customers through products towards offering value through increasingly
complex combinations of products and services or advanced services to their
customers (Vandermerwe and Rada, 1988; Baines et al., 2009a; Baines et al., 2017;
Story et al., 2017). To consider the famous quote of Levitt, where ‘the customer
really doesn’t want a drilling machine, he wants a hole-in-the wall’ (Ng et al., 2009;
p. 377), servitization is about shifting the emphasis from ‘drills’ to ‘holes’ – i.e.
changing the focus from selling a product to selling a complex bundle of products
and accompanying services that support customers’ desired outcomes (Grubic, 2014).
The move towards servitization in manufacturing firms has been motivated by the
growing competition and commodification of products and the importance of
gaining competitive advantage (Fang et al., 2008; Kohtamäki et al., 2013; Lindahl et
al., 2014; Cusumano et al., 2015). Additionally, servitization helps build stronger
customer relationships and enhance customer loyalty (Akehurst, 2008; Johnstone et
al., 2009; Ostrom et al., 2010; Lightfoot et al., 2013). Servitization is also driven by
the beliefs that selling services is more profitable and that increased engagement with
customers will lead to more stable revenue streams, even in volatile markets (Oliva
and Kallenberg, 2003; Wise and Baumgartner, 1999; Gebauer and Fleisch, 2007;
Kohtamaki et al., 2013).
The servitization of manufacturing firms has been studied across a broad range of
academic disciplines. Researchers in several research communities have provided
10
unique, complementary perspectives on the rationale, design, and delivery of services
(Oliva and Kallenberg, 2003; Lightfoot et al., 2013). This growing research interest
in servitization is testimony to the increasing recognition of the importance of
advanced services in manufacturing. Servitization in manufacturing is a diverse,
complex field, and a range of interdependent research communities have contributed
to our knowledge of this topic (Lightfoot et al., 2013). The various literatures that
address servitization are servitization, product service-systems (PSS), industrial
product service-systems (IPSS/IPS2), integrated solutions, and hybrid solutions.
These literature streams address this phenomenon (i.e. the increasing focus on
complex bundles of products and services in manufacturing firms to provide benefits
or help customers achieve a given outcome), each with a slightly different focus or
variation. This dissertation builds upon the research and dialogues in these literature
streams, albeit with an emphasis on the servitization literature.
Manufacturing firms offer a wide variety of services in their servitization efforts.
These services are not homogeneous in nature. They differ substantially in terms of
risk, flexibility, responsiveness, and potential to create value for customers (Eggert et
al., 2014; Story et al., 2017). The servitization literature describes the heterogeneity
of services in several ways. It is therefore difficult to detect when a service becomes
an advanced service (Salonen et al., 2017; Story et al., 2017). However, many of the
descriptions that distinguish between different kinds of services can be traced to
Mathieu’s (2001) classification of services that support the product (SSP) and services
supporting the customer’s actions (SSC) (Antioco et al., 2008; Kindström, 2010;
Raddats and Easingwood, 2010; Ulaga and Reinartz, 2011; Baines and Lightfoot,
2014; Eggert et al., 2014; Baines et al., 2017). SSPs are standardized, transaction-
based services that require low customer interaction and relationships (Baines and
Lightfoot, 2014; Eggert et al., 2014; Story et al., 2017). Typical SSPs include services
such as installations, repairs, and maintenance. SSCs, in contrast, are relationship
oriented, require varying degrees of customization, and involve intense customer
interaction (Baines and Lightfoot, 2014; Eggert et al., 2014; Salonen et al., 2017).
SSCs include R&D services, fleet management, life-cycle solutions, process
optimization, the operation of processes on the customer’s behalf, and the provision
of results associated with the product (Eggert et al., 2014; Baines et al., 2017).
11
Baines and Lightfoot (2014) built on these characterization differences to propose a
typology of basic, intermediate, and advanced services. Basic services are SSPs, whilst
intermediate and advanced services refer to a more nuanced description of increasing
complexities in SSCs and their value creation potential. However, the use of
advanced services as a distinct type of service is becoming increasingly common in
the servitization literature (Baines and Lightfoot, 2014; Gebauer et al., 2017; Salonen
et al., 2017; Sousa and Silveira, 2017; Story et al., 2017). They have been defined in
various ways depending on their characteristics or the way value is created through
these services. In this dissertation, which is based on the conceptualization of
advanced services as reflected in the literature, advanced services are defined as
complex, flexible offerings that build on the product capabilities to engage the
supplier and customer in a relational process with a view to supporting the customer’s
outcomes. Advanced services can therefore be viewed as complex combinations of
products, services, supporting processes, and knowledge, working together to
enhance the value-in-use for customers (Vandermerwe and Rada, 1988; Mathieu,
2001; Martinez et al., 2010; Baines et al., 2017; Salonen et al., 2017; Sousa and
Silveira, 2017; Story et al., 2017). A corollary to this definition is that ‘value-in-use’
includes all customer-perceived consequences of the advanced service that facilitate
or hinder the achievement of the customer’s desired outcomes (Macdonald et al.,
2016). This dissertation is built on the underlying assumption of the heterogeneity
of services that are offered by servitizing firms (Mathieu, 2001; Eggert et al., 2014;
Baines et al., 2017). Specifically, it focuses on advanced services and their provision
during servitization.
The focus on advanced services in this research was primarily driven by
manufacturing firms’ increasing focus on providing advanced services in practice
(Baines et al., 2009a; Eggert et al., 2014; Gebauer et al., 2017). However, despite
increasing efforts that are being devoted to advanced service provision, most services
that these manufacturing firms offer are still basic in nature (Gebauer et al., 2017; Shi
et al., 2017). Most firms still struggle to provide advanced services to their customers
(Baines and Lightfoot, 2014; Kowalkowski et al., 2015; Baines et al., 2017; Gebauer
et al., 2017) because the challenges of providing advanced services differ greatly from
12
those of providing basic services (Baines and Lightfoot, 2014; Gebauer et al., 2017;
Shi et al., 2017). In basic services, the focus is on supporting the functioning of the
product and increasing its efficiency, whilst in advanced service provision, the focus
shifts to helping customers achieve their desired outcomes. This shift in focus requires
a more intense relationship with customers and a higher degree of customization,
with a focus on helping customers in their own value creation processes
(Kowalkowski, 2010; Martinez et al., 2010; Shi et al., 2017). Offering advanced
services therefore entails considerable risk and requires the development of complex
processes that support integration with customers and effect organization-wide
transformation (Baines et al., 2009b; Martinez et al., 2010; Baines and Lightfoot,
2014; Reim et al., 2016; Martinez et al., 2017). Doing so is extremely difficult, and
firms struggle to effect changes in their culture, business model, capabilities, structure,
skills, and mindset (Oliva and Kallenberg, 2003; Brax, 2005; Ulaga and Reinartz,
2011; Reim et al., 2015; Baines et al., 2017; Martinez et al., 2017). Therefore,
understanding the challenges across all levels of the firm and the implications of these
challenges could give firms insights to help them adopt strategies to address their
transformational impediments and provide advanced services.
2.2. Servitization and the Co-existence of Product and Service
Orientations
Servitization is commonly described as a transition from a product-oriented to a
service-oriented business (Sakao et al., 2009; Martinez et al., 2010; Kowalkowski et
al., 2013; Alghisi and Saccani, 2015; Kohtamäki et al., 2015; Durugbo and
Erkoyuncu, 2016). The servitization literature offers various conceptualizations of
product and service orientations. Oliva and Kallenberg (2003) define service and
product orientations in terms of the firm’s position on the product-service
continuum. At the product end, products or tangible goods are more important,
whereas at the service end, services are more important. The focus on customer
interactions at the product end is transactional, whereas the focus at the service end
is relational. A firm’s position on this continuum indicates whether that firm is more
product oriented or more service oriented. Service orientation has also been
conceived as the number of services offered, the number of customers to whom these
13
services are offered (broadness), and how actively the services are offered to
customers (emphasis) (Homburg et al., 2002; Prabhu et al., 2005; Fang et al., 2010;
Eggert et al., 2014). Bowen et al. (1989) differentiate between service and product
orientations in terms of prototypical characteristics. A product orientation involves
tangible and standardized outputs, low customer involvement, and separation of
production and consumption characteristics; a service orientation implies
characteristics of intangible and customized outputs, greater customer involvement,
and simultaneous production and consumption. In this dissertation, firms’ product
and service orientations are conceptualized based on the relative focus that firms place
on products or services. This relative focus is gauged by the number of offerings and
the nature of these offerings in terms of standardization or customization as well as
the intensity of the firm’s relationships (breadth and depth) with customers.
Therefore, a strong product orientation means a high number of standardized
offerings centred on products with a low intensity of customer relationships. In
contrast, a strong service orientation means a high number of customized offerings
centred on customer outcomes with a high intensity of customer relationships.
An underlying assumption in the servitization literature is that manufacturing firms
follow a unidirectional transformation path from being product oriented to
becoming service oriented (Oliva and Kallenberg, 2003; Brax, 2005; Baines et al.,
2009b; Parida et al., 2014; Smith et al., 2014; Reim et al., 2016). For example, Oliva
and Kallenberg (2003, p. 161) affirm that manufacturing firms transform ‘from being
product manufacturer into a service provider’. However, few manufacturing firms
actually traverse this unidirectional transformation path to become service providers
overnight. Most manufacturing firms continue to focus on product and service
oriented offerings over an extended period during servitization (Storbacka et al.,
2013; Kowalkowski et al., 2015). According to this emerging view in the
servitization literature, manufacturing firms must deal with co-existing orientations
over an extended period during their servitization journey.
A simultaneous focus on product and service orientations is often contradictory. For
example, a product orientation requires a focus on standardization and efficiency that
contradicts the heterogeneity and flexibility that are required for a service orientation
14
(Bowen et al., 1989). The servitization literature contains various studies that have
emphasized the distinct, contradictory nature of product and service orientations,
showing that divergent strategic choices and capabilities are needed to support such
orientations (Bowen et al., 1989; Sakao et al., 2009; Martinez et al., 2010;
Kowalkowski et al., 2013; Alghisi and Saccani, 2015; Kohtamäki et al., 2015;
Durugbo and Erkoyuncu, 2016). Accordingly, the literature focuses primarily on the
servitization challenges that relate to manufacturing firms’ overcoming a product
orientation to move towards becoming service oriented (Matschewsky et al., 2017).
Scholars have studied these challenges in relation to various aspects of manufacturing
firms during servitization, including organizational values (Bowen et al., 1989), the
business model (Kindström, 2010; Ferreira et al., 2013; Visnjic Kastalli and Van Looy,
2013), organizational structure (Neu and Brown, 2008; Gebauer and Kowalkowski,
2012; Bustinza et al., 2015), capabilities (Oliva and Kallenberg, 2003; Ulaga and
Reinartz, 2011; Paiola et al., 2013; Raddats et al., 2015), operations (Baines et al.,
2009b; Raddats and Easingwood, 2010; Lightfoot et al., 2013), and sales (Ulaga and
Loveland, 2014; Kindström et al., 2015).
Under the emerging view that conflicting product and service orientations co-exist
in servitizing firms, balancing and managing these conflicting orientations have been
cited as key challenges (Windahl and Lakemond, 2010; Salonen, 2011; Storbacka et
al., 2013). When co-existing product and service orientations exist, the firm faces
conflicting goals, dualities, and opposing tensions due to the simultaneous focus on
the two contradictory orientations (Bowen et al., 1989; Morcos and Henshaw, 2009).
Thus, whilst the co-existence of these conflicting orientations is a reality for
manufacturing firms that are engaged in servitization, our knowledge of this situation
is scarce. Servitization scholars are beginning to devote their attention to
understanding these co-existing product and service orientations. Recently,
researchers have called for further exploration of the implications of such a state
during servitization (Kowalkowski et al., 2017; Martinez et al., 2017). A new
theoretical lens through which to examine this state of co-existing product and
service orientations would provide profound insights and explanations that could aid
our understanding of its implications during servitization.
15
2.2.1. Understanding Co-Existing Orientations and Ambivalence
Theory
Studies that have investigated similar conflicting organizational phenomena have
used ambivalence theories to describe a state of simultaneous attraction towards
contradictory alternatives (Piderit, 2000; Larson and Tompkins, 2005). Therefore,
ambivalence theory could provide useful insights into co-existing yet contradictory
product and service orientations during servitization. Despite being rooted in the
psychology and social psychology literatures, ambivalence theory has recently been
introduced in the context of organizations and its management (Fong, 2006;
Plambeck and Weber, 2010; Oreg and Sverdlik, 2011; Ashforth et al., 2014; Bode
et al., 2017). In this setting, it has been used to explain organizational situations where
such simultaneous contradictory forces are in action.
Ambivalence theory suggests that conflicts, oppositions, or dualities in an
organization lead to ambivalence because actors are positively attracted to both
conflicting alternatives. In the servitization literature, scholars have observed the
emergence of role conflicts because product-oriented demands are incompatible with
service-oriented demands (Sjödin et al., 2016b). Similarly, dualities emerge during
servitization in manufacturing firms (Einola et al., 2016) because of simultaneous
demands for A and not-A (Ashforth et al., 2014). These findings suggest that
servitization is fertile ground for the emergence of ambivalence, where the meaning
of events is open to interpretation and stakeholders exert fundamentally conflicting
demands. Ambivalence when experienced in organizational settings has both
negative and positive consequences. Negative consequences of ambivalence include
vacillation between two alternatives and the inability to adapt to organizational
change (Westenholz, 1993; Weigert and Franks, 1989; Pratt and Doucet, 2000).
Positive consequences of ambivalence in organizations include an improvement in
the accuracy of actors’ judgement, heightened creativity, and greater organizational
commitment (Pratt and Rosa, 2003; Fong, 2006; Pratt and Pradies, 2011; Rees et al.,
2013). Such observations in the ambivalence literature are therefore relevant for
manufacturing firms because they could shed new light on the implications of co-
existing product and service orientations during servitization. The focus on this topic
16
in the servitization literature is scarce, however, ambivalence theories could help
untangle new insights or provide explanations of the various challenges and
implications of co-existing product and service orientations during servitization.
2.3. Challenges of Organization Transforming towards
Advanced Service Provision
In the servitization literature, researchers agree that transformation towards advanced
service provision is challenging for manufacturing firms (Oliva and Kallenberg, 2003;
Baines et al., 2009b; Martinez et al., 2010; Lightfoot et al., 2013; Gebauer et al.,
2017). A vast body of research from various perspectives has examined the
transformational challenges that manufacturing firms face during advanced service
provision. In the context of organizational values and culture, a key transformational
challenge is moving from a transaction-based to a relation-based value creation
approach (Bowen et al., 1989; Martinez et al., 2010). Alignment with a service
strategy has been cited as a key challenge for effective organizational design and
configuration for the integration of advanced services into product-oriented
businesses (Raddats and Burton, 2011). Many firms struggle to make a strategic
transition towards a service-based business model that fits the market and maximizes
internal synergies (Ng et al., 2013; Kindström and Kowalkowski, 2014). From an
operations-transition perspective, a revolutionary transformation approach is seen as
best suited, but most firms struggle in trying to adopt a more evolutionary approach
(Brax, 2005). Firms are also seen to struggle to change their innovation management
practices based on products to advanced services (Aas et al., 2015). Firms face
difficulties with developing their new advanced service offerings as the development
process for services differ greatly from the existing product development process
(Kindström and Kowalkowski, 2009). The internal processes of aligning strategies
with advanced service performance requirements also prove challenging and prevent
many product-oriented firms from successfully providing advanced services
(Lightfoot and Gebauer, 2011). Developing new capabilities that can support
advanced service provision is an impediment during the transformation process
(Paiola et al., 2013; Raddats et al., 2015). Various challenges in upgrading the skills
of the front-end sales force during the transformation towards advanced services have
17
been observed in product-oriented firms (Ulaga and Loveland, 2014; Kindström et
al., 2015). Similarly, developing a suitable reward system to motivate individuals to
support advanced service provision has proved challenging for manufacturing firms
(Antioco et al., 2008).
2.3.1. Strategic Challenges in Transforming the Business Model for
Advanced Service Provision
The business model concept has attracted the attention of scholars in a range of fields
such as information management, strategy, organization theory, and strategic
management. Despite its relevance, however, the business model is still poorly
understood (Wirtz et al., 2016; Foss and Saebi, 2017). However, recent research
seems to converge on a common understanding of the business model as the overall
architecture that governs how value is created, delivered, and captured, with a
holistic description of company activities in aggregate form (Osterwalder et al., 2005;
Teece, 2010; Zott and Amit, 2010; Baden-Fuller and Mangematin, 2013; Reim et
al., 2015; Wirtz et al., 2016). The business model is also seen as a meta-concept that
exemplifies the strategy of the firm (Casadesus-Masanell and Yoffie, 2007) and aligns
its elements such that it captures the essence of the cause–effect relationships between
customers, the organization, and money (Fiss, 2011). The business model has
therefore been described as a structured management tool that is especially relevant
to the success of a firm (Magretta, 2002). In the literature on business models, the
level of abstraction of the business model perspective has evolved, ranging from the
detailed product level, to the business level, firm level, and aggregate industry level
(Amit and Zott, 2001; Afuah and Tucci, 2003; Tikkanen et al., 2005; Chesbrough,
2006; Johnson et al., 2008; Wirtz et al., 2010; Zott and Amit, 2010). However,
scholars increasingly agree on the purpose of a business model concept – moving
from operational process management to future-oriented strategy (Wirtz et al., 2016).
Business models are now deemed to affect the medium- and long-term objectives
and activities of a firm. Accordingly, the business model can be understood as a
strategic-level element that links future planning (strategy) with the operational
implementation of the business (Osterwalder et al., 2005; Wirtz et al., 2016).
18
Servitization scholars have also shown a growing interest in the concept of the
business model. Numerous studies have highlighted the need to adopt a business
model perspective to successfully understand how to provide advanced services to
customers (Kindström 2010; Barquet et al., 2013; Kindström and Kowalkowski,
2014; Reim et al., 2015; Kindström and Ottosson, 2016; Adrodegari et al., 2017).
Indeed, the shift towards advanced services represents a significant change in most
aspects of the business model. The transformation towards advanced service provision
is seen to change the nature of value creation from being rooted in the product to
supporting the outcomes of customers (Baines et al., 2009a; Ng et al., 2009; Ferreira
et al., 2013; Reim et al., 2015). Advanced service delivery typically occurs through
longitudinal relationships that sometimes last the entire life cycle. External partners
also become increasingly involved in the development and delivery of advanced
services (Matthyssens and Vandenbempt, 2010; Baines and Lightfoot, 2014; Martinez
et al., 2017). Furthermore, advanced services commonly entail the change from
ownership to access. The basis of revenue models therefore needs to evolve from
one-off transactions to continuous payment, outcomes, or outputs (Kindström and
Kowalkowski, 2014; Adrodegari and Saccani, 2017). These new revenue models
must also account for the greater risk for suppliers of advanced services (Benedettini
et al., 2015; Riem et al., 2016). Therefore, manufacturing firms must affect change
across aspects of their existing product based business models, encompassing all
components of value creation, delivery and capture, if they wish to successfully
transform into advanced service providers (Wirtz et al., 2016; Adrodegari et al.,
2017).
Most servitization researchers, however, still use idiosyncratic definitions of the
business model to fit the purpose of their studies (Zott et al., 2011; Velamuri et al.,
2013; Wirtz et al., 2016). Moreover, the business model frameworks that are
described in the servitization literature predominantly consider few components,
thereby restricting our understanding to a small number of aspects that relate to
business models (Boons et al., 2013; Ferreira et al., 2013; Ng et al., 2013; Adrodegari
and Saccani, 2017). Few studies propose comprehensive business model frameworks
that encompass all three components: value creation, delivery, and capture (Wirtz et
al., 2016, Kindström and Kowalkowski, 2014; Adrodegari et al., 2017). Finally, an
19
activity based description of the business model frameworks is also lacking in the
literature (A notable exception is Kindström and Ottosson, 2016).
The business model can be described as an architecture that aligns various elements
to capture the essence of the cause–effect relationships between customers, the
organization, and money (Fiss, 2011). Linking the components of the business model
is therefore necessary to align them with the overall business logic of the firm
(Osterwalder and Pigneur, 2010; Baden-Fuller and Mangematin, 2013; Saebi et al.,
2017). When a firm moves towards advanced service provision, the way value is
created, delivered, and captured must evolve from the way it is configured in the
existing product-based business model. The firm’s activities must therefore evolve to
enable the implementation of such a business model. Hence, the need for the
realignment of the components of the business model has been stressed by scholars
in the servitization literature (Kindström, 2010; Kindström and Kowalkowski, 2014;
Adrodegari et al., 2017). Although the scholars have stressed upon the need for
alignment of the components in implementing a business model (Kindström, 2010;
Kujala et al., 2011; Kindström and Kowalkowski, 2014; Helms, 2016; Adrodegari et
al., 2017), the way that such an alignment can be achieved is not yet understood.
Accordingly, the literature lacks description of an activity-based comprehensive
business model framework as well as suggestions for how the business model
components can be aligned to achieve internal and external fit in how it creates,
delivers and captures value thorough advanced services (Baden-Fuller and
Mangematin, 2013; Ferreira et al., 2013).
2.3.2. Operational Challenges in Transforming Capabilities for
Advanced Service Provision
Capabilities can be defined as ‘complex bundles of skills and accumulated knowledge,
exercised through organizational processes, that enable firms to coordinate activities
and make use of their assets’ (Day, 1994, p. 38). Thus, capabilities are routines that
help firms perform their business operations (Cepeda and Vera, 2007; Helfat and
Winter, 2011; Story et al., 2017). As such, capabilities are critical in helping firms
manage their day-to-day operations through the reliable and satisfactory performance
20
of activities that enable firms to make a living in the present (Winter, 2003; Helfat
et al., 2007; Helfat and Winter, 2011).
The servitization research suggests that a transformation towards advanced service
provision requires the firm to build new capabilities that differ significantly from
existing product-oriented capabilities (Gebauer et al., 2005; Antioco et al., 2008;
Baines et al., 2009b; Paiola et al., 2013). Manufacturing firms typically possess highly
evolved capabilities that relate to technology and products. However, advanced
service provision rests on the firm’s ability to integrate products and services whilst
using them to achieve customers’ desired outcomes (Ulaga and Reinartz, 2011;
Parida et al., 2014).
Various capabilities that are required for the complex process of development and
delivery of advanced services have been discussed in the servitization literature. For
instance, the capability to mitigate risk in advanced services has been identified as an
important capability for firms to ensure that they do not incur any additional
operational costs in advanced service provision (Ulaga and Reinartz, 2011;
Benedettini et al., 2015; Reim et al., 2016). Deeper relationships with customers
(Tuli et al., 2007), suppliers, and other network partners (Gebauer et al., 2012; Parida
et al., 2014; Owen Raddats and Burton, 2014) are also necessary for firms to benefit
from advanced service provision. Raddats et al. (2015) highlight the need to develop
leaders and personnel who understand customers’ business challenges and envision
how the firm’s advanced service offerings might address these challenges. The sale of
advanced services differs substantially from product selling. The sale of advanced
services typically requires strong customer involvement and co-creation of the
offering (Ulaga and Reinartz, 2011; Ulaga and Loveland, 2014). The capability to
organize service-oriented structures is an important aspect of the firm’s effectiveness
in advanced service provision (Oliva and Kallenberg, 2003; Turunen and Toivonen,
2011). Storbacka (2011) lists 12 capabilities that are suitable for servitizing firms.
These capabilities are based on the four stages of transformation of manufacturing
firms towards advanced services: solution development, demand creation, solution
selling, and solution delivery. Scholars have also suggested that the development of
digital technologies, especially those that relate to ICT capabilities, drive greater
21
customer interactivity and catalyse advanced service provision (Kowalkowski and
Brehmer, 2008; Kowalkowski et al., 2013; Raddats et al., 2015). The discussion in
the literature has recently shifted towards a more expansive definition of
digitalization. This definition encompasses not just ICT, but also increasingly
important intelligent and connected products that support advanced service provision
(Cenamor et al., 2017; Vendrell-Hererro et al., 2017). Finally, Paiola et al. (2013)
suggest a strategic approach to help firms decide on whether to develop capabilities
internally or externally. They suggest four strategic approaches to develop capabilities
for advanced services in manufacturing firms.
Despite the focus on capabilities in the servitization literature, there is ongoing debate
over the relevance of key capabilities to support advanced services (Baines et al.,
2017; Raddats et al., 2017; Sousa and Silveira, 2017; Story et al., 2017). For instance,
digitalization capability is increasingly seen as a key capability for firms to provide
advanced services (Grubic, 2014; Porter and Heppelmann, 2014; Kohtamäki and
Helo, 2015; Sjödin et al., 2016a; Huang and Rust, 2017). However, the processes
and routines that constitute digitalization capability remain unclear. Similarly, whilst
most large manufacturers have a global footprint, the capabilities that are required for
advanced service provision in a global context are still unknown (a notable exception
includes Kowalkowski et al., 2011). Although numerous studies have proposed the
development of capabilities to support advanced service provision, most fail to discuss
how such capabilities can actually be built. The literature offers virtually no guidance
on how to build these capabilities over time and which pathways can help achieve
such development (Bustinza et al., 2017). Providing a capability maturity model is
therefore an issue that requires further discussion in the capability-based servitization
research.
2.3.3. Individual Challenges in Transforming for Advanced Service
Provision
A microfoundations view is gaining momentum in strategic management and
organizational theory research. This view focuses on how lower-level entities such
as individuals and their interactions explain collective phenomena (Felin and Foss,
22
2005; Abell et al., 2008; Felin et al., 2012; Martinkenaite and Breunig, 2016). The
focus of this literature is ‘to unpack collective concepts to understand how individual-
level factors impact organizations, how the interaction of individuals leads to
emergent, collective, and organization-level outcomes and performance, and how
relations between macro variables are mediated by micro actions and interactions’
(Felin et al., 2015, p. 576). Understanding the individual level is crucial. Doing so
provides insights into the underlying dynamics that help explain the link between
lower-level origins and higher-level outcomes.
In its simplest form, an organization is an aggregation of individuals and their actions
(Felin et al., 2012). Behavioural theory of the firm emphasizes the role of individuals
in influencing organizational outcomes (Simon, 1985; Gavetti et al., 2007; Cohen,
2012). Individuals, as managers or ‘star salesman or analysts’, affect how the
organization behaves, which is ultimately reflected in the organization’s performance
(Zucker and Darby, 2001; Groysberg and Lee, 2009). Individuals vary significantly
from one another in their characteristics, preferences, values, and beliefs (Zenger,
1992; Madsen et al., 2003; Felin and Hesterly, 2007). Individuals also vary in their
levels of skills or abilities (Harrison and Rainer Jr., 1992; Palmer, 1997; Good and
Michel, 2013). Moreover, individuals differ in their relational ability (i.e. the ability
to interact and engage with others) and integration ability (i.e. the ability to make
sense of differing elements such as knowledge and artefacts) (Felin et al., 2015).
Therefore, variations in these dimensions of individuals may influence the rationale
behind the choices that they adopt and, consequently, organizational outcomes.
Heterogeneity of organizational outcomes, under similar strategic directions, may
therefore largely owe to individuals’ diversity and choice of actions (Hambrick et al.,
1996; Noda and Collis, 2001).
The servitization literature lacks an explicit focus on individuals and their role in
servitization. Most scholars have focused on organizational-level causes and their
outcomes during servitization (Baines et al., 2009a; Martinez et al., 2010; Visnjic
Kastalli and Van Looy, 2013; Reim et al., 2015; Baines et al., 2017). Exceptions are
Gebauer et al. (2005) and Ulaga and Loveland (2014), who have outlined certain
managerial motivation factors that support servitization within firms. Recently,
23
Luoto et al. (2017) suggested an underlying assumption of the role of managers.
However, there is no clear focus on individuals and their role in supporting or
hindering servitization. Given that individuals’ heterogeneity and interactions play a
significant role in firm-level outcomes, a focus on individuals could enrich the
servitization literature. Focusing on individuals and their interactions could fill the
current gap in the literature, providing a microfoundation-based view of
servitization.
Advanced service provision in manufacturing firms requires major organization-wide
transformation that affects all levels of the firm. This organization-wide
transformation entails change, which results in innumerable complexities and
conflicts that lead to resistance within the firm (Van de Ven and Poole, 1995; Kotter
and Schlesinger, 2008; Rafferty and Jimmieson, 2016). The servitization literature
identifies varying degrees of organizational-level resistance faced by manufacturing
firms in their transition towards becoming service providers (Brax, 2005; Gebauer et
al., 2010; Lightfoot et al., 2013). During this transformation, however, the role of
individuals, whose opposition to any change in the status quo is responsible for much
of the resistance to change within organizations, is poorly understood. Accordingly,
we need to develop a deeper understanding of individuals and their contribution to
servitization efforts within the firms.
2.4. Understanding Organizational Transformation Challenges
through a Multilevel View
As the sections above discuss in depth, the servitization of manufacturing firms, and
the corresponding shift towards providing increasingly advanced services, entails a
large-scale organization-wide transformation. This transformation towards advanced
services therefore affects multiple levels of the firm (Oliva and Kallenberg, 2003;
Baines et al., 2017; Martinez et al., 2017). Although studies have explored numerous
aspects of the challenges involved in the transformation towards advanced services,
they provide explanations typically focusing on function-specific practices without
linking transformational initiatives at different organizational levels (Baines and
Lightfoot, 2013; Martinez et al., 2017; Rabetino et al., 2017). A multilevel
24
understanding of the transformation process could provide a holistic view of the
transformation process, linking various aspects at multiple levels within the firm. This
dissertation addresses this gap in the literature by exploring specific transformational
challenges that relate to the business model, capabilities, and individuals during
servitization in manufacturing firms.
25
3. Research Methods
This chapter presents and discusses the methods adopted in this dissertation. The chapter first describes the
background of the research. Thereafter, it presents the rationale for using a qualitative case study approach,
and describes the literature review, case selection, data collection, data analysis, and quality aspects of the
research. Finally, a table summarizes the methods adopted in this dissertation.
3.1. Research Background
My research journey began in spring 2014, when, as a PhD student, I joined the
Entrepreneurship and Innovation Group at Luleå University of Technology (LTU).
My research was initiated as part of a Vinnova-funded project, which focused on
enhancing the ability of large Swedish manufacturing firms to offer global product-
services. Thirteen firms were part of this project. Data collection was primarily
conducted within these 13 firms, with a specific group of firms providing the data
collection setting for each appended paper.
The first step in this research process was to conduct an extensive literature review
(see the literature review section later in this chapter) to gain familiarity with the
literature and understand the pertinent questions for further research in this domain.
Concurrently, workshops and interviews were carried out in these firms to provide
insights into the challenges and possible solutions with respect to these firms’ attempts
to develop and offer advanced services. These practical insights, coupled with the
literature review, helped develop the initial ideas for the research problems that are
addressed in this dissertation.
3.2. Research Approach
Despite the prominence of servitization in literature and practice, ‘theoretically it is
still largely in a nascent phase’ (Kowalkowski et al., 2017, p. 82; Zhang and Banerji,
2017). Therefore, rich, detailed and evocative data are needed to further our
understanding of phenomena related to advanced services (Edmondson and
McManus, 2007; Kowalkowski., et al, 2017). In such a nascent phase of theory
development, research should ask open ended questions that aim to help unearth
26
novel or unusual phenomenon, provide understanding of how a process unfolds, or
provide insights to unexplained relationships (Edmondson and McManus, 2007;
Kowalkowski., et al., 2017), such as that of a multilevel view of the transformation
towards advanced services. Accordingly, this dissertation adopts a qualitative
approach that aims to further explore the phenomena of transformation towards
advanced services, based on open-ended research questions and data collection
primarily through interviews to provide better understanding, and invite further
research on the issue (Edmondson and McManus, 2007).
A case study method was adopted as it is best suited to the study of topics where
gathering rich information from cases is expected to identify new aspects of a
phenomenon (Eisenhardt, 1989; Voss et al., 2002). Case studies are also suitable
when asking ‘what’ and ‘how’ questions, that are designed to unearth the richness
and complexity of a phenomenon in its natural context (Lincoln and Guba, 1985;
Eisenhardt, 1989; Miles and Huberman, 1994), such as those in this dissertation. Case
studies also help provide a better understanding of the underlying dynamics and
relationships of the subject (Eisenhardt, 1989) – in this case, organizational
transformation towards advanced service provision.
In this dissertation, a multiple case study approach was adopted. This approach
provides opportunities to seek patterns across cases to verify the existence of the
phenomenon whilst strengthening the basis for analysis (Eisenhardt, 1989; Ozcan and
Eisenhardt, 2009). Accordingly, all papers in this dissertation – Paper 1 to Paper 5 –
are multiple qualitative case studies.
3.3. Literature Review
The literature review for this dissertation was carried out continually throughout the
research process. At the start of the research process, the literature review was carried
out using keywords that related to manufacturing firms’ transition towards providing
combinations of products and services to customers. The literature review spanned
numerous literature streams, specifically: hybrid solutions, functional products,
product-service systems (PSS), industrial product service systems (IPS2), service
27
dominant logic, service infusion, and servitization. Altogether, 234 articles were
reviewed in varying details to develop an overview of the phenomenon. The goal of
this initial literature review was to gain a general understanding of the phenomenon,
analyse the salient literature, and discover the key underpinnings and interesting
avenues for research.
Thereafter each paper required additional reading and adjustments to the theoretical
frameworks and supporting literature (ambivalence theory, literature on business
models etc.). Indeed, the literature review in a research process is never sequential;
it is an iterative process, whereby new literature is continually accessed and analysed
(Croom, 2009). Several sources were used to conduct the literature review.
Academic databases such as JOSTR, EBSCO, Science Direct, Emerald Insight,
Google Scholar, and Scopus were used. Additionally, the reference list of seminal
articles and books was used to access literature during the research process.
Suggestions from supervisors, colleagues, and peers also aided the literature search in
specific contexts.
3.4. Case Selection
This research was initiated as part of a Vinnova-funded project related to the subject
of this dissertation. Therefore, the project firms formed the population of cases in
this dissertation. These firms were large Swedish industrial firms at varying stages of
servitization (i.e. in terms of the nature and complexity of the services offered to
customers). These firms were also part of the project because they had been engaged
in servitization efforts for many years and were leading advanced service providers in
their respective industries. Each firm had at least one advanced service offering in its
portfolio. Across all firms, there was also a strategic emphasis on servitization and
substantial investment of resources in developing more advanced service offerings.
From the population of 13 companies involved in the project, a theoretical sampling
was used to select cases for each appended paper. Based on the research question
addressed in each paper, cases were selected where the phenomenon of enquiry was
present and would most likely yield rich information for theorizing (Gioia et al.,
28
2013). For example, in Paper 4, organizations were sampled if they were considered
industry pioneers in terms of offering advanced services and establishing digitalization
capabilities to support advanced service development and provision worldwide.
Subsequently as the data collection and analysis progressed, in some instances
additional cases have been included to help with the emerging theorizing process.
For example, in Paper 5, there were an initial sample set of three cases to which three
were added later as we progressed through the research process to look for individual
tactics in firms with varying levels of servitization.
In each paper, attempts were made to identify theoretically suitable firms based on
the criterion of gathering rich informant data to analyse and address the research
questions. The goal throughout the research process was to find as many cases as
possible within the given theoretical, spatial, and resource boundaries.
3.5. Data Collection
Data were gathered primarily through semi-structured interviews. These interviews
provided real-time accounts of people who experienced the subject of theoretical
interest (Gioia et al., 2013). Additionally, these semi-structured interviews helped
explore various facets of servitization that required extensive back-and-forth
discussion, and they provided the opportunity for follow-up questions. In certain
cases, such as Paper 3, data were also collected through workshops that were
conducted during the preliminary research stages.
The interviews within the case companies were conducted with an initial group of
contacts. These contacts were individuals who were directly involved with the
subject of enquiry (e.g. leading role in organizational servitization transformation).
Subsequently, data collection progressed to other individuals who were related to or
who were experiencing the phenomenon of emerging theoretical interest.
The data collection process in each paper was unique, albeit with only minor
variations from the process that is described above. Throughout the research period
of four years, the data collection process progressed in multiple waves across the case
29
companies. Plans were made to collect data for multiple papers in the same wave to
maximize data collection efficiency. However, data collection was also done with
the specific focus on an individual paper during the research process on a need basis.
Although most interviews were conducted by the author of this dissertation, overall
data collection was a team effort. Many interviews were conducted by a team of co-
authors or by specific co-authors. Details of the interviews and data collection for
each paper are presented in the corresponding appended paper. Secondary data such
as strategy documents, plans, presentations, white papers, and website information
were also collected.
Most interviews were recorded, transcribed, and stored in specific folders that were
marked for each study. Some interviews could not be recorded because sensitive
company information was discussed during the meeting. During such meetings,
extensive notes were made to capture the data. Additional information such as
secondary data, as well as notes and observations that were made during the interview
process, were also stored in the specific research folders for future access.
3.6. Data Analysis
The challenge of qualitative case study research lies not only in collecting the data,
but also in making sense of the data to provide a theoretical contribution. Numerous
data analysis approaches have emerged in qualitative research. These approaches
suggest various rules, formats, and norms for data analysis. In this dissertation, an
inductive approach was used to identify, analyse, and report patterns within the data.
More specifically, the inductive analysis method proposed by Gioia and colleagues
was used (see Nag et al., 2007; Gioia et al., 2010; Gioia et al., 2013). This method
draws on individuals’ descriptions of events to build a data structure that illustrates
the relationships between concepts. All papers in this dissertation used this kind of
interpretive approach to analyse the data.
Following the suggestions of Gioia and colleagues (Nag et al., 2007; Gioia et al.,
2010; Gioia et al., 2013) and using the informant descriptions, the analyses were
conducted to identify patterns and build a data structure that progressively aggregated
30
first-level codes into categories, themes, and finally aggregated dimensions. This
approach not only helped build the data structure, but also provided a visual guide
of the progression from raw data to identified themes, demonstrating the analytical
rigour of this qualitative research (Tracy, 2010; Gioia et al., 2013). The analysis
process involved constantly moving back and forth between the entire data sets, the
coded extracts that were being analysed, and the analysis of the data that were being
produced (Gioia et al., 2010; Gioia et al., 2013). The analyses also involved engaging
with the literature to help discern the emerging constructs at various stage of the
process (Eisenhardt, 1989; Braun and Clarke, 2006, Gioia et al., 2013). In most
papers, the literature engagement typically began once the aggregated second-order
themes had been delineated (Gioia et al., 2013). Therefore, the data analysis was
typically iterative, and cyclical (Gioia et al., 2013; Gioia and Pitre, 1990). This type
of inductive analysis process clearly shows the path from first-order codes to higher-
order themes and aggregated dimensions (Gioia et al., 2013).
3.7. Research Quality
The concepts of reliability, internal validity, construct validity, and external validity
provide a basic framework for ensuring the quality of scientific research (Patton,
2002; Roberts et al., 2008; Yin, 2008). In qualitative research, such as this
dissertation, however, fulfilling research quality requirements based on these criteria
is more difficult (Eriksson and Kovalainen, 2008; Yin, 2008). Several measures were
nonetheless taken to enhance the research quality of this dissertation.
Reliability concerns replication of the results of the research. The results should be
approximately the same if two or more researchers study the same cases with the
same purpose (Yin, 2008). To improve reliability, step by step explanation of how
the study was conducted has been presented in each of the papers appended to this
dissertation. Additionally, a detailed case study database was created. This database
contains the list of respondents (with their names, designations, and contact details),
interview guides, notes, documents, interview recordings, and transcripts for each
study. This database can be used to retrieve data when conducting similar studies in
the future (Yin, 2008).
31
Construct validity is the degree to which a test measures what it claims or purports
to measure (Schwab, 1980). In qualitative research, construct validity is sometimes
referred to as the trustworthiness of research (Guba, 1981; Yin, 2013). Several
measures were taken to use multiple sources and establish a clear chain of evidence
to show readers how the results of each study matched the key conclusions (Yin,
2008). In this dissertation, data were triangulated amongst multiple sources
(interviews and secondary data from various sources). Triangulation was also
achieved by combining theory to explain the phenomenon that was under study
(Eisenhardt, 1989; Kushner and Morrow, 2003). The iterative analysis process and
the data structure figure show the links between the emerging findings in the papers.
The findings sections of the papers offer informant quotations that align with the
example in the emergent data structure figure to illustrate the connection between
data and theory (Gioia et al., 2013). Additionally, all authors analysed the data
independently. Where disagreements arose, the findings were discussed and the
analysis iterated until a consensus was reached. The findings have also been presented
at several workshops involving the case companies to elicit feedback and confirm
their validity.
Internal validity refers to causal relationships where certain conditions are proved to
lead to other conditions (Yin, 2008). This form of validity does not apply to the
exploratory case studies in this dissertation.
External validity refers to the generalizability of findings. The multiple case study
design and the use of literature during analysis helped make the findings transferable
to other similar cases (Eisenhardt, 1989; Gioia et al., 2013). However, the goal in
this dissertation was only to achieve analytical generalizations (i.e. from empirical
data to theory and not to the general population) (Eisenhardt, 1989; Gioia et al.,
2013).
32
3.8. Methodological Overview of Dissertation
As discussed above, this dissertation followed a qualitative case study approach to
improve our understanding of multilevel organizational transformation towards
advanced service provision in manufacturing firms. Based on the collection of data
in several waves across 13 large Swedish industrial firms and adopting an inductive
data analysis approach, this research provides a multilevel explanation of
manufacturing firms’ overall transformation from providers of products to providers
of advanced services. The table below provides a methodological overview of the
research that summarises its research approach, sampling strategy, data collection,
analysis method and quality measures undertaken.
Research purpose
To improve our understanding of multilevel organizational
transformation towards advanced service provision in
manufacturing firms
Research setting Large Swedish industrial manufacturers engaged in
servitization; Industry leaders in advanced service provision
Research approach Qualitative; Multiple case studies
Sampling strategy Theoretical sampling
Data collection Interviews, workshop notes, documents, websites
Analytic approach Gioia analysis
Quality of research
Triangulation (data, theoretical); Consideration for reliability
and validity issues (case study database, Gioia method –
inductive analysis and data structure, verbatim quotes to support
findings, co-author validation, informant feedback, multiple
cases)
33
4. Overview of Appended Papers
This chapter presents the main findings of the appended papers. The findings of these five papers collectively
contribute to fulfilling the purpose of this dissertation. This chapter summarizes the research gap that is
identified in each paper and highlights the methods and corresponding key findings that help address these
gaps.
4.1. Paper 1
Lenka, S., Parida, V., Sjödin, D. R., & Wincent, J. (In Press). Servitization and co-
existing product and service orientations: Triggers, manifestation, and consequences
of organizational ambivalence. International Journal of Operations and Production
Management.
In the servitization literature, the predominant assumption is that the transition of
product-oriented companies into service-oriented companies occurs along a
unidirectional product-service continuum (Oliva and Kallenberg, 2003; Matthyssens
and Vandenbempt, 2010; Raddats et al., 2016). However, recent studies have shown
that, in reality, few product-oriented firms progress along this unidirectional
continuum. Instead, they continue to focus on their product-oriented businesses in
parallel with their growing service-oriented businesses over a sustained period
(Storbacka et al., 2013; Kowalkowski et al., 2015). This observation implies that one
of the transformational challenges facing firms lies in dealing with the co-existing and
conflicting orientations within the firms throughout their servitization journeys
(Windahl and Lakemond, 2010; Salonen, 2011; Storbacka et al., 2013). The
simultaneous pull from these two conflicting orientations can have a detrimental
effect on the implementation of a servitization strategy as these firms strive to become
advanced service providers. However, few studies have specifically questioned the
assumption of a unidirectional transition along a product-service continuum or
provided insights into the consequences during the servitization process
(Kowalkowski, et al., 2015; Kowalkowski et al., 2017; Martinez et al., 2017). To
address this gap in knowledge and to provide new insights into the effect of these
co-existing orientations in servitizing firms, this study examines the implications of
the co-existing product and service orientations during servitization.
34
An exploratory approach with a multiple case study design was used to understand
the effects of co-existing product and service orientations in five large manufacturing
firms that are currently engaged in implementing a servitization strategy. The study
shows that a co-existence of divergent product and service orientations during
servitization results in tensions, oppositions, and conflicts. These opposing
experiences give rise to organizational ambivalence (i.e. the simultaneous attraction
towards desirable yet contradictory alternatives), an issue that has not yet been
discussed in the servitization literature. More specifically, the paper presents empirical
evidence of the manifestation of ambivalence at the strategic, tactical, and operational
levels. The empirical findings also suggest that ambivalence starts at the strategic level
of a firm and multiplies as it cascades down to the lower levels. Ambivalence thereby
becomes a widespread phenomenon that manifests itself during servitization. This
paper outlines the positive and negative consequences of ambivalence. These
outcomes further show how effective management of ambivalence could be a key
factor in accomplishing the desired goals during servitization.
4.2. Paper 2
Lenka, S., Reim, W., Frishammar, J., & Parida, V. (Under peer review). Achieving
alignment in business model for product-service systems: Insights from global
manufacturing firms
Offering product-service systems (PSS) is a challenging yet promising way for firms
to fulfil customers’ needs and ensure profitable growth in manufacturing firms
(Tukker, 2004; Boehm and Thomas, 2013; Lindahl et al., 2014; Visinjic et al., 2016).
Offering PSS is challenging because supplier firms need to shift their focus from the
design and sale of physical products to the provision of functions and results by
efficiently combining products and services. When firms try to provide functionalities
and results through their PSS offerings, they must ensure that the activities of internal
and external stakeholders are aligned with the vision of creating value through these
functionalities and results. In the literature, descriptions of business models are
predominantly conceptual, and very few suggest comprehensive PSS business model
35
frameworks that encompasses how the firm creates, delivers, and captures value and
that could be implemented in practice (Boons et al., 2013; Ferreira et al., 2013; Ng
et al., 2013; Adrodegari and Saccani, 2017). Alignment of the components that
underlie such a framework has also been cited as critical for the successful
implementation of a PSS based business model (Kindström, 2010; Kujala et al., 2011;
Kindström and Kowalkowski, 2014; Helms, 2016; Adrodegari et al., 2017).
However, we still lack a clear understanding of how such alignment can be achieved.
To address this gap, this paper tries to explicate the underlying activities that is
necessary to implement a comprehensive PSS based business model. This paper also
tries to enhance our understanding of how to align the components to ensure internal
as well as external fit in implementing a PSS based business model.
Based on multiple case studies of three global manufacturing companies, this paper
describes a comprehensive PSS business model framework that helps provide an
activity-based description of how firms can create, deliver, and capture value through
PSS. A typology for specific alignment problems is identified. This typology provides
insights into how disregarded, deficient and disconnected activities affect the overall
alignment of the underlying logic of how value is created, delivered and captured
that prevent realization of the bottom-line payoffs that PSS promise to deliver. This
paper details the activities that can help firms implement a PSS business model and
provides implications for analysing and improving PSS offers.
4.3. Paper 3
Parida, V., Sjödin, D. R., Lenka, S., & Wincent, J. (2015). Developing global
service innovation capabilities: How global manufacturers address the challenges of
market heterogeneity. Research-Technology Management, 58(5), 35–44.
Service-led innovation offers the potential for global industrial firms to deliver value
added to their customers (Kohtamäki et al., 2013). The goal of delivering new,
advanced services to diverse customer segments in a range of geographies with
varying cultural and legal requirements makes global service innovation complex and
difficult to achieve. Therefore, traditional industrial firms must develop new
36
organizational capabilities (Den Hertog et al., 2010; Wallin et al., 2015) to help them
do so. Although some servitization literature provides initial insights into the general
service innovation process, our current knowledge of how to address the challenges
of global service innovation is still scarce. To address this knowledge gap, this study
explores how multinational manufacturing firms develop capabilities that allow them
to offer service innovation on a global scale.
An exploratory case study of firms that were leaders in their industries in global
service innovation was conducted. The goal was to understand the key activities and
routines that are employed to overcome the challenges that these firms face during
their attempts at global service innovation. The results of the analysis highlight four
capabilities that can help firms in their attempts at global service innovation. These
four capabilities relate to the firms’ ability to develop global customer insights,
integrate knowledge across global operations, create global offerings through
product-service combinations, and build a global digitalized network of intelligent,
connected assets supported by an analytical engine.
This paper also identifies a progressive path towards building the identified
capabilities for global service innovation. The capability building efforts progress in
three steps: collaboration, integration, and orchestration. In the collaboration phase,
the primary goal is to better understand customers’ needs and capability development
in regional units. In the integration phase, the primary goal is to build on success
stories and benchmark experiences and create synergistic processes amongst regional
units, customers, external actors, and central activities. In the orchestration phase, the
primary goal is to give control of service development to allow regional units to
customize services for clients, map competencies across the regional unit networks,
and transfer these competencies to other regions, through open IT platforms. This
paper also emphasizes the importance of digitalization capabilities for successful
advanced service provision.
37
4.4. Paper 4
Lenka, S., Parida, V., & Wincent, J. (2017). Digitalization Capabilities as Enablers
of Value Co-Creation in Servitizing Firms. Psychology & Marketing, 34(1), 92–100.
The rise of digitalization has largely mirrored the growing importance of services and
their contribution in traditional manufacturing firms (Lerch and Gotsch, 2015).
Servitizing firms have increasingly relied upon their digitalization capabilities to aid
their advanced service provision (Porter and Heppelmann, 2014). One of the crucial
aspects of advanced services is the increased interaction with customers that firms
require to manage and create opportunities for value creation. Although
digitalization’s role in advanced service provision, especially in the context of value
co-creation with customers, has been reported (Kowalkowski et al., 2013; Lerch and
Gotsch, 2015), the question of what constitutes digitalization capability in firms is
still open to debate. Additionally, there has been little discussion on the underlying
mechanisms that clarify how digitalization capabilities actually help firms’ value co-
creation with customers in advanced service provision (Grönroos and Voima, 2013).
To address these gaps in the literature, this paper tries to conceptualize and define
digitalization capabilities. It then explores what mechanisms lie at the heart of how
digitalization capability enable value co-creation with customers.
An exploratory case study of firms that use digitalization as an effective tool in
advanced service provision was conducted. The results identify three underlying
capabilities that are associated with digitalization: intelligence capability, connect
capability, and analytic capability. Intelligence capability is associated with the ability
to configure hardware components to sense and capture information with low
human intervention. Connect capability is associated with the ability to connect
digitalized products through wireless communication networks. Analytic capability
is associated with the ability to transform the available data into valuable insights and
actionable directives for the firm. This paper also identifies two mechanisms whereby
digitalization capabilities enable value co-creation with customers during advanced
service provision. The underlying mechanisms that help in this value co-creation
process are termed as perceptive and responsive mechanisms. Through perceptive
38
mechanisms, firms can help their customers identify, assess, and address specific needs.
Additionally, responsive mechanisms help firms quickly and proactively address
customers’ changing demands, thereby providing firms with an opportunity for value
co-creation with their customers. In this paper, a framework is conceptualized to
provide a holistic view of the value creation process. This framework explains the
scope and potential to increase value co-creation between the firm and customers
through digitalization capabilities and these underlying mechanisms.
4.5. Paper 5
Lenka, S., Parida, V., Sjödin, D. R., & Wincent, J. (In Press). Exploring the
microfoundation of servitization: How individual actions overcome organizational
resistance. Journal of Business Research
Transformation towards advanced service provision entails organizational change
across all levels of the firm. These changes face resistance at all levels of the firm, and
this resistance must be managed or mitigated to ensure successful servitization
implementation (Turunen and Toivonen, 2011; Huikkola et al., 2016). Resistance
to change in the organizational context has been attributed to individuals who oppose
the status quo. Therefore, addressing challenges at the individual level is vital to
overcome resistance during organizational transformation (Lawrence, 1973; Jones,
2004). Resistance during servitization has been reported in various studies. These
studies have identified resistance that relates to strategy, culture, and processes within
the firm (Brax, 2005; Martinez et al., 2010; Gebauer and Kowalkowski, 2012; Parida
et al., 2015). Much attention has been devoted to organizational-level resistance and
its mitigation during servitization (Finne et al., 2013). Individuals, who are a key part
of this resistance, nonetheless receive little attention in the servitization literature (for
exceptions, please see Gebauer et al., 2005; Ulaga and Loveland, 2014). Indeed, it is
individuals who search for and identify valuable opportunities for new services and
champion their development and provision within firms. However, studies of
individuals, who play a key role in overcoming this resistance to servitization, are
scarce. To address this gap, this paper explores how individuals respond to
organizational resistance and drive servitization efforts in manufacturing firms.
39
Based on a multiple case study of six multinational industrial firms engaged in
servitization, this paper identifies four tactics (evangelizing, bootlegging, leveraging,
and collaborating) that individuals employ to overcome resistance to support
servitization efforts. This paper thus provides insights into the microfoundations of
servitization by showing the effects of individual actions on organizational-level
outcomes. This paper highlights the conditions under which these tactics are
employed. These conditions relate to the individual’s characteristics, the level of
servitization, and the position of the individual. This paper provides an individual-
level explanation of overcoming resistance during servitization, thereby enriching
the literature, which currently offers a predominantly organizational-level
explanation.
40
5. Towards a Multilevel Servitization Framework
This chapter integrates the findings of the paper, which provide inspiration for the proposal of an initial
multilevel transformational framework of servitization. By drawing on the findings of the appended papers
as well as knowledge of the empirical setting, this proposed framework links the transformation across multiple
levels of the firm during servitization.
5.1. Introduction to the Framework
This framework (Figure 1) results from interpreting the findings in the appended
papers to provide a multilevel picture of the servitization process. The framework is
the result of a highly iterative process and inductive reasoning of selected constructs
from the papers. To clarify, the appended papers did not result from the application
of this framework; instead, this framework results from the findings that are reported
in the papers, which are supported by emerging knowledge of the empirical setting.
Therefore, the relationships that are described in this framework might not all be
extensively explored in the appended papers themselves. This framework offers an
initial suggestion for a multilevel framework in manufacturing firms’ transformation
towards advanced service provision. It provides a view of the key constituents across
the multiple levels and how they are linked together in the transformation towards
advanced services in manufacturing firms. This framework does not make any claim
of inclusivity of all aspects of advanced service provision, but a synthesis of key aspects
that have been highlighted across the papers in the research.
The framework shows how organizational ambivalence manifests itself because of
co-existing product and service orientations when the manufacturing firm initiates
its transformation towards advanced service provision. The organizational
ambivalence in this transformation process affects multiple levels of the firm. It affects
the strategic level of the firm, in relation to the business model and its activities; it
affects the operational level of the firm, in relation to capability development and
delivery of advanced services; and it affects individuals within the firm, manifesting
itself at the lowest level of the firm. Thus, the transformation takes place in this
ambivalent environment across multiple levels of the firm. This ambivalence affects
41
these levels either by triggering certain responses or by affecting how the actions are
carried out. This framework also suggests how the various levels of the firms are
linked during transformation towards advanced services. This link refers to how
individual actions enable capability building for advanced services and how
capabilities for advanced services help address business model alignment problems,
thereby supporting the firms’ transformation towards advanced service provision.
This framework therefore provides a multilevel explanation of firms’ overall
transformation towards advanced service provision.
Figure 1. A multilevel framework of the manufacturing firms’ transformation towards advanced
service provision
Outc
ome
Tran
sfor
mat
ion
tow
ards
adv
ance
d se
rvic
e pr
ovis
ion
Adva
nced
Ser
vice
Pro
visi
on
Addresses
Enables
Capabilities for development and delivery of advanced services
Collaboration Integration Orchestration
Progressive stages of capability maturation
Developing Customer Insights
Integrating Knowledge
Creating Offerings
Digitalization
Trigg
ers
Individual tactics
Evangelizing Bootlegging Leveraging Collaborating
Advanced service based business model implementation
Alignment problems
DisconnectedDeficientDisregarded
IndividualLevel
OperationalLevel
StrategicLevel
Organizational ambivalence across multiple levels of the firmAffects
42
5.2. Detailed Explanation of the Framework
5.2.1. Servitization Transformation Triggers Organizational
Ambivalence
The studied manufacturing firms had a heritage of a strong product orientation
because of their focus on offering a wide array of standardized products through
predominantly transactional relationships with customers. When the firms start to
implement a servitization strategy, they increasingly focus on offering a range of
basic and advanced services or product and service combinations. Doing so entails
customizing offerings and building strong relationships with customers (i.e. service
orientation). However, as our findings illustrate, the firms do not forgo their
product orientation as they transform towards offering more advanced service
offerings. Therefore product and service orientations co-exists throughout the
firm’s servitization journey over sustained period (Storbacka et al., 2013;
Kowalkowski et al., 2015; Martinez et al., 2017). When these two opposing
orientations are pursued in the same organization, oppositions and conflicts emerge
as the firm strives to perform well in both areas (Morcos and Henshaw, 2009).
Specifically, as this dissertation demonstrates, in such situations, ambivalence
manifests itself because of the pull from desirable yet contradictory alternatives
(Larson and Tompkins, 2005; Ashforth et al., 2014). For example, decisions
regarding change towards advanced service provision are constantly deprioritised by
the top management due to their inherent pull towards the product business. This
results in long delays in introduction of the advanced services in the marketplace.
Such instances of ambivalence are observed across multiple levels of the firms, from
strategic decision making to operational processes and individual actions.
5.2.2. Strategic Level Transformation - Business Model for
Advanced Service Provision
From a strategic perspective, ambivalence affects the activities that are necessary to
implement an advanced service business model. When ambivalence is experienced,
the activities that must be undertaken in the context of advanced services are affected
43
by the existing pull towards the product orientation within the firm. The resulting
situation means that activities are either disregarded (i.e. they are completely
overlooked), deficient (i.e. execution is poor), or disconnected (i.e. they are fine on
their own, but they are not linked to other activities). These problems create a
challenging situation that prevents the necessary alignment of the business model
components i.e. value creation, value delivery and value capture, with the overall
business strategy of the firm to provide advanced services.
Failure to align the business model components can have adverse implications for
transformation towards implementing an advanced service based business model. For
instance, a disregarded problem arose when a machine tool manufacturer lacked an
interactive mechanism on its online customer tool configuration platform, thereby
disregarding the opportunity to create value from customer interactions. An example
of a deficient problem arose when the centralized service unit of an automotive
manufacturer that was capable of supporting standardized offerings was made
responsible for ensuring the upkeep and availability of a customized solution, despite
lacking the necessary delivery competencies. This situation led to a clear deficiency
in value delivery by the firm and significant operational problems (e.g. costly
maintenance). Finally, an example of a disconnected problem in a heavy equipment
manufacturer involved the revenue model for an availability contract. This model
was designed for equated monthly receipts, even though the costs of operation for
the asset increased gradually over the period of the contract. The firm was therefore
unable to effectively capture value in this instance.
As illustrated by this research, the problems that are encountered in business model
implementation can be addressed through the application of new capabilities that are
developed for advanced service provision. For example, digitalization capability in
the form of an online digital platform is used for conditional monitoring of assets and
analysis of operational data to detect new value creation opportunities and propose
new services to customers in several case firms. Similarly, knowledge integration
capability is used in several of our case firms to ensure coordinated offer development
and provide upkeep and optimization services for asset based life-cycle solutions
involving centralized units, the frontline organization, and local third-party vendors.
44
5.2.3. Operational Level Transformation - Capabilities for
Advanced Service Provision
Capability development at the operational level to support advanced services is
affected by ambivalence. This ambivalence means that the firm is pulled between the
existing processes that support a product orientation and the new processes that must
be developed to support a service orientation.
Ambivalence affects the capabilities for advanced service provision in two ways. First,
the effectiveness of the underlying processes for advanced services is compromised.
New advanced service-related processes are developed based on the existing product-
oriented benchmarks. Therefore, the ability of new processes to support capability
development for advanced services is affected. For example, in a heavy machinery
manufacturer in our research, the solution development process was based on the
firm’s sequential product development process. Such a process for solutions
development proved ineffective for the firm because it required a more iterative
process to enable solutions development. Second, because of ambivalence in firms,
capability development evolves gradually. First, it evolves in the form of
collaboration to initiate sense-making. Then, integration is attempted to align and
cross-fertilize skills, routines, and processes. Finally, orchestration is used to make full
use of the developed routines, processes, and skills. For example, in one of the case
firms, advanced service development was initially approached as projects where
various people and resources were co-opted from diverse departments to work
together for specific offerings. Next, they moved to using more established processes
and competencies relating to the development of advanced services. Currently,
established processes and competencies are used for both customization and
industrialization of their advanced service offerings across the diverse geographies
where they operate.
Individual actions enable capability development within firms in many ways.
Individuals can either trigger a change in processes or help initiate process building
efforts that enable capabilities. For example, in one of our case firms, a portfolio
manager influenced the decision to adopt a new go/no go decision framework
45
relating to an availability contract that was being developed by the portfolio
manager’s team. Similarly, a solutions development manager at a packaging company
in our research initiated the development of a new R&D solution, results of which
were used as inputs to a process model, that was adopted by the firm for its new
service development initiatives.
5.2.4. Individual Level Transformation – Tactics for Advanced
Service Provision
Individuals are guided by their roles and responsibilities to support organizational
functioning. The co-existence of product and service orientations creates
ambivalence in how roles and responsibilities are defined in the firm. Individuals are
therefore faced with conflicting performance scripts (e.g. KPIs, reporting obligations)
during the transformation towards advanced services.
For example, in the case of a tool manufacturer in our research, the sales personnel
were assigned the task of tools sales as well as selling a result-oriented solution that
aimed to decrease overall operational costs for customers. The sales force was caught
in a dilemma because the pursuit of one goal negatively affected the other.
Individuals employ various tactics to deal with these ambivalent situations and
execute their assigned roles and responsibilities. The choice of individual actions is
guided by the individual’s personal characteristics and relational and integrational
abilities. For example, in one of our case firms, an R&D manager did not report the
advanced service development activities in the initial stages. The R&D manager
made personal efforts to take the idea to a prototype stage, at which point it was later
adopted by the firm. In another instance, a manager in our case firm applied for and
secured European funding for R&D into an advanced service when internal funding
for this purpose was unavailable. Individuals’ tactics have been identified in this
research as evangelizing, bootlegging, leveraging, and collaborating. Thus,
individuals contribute to enabling many of the underlying processes and routines to
build the capabilities that are associated with transformation towards advanced service
provision.
46
The transformation towards advanced services during servitization is therefore a
multilevel phenomenon. The various levels of the firms are linked together during
transformation towards advanced services. Therefore, this framework provides a
multilevel explanation of firms’ overall transformation towards advanced service
provision.
6. Discussion
This chapter first presents the main theoretical contributions and managerial implications of this research. It
then concludes with suggestions for future research.
This dissertation was motivated by the need to learn more about organizational
transformation at various levels of manufacturing firms that are engaged in
servitization. Understanding this transformation is crucial, as highlighted by the
challenges facing manufacturing firms that struggle to provide advanced services
(Baines and Lightfoot, 2014; Kowalkowski et al., 2015; Martinez et al., 2017). The
five appended papers further our understanding of various transformational
imperatives in the transition towards advanced service provision. In addition,
Chapter 5 of this dissertation proposes a framework that provides a multilevel
explanation of the firms’ overall transformation towards advanced service provision.
This dissertation contributes primarily to the servitization literature. Although the
servitization literature is well established, theoretically it is still in a nascent stage
(Kowalkowski et al., 2017; Luoto et al., 2017; Zhang and Banerji, 2017). This
dissertation provides new theoretical perspectives that offer a more nuanced
explanation of the relationships that are described in the servitization literature.
6.1. Theoretical Contributions
6.1.1. Servitization and Manifestation of Ambivalence
Emerging servitization research challenges the traditional assumption of a
unidirectional progression along a product-service continuum (Oliva and Kallenberg,
2003; Baines et al., 2009b; Raddats and Easingwood, 2010; Lightfoot et al., 2013;
Smith et al., 2014; Raddats et al., 2016; Baines et al., 2017) and instead posits co-
existing product and service orientations during servitization (Storbacka et al., 2013;
Kowalkowski et al., 2015). This view reframes the discussion of the predominant
research focus. Instead of focusing on how firms can overcome their product
orientation to become service oriented (Matschewsky et al., 2017), this alternative
47
48
view shifts the focus on how firms can manage their co-existing product and service
orientations (Windahl and Lakemond, 2010; Salonen, 2011; Storbacka et al., 2013).
This dissertation contributes to the emerging view by showing that manufacturing
firms do indeed encounter this situation and experience ambivalence due to their
dual focus on contradictory orientations during servitization. This dissertation
thereby addresses calls to explore the implications of co-existing orientations during
servitization (Kowalkowski et al., 2017; Martinez et al., 2017).
By examining the underlying causes and possible implications of being
simultaneously drawn towards desirable yet contradictory alternatives, ambivalence
theory provides a new lens through which to study the servitization process (Larson
and Tompkins, 2005; Ashforth et al., 2014). This dissertation aids our understanding
of how the widespread phenomenon of organizational ambivalence affects all levels
of the organization during servitization. This multilevel explanation enriches the
emerging discussion in the literature which calls to study the underlying processes
and links across multiple organizational levels during servitization (Baines and
Lightfoot, 2013; Rabetino et al., 2017).
This dissertation also illustrates the positive and negative consequences of
ambivalence during the servitization process. The positive consequences of
ambivalence (e.g. proactive decision making and resource optimization) are
interesting implications of the co-existing product and service orientations during
servitization. The positive consequences of ambivalence provide insights that can be
used to develop new processes to help firms change and improve their existing
capabilities. These positive consequences of ambivalence provide novel insights to
the servitization literature. Prior to this dissertation, the discussion in the literature
had largely focused on the negative implications of servitization that firms must
overcome to achieve their goals of advanced service provision (Baines et al., 2009a;
Parida et al., 2014; Alghisi and Saccani, 2015; Durugbo and Erkoyuncu, 2016; Baines
et al., 2017; Burton et al., 2017; Zhang and Banerji, 2017).
49
6.1.2. Servitization and Transformation of Business Model
In the servitization literature we find the growing interest in the concept of business
model in recent years (Kindström, 2010; Barquet et al., 2013; Kindström and
Kowalkowski, 2014; Reim et al., 2015; Kindström and Ottosson, 2016; Androdegari
and Saccani, 2017). However, studies have mostly used idiosyncratic definitions that
fit the purpose of their studies (Zott et al., 2011; Velamuri et al., 2013; Wirtz et al.,
2016) or in reference to revenue models, customer offerings, and specific business
model components. Accordingly, the focus has largely been on understanding a few
key aspects of business models (Kindström, 2010; Boons et al., 2013; Ferreira et al.,
2013; Ng et al., 2013; Adrodegari and Saccani, 2017). Usage of comprehensive
business model frameworks in the servitization literature is still rare (Kindström and
Kowalkowski, 2014; Adrodegari et al., 2017). This dissertation contributes to the
servitization literature by providing a comprehensive business model framework that
clearly shows how value is created, delivered, and captured in advanced service
provision.
The business model frameworks that are described in the servitization literature also
lack an activity-based description that characterize each of the components of value
creation, delivery, and capture (Adrodegari and Saccani 2017). An exception is
Kindström and Ottosson (2016). This dissertation contributes to the servitization
literature by providing a thorough understanding of the activities that firms must
undertake to support their transformation towards implementing an advanced service
based business model (Al-Debei and Avison, 2010; Adrodegari et al., 2017).
Even if firms undertake the activities that relate to each business model component,
this may not be enough to ensure an effective implementation of the advanced
service based business model. The need to align the business model components,
with the overall strategy to provide advanced services, has been emphasized in the
literature (Kindström, 2010; Kujala et al., 2011; Ferreira et al., 2013; Kindström and
Kowalkowski, 2014; Helms, 2016; Adrodegari et al., 2017). However, scarce
research addresses how the alignment of various business model components can
actually be achieved. The dissertation contributes by identifying three types of
50
alignment problems that arise when the activities are disregarded, deficient or
disconnected. The dissertation thereby provides new insights into how firms that
seek to provide advanced services can avoid these problems to ensure there is internal
as well as external fit in how the firm creates, delivers and captures value in advanced
service provision.
6.1.3. Servitization and Development of Capabilities
Servitization scholars acknowledge that to provide advanced services, firms require
different capabilities from those required to provide products or basic services
(Antioco et al., 2008; Ulaga and Reinartz, 2011; Baines and Lightfoot, 2013).
Various capabilities that support advanced service provision have been discussed in
the literature (Ulaga and Reinartz, 2011; Paiola et al., 2013; Baines and Lightfoot,
2014; Raddats et al., 2015; Wallin et al., 2015; Shi et al., 2017). This dissertation
contributes to this discussion on the capabilities that are required for advanced service
provision. Four capabilities, which relate to creating offerings, developing customer
insights, integrating knowledge, and digitalization, have been identified, that support
the development and delivery of advanced services. These capabilities are identified
in this dissertation also in relation to advanced service provision in a global context.
Although most large manufacturers have a global footprint, studying the capabilities
that are required for advanced service provision in a global context remains an under-
researched topic (notable exceptions include Kowalkowski et al., 2011). This
dissertation therefore contributes to our understanding of the capabilities that support
the global provision of advanced services.
In the servitization literature, digitalization capability is increasingly seen as a key
capability for firms to provide advanced services (Grubic, 2014; Porter and
Heppelmann, 2014; Kohtamäki and Helo, 2015; Sjödin et al., 2016a; Huang and
Rust, 2017). However, there is no clear understanding of what constitutes
digitalization capability and the underlying processes or mechanisms through which
it contributes to the development and delivery of advanced services. This dissertation
contributes to the servitization literature by conceptualizing digitalization capability.
A definition of digitalization capability is provided, and three broad dimensions of
51
this capability are established (Lenka et al., 2017). It also provides insights into how
digitalization capabilities enable mechanisms whereby firms can address their
challenges in advanced service provision, such as in value co-creation with
customers. This dissertation also shows how digitalization capabilities act as enablers
of other capabilities during servitization. It thereby supports the emerging discussion
in the servitization literature of the interdependency and interplay amongst the
capabilities for advanced service provision (Sjödin et al., 2016a).
Finally, this dissertation provides a capability maturity model, which outlines the
activities that must be progressively performed at each stage of the development
process. Capability maturity models that describe an evolutionary improvement path
from ad hoc, immature processes to systematic, well-structured and formalized
processes have been described in various management areas (Strutt et al., 2006;
Zephir and Minel, 2007; McCuen et al., 2012; Caroll and Helfert, 2015; Chen and
Wang, 2016). However, the servitization literature fails to offer such evolutionary
paths for capability development. The capability maturity model from collaboration,
to integration, and then to orchestration, as proposed in this dissertation, contributes
by providing an initial model in the context of advanced services in the servitization
literature.
6.1.4. Servitization and Understanding Its Microfoundations
The microfoundation movement in the strategic management and organizational
theory challenges the belief that individual actors exert a relatively uniform effect on
macro-level outcomes (Abell et al., 2008; Felin et al., 2015; Storbacka et al., 2016).
Calls for understanding microfoundations are at the heart of scientific reduction
(Elster, 1989; Kincaid, 1997), which can help explain collective phenomena and
structures in terms of individuals and their actions and interactions (Felin et al., 2015).
The individual level constitutes the microfoundations of servitization, where
individual actions and interactions lead to emergent, collective, and organizational-
level outcomes (Abell et al., 2008; Felin et al., 2015; Storbacka et al., 2016).
However, the servitization literature offers no explicit focus on individuals or their
52
role in the servitization process. Most studies have focused on organizational-level
causes and outcomes in relation to servitization (Baines et al., 2009b; Martinez et al.,
2010; Finne et al., 2013; Visnjic Kastalli and Van Looy, 2013; Eggert et al., 2014;
Bustinza et al., 2017). Exceptions include Gebauer et al. (2005) and Ulaga and
Loveland (2014), who focused on managerial motivation to extend service business
and potential individual differences amongst high-performing, advanced service
salespersons and product salespersons. Nevertheless, the literature lacks studies that
focus on the individual’s role in either supporting or hindering servitization. This
dissertation brings the individual to the fore, discussing how individuals influence
servitizing firms’ transformation towards advanced service provision. More
specifically, this dissertation identifies the tactics that individuals adopt to support
servitization efforts in response to resistance and opposition. This is one of the first
studies to systematically examine individual-level actions and responses to the firm’s
strategy of providing advanced services, thereby addressing the call for the need for
more multilevel explanations in the servitization literature (Martinez et al., 2017;
Rabetino et al., 2017)
This dissertation enriches our understanding of individuals and their motivations and
responses during servitization (Gebauer et al., 2005; Ulaga and Loveland, 2014),
which are issues that have traditionally been paid scant attention in the literature. It
also provides insights into how individuals’ characteristics and position in the firm
affects the choice of tactic to support servitization efforts. These findings add to our
understanding of how individuals’ abilities such as relational ability, personal values,
and beliefs play a key role in achieving desired outcomes during servitization
(Zenger, 1992; Felin et al., 2012). Furthermore, the conditions that are necessary for
individuals to adopt specific tactics as well as their impact on servitization
implementation are identified. The dissertation thus contributes by showing how
individual actions drive servitization efforts as the firm progresses through its
servitization journey (Martinez et al., 2010).
53
6.2. Managerial Implications
Research should contribute theoretically, as well having practical utility and value
(McGahan, 2007; Corley and Gioia, 2011). In addition to its theoretical
contribution, this dissertation has several implications for managers in servitizing
firms. Advanced service provision is a challenge for manufacturing firms because of
its complexity and the organization-wide transformation that is required in almost
every aspect of the way the firm does business, including business strategy, capabilities,
organizational structure, culture, mindset, and business logic (Ulaga and Reinartz,
2011; Reim et al., 2015; Baines et al., 2017; Martinez et al., 2017). This dissertation
offers several implications for managers in manufacturing firms that are engaged in
advanced service provision.
First, not only is the transformation towards advanced service provision difficult and
complex, but it also lasts considerably longer than expected in most firms. During
this period, both product and service orientations are important, so the organization
will experience ambivalence (i.e. a simultaneous pull towards product and service
orientation) at multiple levels. The firm must therefore learn to understand and cope
with this ambivalence and advance through coherent actions that support the
transformation towards advanced services. The first step towards dealing with
ambivalence is to acknowledge its existence and its potential positive and negative
effects. Subsequently, action plans can be produced to manage and capitalize on
ambivalence. Based on knowledge of the underlying actions that lead to negative and
positive consequences during ambivalence, specific monitoring mechanisms and
incentive programmes could be developed to promote or discourage such actions.
For example, training programmes could be designed to help managers at all levels
learn to identify ambivalence and actions that lead to negative and positive
consequences. Incentive programmes could be implemented to reward actions that
lead to positive consequences. This could help firms to benefit from ambivalence
during servitization instead of having to face its negative consequences.
Second, this dissertation illustrates the transformational power of a few motivated
individuals and their effect on the firm’s transformation into an advanced service
54
provider. Individuals play a major role in organizational outcomes by affecting
processes and decision making. Therefore, the contributions of individuals in
organizational outcomes should be seriously considered by firms. For example,
strategic decisions by top managers could affect the direction of the entire firm.
However, top management teams often consist of the ‘old guard’ of the organization,
and these individuals naturally favour a product orientation. Therefore,
manufacturing firms may benefit from having new top managers who champion
advanced services and thereby support the firm’s servitization efforts. Also, as
discussed in this dissertation, the tactics that individuals employ could be used as a
basis to identify similar behaviour within the firm. Specific KPI’s could be developed
at various managerial and individual levels so that such behaviours can be rewarded
or discouraged to maintain alignment with the overall goals of the group, unit, or
function. Individual managers could adopt specific tactics that prove most effective
because of their suitability to certain conditions that are identified in this dissertation.
Third, digitalization capability is one of the most important capabilities that firms
must develop to be able to provide advanced services. Therefore, managers in
manufacturing firms should focus on building digitalization capabilities as one of the
key capabilities in the firm. Digitalization capability could also be used for
development of other capabilities that firms must build to support their efforts in
advanced service provision. For example, integrating knowledge across the
geographical business units and third-party suppliers that are involved in advanced
service provision could be achieved through intelligent knowledge platforms that
help collect and analyse information to build and spread knowledge across these
entities. By encouraging interaction and exchange between front-end units and
centralized business functions, digital capabilities can also contribute to effectively
managing dispersed assets and orchestrating resources for global advanced service
provision. This can be typically supported through IT platforms, customer
management systems, and virtualized analytical engines that provide responsive
decision-making support.
Fourth, this dissertation provides a detailed activity-based comprehensive framework
for an advanced service business model. This framework could be used by managers
55
to model their activity plans in manufacturing firms that are engaged in servitization
so that they can effectively create, deliver, and capture value through their advanced
services. The typology of alignment problems that is highlighted in this dissertation
can act as a diagnostic mechanism, whereby firms can identify their implementation
shortcomings and take corrective actions wherever needed. This typology of
alignment problems can also act as a guiding mechanism that managers can use to
ensure that they avoid these problems when providing advanced services.
6.3. Suggestions for Future Research
This dissertation covers numerous aspects of advanced service provision in
manufacturing firms. It provides initial observations with the potential for extension
or confirmation through further research.
First, the dissertation sheds light on the transformation from a focal firm perspective.
Yet larger networks of partners and third-party suppliers are crucial for advanced
service provision (Bikfalvi et al., 2013; Story et al., 2017). Therefore, studies that
focus on transformation dynamics within the broader network would be of interest.
For example, an emerging theme is the need to better define and understand the
interaction processes of network actors (Story et al., 2017). Studying the nature of
the interactions between these processes (i.e. whether they should be tightly or
loosely coupled) could provide interesting insights into developing a multi-actor
advanced service transformation framework.
Second, the dissertation provides insights into transformational imperatives when
moving towards advanced service provision. A valuable pursuit for future research
would therefore be to observe firms using longitudinal studies that follow firms
throughout their transformation journey. Doing so could provide interesting insights
into how dynamics change over time and whether new factors emerge that mediate
or moderate the transformation outcomes during advanced service provision.
Third, this dissertation focuses on the transformation towards advanced services in
large industrial firms. In light of the greater perceived flexibility in smaller firms,
56
studies of transformation in small enterprises could help compare and contrast the
findings of this dissertation.
Fourth, this dissertation provides insights into the positive and negative consequences
of ambivalence during the transformation towards advanced services. Further studies
to explore the interaction effect of positive and negative consequences of
ambivalence on servitization outcomes could provide valuable inputs for developing
transformation strategies towards advanced service provision of manufacturing firms.
Fifth, building on the idea of the co-existing product and service orientations that
are discussed in this dissertation, research that seeks to clarify how the competing
product and service based business models co-exist in the same firm would be of
interest. Studies could also address the question of how such business models are
realized given the common organizational resources upon which they are enacted.
Sixth, this dissertation proposes initial suggestions regarding how individuals’
characteristics and positions within the firm affect these individuals’ actions in
supporting transformation. However, studies that focus on the cognitive and
relational abilities of individuals and link these abilities to behavioural responses in
ambivalent conditions could add to our understanding of the underlying human
factor in servitization outcomes. Specific research on how the cognitive and
emotional aspects of top managers affect organizational strategy during servitization
could shed light on the linkages between leadership and servitization outcomes.
Finally, the dissertation provides a suggestive framework of multilevel transformation
during servitization. Studies could build on this framework, by adding other aspects
that could explain this transformation at multiple levels, to make it more
comprehensive. Further inductive studies to provide underlying mechanisms of the
linkages of the various constituents across the multiple levels could help to make the
model more theoretically robust.
57
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PART II
Servitization and co-existing product and service orientations: Triggers, manifestation, and consequences of organizational ambivalence. Lenka, S., Parida, V., Sjödin, D. R., & Wincent, J. (In Press). International Journal of Operations & Production Management
Paper I
Achieving alignment in business model for product-service systems: Insights from global manufacturing firms. Lenka, S., Reim, W., Frishammar, J., & Parida, V. (Under peer review).
Paper II
Developing global service innovation capabilities: How global manufacturers address the challenges of market heterogeneity. Parida, V., Sjödin, D. R., Lenka, S., & Wincent, J. (2015). Research-Technology Management, 58(5), 35-44.
Paper III
Digitalization Capabilities as Enablers of Value Co-Creation in Servitizing Firms. Lenka, S., Parida, V., & Wincent, J. (2017). Psychology & Marketing, 34(1), 92-100.
Paper IV
Exploring the microfoundations of servitization: How individual actions overcome organizational resistance. Lenka, S., Parida, V., Sjödin, D. R., & Wincent, J. (In Press). Journal of Business Research
Paper V
Servitization and co-existing product and service orientations
Triggers, manifestation and consequences of organizational ambivalence
Sambit Lenka
Luleå University of Technology Sweden
Vinit Parida Luleå University of Technology, Sweden; University of Vaasa, Department of
Management, Finland
David Rönnberg Sjödin Luleå University of Technology, Sweden
Joakim Wincent
Luleå University of Technology, Sweden; Hanken School of Economics, Helsinki, Finland
Abstract Purpose – The dominant-view within servitization literature presupposes a progressive transition from product to service orientation. In reality, however, many manufacturing firms maintain both product and service orientations throughout their servitization journey. Using the theoretical lens of organizational ambivalence, this paper explores the triggers, manifestation and consequences of these conflicting orientations. Design/methodology/approach – A multiple case study method was used to analyse five large manufacturing firms that were engaged in servitization. Semi-structured interviews were conducted with 35 respondents across different functions within these firms. Findings – Servitizing firms experience organizational ambivalence during servitization because of co-existing product and service orientations. This paper provides a framework that identifies the triggers of this ambivalence, its multi-level manifestation and its consequences. These provide implications for explaining why firms struggle to implement servitization strategies due to co-existing product and services orientations. Understanding organizational ambivalence, provides opportunity to manage related challenges and can be vital to successful servitization. Originality/value – Considering the theoretical concept of ambivalence could advance our understanding of the effects and implications of conflicting orientations during servitization in manufacturing firms. Keywords – Servitization, Ambivalence, Multi-level, Organizational ambivalence, Service orientation, Challenges, Managing, Product-Service Systems, Solutions, Integrated solutions Paper type – Research paper
1. Introduction Servitization, the trend whereby manufacturing firms offer increasingly advanced services, is becoming an important topic of enquiry (Vandermerwe and Rada, 1988; Ulaga and Reinartz, 2011, Bastl et al., 2012; Kohtamäki et al., 2013; Lightfoot et al., 2013; Smith et al., 2014; Raddats et al., 2016; Baines et al., 2017). A servitization strategy is believed to allow manufacturing firms to increase customer satisfaction and loyalty and achieve competitive advantage (Baines et al., 2009; Durugbo and Erkoyuncu, 2016). However, despite the well-documented importance of servitization as a strategy for manufacturing companies, most firms still struggle to operationalize and execute such a strategy (Lightfoot et al., 2013; Kowalkowski et al., 2015).
Servitization studies have predominantly focused on the journey of servitizing firms along a unidirectional, progressive product-to-service continuum. This view assumes that manufacturing firms tend to transform from offering basic services to providing services of advanced nature, ultimately becoming full-scale providers of solutions or functions (Oliva and Kallenberg, 2003; Matthyssens and Vandenbempt, 2010). Consequently, servitization research has primarily centred on identifying and overcoming challenges to help product-oriented firms become more service oriented (Gebauer and Kowalkowski, 2012; Ulaga and Loveland, 2014; Raddats et al., 2016; Coreynen et al., 2017). While valuable knowledge has been developed in these areas, recent studies have begun to highlight servitizing firms’ enduring tendency to focus on their product-oriented business in parallel with their growing service-oriented business (Storbacka et al., 2013; Kowalkowski et al., 2015). The co-existence of product and service orientations is difficult to maintain because these orientations are naturally contradictory. Product-based businesses must focus on efficiencies and standardization, which contradicts the heterogeneity and flexibility that are required to run a service business (Bowen et al., 1989). Effectively handling these co-existing orientations, which results in conflicting agendas and opposing goals, represents a major challenge. Understanding this issue could largely explain successful and unsuccessful servitization implementation (Windahl and Lakemond, 2010; Storbacka et al., 2013; Kowalkowski et al., 2015; Kowalkowski et al., 2017). Nonetheless, few studies have addressed this critical aspect of servitization (Kowalkowski et al., 2017).
In this study, we apply the theoretical lens of ambivalence – i.e. attraction to
desirable yet contradictory alternatives (Larson and Tompkins, 2005, Ashforth et al., 2014) – to provide a novel perspective that furthers our understanding of co-existing orientations during the servitization process. In this case, firms are drawn towards conflicting product and service orientations. Prior research reports ambivalence in organizational settings where there are internal conflicts, oppositions, and dualities (Piderit, 2000; Ashforth et al., 2014) such as those experienced during servitization. More importantly, research has shown that ambivalence can lead to positive consequences such as enhanced creativity and nuanced decision making (Fong, 2006; Pratt and Pradies, 2011) and negative consequences such as behaviour vacillation, resource waste and doubt, uncertainty and indecisiveness within the organization (Weigert and Franks, 1989; Pratt and Doucet, 2000). In the servitization literature, some studies have identified dualities, conflicts, and oppositions during servitization (Finne et al., 2013; Sjödin et al., 2016; Einola et al., 2016). However, few have investigated how these oppositions and tensions affect the organization and what implications they have during servitization. The theoretical lens of ambivalence enables the study of the
conflicts that emerge during servitization and may provide insights into the way these issues manifest themselves and affect servitizing firms.
Against this backdrop, the purpose of this study is to examine the implications of the
co-existing product and service orientations during servitization. Empirical insights were drawn from case studies of five leading manufacturing firms that were engaged in the servitization process. Based on these insights, we contribute to servitization theory and practice in several ways. First, by identifying ambivalence during servitization, we provide a novel theoretical framework to explain the challenges and consequences of organizational ambivalence in manufacturing firms during servitization. More specifically, we develop a servitization framework based on ambivalence theory to explain the triggers, manifestation and consequences of co-existing product and service orientations. Second, we provide a new multi-level conceptualization that shows how ambivalence manifests itself at different organizational levels. More specifically, we provide empirical evidence that ambivalence manifests itself at strategic, tactical and operational levels. Third, we detect positive and negative consequences that arise from this ambivalence. These are novel insights into the complex dynamics of organizational ambivalence during servitization.
In section 2, we review the broader theoretical background on servitization in industrial manufacturing firms and ambivalence. In section 3, we outline the methods and data analyses. In section 4, we present the findings, and in section 5, we develop a framework of ambivalence and its consequences. In section 6, we discuss theoretical and practical implications and suggestions for future studies. 2. Theoretical background
2.1. Servitization and co-existing product and service orientations In the servitization literature, scholars broadly assume that manufacturing firms follow a unidirectional transformational path along a product-to-service continuum (Oliva and Kallenberg, 2003; Brax, 2005; Baines et al., 2009; Parida et al., 2014; Smith et al., 2014; Reim et al., 2016). For example, Oliva and Kallenberg (2003, p. 161) state that manufacturing firms move from offering simple product-support services to more advanced solutions and transform “from being a product manufacturer into a service provider”. However, few manufacturing firms actually traverse this unidirectional continuum to become service providers overnight. Most manufacturing firms continue to focus on product and service offerings for an extended period during servitization (Storbacka et al., 2013; Kowalkowski et al., 2015). This emerging view questions the existing assumptions regarding the challenges of unidirectional transition. Under this emerging view, a major challenge for manufacturing firms is not abandoning their product orientation to become a service firm but rather understanding and managing the challenges of conflicting product and service orientations (Windahl and Lakemond, 2010; Kowalkowski et al., 2015). Despite recent acknowledgment of this view, few studies have investigated the focus on conflicting orientations.
The servitization literature contains various conceptualizations of product and service orientation. Oliva and Kallenberg (2003) define service and product orientation in terms of the firm’s position on the product-to-service continuum. At the product end, products or tangible goods are more important, whereas at the service end, services are more important. The focus on customer interactions at the product end is transactional,
whereas the focus at the service end is relational. A firm’s position on this continuum indicates whether that firm is more product oriented or more service oriented. Service orientation has also been conceived as the number of services offered, the number of customers to whom these services are offered (broadness) and how actively the services are offered to customers (emphasis) (Homburg et al., 2002). Bowen et al. (1989) differentiate between service and product orientation in terms of prototypical characteristics. A product orientation involves tangible and standardized outputs, low customer involvement, and separation of production and consumption characteristics; a service orientation implies characteristics of intangible and customized outputs, greater customer involvement, and simultaneous production and consumption. In this study, we conceptualized firms’ product and service orientation based on the relative focus that firms placed on products or services. We gauged this relative focus by the number of offerings and the nature of these offerings in terms of standardization or customization, as well as and the depth and breadth of the firm’s relationships with customers.
Servitization scholars have emphasized the distinct and contradictory nature of product and service orientations, arguing that different capabilities are needed in either case (Bowen et al., 1989; Paiola et al., 2013; Ulaga and Loveland, 2014). Accordingly, challenges during servitization primarily relate to overcoming a product orientation and developing capabilities to move towards a service orientation. Many scholars have studied these challenges for various aspects of manufacturing firms during servitization, including organizational values (Bowen et al., 1989), business models (Ferreira et al., 2013), organizational structures (Gebauer and Kowalkowski, 2012), capabilities (Paiola et al., 2013) and sales (Ulaga and Loveland, 2014). Under the aforementioned emerging view, however, the co-existence of conflicting product and service orientations, along with their management, presents a key challenge during servitization (Windahl and Lakemond, 2010; Storbacka et al., 2013; Kowalkowski et al., 2015). Research also suggests that co-existence of conflicting product and service orientations lead to dualities, contradictory goals and opposing pressures because the firm tries to manage and perform well in both areas (Morcos and Henshaw, 2009). Thus, whilst the co-existence of these conflicting orientations is a reality for manufacturing firms that are engaged in servitization, our knowledge about this situation is limited.
2.2. Ambivalence and its implications for servitization Ambivalence theory offers an interesting approach in the context of servitization. It suggests that when contradictory goals or pressures exist in an organization (e.g., co-existing product and service orientations), actors experience ambivalence because they have a positive orientation towards both conflicting alternatives (Piderit, 2000; Ashforth et al., 2014). Although it should be understood as a complex, multifaceted concept, ambivalence literally refers to simultaneously experiencing two opposing forces. Ambivalence has primarily been applied in social psychology, but it has recently been introduced – with notable consequences – in strategic and operational management. Ambivalence has often been referred to as simultaneous positive and negative orientations to an object (Piderit, 2000; Ashforth et al., 2014). In the organizational context, ambivalence has been described as being pulled in different directions or being torn between conflicting impulses. In this study, we adopted Larson and Tompkins’s (2005, p. 11) definition of organizational ambivalence as “the experience of being drawn towards desirable yet contradictory alternatives”.
Although ambivalence in organizations has scarcely been studied, recent studies have identified the manifestation and consequences of ambivalence in business settings (Larson and Tompkins, 2005; Wang and Pratt, 2008). In fact, ambivalence may be common in servitization because of complexities and dynamism in the environment that give rise to contradictory goals, role conflicts, dualities and multifaceted objects (Ashforth et al., 2014). For example, in servitization, role conflicts and ambiguities arise from the simultaneous set of pressures that make product-oriented demands incompatible with service-oriented ones (Sjödin et al., 2016). The emergence of contradictory goals within an organization during servitization is also common (Finne et al., 2013). The ambivalence literature has shown that these kinds of contradictory goals and role conflicts lead to situations in which behavioural and attitudinal expectations are incompatible, which gives rise to oppositions – namely, when a demand for A is juxtaposed with a demand for not-A (Ashforth et al., 2014). Research has also shown that in paradoxical situations like those that arise during servitization (Einola et al., 2016), oppositions, and tensions are commonly experienced. In such situations, the meaning of events is open to interpretation, and stakeholders exert numerous, fundamentally conflicting demands. Such situations encourage the contextual root of oppositions and the emergence of ambivalence (Piderit, 2000; Ashforth et al., 2014). Therefore, it is important to understand how organizations in such settings experience ambivalence and cope with contradictions as they endeavour to advance in a coherent manner.
Ambivalence is an unpleasant, discomforting experience. Organizational actors are
often compelled to deal with ambivalence. They do so in various ways (Pratt and Doucet, 2000). The ambivalence literature suggests that the feeling of being pulled between two desirable yet contradictory alternatives can create doubt in actors’ minds. This feeling also causes indecision, which can lead to negative behavioural consequences such as vacillation, whereby actors repeatedly switch between two desirable alternatives, and the inability to adapt to environmental changes (Westenholz, 1993, Weigert and Franks, 1989; Pratt and Doucet, 2000). On the other hand, ambivalence has also been shown to have many positive consequences. For example, actors become more receptive to alternatives, thereby improving the accuracy of their judgments (Rees et al., 2013). They also show stronger organizational commitment, greater creativity and more nuanced decision making whilst experiencing ambivalence (Pratt and Rosa, 2003; Fong, 2006; Pratt and Dirks, 2006; Pratt and Pradies, 2011). Accordingly, ambivalence may also have positive effects on servitization. Although these studies refer to the manifestation and consequences of ambivalence in organizations, the literature on ambivalence in the organizational context is still in its infancy. Ambivalence and its related constructs promise to provide a new theoretical lens through which to examine the challenges and consequences of organizational servitization. 3. Method 3.1. Research approach We adopted an exploratory case study research design because we sought to obtain a rich dataset and detect the underlying dynamics of the target phenomena (Eisenhardt, 1989; Siggelkow, 2007). This approach is suitable when limited data are available and the goal of the study is to build theory, which was our case (Barrat et al., 2011; Yin, 2003). We applied purposive sampling to select five large manufacturing firms. These companies were chosen for several reasons. Each had defined a clear vision, explicitly
implemented a servitization strategy and become a front-runner in its industry. Prior interactions with these firms also showed that in their present state of servitization, they had co-existing product and service orientations. Finally, to increase variation within the sample, we selected firms that operated in different manufacturing industries. Table 1 details the background of our case companies and the interviews that were conducted for this study. Table 1. Description of companies analysed in the case studies
Company Industry Employees; Revenue (USD)
Examples of advanced service offerings
Interviews Respondents’ positions
Provider 1 Heavy construction equipment
13,000; 1.7 billion
Availability of equipment, service agreements
11 Director portfolio management, director customer solutions, director technology planning, service portfolio manager, marketing and product manager, business planner, regional manager, product manager, project manager, team leader, manager emerging technologies
Provider 2 Telecom infrastructure
25,741; 13.6 billion
Network design and optimization solutions, life-cycle solutions
7 Head of service strategy, manager global service organization, researcher (2), service development manager, service innovation researcher, solutions manager
Provider 3 Machine tools 19,055; 3.8 billion
Productivity improvement solutions
7 Senior manager (2), portfolio manager, service manager, project managers (2), regional manager
Provider 4 Press hardening tools
500; 114 million
Training, optimization solutions
5 R&D manager, senior delivery specialist, project manager, delivery specialist, sales manager
Provider 5 Paper packaging
4,300; 2.6 billion
Package design, prototype, performance testing
5 Business development manager, senior manager, senior application specialist, technician, solutions manager
3.2. Data collection Data were gathered primarily through in-depth interviews. Interviewing on site helped respondents provide insightful information and focus directly on the research topic (Yin, 2003). We conducted 35 interviews with respondents at all organizational levels (Parida and Chattopadhyay, 2007). The empirical study was conducted in two steps. During Step 1, we conducted 12 interviews that focused on understanding the firms’ servitization strategy, including vision for the future, key ongoing efforts in different organizational units, and views on the underlying conflict between co-existing product and service orientations. During Step 2, we conducted 23 additional interviews that focused on the firms’ servitization-related challenges and the consequences of these challenges. To capture broad as well as detailed insights, we interviewed respondents from strategic, tactical and operational levels. The respondents also belonged to various units, including R&D, production, marketing, sales and distribution, and regional units. These units were chosen because they were actively involved in developing and implementing servitization-related efforts.
To ensure reliability, multiple researchers conducted the interviews. So, that the authors could ensure overlap between data collection and data analysis, frequent discussions were held. The authors also kept a regular log of field notes. Secondary data were collected from archive materials. Sources such as websites, internal documents and published materials were used during the two-step process. Data from these sources were analysed to build case knowledge, validate findings and triangulate empirical data. 3.3. Data analysis First, we tried to elicit as many informant terms and codes as possible in each of our cases. Doing so helped us detect emerging constructs and the possible relationships between these constructs (Gersick, 1988; Pettigrew, 1990). This was followed by cross-case analysis, where we used constant comparison techniques (Strauss and Corbin, 1990) to identify relevant patterns from the initial descriptions and codes. Thus, our cross-case analysis progressed through a series of iterations, which built on differences and commonalities between first-order categories, second-order themes and aggregated dimensions (Van Maanen, 1979; Nag et al., 2007). Despite its iterative nature, our analysis procedure can be viewed to emerge in distinct steps.
The first step was in-depth analysis of informant terms and codes to identify possible similarities and differences amongst them (Nag et al., 2007). We thus discerned the codes for our first-order categories from common words, phrases and labels that the respondents used. Next, we sought links and patterns amongst the first-order categories. This iterative process helped us formulate theoretically distinct second-order themes by combining the first-order categories. We identified nine themes related to organizational ambivalence and its consequences. Finally, we defined overarching dimensions that represented a third level of abstraction in the coding. These third-order dimensions were built on the first-order categories and second-order themes to present a theoretically grounded categorization. To ensure rigor and increase confidence in our analysis and the assigned codes, multiple researchers developed the coding scheme independently. In the event of a disagreement or difference, we discussed and modified the coding scheme until a consensus was reached. Finally, we compared the text passages and ensured that the data were represented correctly.
These steps enabled us to develop an empirically driven theoretical framework to
describe the links between the phenomena that emerged in the data analysis. Figure 1 presents the emergent data structure of our analysis process.
Figure 1. Emergent data structure
4. Findings 4.1. Triggers of ambivalence during servitization Respondents provided several examples of how their firms manage the conflicts that arise from simultaneous product and service orientations. The co-existence of two desirable yet opposing orientations creates many tensions and conflicts that lead to organizational ambivalence. As a portfolio manager in one firm explains, “We are all aligned with the new service focus of our company. However, we also have our existing business that is our bread and butter. We cannot neglect it too.” In another case, an R&D manager reports the following: “In our unit, we are trying to develop new solutions [service offerings], but we are also obliged to keep the funnel of our product offerings robust as well.” These views show that organizational actors feel torn towards both product- and service-oriented initiatives, thereby showing the existence of ambivalence within the firms in this study.
4.2. Manifestation of multi-level organizational ambivalence during servitization Further analysis revealed evidence of a multi-level manifestation of ambivalence within the firms in this study (Figure 1). To discuss the different forms of ambivalence that were reported by respondents, the following subsections present empirical evidence for all levels of ambivalence. 4.2.1. Strategic ambivalence due to opposing product and service directions Ambivalent strategies manifest themselves at the top level of the firms in this study. This form of ambivalence emanates from the opposing product and service directions in such firms, with their contradictory goals and directional conflicts.
First, product-dominant traditions enforce organizational inertia towards developing a service strategy, implying that the dominant product tradition drives strategic thinking and decision making. This situation is especially problematic because in service-related strategic thinking and actions, top managers tend to be driven predominantly by their pre-existing product-oriented thinking. Although they wish to drive their service businesses forward, the inertia of their dominant product orientation pulls them in another direction. For example, a technology development director in one firm remarks the following:
“We want to continue building new and more advanced products because that is what we know, and we are good at it. But we also understand that service business is critical for our future survival. But when top management teams interact and make key decisions, it is quite visible that many members struggle to accept change in our strategic orientation towards service business”
Second, at the strategic level, there is significant ambivalence in the simultaneous
push for transactional and relational business models. The core idea of a product-related business is to sell the product and generate revenue from a transaction-based business model. In contrast, a solution business requires the supplier to continue the relationship with the customer long after the transaction is complete to build a relationship-based business model. When these divergent business models co-exist, however, they create internally conflicting goals. As many respondents’ stress, this approach proves counterproductive, creating significant uncertainty regarding which goal to focus on. One senior manager reports the following:
“Focus on value generation over time means taking a relational perspective on our customers. So, we are realizing that the business models have to evolve or change. Because we are such a large global organization, however, we have to continue with the product business but slowly move to the service business. Not being able to make the change quickly created lot of problems internally as we are working with old and new business models.”
4.2.2. Tactical ambivalence caused by misaligned product and service processes There is more evidence of ambivalence when strategic directives are operationalized at at a lower organizational level. Many instances of ambivalence are due to misaligned product and service processes.
Typically, the operational processes of the firms in this study are geared towards maximizing the standardization and efficiency that is required when selling products.
When selling services, however, the operational processes must be geared towards customization and flexibility to address individual customer needs (i.e., greater emphasis on relational and co-creation behaviour). Therefore, ambivalence results from unclear prioritization of exploiting existing product-based processes or addressing unique customer needs. The firms in this study did not have a clear view on prioritization between focusing on exploiting efficient product-oriented processes and developing more flexible processes to meet individual customer needs. These conflicting needs create tensions and increase actors’ feelings of ambivalence at the tactical level. Several statements from our respondents reflect this phenomenon. For example, a service researcher notes the following:
“In the past, the development unit would get requirements from the front-line staff, and they would develop a vision of certain product features, and then they would go and implement those product features. Now, to deliver services, especially with the software, there is a need for more direct feedback loops in terms of ready-to-deliver features that can be demonstrated to front-line staff and front-line staff can demonstrate to customers. So, it [the development process] has become more dynamic.” In addition, because the organizations have co-existing product and service
orientations, specific processes are needed to operationally support the two orientations within the firm. However, respondents report considerable attraction to existing product benchmarks whilst developing processes to support new service development and delivery. In particular, the firms in this study tend to draw upon the existing product-oriented processes for inspiration. Therefore, they constantly struggle to advance with new service processes because of their resistance to breaking away from familiar processes. For example, respondents from several firms report that to drive new solution development, product-based decision-support systems are used to make go/no-go decisions, even though they are not suitable for evaluating solutions. As a global portfolio manager explains:
“Providing integrated products and services can be very tricky. How can we combine two such completely different processes? What component is going to provide which part of the value? And then, when we combine them, we might have to look at the product and services very differently as they might be playing a very different or changed role as when they were just the individual product or service. And, of course, [there’s the question of] what approach to use, the product approach or the service way of doing things?”
4.2.3. Operational ambivalence caused by unclear scripts for performance At the operational level, groups and teams in particular experience ambivalence in servitization when they have conflicting objectives, skillsets and incentives. Respondents in this study report considerable ambivalence in group and team performance, especially because actors struggle with limited skillsets and opposing incentives.
Respondents note that technical roles and responsibilities have traditionally been at the forefront of their product orientation. Therefore, pride and recognition are directed towards advanced technical knowledge and skills. In servitization, however, technical know-how is relegated to the background. Instead, softer customer-oriented roles and
responsibilities, especially those associated with relational process development and life-cycle integration, become the focus. These are very different roles from those in the technology-based product-oriented business. For example, product-based teams are also involved in new service/solution development because it requires broad skills and cross-functional knowledge to support development efforts. In such situations, the teams experience ambivalence because they are torn between their familiar product roles and responsibilities, in which they excel, and their newly assigned service development roles and responsibilities, in which they struggle to meet expected performance levels. Thus, their product-focused roles and responsibilities limit their performance in service businesses. This situation is described by a service manager at one firm:
“Several new positions have been created recently to effectively pursue an industrial service strategy within our unit. But what the responsibilities for driving service business [are] remain unclear. This has resulted in several ongoing projects with insufficient internal support and structure.” Another example of ambivalence at the operational level emerges in the context of
performance indicators that are not aligned with the firms’ service orientation objectives. Generally, organizational service objectives are aligned with the strategic vision of providing new services, and these objectives are tracked through a performance-measurement system. Indicators in performance-measurement systems need to be measurable and quantifiable to objectively assess job performance. However, service-oriented indicators are difficult to quantify and measure; in fact, they are usually excluded from the existing performance-measurement systems. Accordingly, the most measurable and quantifiable product-oriented indicators become the predominant indicators in the performance measurement systems. For example, developing an in-depth understanding of customers’ businesses, maintaining good customer relationships and realizing long-term value are important aspects of building a service orientation. However, measuring these soft parameters is difficult. Therefore, quantifiable, measureable product-oriented indicators such as unit sales, registered patents and newly acquired customers continue to be used in performance-measurement systems. Groups and individuals feel ambivalent towards focusing on generating relational value – as per the firm’s strategic objectives for adopting a service orientation – and focusing on targets – as per the measurable product-oriented indicators in the firm’s performance-measurement system. A service portfolio manager from a case firm clearly explains this issue:
“In our company, we follow a very structured approach to measure personnel development. They have been created for an organization that intends to sell physical products. However, as we expand services, new measurements have to be introduced to keep individuals motivated to follow the new strategic focus; otherwise, there will be a misalignment.”
4.3. Consequences of organizational ambivalence during servitization During servitization, ambivalence is widespread at all levels. According to ambivalence theory, when ambivalence manifests itself in a firm, it may lead to positive and negative consequences. Several consequences result from ambivalence in the organization during servitization. In the following sub-section, we elaborate on the positive and negative consequences of this organizational ambivalence (Figure 1).
4.3.1. Negative consequences of organizational ambivalence 4.3.1.1. Resource inefficiency As employees’ experience ambivalence and are pulled towards opposite orientations, teams and individuals are faced with multiple authorities as well as differing directions. When competing and conflicting forces are operational within an organization, such as in the firms in this study, there is pressure on available resources. The organizational actors in this study struggle to choose and control resources that pull them in different directions. This leads to the dispersion of effort and the spread of focus, which prevents the actors from accomplishing their goals. The result is lower resource efficiency within the firms in this study. As one director observes:
“We can’t expect that our solutions business will achieve their targets, but still we have to invest money there and try and push forward…of course, our product business suffers, but it’s a choice we have made.”
4.3.1.2. Dilution of accountability Conflicting goals and pressures emerge as multiple sources of command and expectations arise within the organization, creating an ambivalent situation for actors. This situation leads to role conflict and confusion regarding the definition of objectives within the firm. Actors within the firms in this study are also torn between the legal chain of command and emerging collegial authorities, which leads to a dilution of accountability at various levels within the firm. This phenomenon is witnessed within all firms in this study. As one business planner observes:
“All these teams have said yes to working on this [new solutions offering]…for the certain number of hours that has been estimated… On the other hand, [if] the pressure gets high enough to do something else, they go and do that. It’s not easy because there are very few people working full time on this project…maybe none. Some are doing 5%, 20%, some are 50%, and so on… It’s everyone’s job, and it’s no one’s either.”
4.3.1.3. Stalled decision making Firm managers rely on decision-support systems that guide their decision-making processes (e.g., resource distribution and portfolio management). In these servitizing firms, however, traditional product-oriented decision-making frameworks become less relevant as service-oriented indicators become necessary. These organizations often struggle to find ways to combine product- and service-oriented parameters because the two seem fundamentally incompatible. Additionally, the service-oriented indicators are difficult to quantify objectively, and product-oriented thinking prevents organizations from clearly expressing these indicators. In such situations, there is disagreement over the standards and goals of the decision-support systems. In turn, managers are unable to objectively evaluate their decision options and thus delay decisions until the situation is clearer. For the firms in this study, this type of delay results in a general slowdown and, in many instances, a freeze in decision making. As one director of technology planning reports:
“For our yellow machines, we have a really good business case model, product cost, gross margin models to tell us that if we do this, then this will be our costs, our profits, our entire margins in the value system. Now, when we get into this [solutions
offering], we don’t have those decision-support models and no decision support, and without those decision-support models, we can’t say what is the volume . . . what is the revenue . . . how do we get to it. It does not fit into our decision mechanisms that we have in our company. So how do we move forward? It’s hard to [be motivated] to move forward with decisions regarding our portfolios and business.”
4.3.2. Positive consequences of organizational ambivalence 4.3.2.1. Creative resource optimization The servitization process increases pressure on available resources as the product- and service-oriented initiatives pull in opposite directions. The operational teams face a lack of resource commitment from the management. In such situations, the product and service organizations must work closely together to minimize overlapping efforts and find synergies. There is also greater effort to align product- and service-oriented goals and objectives and greater cross-fertilization of competencies and processes that greatly improve efficiency and outputs. New cross-functional platforms and interactive mechanisms emerge, which substantially increases the firms’ abilities to optimize their resource usage. As a researcher at one firm recounts:
“If we don’t know how they [the product team] have designed the output mechanisms, then we will not be able build the functionalities on top of them. We now only try to extend on what is available instead of starting from scratch. We have developed a new [solutions] development protocol that helps us work together closely without any gap. This way, we can work on more solutions with our small team and also make sure that our products are also part of the final solutions instead of some other third-party vendor’s [products].”
4.3.2.2. Reconfiguration of accountability Competing, divergent forces resulting from the co-existence of opposing orientations lead to ambiguity regarding the scope, expectations and description of traditional roles within the organization. These roles must be clarified and redefined to adapt to the new requirements that are placed on the firms during servitization. In many instances, the firms in this study reconfigure accountability by reframing their operational frameworks, changing their performance-measurement systems and undertaking sense-making initiatives. These measures help provide clarity and avoid the vagueness that started to appear when the firms rolled out their servitization initiatives. For example, a director of technology planning explains the following:
“When we started, there was a lot of confusion as we did not know what we were supposed to do…how to deal with the teams and provide support to them. There was a lot of confusion. We had to move a lot of people from other departments to ours and changed their roles and what they worked on so that we could support both our old business and new initiatives. It’s a constant struggle but this has helped.”
4.3.2.3. Proactive decision making In ambivalent conditions, there is a general lack of clarity regarding the roles, responsibilities and way forward for individuals and teams. The environment is therefore characterized by ambiguity and mistrust, which affects operational decision-making processes and collaboration between different levels within the firm. In this situation, individuals and groups offer to take responsibility and seek information that can illuminate the way forward. They also push for collaboration amongst teams to
develop a consensus and acceptable guidelines and goals for supporting servitization efforts. Their efforts and initiative drive proactive decision making and support overall servitization initiatives. As a business development manager at one firm recalls:
“We did things here based on if it was necessary for our customers or not. We did not have any knowledge of that [new solutions development] or anyone here to show us what to do. There was nobody here talking about these things [solutions] then. We just experimented and moved forward. We asked around and got the lab [testing and product analysis] guys to help us out and also work with the factory to get the prototypes. If we did not do it, then we probably would not have this solution lab today.”
5. Towards a framework of organizational ambivalence during servitization Drawing upon empirical insight, we propose a framework of organizational ambivalence during the servitization journey (Figure 2). The proposed framework explains the path that links the triggers, manifestation and consequences of organizational ambivalence. This provides an overview of how the co-existence of conflicting product and service orientations during servitization triggers organizational ambivalence and how ambivalence spreads and affects the organization performance.
The findings support our initial thesis: that contradictory product and service
orientations place conflicting demands on organizational norms, roles and other collectively held identities (Wang and Pratt, 2008). In case firms, servitization is characterized by limited resource commitments and emergence of complicated reward systems. As illustrated by our results, the servitization change process also elicits additional insecurities and mixed feelings in actors at all levels of the firm (Piderit, 2000). For example, our results show how oppositions, dualities and conflicts emerge and trigger ambivalence at different organizational levels (Ashforth et al., 2014; Einola et al., 2016).
Ambivalence in servitization manifests itself at all levels of the firm, multiplying as
it cascades from the strategic level to the tactical level and finally to the operational level. Organizations are built around a hierarchical relationship that has a single, clear flow from top to bottom (Fayol, 1949). This structure provides top management with effective control and coordination. At the strategic level of the firms in our study, we observed instances of ambivalence in servitization that cascaded down to the lower levels. For example, ambivalence regarding the presence of two conflicting business directions at the strategic level manifested itself at the tactical level – because of the resulting misalignment of product and service processes – and at the operational level – because of unclear performance scripts. As in all organizations, decisions and communication at the strategic level of the firms in this study had ramifications across all functional units within the organization: finance, sales, marketing, HR, R&D, and so on. Each decision or action at the functional unit level spread further, affecting other functional units and ultimately all groups and individuals within the firm. For example, provider 3 adopted a strategy towards offering consulting services as part of the product offering which lead to significant need of changes in processes and capabilities. However, a lack of clear strategic directions lead to insecurities and confusion in sales and marketing operations as teams were using simultaneously new processes and old processes for offering the consulting services along with the products. We observed
that the manifestation of ambivalence multiplied as it moved from the strategic level to the next lower levels, leading to widespread ambivalence at the operational level.
As ambivalence cascaded and multiplied from the strategic to the operational level, we observed both negative and positive consequences, which resulted from actors’ responses to this ambivalence (Westenholz, 1993; Pratt and Doucet, 2000; Pratt and Pradies, 2011; Ashforth et al., 2014). Our findings imply that the negative consequences of ambivalence in servitization were related to resource inefficiency, dilution of accountability and stalled decision making, while the positive consequences of ambivalence were creative resource optimization, reconfiguration of accountability and proactive decision making. These contrasting consequences suggest that when actors experience ambivalence, their responses might stifle the organization’s effort and scatter resources or, conversely, spark the creativity and resourcefulness that the organization needs to drive servitization. For example, in provider 1, the decision was taken to develop its solutions by recruiting part-time members to solutions development. Although there was some official allocation of their time to the project, they were constantly being pulled back by their supervisors for work in their existing departments. As a result, the solutions development process dragged on for years and after a lot of investment of resources, it was not found suitable to be commercialized. In contrast, provider 2 in the face of conflicting product and service approaches adopted a cross-functional team with people from both product and service development for developing a new solution offering. In this case, the members used their diverse knowledge to design a new solution development process that leveraged on the existing best practices of the product and service departments. The successful development of the solution led to this particular cross-functional process to be a standard operating procedure for all future solutions development in the firm.
To sum up, the servitization research offers an inadequate explanation of the
presence and implications of ambivalence in servitizing firms. This framework sheds light on the widespread presence of ambivalence and its consequences. This framework therefore provides explanatory insights into the ongoing struggle and possible remedial measures for firms to implement servitization strategies.
Figure 2. Framework for the triggers, manifestation and consequences of organizational ambivalence during servitization
6. Discussion and conclusions 6.1. Theoretical implications This study has several implications for the servitization literature. First, prior studies have predominately focused on the challenges of servitization and the approaches that firms adopt to shift from a product orientation to a service orientation (Baines et al., 2009; Ulaga and Reinartz, 2011; Lightfoot et al., 2013; Smith et al., 2014; Raddats et al., 2016). However, this study responds to calls for greater understanding of simultaneous product and service orientations during servitization (Storbacka et al., 2013; Kowalkowski et al., 2017). This study adds to this existing research by addressing the co-existence of conflicting orientations and its importance in explaining successful or failed servitization attempts (Lightfoot et al., 2013; Kowalkowski et al., 2015). Many servitization studies have identified the presence of oppositions, dualities, and conflicts during servitization (Finne et al., 2013; Sjödin et al., 2016; Einola et al., 2016), but none has highlighted ambivalence as a key concept for advancing our understanding of the implications of these issues. By examining the key role of ambivalence, we advance our understanding of servitization in manufacturing firms.
Second, the results show the experience of ambivalence during servitization at different organizational levels (Ashforth et al., 2014) and how it cascades down and spreads throughout the firm. These findings contribute to the discussion in the servitization literature concerning the challenges faced within firms related to the strategic choices of moving from a transactional to a relational business model (Ferreira et al., 2013; Reim et al., 2015), shifting from centralized to decentralized operations (Raddats and Burton, 2011; Gebauer and Kowalkowski, 2012), making procedural changes that intimately involve customers and network partners as co-creators of value (Lenka et al., 2017; Sjödin et al., 2016), and building new capabilities for advanced service development and front-end integration (Paiola et al., 2013; Parida et al., 2015; Sjödin et al., 2016). We introduce this multi-level perspective of ambivalence during servitization and thus provide evidence of the widespread presence and linkages of ambivalence. In doing so, we facilitate development of an inclusive view of the underlying dynamics of servitization. This topic warrants managerial and scholarly attention. Most studies on ambivalence have focused on the context of individuals from a social psychological or philosophical perspective. However, the general understanding of the manifestation and consequences of ambivalence in an organizational context are not well understood (Ashforth et al., 2014). Thus, we also contribute to the ambivalence literature by conceptualizing ambivalence at higher levels of aggregation in an organizational setting and by highlighting the consequences of servitization at each organizational level.
Third, we provide in-depth insights into the consequences of ambivalence during
servitization, an issue that is scarcely discussed in the literature. Consistent with theory, the study provides evidence of both positive and negative consequences of ambivalence (Westenholz, 1993, Pratt and Doucet, 2000; Fong, 2006; Pratt and Pradies, 2011; Rees et al., 2013). These insights portray ambivalence during servitization as a double-edged sword. Firms can either become unresponsive and scatter precious resources or respond efficiently and creatively to the change that servitization forces upon them. Indeed, the contradictory nature of different responses to similar events opens up the dialogue for novel approaches to manage servitization transformational challenges. For example, one such measure might be structuring performance measurement systems to promote the adoption of responses that yield positive outcomes during servitization.
Lastly, our framework provides an overview of the triggers, manifestation and
consequences of ambivalence during servitization. The framework captures the entire path – from emergence to consequences (via manifestation) – of ambivalence during servitization. The literature offers little information on this issue. The framework helps clarify how ambivalence manifests itself and spreads through the organization. The framework thereby establishes ambivalence as a significant phenomenon that has received scarce attention in the literature. It also provides insights into how ambivalence and its implications could explain a firm’s struggle to adopt a servitization strategy. Thus, the challenges that relate to co-existing product and service orientations are an important part of the dialogue in servitization research. Ambivalence, along with its consequences, during servitization provides new insights to aid our understanding of the servitization process. These insights could have major implications for managers, as well as providing interesting opportunities for future research.
6.2. Managerial implications The present study has several implications for managers who are engaged in servitization. First, recognizing the manifestation of ambivalence and its consequences during servitization could lead to new approaches to the implementation of servitization strategies. Awareness of ambivalence therefore gives managers the opportunity to identify and adopt an appropriate strategy within the firm. Recognizing ambivalence early would help managers adopt the right tactics. By doing so, managers could minimize the actions that lead to negative consequences and thus help accomplish the desired servitization goals. Managers could also use the awareness of ambivalence to encourage actions that lead to positive consequences during servitization. Understanding the consequences of ambivalence is especially important for managers in leadership positions. These managers can use their agency and discretion to design policies and processes to push for responses that trigger positive consequences. Overall, managing ambivalence during servitization – that is, recognizing ambivalence and adopting appropriate response tactics – is important for managers because it can help the firm successfully navigate the servitization process. Nevertheless, managers must realize that ambivalence is a double-edged sword that needs to be wielded with care to deliver the desired results. If mishandled, it can lead to undesirable consequences.
6.3. Limitations and future research The present study is based on case studies of large manufacturing firms. Therefore, our findings should be seen as initial hypotheses that require testing using confirmatory approaches. Second, ambivalence leads to both positive and negative consequences, so it would be interesting to understand how such outcomes interact within the firm and how this interaction affects overall servitization performance. Although we provide evidence of the manifestation of ambivalence in the firm, we do not know the intensity of this ambivalence. According to ambivalence theory, the degree of ambivalence affects responses to ambivalence, so it would be interesting to seek ways of measuring its intensity. Research into how the degree of ambivalence affects the nature of its consequences would be an interesting avenue for future research. Finally, contextual factors such as top management commitment and the extent of global operations could influence the degree of ambivalence in servitizing firms. Future studies to understand or measure the impact of these factors on ambivalence and its consequences could advance our understanding of how to manage ambivalence during servitization.
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Westenholz, A. (1993), “Paradoxical thinking and change in the frames of
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Yin, R.K. (2003), Applications of Case Study Research: Design and Methods
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Servitization and co-existing product and service orientations: Triggers, manifestation, and consequences of organizational ambivalence. Lenka, S., Parida, V., Sjödin, D. R., & Wincent, J. (In Press). International Journal of Operations & Production Management
Paper I
Achieving alignment in business model for product-service systems: Insights from global manufacturing firms. Lenka, S., Reim, W., Frishammar, J., & Parida, V. (Under peer review).
Paper II
Developing global service innovation capabilities: How global manufacturers address the challenges of market heterogeneity. Parida, V., Sjödin, D. R., Lenka, S., & Wincent, J. (2015). Research-Technology Management, 58(5), 35-44.
Paper III
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Paper IV
Exploring the microfoundations of servitization: How individual actions overcome organizational resistance. Lenka, S., Parida, V., Sjödin, D. R., & Wincent, J. (In Press). Journal of Business Research
Paper V
1
Achieving alignment in business model for product–service
systems: Insights from global manufacturing firms
Abstract
To avoid commoditization of their products, increase competitiveness and revenue streams
manufacturing firms are increasingly offering product–service systems (PSS) to their customers.
Offering PSS successfully is highly challenging, however, and significant interfirm
heterogeneity exists with regard to successful PSS provision. Based on multiple case studies in
three global manufacturing companies, we highlight the importance of the business model as an
organizing device to align and coordinate key activities in PSS. Specifically, our results
emphasize the need for avoiding the alignment problems to ensure that the PSS objectives are
met through a business model adoption. Our analysis provides insights into the underlying
activities that will help firms implement a PSS business model and provides new implications
for analyzing and improving PSS offers.
Keywords: Product-Service Systems (PSS), Business Models, Alignment, Servitization,
Activities
2
1. Introduction
Many global manufacturing firms are seeking to differentiate their offerings, achieve
competitivenessaswellasenhancetheirprofitabilitythroughprovisionofcombination
ofproductsandservicesorproduct-servicesystems(PSS)totheircustomers(Baineset
al.,2009;Tukker,2014).However,offeringPSSisinherentlychallenging.Itimpliesthata
supplierfirmneedstoshiftitsfocusfromthedesignandsaleofphysicalproductstoward
providingfunctionalitiesandresultsbycombiningproductsandservices(Barquetetal.,
2013;ManziniandVezzoli,2003).ProvidingPSSalsoimpliesthatfirmsneedtoalignthe
interests of its internal stakeholders (i.e., functions, departments), as well as external
valuechainactorstodeliverfunctionalitiesorresults.Thiscanrepresentamajorchange
in the mindset and operational setup of the entire eco-system (Fereira et al., 2013).
Consequently,manyfirmsstruggletodevelopanddeliverPSS(Leeetal.,2012;Päivärinne
andLindahl,2016;Reimetal.,2015).
Recent studies have contributed with valuable insights into addressing the specific
challenges manufacturing firms face for successful PSS provision (e.g., Cavallieri and
Pezzota,2012;Morelli,2006;Tanetal.,2010;Paridaetal.,2014;Wallinetal.,2015).These
studiesrevealaratherfragmentedandisolatedperspectiveonhowtoeffectivelyofferPSS
to customers. Indeed, studies tend to focusonlyoncertain tools (e.g., technology road
mapping,economicoptimizationtechniques,andinformationfeedbacksystems)thatcan
helpaddressveryspecificproblems(Bainesetal.,2016;Tukker,2015).Indeed,important
questions pertaining to the overall firm’s logic of how value is created, delivered, and
capturedhaveremainedunansweredeventhoughsuchissuesarecriticaltoprovidingPSS
successfully (Barquet et al., 2013; Kindström and Kowalkowski, 2014; Tan 2010). In
response to this lacuna, some researchers have proposed that a business model
perspective(KindströmandKowalkowski,2014;OsterwalderandPigneur,2010;Teece,
2010)couldprovideabetterunderstandingofhowtoapproachsuccessfulPSSprovision
(Boonsetal.,2013;Kastallietal.,2013;Reimetal.,2015).Consequently,researchershave
recentlytriedtoelaborateonsomeapproachesandframeworkstosupporttheprovision
of PSS employing a business model concept (Lindström et al., 2016; Ng et al., 2013;
Storbacka et al., 2013). Commonly, the businessmodel concept is used to illustrate a
3
specificofferemphasizingthedifferencesbetweenPSSandatraditional,product-based
business model (Gelbmann and Hammerl, 2015; Ng et al., 2013) or to showcase the
relevanceofexternalnetworksinthebusinessmodelimplementationprocess(Ferreira
etal.,2013).Althoughmanyoftheserecentstudieshavetriedtoconveytheutilityofthe
businessmodelconceptinPSSprovision,veryfewprovideacomprehensiveframework
of businessmodels that considers all its components, i.e. value creation, delivery and
capture,thatareneededforPSSprovision(AdrodegariandSaccani,2017;Kindströmand
Kowalkowski, 2014; Parida et al, 2015;Wirtz et al.., 2016).More typically, an activity
based description of the business model necessary for a PSS business model
implementation is neglected, leaving a theory–practice disparity in prior research
(Adrodegarietal.,2017;Bainesetal.,2016;KindströmandOttosson,2016;Tukker,2015).
Toaddressthisgap,thepurposeofthepresentstudyistoprovideinsightsonhow
manufacturing firms benefit from applying and using the business model concept for
providing PSS. More specifically, in the present study we focus on providing a
comprehensive frameworkofaPSSbusinessmodeland identifyinganddescribing the
activitiesthatarenecessaryforsuchaPSSbusinessmodelframeworkimplementation.
We also shed light on how firms organize these activities such that they overcome
challengesandmaketheirPSSbusinessmodelswork.Byfocusingonunderstandinghow
the activities in firms correspond to the componentsof thebusinessmodel, thepaper
contributes to explicating the firms’underlyingbusiness logicofhowvalue is created,
delivered,andcapturedinPSSs.Ouranalysisisgroundedincasestudiesofthreeglobal
industrialmanufacturingfirmsthatofferPSStotheirglobalcustomerbase.Thepresent
studyprovidesempirical insights intowhichactivitiesarenecessaryformanufacturing
firmstoundertaketoeffectivelycreate,deliver,andcapturevaluewhileprovidingPSS.
We further contribute by showcasing the need for alignment of activities which is
necessary to ensureboth internal aswell as external fit of how it crears, delivers and
capturesvaluethroughPSS.Finally,wedevelopa typologyofalignmentproblemsthat
firmsencounterwhileundertakingtheactivitiesforimplementingPSSbusinessmodels.
Suchproblemsneedtoberesolvedinordertoachievealignmentoftheoverallbusiness
modelcomponentwiththefirmsstrategicgoalofprovidingPSStoitscustomers.Insum,
the present study provides novel insights and contributes to the emerging discussion
regardingtherelevanceofthebusinessmodelconceptinadoptingandprovidingPSS.
4
2. Theoretical background
2.1.The emergence of the PSS concept
InitialstudiesonPSSrecognizedthesustainabilityandenvironmentalimplicationswere
fundamental, and the concept of PSSwasdefined around these aims (Goedkoop et al.,
1999; Mont, 2002). Over the years, however, sustainability was treated more as an
inheritedresultofPSS,andthefocusshiftedtoachievingeconomicbenefitsandcustomer
satisfaction (Baineset al., 2007;Boonset al., 2013).PSS is commonlydifferentiatedat
threelevels(product-oriented,use-oriented,andresult-oriented),andthehigherthelevel
ofPSSoffered, thehigherthepotential forcompetitiveandeconomicbenefits(Tukker,
2004;Bainesetal.,2009;Martinezetal.,2010).
ImplementingandadoptingPSS,however,hasnotbeenaswidespreadasexpected,
andahigherPSSlevelimpliesevenmorechallengesandrisksthatmakeprovidingPSS
moredifficultanddecreasessuccessrates(Reimetal.,2016).Thechallengesthathinder
successfully operating PSS usually concern the transformation process requiredwhile
implementingPSS(Bainesetal.,2009;Martinezetal.,2010),aswellasstrategicalignment
withinthecompanyandwithcustomers(Brax,2005;Isakssonetal.,2009;Martinezetal.,
2010).InthePSSliterature,wefindvariousstudiesthathavetriedtoprovidespecifictools
and frameworks to overcome these challenges (Nordin et al., 2011; Roy and Cheruvu,
2009;Sakaoetal.,2013).However,thesestudiesprovidearatherfragmentedandisolated
perspective on how to effectively configure and deliver PSS. Indeed, the underlying
building blocks are commonly neglected, and there is a theory–practice disparity that
makestheresearchresultslessvaluable(Bainesetal.,2016;Tukker,2015).Additionally,
manyresearchershavepointedoutthatthechallengesfirmsfacewhenimplementingPSS
oftennegativelyaffectthefirms’performance(Bavejaetal.,2004;Gebaueretal.,2005;
Kohtamäkietal.,2013;Paridaetal.,2014).Toaddressthesechallenges,someresearchers
haveproposedthatconstructingawell-structuredbusinessmodelcouldcontributetoa
comprehensiveapproachinPSSprovision(Boonsetal.,2013;VisinjicKastallietal.,2013;
KindströmandKowalkowski,2014;Reimetal.,2015;VisinjicKastallietal.,2016).Such
anapproachcouldpotentially contribute to improvedperformance, especially in firms
thatimplementadvanced,results-orientedPSS(Paridaetal.,2014;VisinjicKastallietal.,
2013).
5
2.2.PSS business models: Components and challenges
Both Osterwalder and Pigneur (2010) and Teece (2010) defined business models to
center on how value is created, delivered, and captured. The literature lacks clarity,
however, surrounding the single components of this definition, and it seems open for
interpretationastoexactlywhatactivitiesthesecomponentsentail.Theinitialliterature
onthePSSbusinessmodelconcepthascommonlybeenusedtocategorizedifferenttypes
ofPSSsuchasproduct-,use-,orresults-oriented(Meieretal.,2010;Tukker,2004).More
recentPSSstudieshavehighlightedthatbusinessmodelsarecentraltoimplementingPSS
successfully(Kindström,2010;Reimetal.,2015).
Manyprior studiesonPSSbusinessmodelshave focusedon transitioning from
providingproductstosolutionsandonnetworkaspectsconcerningPSS(e.g.,Ferreiraet
al.,2013;Ngetal.,2013;PaloandTähtinen,2013;Storbackaetal.,2013).Otherstudies
on PSS business models have mainly developed frameworks that focus on specific
elements that arepart of PSSbusinessmodels (Adrodegari et al., 2017;Barguet et al.,
2013; Lewandowski, 2015). For example, Reim and colleagues (2016) focused on risk
managementpracticesrelated toofferingPSS toglobalmarkets; thisactivityprimarily
relatedtothevaluecapturingaspectofbusinessmodel.However,thelackofanexplicit
definitionofthethreebusinessmodelcomponents(valuecreation,valuedelivery,value
capture) hinders applying this concept to PSS. Nevertheless, the literature frequently
touchesondifferentaspectsthatconstitutethebusinessmodelcomponents,aswellas
challenges. On the one hand, value in PSS is created by taking over work tasks from
customersandaccomplishingthemmoreefficiently,whichalsoimprovestherelationship
withthecustomerandtheirloyalty(Meier,2010;Tukker,2015).Customers’knowledge
andknowledgeaboutcustomersarestrongbarrierstovaluecreationinPSS(Isakssonet
al.,2009;ZarpelonNetoetal.,2015).Forexample,customersthatdonotfavorownerless
consumptionconstitutesafrequentlymentionedbarriertosuccessfulPSS(Bainesetal.,
2007;Mont, 2002). Value delivery is characterized by the high skill, competence, and
experience levels required tocontrol theentireprocessofprovidingPSS(Meier,etal.,
2010,Reimetal.,2015).Inaddition,neworganizationalstructuresandnewpartnersneed
to be integrated intoPSSprovision. Given theseparameters, challenges occur because
processes need to be developed, industrialized, and automated; the staff needs to be
qualified; and stakeholders need to be identified and integrated into a PSS-oriented
6
organization (Kindström, 2010; Neely, 2008). Table 1 summarizes recently published
articlesonPSSbusinessmodels.Table1:KeystudiesonPSSbusinessmodels
Tocapturevalue,itisimportanttodesignPSSsuchthatcustomersarewillingtopayfor
theaddedvalue(Mont,2002).Atthesametime,costsneedtobehandledefficiently.In
addition,theprofitabilityofPSSisdifficulttoshowbecausecashflowsareuncertainand
quantifyingsavingsisdifficult(Erkoyunkuetal.,2013;Gebaueretal.,2005).Pricingand
absorbing risks are significant problems that manufacturers need to address when
capturingvaluefromPSS(Bainesetal.,2007;Reimetal.,2016).Althoughthebusiness
modelconceptisvisibleinPSSstudies,researchthatshowsthebenefitsandsuccessof
actively using the businessmodel concept to develop and implement PSS is still rare
(Adrodegarietal.,2017;Paridaetal.,2015).Assuch,significantopportunityexiststouse
abusinessmodelframeworktoalignactivitiesinthefirmtowardacommonstrategicgoal.
Itcanalsobeusedasacoordinationdevice,andtoreachinternalandexternalfitinthe
transition toward providing PSS that could positively affect the firms’ performance
(Ferreiraetal.,2013).
Aspriorliteraturesuggests,providingPSSischallengingandoftennegativelyaffects
the firm’sperformance. In this context, researchershave suggestedusing thebusiness
model concept to develop and deliver PSS as a way to mitigate this challenge that
manufacturingfirmsface.Thus,investigatingtheunderlyingactivitiesofimplementinga
7
PSS business model could help firm adoption of PSS that contributes to the firms
performancepositively.
3. Research method
3.1.Research approach
Becausethephenomenonwearestudyingishighlycomplex,weuseamultiplecasestudy
approachtohelpus“providethedetailsofhow(thestudied)processesactuallyplayout”
(Siggelkow, 2007, p. 22). Based on guidance provided in Yin’s (2008) case study
methodology, we first performed a literature review on PSS and business models to
conceptuallyframehowPSSimplementationandbusinessmodelsarerelatedandcanbe
integrated.We thenselected three largeglobalmanufacturingcompanies fromdiverse
industries that had introduced PSS into the marketplace as cases for this study.
ManufacturerswereselectedtorepresentdifferentindustrieswithadistinctrangeofPSS
offerings. Moreover, the need to redefine business model tends to be greatest in the
contextofglobalfirmsduetotheirneedtocreate,deliver,andcapturevaluefromdiverse
segmentsofglobalcustomers(Parida,etal.,2015)
Duringourinitialinteractionwiththecasefirms,itwasevidenttheyhadfacednumerous
challengeswhileintroducingPSSofferings.Asthesecompaniescontinuedtoexpandtheir
PSSportfolioandincreasedrevenuethroughtheseofferings,weexpectedtouncoverreal-
worldexamplesofhowtheyhadachievedthedifficulttaskofofferingPSStotheirglobal
customers.Moreimportant,thecontinuedevolutionofPSSofferingswithinthecasefirms
provided a unique opportunity to study the construction or building blocks of PSS
businessmodels.Wewerealsoabletoobservepotentialshortcomings(i.e.,problems)and
stepstakentoovercometheminsuccessfullyimplementingthebusinessmodels.Table2
includesdescriptivebackgroundinformationaboutthecasefirmsandtheirPSSofferings.
When interacting with the case firms, we concentrated on the more advanced PSS
offerings, that is, the use-oriented or results-oriented (Tukker, 2004) offerings. For
example, Firm 1 has been offering availability based contracts of their construction
equipmentinglobalmarkets.Thisresultedinhavingtoensurethattheequipmentbeing
offeredwasfunctioningtoanagreeduponlevel.Theequipmentdowntime,therefore,has
tobeminimum,withthe firmtakingvariouspre-emptivemeasures.Otherwise,Firm1
8
wouldhavetouseadditionalequipmenttodeliverthepromisedlevelsofavailabilityto
theircustomers.Table2:DataCollectionandCaseStudyFirmDetails
3.2.Data collection
Ourdatacollectionwascompletedprimarilythroughsemi-structuredinterviews.These
interviewswereconductedthroughamixtureofface-to-faceinterviews,aswellasover
the phone. Each interview averaged about an hour. The interview respondents were
identified from within each firm to represent the diverse functional units that were
engageddirectlyinprovidingPSS.Respondentswerealsochosentoprovideviewsfrom
thestrategiclevelandoperationallevel,becauseprovidingPSSinvolvesboth.Duringthe
interviewprocess,respondentswereaskedtorecommendotherpotentialrespondents
thatcouldhelpusgatheradditionalinsights.Therefore,ourrespondentswerechosenin
asequentialandpurposefulmannerprovidingvarietyandnuancestoourdatacollection
(StraussandCorbin,1990).Inadditiontotheinterviews,ourcasestudywastriangulated
withothersourcesofsecondarydata(Yin,1994),includinginternalworkingdocuments
fromthecasefirms,publishedarticles,andwebsiteinformation.Thus,multiplemethods
ofcollectingdatawereusedsothatwecouldconvergeonthefactsofourcasesandachieve
datatriangulation(Yin,1994).
3.3.Data analysis
Weanalyzed thedata thematicallyby first organizing the interviewdatabasedon the
terms,labels,andphrasesintocodes.Thiswasdoneacrossmultiplerespondentstodetect
Firm Industry Turnover (USD)
Employees and presence in no. of countries
Example of advanced PSS offering No. of interviews
Interviewees
Firm 1 Heavy machinery
$1.7 Bn 13,635 / 125 Firm 1 offers availability of construction equipment to its customers which ensures that its customers are assured of operational readiness of the equipment without the hassles of ownership
13 Director - Technology Planning and Public Funding, Technology Planning Manager, Soft Product Planning -Portfolio Manager - Strategy & Business Development and Customer Solutions, Team Leader- Machine Data Platform, Global Director Attachments and Customer Solutions, Global Director Portfolio Management and Technology Product Planning, Global Range leader - Global Product & Segment Management and Global Marketing, Business Planner, Emerging Technologies Manager, Technology Planning Manager, Global Product Manager – Extended Coverage, Global Pricing Manager, Project Manager,
Firm 2 Telecommunications infrastructure
$13.6 Bn 25,245/ 180 Firm 2 offers a life-cycle management of telecommunication network infrastructure and functionality for its customers thereby relieving them of the hassles of operations, migration and upgradation of their service delivery network
9 Manager- Service System Research, Change Manager, Project Manager, Solutions Architect, Service Researcher, Research Manager, Master Researcher (2), BUGS- Global Service Organisation
Firm 3 Machine tools
$3.8 Bn 19,055/ 130 Firm 3 offers productivity enhancement of the customers machining output that its tools and their expertise can help to deliver. This ensures that its customers enjoys risk-free and assured improvement of their productivity
7 Senior Manager, Global Service Driver, Project Manager, Senior manager IT & Business Architecture, Service Portfolio Manager, Senior Project Manager, Service Manager
9
conceptual patterns (Glaser and Strauss, 1967) that were similar in their essence. To
ensurerigorandincreaseconfidenceintheanalysis,multiplemembersoftheresearch
groupdeveloped the coding scheme independently. In the event of disagreements,we
discussedandmodifiedthecodingschemeuntilconsensuswasreached.Thisprovidedan
independentperspectiveonthetrustworthinessofthecodingschemes(LincolnandGuba,
1985). The codeswere combined into first-order categories, which described the key
eventsandactivitiesthatoccurredwhendevelopinganddeliveringPSS.Next,welooked
for patterns and relationships within these first-order codes that could be further
collapsedintotheoreticallydistinctgroupingsorsecond-orderthemes.Finally,thethemes
were aggregated into third order dimensions that related to the business model
components of value creation, value delivery and value capture (Nag et al., 2007). In
practice,thismeantwecreatedlistsofquotesandotherexamplesrelatedtoprovidingPSS
inourcasefirms,whichwerethenanalyzedthematicallytohelpidentifycodes,themes
anddimensions.Theanalysisof thedataprogressedthroughan iterativeprocessuntil
saturationoftheconstructswasreached(BraunandClarke,2006).
4. Findings
Based on analyzing both primary and secondary data, we identified a total of seven
underlying activity themes related to the PSS business model. These activity themes
correspondedtotheoveralldimensionsofthefirm’screation,delivery,orcaptureofvalue
inprovidingPSS.Inthissection,wedetailthefindingsfromourcasestudy(seeFigure1)
organized under each of the sensitizing concepts that correspond to the activity
dimensionsofaPSSbusinessmodel.
10
Figure 1. Data Structure: Findings
4.1. Value creation
4.1.1. Taking over responsibilities from customers
Akey activity inprovidingPSS thatweobservedwas takingover responsibilities that
customers previously handled. One approach to this is providing complete lifecycle
solutionstocustomers.Thisentailsproviderstakingcareofthesolutionfrominstallation
it to ensuring it functions throughout its entire life period. In doing so, customers are
relievedoftheresponsibilityofmaintainingandservicingtheoffering.Inourcasefirms,
we foundthisapproach tobe increasinglyprevalent.Asacustomersolutionsarchitect
pointed out, “This is the standard now.What we offer to our customer is the life cycle
management.….Weselltheservicetointegrate[productsandservices]andthenthesupport
organizationtakesoverandprovidessupport.”
§ Providing complete lifecycle solutions
§ Taking over operational activities of customers
§ Increased asset utilization
§ Streamlining make or buy decisions
§ Minimizing downtime of the product
§ Remanufacturing and recycling of products
§ Developing Knowledge of customer’s processes
§ Developing predictive capabilities of customer
requirements
§ Customer involvement in design and
development of offerings
Taking over responsibilities
from customers
Improved resource utilization
Increased customer interactions
First-Order Categories Second-Order Themes Third-Order Dimension
Value creation in PSS
§ Skill enhancement of delivery partners
§ Forging new distribution and delivery
partnerships
§ Localization of support services
§ Development of digital interface/platforms for
managing distribution and supplier networks
§ Cross regional interactions (front and back-end)
§ Orchestration of skills across business units
§ Managing the complexity of PSS provision
Developing external distribution
and delivery networks
Developing new internal
routines
Value delivery in PSS
§ Managing risk of adverse market selection
§ Managing operational risks effectively
§ Value based pricing
§ Sharing of profit
§ Pay-as-you-use
Managing risks
Structuring revenue models
Value capture in PSS
11
Anotherwaywefoundourcasefirmstakingoverresponsibilitiesfromcustomerswasby
takingoveroperationalactivitiesfromcustomers.ThisenablesthePSSproviderstotake
control of the solution and minimize risks during operations. It allows customers to
employappropriatepersonnel,manageproductoperations,andenjoytheresultsthatPSS
delivers, thereby allowing supplier firms to create value. In thepresent study, Firm2,
which offers life-cyclemanagement of its telecommunications network infrastructure,
takes over the periodic assessment of network performance, as well as integrating
solutions into the customers’ existing infrastructure. Such tasks were previously the
customers’responsibility.
4.1.2. Improved resource utilization
Managing resourceswhile providing PSS is of critical importance for suppliers,
becausetheriskofownershipandoperationalcostsrestonthem.Resourceutilization,
therefore, becomes key to reaping benefits and creating value through efficient PSS
provision. In our case firms, we observed many ways in which improved resource
utilizationprovidedopportunitiesforcreatingvalue.First,wefoundthatincreasedasset
utilizationwasakeyfactorforprovidingPSS.Inprovidingsolutions,thesupplierfirms
are responsible for the output; therefore, the products or physical assets need not
necessarilybestationedatonespecific client’soperationalarea.Thesupplier firmcan
then transport and orchestrate the maximum utilization of an asset across many
customers.Additionally,weobservedthatthelifeoftheindividualassetswasprolonged
through effective maintenance and upgrades. These activities helped increase asset
utilization and thereby provided opportunities to contribute toward PSS provision.
Anotherway inwhich our case firms achieved improved resources utilizationwas by
streamliningtheirmakeorbuydecisions.ProvidingPSSiscomplex,andoftenfirmsdonot
havethecapabilitiesorresourcestoprovideallpartsofPSS.Inthesecases,thefirmsmust
beabletodecidewhichthingstointernalizeandwhichtooutsourcetoothers.Resources
arewastedwhentasksoroperationscouldbecompletedmoreefficientlybyothersthat
arebetter equipped todo so.When resources areusedmost efficiently,morevalue is
createdintheprocess.Aseniortechnologyplanningmanagerinourstudyreported,“That
issomethingthatwedoneed…[weneedto]decidewhataretheareasthatwedoourselves
andwhataretheareasthatwe…sourcefromsomeone….”
12
Anotherveryimportantfactorinimprovingresourceutilizationisminimizingdowntime
oftheproduct.Maximizingproductavailabilityensuresmeetingproductivitynormsand,
inmanycases,helpsexceedthem.Productdowntimeinvolvesadditionaluseofmaterials
forrepair,increasesinservicecosts,aswellasinvestingadditionalcapitaltoprovidea
replacementproductuntiltheproductisoperatingagain.Inourcasefirms,wefoundthat
thefirmshavedevelopedtheabilitytopredictpossiblemachinefailuresandalsoperform
real-time conditional monitoring of their assets (often using digital technologies for
continuousonlinemonitoring).Thishelpsthemperformproactivemaintenanceontheir
assets, thereby minimizing downtime and increasing resource utilization. As a
distributionpartner inthepresentstudyexpressed,“Keepingtrackwithourtelematics,
[we]candiscoverthecostsbeforetheyhappen,soyoucandoprevention,getmoreinvolved,
andbemoreproactive.”
Remanufacturingandrecyclingproductsisanotherstrategythatenablessupplierfirmsto
reducematerialuse,therebyimprovingtheuseofresources.Becausetheownershipof
physicalassetsresideswithsuppliercompanies,recyclingorreuseafterreconditioning
helpswithsustainabilityefforts.Italsosavesthefirmsmoneycomparedtoprocuringthe
rawmaterials andproducing assets from scratch. CaseFirm3was selling cutting tool
headstoitscustomersandrealizeditscustomersweresellingtheusedtoolheadsasscrap.
Assuch,theyintroducedareconditioningandrecyclingservice,whichincludedproviding
customerswithafreecollectioncontainerservice,aswellascollectionanddeliveryofthe
up-cycledtoolheadsforreuse.Thishelpedthemsavemoneyforthemselvesintermsof
rawmaterialsandalsoprovidedcashfortheircustomersbypayingthemforthescrap
materials.
4.1.3. Increased customer interactions
In providing PSS, the intensity and quality of interaction with customers
determines,toagreatextent,thefinalbenefitthataccruestotheprovidersintheprocess.
In our case companies,we foundmany activities throughwhich they intensified their
interactionwithcustomers.Developingknowledgeof thecustomer’sprocesseshelps the
firms customize functions and integrate PSS into the customers’ processes effectively.
Because the onus of providing the functional benefit rests with the PSS provider, the
effectivenessofproviding thePSS lies inhowwell theprovider’soutputprocessesare
integrated with the customers’ business processes. A portfolio manager in our study
13
observed, “[When] you sell something specified [solutions], you need to understand the
customers’businessprocesseswell.”Thehigherthesupplier’sknowledgeofthecustomers’
business processes, the greater the possibility of contributing positively to their
operations. Another dimension of how the supplier firms operationalize customer
interaction is by developing predictive capabilities of the customers’ requirements.
Providing PSS gives the supplier firms the ability to understand the nature of their
customers’ businesses. It also provides them with access to information about their
customers’operationsandstrategythatwaspreviouslynotaccessible.IncaseFirm1,we
observedthattheyhaddevelopedtheabilitytopredictthetimingandsource(whenand
where) of their customers’ next requirement. This prepared them to offer additional
solutionsinadvance,therebyhelpingthemcapitalizeonpotentialopportunities.Wealso
foundthatthroughcustomerinvolvementearlyinthedesignanddevelopmentofthePSS
offering,ourcasefirmscouldmakethedevelopmentprocessmoreefficientandeffective.
Additionally,thesupplierfirmswereabletoconfigurethefunctionalityofthePSSoffering
early in the development process, which would have been costly at later stages of
developmentor inthedeploymentstages.Asaserviceresearcher inthepresentstudy
recalled,
Right now, we can…demonstrate the features at an earlier stage, so instead of doing the
whole [PSS solution] development in six months and then releasing the whole package
at once, we can now in the first month develop the first ten features then demonstrate
them to the customers. If they are pleased, fine, but if not we can still make adjustments
instead of finding out six months later when we release the package and the customer is
not really getting what he expected. So, this process has changed.
Thetimesavedinthedevelopmentprocessalsoenablesthesupplierfirmstostart
deployingthePSSandgeneratingrevenuemuchearlier.
Inourcasefirms,PSSprovisionprimarilyrelatedtoofferingtheuse-valueorresultthat
the product offered along with the integrated services. This necessitated that the
manufacturing firms’ activitiesbegeared toward interactingmore intenselywith their
customers and taking on responsibilities that the customers traditionally carried out
themselves.Italsomadethefirmsmoreefficientbycontrollingandoperatingtheirown
resources. This enabled our case firms to capitalize on potential opportunities for
themselvesandalsocontributetotheiroverallperformance.
4.2.Value delivery
14
4.2.1. Developing external distribution and delivery networks
Externaldistributionnetworksoftenprovidesupportservicesandserveasthefrontline
formanufacturingfirms.InprovidingPSS,thesupplierfirmsneedtodeveloptheabilities
andoveralldeliverypotentialoftheentirenetworktosupportthechange,fromproviding
individualproductsorservicestoprovidingintegratedPSS.Inourcasefirms,weobserved
thatdevelopingexternalnetworkswasanintegralpartoftheirattempttoprovidePSS,
especiallyinaglobalcontext.Therewereseveralactivitiesthathelpedthemachievethis
objective. First, the skill of the delivery partners needed to be enhanced to support PSS
provision.Traditionally,thedeliverypartnerspossessedtechnical-andproduct-related
deliveryandsupportskills.Serviceandcustomerinteractionskills,whicharecriticalfor
providingPSS,areoftenmissing,asaheadoftechnologyplanninginthepresentstudy
reported,
As I see the skills are a challenge,…How are dealers able to sell the services [PSS], and
do they have an understanding of how to get paid when they are used to selling the
yellow machines and get paid when they deliver it.
Second,forgingnewdeliverypartnershipsisimportantindeliveringPSS,becausesomeof
thekeycompetencesandknow-howarecompletelymissinginthepresentdistribution
network.Thenewpartnershelpprovidethemissingknow-howaswellasthesupporting
eco-systemtosupportdeliveringPSSfromdeploymentuntiltheendofthelifecycle.As
such,thesuppliercompaniesarewelladvisedtohavealong-termcontextualviewofthe
emerging trends in their market before finalizing their partners. A global director of
technologyproductplanninginthepresentstudycautioned,
Some of the traditional partners may not be the ones to work with any longer. In
(industry name) you see that companies like Cisco are entering fleet management and
others like Google could be next, so we need to broaden our view for the right
partnerships.
Apartfromtheaboveactivities,localizationofsupportservicesiscriticalinvaluedelivery,
becauseconstantmonitoringandsupportoftheinstalledassetandcustomerinteraction
arerequired.Traditionalcentralizedsupportoperationsoftenresultedinlongerresponse
timesandthereforedowntimelossesforthesupplierfirms.Asaglobalproductmanager
inthepresentstudysaid,
15
If the customer is very far from the dealers, then it is hard to have [a] customer service
agreement. It is not worth it to travel so far to visit often enough to maintain the machine.
Then you can also get high costs.
Proximity of personnel and the availability of spare parts or other solutions-related
componentsarecriticalintheeffortstolocalize.Additionally,localsupportservicesare
adept at customer interaction and handling; therefore, they play an important role in
customizing thesupportservices thatarerequired forPSSdelivery.Finally,oneof the
criticalactivitiesthesupplierfirmsneedtodoistointegratenewcomponents,aswellas
newpartners,duringtheentiredeliverycycleofthePSS.Inthisregard,developingdigital
interface/platformstomanageandcontrolthediversedistributionandsuppliernetwork
playsavital role inprovidingPSS.Digital interfaceshave interpretativeand screening
abilities,whichensurethatonlycorrectinputsfromdivergentinputsourcesareapplied
totheinstalledbase.Theycanreportandscreenoutanyfaults,therebypreventingany
unwantedfailureordamagetotheinstalledbase.Asaglobaldirectorinthepresentstudy
explained,
We have developed this module [digital platform]...We can connect with third party
suppliers so he can come with a solution to implement. Regardless of what he does, the
interface is strict, and we don’t have to check the whole machine.
TheseinterfacesalsogreatlyimprovetheefficiencyandperformanceofthePSS,because
theyhavelowerdowntimeandprovideintelligent,real-timemonitoringoftheinstalled
basestothesupplierfirms.
4.2.2. Developing new internal routines
The manufacturing firms have established routines, that is, sequences of coordinated
actionsandskillsthathelpthemdeliverproductsandservicestotheircustomers.With
thechangeinfocustoPSS,thesupplierfirmsneedtodevelopnewroutinesthathelpthem
buildcapabilitiestodeployPSStotheircustomers.Inourcasefirms,weobservedseveral
newroutinesforPSSprovision.Oneoftheimportantroutinestheyhadtodevelopwas
orchestrationofskillsacrossbusinessunits.Traditionalproductdeliveryrequiresskillsthat
are already organized into functional business units. With providing PSS, however,
combining and coordinating skills across the product, services, support, and customer
16
interfacing units is required; indeed, they all need to work together. As a service
researcherinthepresentstudyputit,
You have the product organization that has its own orchestrant; they have a responsible
product manager. Sometimes several product managers. There is a strategic product
manager responsible for portfolio of products. Might be in the case of (PSS offering
name) as there are more products involved. So, there is a conductor there…for the
service part...and there is a conductor for the region who is responsible for the customer
engagement process.
Another new routine needed for effective value delivery in PSS provision was cross
regional interactions, that is, interaction between the front-end and back-end of the
supplier firms. As customer interactions and support and delivery become crucial,
especiallyinglobalPSSprovision,theregionalunitsthatareclosetothecustomerneed
toperformdiverseandcriticaltaskstoensurevaluedeliveryinPSS.InPSSdelivery,the
regional units take over new responsibilities and participate in activities that were
traditionallyperformedbycentralunits.Forexample, innewtechnologydevelopment,
thismight includecustomizing theoffering,managing the life-cycle, selectingpartners,
andmanaging offerings. In these cases, the regional units provide both technical and
managerial expertise and support regionalunits in executing theirnewroles.As such,
variousroutinesneedtobedevelopedthatpromotecross-regionalinteraction,withthe
centralized units providing adequate support and resources for the regional units to
performeffectivelyindeliveringPSS.Asaprojectmanagerinthepresentstudyexplained,
The solution can…contain products…and the product organization [central business
unit] is the owner of the products…But the region [regional business unit] is always the
owner of the solution. So, they are responsible for supporting and further developing the
solution. They can reach out for support when it comes to the product organization, and
they can reach out to the service organization [central business unit] when it comes to
the services. But the regions are the ones owning the solution.
Combining various elements into an integratedwholemakes PSS provision a complex
task.Existingsystemsandstructureswereoftengearedtowardbreakingdowntheoverall
valuedeliveryprocessintosimpler,moremanageableparts.Therefore,inPSSdelivery,
theproviderfirmsneedtodeveloproutinesthatcanhelptheminmanagingthecomplexity
ofPSSprovision.InPSS,however,thewholeprocesscannotbecompletelybrokendown
intosimplerparts,becausePSSmustbeprovidedasanintegratedwhole.Inourcasefirm,
17
weobservedthatthevariouscomponentsofthePSSweredesignedtoworkcloselywith
eachother,whilenotneedingtobecompletelyintegratedfromthebeginning.Asaglobal
portfoliomanagementdirectorinthepresentstudyremarked,
That interaction from the beginning, if we look at the AE [PSS offering] portfolio, it
prioritizes cross functionality and the understanding of where are the connection points.
So, you can then say that initiatives 1,8,5 [PSS components] need to be combined and
executed together. From an early standpoint, you may not know exactly which one of
them makes it, but once you have reached the point of readiness then you decide on
which items are need to be combined and go together to delivery.
PSSdeliveryentailsallactivitiesthathelpindeliveringthepromisedfunctionalbenefitor
result to the customers. It consistsof a complexarchitectureof the information flows,
systemgovernance,androutinesthatspanthefirm,aswellasexternalpartnersengaged
in the process. Firms engaged in providing PSS need to manage the complexity and
diversityofPSStosustainthesestructuresandarchitectureswhichisaprerequisiteto
effectivelydeliveringthepromisedbenefits.
4.3. Value capture
4.3.1. Managing risks
Providing PSS entails increased risks, because the supplier firm engages in relational
interactionsover long timeperiods, incorporatesnewoperational responsibilities, and
promises to deliver results- or use-oriented benefits. Systematically managing the
identifiedriskslargelydictateshowsuccessfulafirmisinprovidingPSS.Inourcasefirms,
wefoundvariousactivitiesthathelpedthefirmsidentifyandmanagetherisksassumed
whileprovidingPSS.Thesupplierfirmsfacetheriskofadversemarketselectionoftheir
PSS offerings, that is, among a portfolio of PSS offerings, customers choose only those
wherethecertaintyofassetfailureishigh.Asamanagerhandlingextendedcoveragefor
productsinthepresentstudyexpressed,
If you have a correct price you never know. When you enter a gold contract [PSS
offering] and you promise ‘we are going to take care of all repairs,’ some machines do
quite well and cost less than expected. But more often, something happens and the cost
is out of control and when you have a small portfolio you cannot balance the risk and
the risk is greater.
18
In such cases, the supplier firms try to adjust the pricing of these offerings to ensure
coverageoftheriskortransfertherisktoanotherparty,includingdistributionpartners
or external third-party insuring entities.Managing the operational risks effectively also
helpsthesupplierfirmsprotectthemselvesfromthedownsidesofPSSprovision.Withthe
onusoftheoperationsnowbeingonthesupplierfirms,thefirmsmustbeartherisksof
technicalfailureandadversecustomerbehavior.Whiletherisksoftechnicalfailureare
mitigated through preventive and proactive maintenance, adverse customer behavior
risks, such as overusing or being carelesswith assets, are often covered through risk-
sharing contracts with customers. As a global pricing manager in the present study
reported,
There are actually kind of hard terms and conditions. Now a days we can say that the
customer service agreement is only valid in normal conditions of use. So, if there is any
evidence of abnormal usage, the customer service agreement can be cancelled.
Theseriskmanagementmechanismshelpthefirmsminimizetheirlossesandmaximize
thegainsinPSSprovision.
4.3.2. Structuring new revenue models
Inmanufacturingfirms,thetraditionalmodelsbasedontheexchangevalueofproducts
and services is themost commonway to accrue revenue. In providing PSS, there are
challenges invisualizing thebenefitdelivered,aswellasestimating therisks involved.
Therefore,thesupplierfirmsneedtostructurenewrevenuemodelstocapturetheuse-
valuegeneratedinthecontextofPSS.Inourcasefirms,weobservedseveralnewrevenue
modelsthatwerestructuredtoovercomethesechallenges.Onewaytostructurerevenue
models is by following a value-based pricing model. In ongoing engagements with
customers, the change in the revenue model brings significant instability to the
relationships.Tokeep theoverall revenuemechanismsimilar,whilestill capturing the
additionalbenefitsdeliveredinPSS,thesefirmschargeapremiumthat is linkedtothe
productbut captures thevalueof the servicesandotherPSS componentsdelivered to
customers.Asaserviceportfoliomanagerdescribed,
We do not charge for the services to our customers. But because we help them with
services, we are able to command a premium pricing for our products [compared to the]
competition. This is how we are able to charge for the total value we provide to them.
19
In other instances, where no direct product is involved but where the supplier firms
promisetodeliverthebenefitorresult,customersarereluctanttobuy-in,becausethey
areunsurehowtoquantifythebenefit theyreceive. Insuchcases,structuringaprofit-
sharing revenue model is a win-win for both. The supplier captures the additional
revenues,andthecustomerishappytoseedirectbenefitaccruingtotheirbottomline.
SometimestheupfrontcostofPSSbecomeshighduetotheadditionofcomponentsthat
arerequiredtodeliverthefunctionalbenefitsthatensuesfromintegratingproductsand
services.Additionally,withtheuncertaintyofthevaluedeliveryofthePSS,customersare
reluctanttomakeaninitialcommitment.Insuchcases,firmsimplementapay-as-youuse
revenuemodel(monthlyorafixedtimeperiod).ThishelpscustomersadoptPSSofferings,
andsupplierfirmscanofferPSStoawiderangeofcustomersthatwouldnototherwise
consider taking up the offerings due to high upfront investments. This notion was
underscoredbyaglobalmanger,whowasinchargeofstructuringPSSofferings,
Because the contracts [for PSS] would become very expensive, and I doubt that they are
willing to pay up front, we have to change the charging model to some type of monthly
payment.
The supplier firms capture value when the value is monetized and appropriated.
Comparedtoaproduct-basedapproach,wheretheexchangeofgoodsformoneybecomes
theprimaryvaluemodel,inthecaseofPSS,otherdimensionsoftimeandtheeffectiveness
of activities that lead to capturing value become important. Additionally, when an
increasedriskexistsinprovidingPSS,firmsneedtoprotectthemselvesagainstprobable
loss.
5. Business model alignment problems for PSS provision
Our empirical findings reveal the key activities thatmanufacturing firmsundertake to
implementthebusinessmodelconceptneededtocreate,deliver,andcapturevalueinPSS
provision.Inthepresentstudy,however,therespondentsalsodiscussedthenumerous
challenges they encountered in their journey to offering advanced PSS offerings to
customers. Many explained they had undertakenmany of the activities necessary for
successfullyimplementingaPSSbusinessmodel,yettheywereunabletoaccruebenefits.
Furtheranalysisofourfindingshighlightedtheneedtoalignthecomponentssuchthat
20
thereisinternalandexternalfitwithhowvalueiscreated,deliveredandcapturedinPSS
Provision.AsaTechnologyPlanningDirectorexplained,
We have initiated a lot of change in regard to the way we develop our products.
However, the other departments will also have to equally change the way they operate
so that these new services can be effectively employed…Now it’s a lot of struggle,
especially how we work together.
Indeed,theneedtosynchronizeactivitiesandcoordinatetheirimplementationisrequired
toreapthedesiredbenefitofimplementingaPSSbusinessmodel.Inourcasefirms,we
found that alignment necessary in a PSS businessmodel componentswas affected by
problems in how the activities were executed in the firms. In the present study, we
identifiedthreetypesofalignmentproblemsthatcanaffecttheoverallalignmentofthe
businessmodelwithitsstrategytoprovidePSS.Thesealignmentproblemstendtoemerge
when the activities related to a business model component were either disregarded,
deficient, or disconnected with the others. In our case firms, we encountered many
examplesofalignmentproblemsthatimpededthefirmsineffectivelyimplementingaPSS
businessmodel. Table 3 details examples of problemswe encountered in the present
study.
Thefirstalignmentproblem—beingdisregarded—ariseswhenoneoftheactivities
relatingtoabusinessmodelcomponentiseithermissingorhasnotbeenconsideredwhen
implementingthePSSbasedbusinessmodel.Forexample,Firm3wasnotabletoleverage
itsonlineplatformservice,because it failedtoprovidemechanismsto interactwith its
customers, thereby failing to create value. The second alignment problem—being
deficient—ariseswhenoneof the activities relating toabusinessmodel component is
implemented, but in an inadequate way. For example, Firm 1 had a deficient fault-
reporting system,which affected its overall ability to capture value.As a result, it lost
revenuesduetounnecessarilywastingresourcesintryingtoresolveaproblemthatdid
notexist initially.The thirdalignmentproblem—beingdisconnected—ariseswhen the
activitiesrelatingtoabusinessmodelcomponentareoptimalontheirownbutarenot
connected to other activities. For example, in Firm 1, the revenue model and the
operationalprocessfordeliverywerewellstructuredbythemselves,butdisconnection
betweenthetwoactivitieserodedthevaluecapturedtowardthelaterpartofthecontract
period.Table3encapsulatesbriefdescriptionsofalignmentproblemsasobservedinour
case firms that illustrate how they negatively affect implementing a business model
21
conceptinPSS.Theseempiricalexamplesrevealtheneedforalignment,whichisrequired
whenimplementingaPSSbusinessmodelthatcanmeaningfullycontributetothefirm’s
performance. Indeed, the business model concept itself could be considered as a
mechanismthroughwhichalignmentamongthethreecomponentsofcreating,delivering,
andcapturingvaluecanbeachieved(Baden-FullerandHaefliger,2013;Baden-Fullerand
Morgan,2010).
Table3:AlignmentProblemsinImplementingPSSBusinessModels
6. Discussion and implications
Thepresentstudyaddressedtheneedfor insightsregardinghowtraditional industrial
manufacturers can effectively adopt and implement the business model concept in
providingPSS(BoehmandThomas,2013;Vezzolietal.,2014).Althoughthe literature
widelyrecognizesthat thebusinessmodelprovidesaperspectiveregardinghowfirms
cancreate,deliver,andcapturevalue(Baden-FullerandHaefliger,2013;Teece,2010;Zott
and Amit, 2010), empirical evidence of successfully implementing the concept in a
comprehensivemannerdoesnotyetexist(Barquetetal.,2013;Reimetal.,2015).Rather,
the literature commonly presents an isolated and fragmented perspective on specific
Alignment Problems
Disregarded Deficient Disconnected Example 1 – Firm 3 (Value Creation) Firm 3 had an open, online platform that helped create and export 3D model assemblies to CAM software. This platform provided both the firm’s and its competitor’s tools for the end user to access in making these model assemblies. This platform therefore allowed the firm’s potential and current customers to benefit by saving them from employing specialized manpower and saving resource wastage from adopting a trial and error method in configuring these assemblies. Although Firm 3 had access to its customers and potential customers on this platform, it did not use this opportunity to create value, because there was no mechanism or feature to interact with their customers. Furthermore, the platform did not provide any facility for customers to order their tools if necessary, for which they must access traditional channels. Firm 3 was losing a great opportunity to further improve its interaction with the customers and create value.
Example 2 – Firm 2 (Value Delivery) In Firm 2’s advanced solutions business, the front-end units are creating many versions of the offered solution for customers to suit individual needs. Per the established process, the front-end units were not responsible for the support and service of these solutions; instead, the centralized back-end unit was responsible for supporting these solutions. This approach existed due to the firm’s internal routines, which promoted standardizing support services like their existing product support processes. This resulted in the back-end trying to resolve support issues for customized solutions with standardized support capabilities. Therefore, the back-end support units were not able to effectively perform their assigned tasks, leading to deficiency in value delivery to their customers.
Example 3 – Firm 1 (Value Capture) Firm 1 offered availability solutions with a revenue model that was structured around receiving the same monthly payments over the period of the contract. The contract value was based on the initial experience of costs that the firm accrued in providing the availability levels as promised to its customer. In practice, the maintenance cost of the solutions progressively increases and is loaded toward the end of the contract period. However, the maintenance team and the solutions teams worked independently, with each having specific roles and little communication amongst themselves. This led to a situation in which the revenue received was constant throughout the contract period, while the costs started to increase sharply toward the end of the contract period. This disconnect in their operations and structuring of the revenue model led to the erosion of the value captured toward the later part of the contract period.
22
challenges PSS providers face or conceptual frameworks that only focus on emergent
processesorconstituentsofabusinessmodel(BasoleandRouse,2008;Ceschin,2013;
Cherubinietal.,2015;KindströmandKowalkowski,2014;Lockettetal.,2011;Mo,2012;
Reimetal.,2015).Additionally,littleisunderstoodoftheactivitiesneededtoimplement
aPSSbusinessmodel(AdrodegariandSaccani,2017;Bainesetal.,2016).
6.1.Theoretical implications
The present study has several theoretical implications to the PSS and businessmodel
literatures.Wecontributetotheliteraturefirstbyempiricallydescribingacomprehensive
business model framework in the context of PSS. Studies in the PSS literature have
providedidiosyncraticdefinitionsofbusinessmodels(Velamurietal.,2013)orprovided
descriptions of frameworks that relate to specific components of a business model
therefore providing only limited understanding of PSS business models (Boons et al.,
2013; Ferreira et al., 2013; Ng et al., 2013). This study contributes by providing a
comprehensivedescriptionofaPSSbusinessmodelframeworkthatencompassesallthe
components of value creation, delivery and capture of a business model. Second,
descriptionofbusinessmodelasanactivitysystemisrareintheliterature.Byproviding
anactivitybasedbusinessmodel frameworkthisstudycontributesto the literatureby
providing specific acitivity guidelines for firms to adopt in PSSprovision.As such, the
present study extends our understanding of using the business model concept as an
organizingdeviceinthecontextofinitiatingactivitiesthatareuniqueandnecessaryfor
successfullyprovidingPSS (BoehmandThomas,2013;Vezzoli et al., 2014). Third, by
identifyingthreekindsofalignmentproblemsinbusinessmodelimplementationinPSS,
weprovideaguidefor identifyingandmanagingalignmentduringthe implementation
process. These typologies of alignment problems are novel in the literature. These
problemshelpfurtherourunderstandingofhowalignmentnecessaryinprovidingPSS
can be affected andwhich need attention during the implementation of PSS business
models.
6.2.Managerial implications
23
Practicing managers can take inspiration from the present study regarding how the
businessmodelconceptcanbeusedasanorganizingdevicetoeffectivelyprovidingPSS
in their firms. The activity based business model framework could also be used as a
guidingtoolfortheongoingPSSimplementationprocesswithinthefirm.Thiscouldhelp
a firm’s decisionmakers implement activities that can help effectively coordinate and
integrateprocessesacrossbusinessfunctionsbothwithinfirmsandwithexternalactors.
Operationalmanagerscanuse thepresentstudywhen implementingspecificactivities
that can facilitate the firm’s overall provision of PSS. Such activities can range from
identifying particular activities to implementing activities, keeping in mind how they
contribute toaparticulardimensionof the firm’svalue creation,deliveryandcapture.
Finally,thealignmentproblemsidentifiedinthestudycouldserveasaguideformanagers
toidentifysimilarchallengestheyfaceinprovidingPSSandtakenecessaryremedialsteps
duringprovisionofPSS.
6.3.Limitations and avenues for future research
Inthecontextofourcasestudyresearch,manyinterestingavenuesforfurtherresearch
emerge. Itwouldbe interesting toknowwhatotheractivitiescouldcontribute toward
enhancingthedimensionofafirm’sactivitiesincreating,delivering,andcapturingvalue
inprovidingPSS.Furtherresearchcouldextendour findings in thisdirection.Another
questionofinterestforfuturestudiesismeasuringtheimpactandthedynamicinterplay
oftheindividualactivitiesthataffectthefirm’simplementationofaPSSbusinessmodel.
This can be done bothwithin the businessmodel dimensions, aswell as across them.
Studiesthatcanhelpunearththemoderatingvariablesthatlinkalignmentofcomponents
andfirmperformanceinPSSprovisionwouldalsobeaninterestingavenueforfurther
research.Forthiskindofstudytohavevaluefordecisionmakers,itwouldbeinteresting
toseestudiesthatexploredtheseaspectsbothqualitativelyandquantitatively.
24
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Servitization and co-existing product and service orientations: Triggers, manifestation, and consequences of organizational ambivalence. Lenka, S., Parida, V., Sjödin, D. R., & Wincent, J. (In Press). International Journal of Operations & Production Management
Paper I
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Paper II
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Paper V
Research-Technology Management • September—October 2015 | 35
Global competition is driving manufacturing companies to
generate greater value by offering innovative services. Com-
panies such as Ericsson, IBM, and GE are increasingly selling
total solutions rather than standalone physical products with
simple add-on services. Service innovation offers the poten-
tial to create and commercialize new services and new
product-service combinations to deliver added customer value
( Berry et al. 2006 ; Paswan, D'Souza, and Zolfagharian 2009 ;
Kohtamäki et al. 2013 ). However, such business model trans-
formation represents a signifi cant change for the headquarters
R&D function (the “back end”) in large, global manufactur-
ing fi rms, which must adapt internal development routines
to meet the requirements of global services innovation.
Succeeding with service innovation on a global scale pres-
ents major challenges for multinational manufacturing com-
panies, and current knowledge on how to address such
Vinit Parida is an associate professor of entrepreneurship and innovation at Luleå University of Technology, Sweden, and visiting senior researcher at the University of Vaasa. His research interests include industrial product-service systems, open innovation, R&D internationalization, and interorgani-zational collaboration. He is currently involved in the Faste Laboratory, a VINN Excellence Center aiming to develop new methods and tools for en-abling functional product innovation. He has published in several distin-guished international journals, including Strategic Management Journal , Industrial Marketing Management , Production and Operations Manage-ment , Journal of Cleaner Production, and others. [email protected]
David Rönnberg Sjödin is a senior lecturer in entrepreneurship and innova-tion at Luleå University of Technology, Sweden. His research interests in-clude industrial product-service systems, product development processes, open innovation, and interorganizational collaboration. He holds a PhD in entrepreneurship and innovation from Luleå University of Technology. He is currently involved in the Faste Laboratory, a VINN Excellence Center aiming to develop new methods and tools for enabling functional product innova-tion. He has published in several distinguished international journals,
including California Management Review , International Journal of Tech-nology Management , Research-Technology Management , and others. [email protected]
Sambit Lenka is a PhD student in entrepreneurship and innovation at the Luleå University of Technology, Sweden. His research interests include ser-vice innovation, product service-systems, and global service management. He holds an MBA and has more than a decade and a half of experience working in the innovation, product-development, and marketing functions in various multinational fi rms in consulting, technology, and fast-moving consumer goods. [email protected]
Joakim Wincent is a professor of entrepreneurship at Hanken School of Economics and Luleå University of Technology, Sweden. His current research interests cover interorganizational exchanges, network management, man-aging R&D, and organizing new venturing. He has published in several distinguished international journals, including Academy of Management Review , Organizational Research Methods , Strategic Organization , Journal of Business Venturing, and others. [email protected]
DOI: 10.5437/08956308X5805360
FEATURE ARTICLE
Developing Global Service Innovation Capabilities How Global Manufacturers Address the Challenges of Market Heterogeneity Global service innovation requires companies to develop capabilities that support more intense interaction among headquarters
R&D and local units, customers, and service partners.
Vinit Parida , David Rönnberg Sjödin , Sambit Lenka , and Joakim Wincent
OVERVIEW: As multinational manufacturing companies pursue service innovation toward global markets, their back-end
development units—headquarters R&D—face immense challenges due to market heterogeneity. Our extensive studies of
13 leading multinational companies in service innovation have identifi ed, analyzed, and ranked challenges to reveal the
key steps to building necessary capabilities. Based on our analysis, we inductively identifi ed four competencies in global
service innovation capabilities (developing customer insights, integrating global knowledge, creating global service offer-
ings, and building a digitalization capability) and the activities associated with them. Global service innovation requires
companies to develop capabilities that support increased relationship intensity and interaction between headquarters R&D
and local units, customers, and service partners. In developing these capabilities, the headquarters units progressively learn
to collaborate, integrate, and orchestrate processes and activities across and within regional front-end units, customers, and
service partners.
KEYWORDS: Servitization , Product-service system , Globalization , Service-dominant logic
36 | Research-Technology Management Developing Global Service Innovation Capabilities
challenges is limited. The dispersed nature and diversity of
customer segments, each of which has specialized require-
ments and regional differences, makes managing global ser-
vice innovation a problematic undertaking requiring new
organizational capabilities ( Baines et al. 2009 ; den Hertog,
van der Aa, and de Jong 2010 ; Parida et al. 2014 ; Reim,
Parida, and Örtqvist 2015 ; Wallin, Parida, and Isaksson
2015 ). Indeed, services that are successfully developed and
delivered in one country can be unprofi table in another geo-
graphic context, due to differences in laws, market condi-
tions, delivery requirements, and other regional factors.
Thus, back-end R&D functions must develop specifi c capa-
bilities to create service innovations that can deliver value
around the globe and provide support for the varying needs
of dispersed regional units.
Some companies are rising to this challenge, successfully
developing effective service innovations for global markets.
In a study of 13 leaders in global service innovation, we
explored how multinational manufacturing companies can
develop capabilities that enable them to offer service inno-
vation on a global scale, and specifi cally looked at the R&D
capabilities needed to overcome the challenges related to
developing and delivering novel product-service combina-
tions in diverse global markets. We found that success in
global service innovation requires companies to develop ca-
pabilities that support increased relationship intensity and
interaction among headquarters and local units, customers,
and service partners.
The Study
Our exploratory case study examined the capabilities and
practices of 13 multinational manufacturing companies
widely recognized as frontrunners in offering service innova-
tion to global markets ( Table 1 ). Participant companies were
selected based on two criteria: First, they have an explicit in-
ternal strategy for offering service innovations for global
markets. Second, they have experience developing a broad
portfolio of product-services for global markets. Thus, these
case companies provided the opportunity to capture real-life
experiences of successful global service innovation.
The study began with 10 workshops, each with 6–12 par-
ticipants from multiple companies, at which top- and middle-
management participants from the case companies were
asked to map key challenges in global service innovation.
These sessions enabled comprehensive mapping of chal-
lenges across case companies, through which we identifi ed
the highest-impact challenges in global service innovation.
Including participants from multiple companies promoted
advanced discussion and validation of challenges across the
sample. This approach allowed us to identify a diverse range
of challenges and better understand their impact on the de-
velopment of global service innovations.
The insights from the workshops provided the basis for
further investigation regarding what specifi c activities were
adopted to manage these challenges; this question was inves-
tigated via a subsequent interview study. We conducted a to-
tal of 47 in-depth interviews with senior and mid-level
managers from the 13 companies, focusing on how these
companies have managed the identifi ed challenges in their
transition to a global service innovation focus. Given the
range of challenges identifi ed in the workshops, it was clear
that capturing the perspective of both back-end and regional
front-end units was critical to understanding the global mar-
ket perspective. Thus, we interviewed staff from both the
headquarters R&D function and local, front-end units. All
interviewees were active in driving efforts toward global ser-
vice innovation and could provide rich insight into how the
transformation unfolded in their organization and how the
challenges were addressed.
In analyzing the interview data, we took a capability de-
velopment perspective, focused on identifying key activities
and routines across the case companies. We analyzed the in-
terview data using the constant comparison technique ( Nag,
Corley, and Gioia 2007 ), which is a systematic method for
discovering themes in complex data sets by coding and cate-
gorizing common phrases and themes expressed by inter-
viewees. For example, diverse product-service combinations
and efforts to increase cross-regional knowledge integration
emerged as common themes in our analysis. This was fol-
lowed by identifying patterns among the themes and map-
ping links to the overarching dimension of global service
innovation capabilities. Through this process, we inductively
identifi ed four competencies in global service innovation and
the activities associated with them.
Identifying Challenges in Global Service Innovation
Commercializing service innovations globally is often highly
problematic and may entail signifi cant costs ( Miles 1993 ;
Parida et al. 2014 ). Understanding the challenges is key to
succeeding in global services innovation. We took a system-
atic approach to identifying the most signifi cant challenges
for our case companies, using a protocol that defi ned chal-
lenges and assessed their importance based on dialogue with
workshop participants. We fi rst asked participants to de-
scribe the most prominent challenges their companies faced
in developing global service innovations and then to work
together to identify common themes in their individual nar-
ratives. Then, they assigned each common challenge an im-
pact score for their company, using a scale of 0 to 100. Finally,
the impact scores were aggregated by researchers and a
mean score was calculated for each challenge. The result was
a list of the most signifi cant challenges in global service in-
novation for our case companies and an assessment of the
relative importance of each one ( Table 2 ).
Three key themes emerged from the workshop process
and data analysis: 1. Manufacturing companies frequently lack ways to incor-
porate regional needs into their product-service develop-
ment process. In part, this is due to diffi culties in getting
direct feedback from regional units.
2. Regional conditions and the tacit character of service
needs make communication and knowledge sharing be-
tween regions diffi cult. This often creates a regional and
Developing Global Service Innovation Capabilities September—October 2015 | 37
segmented knowledge gap, which increases the likeli-
hood of failure.
3. Regional units usually lack incentives to engage in in-
tense learning and involvement with other regional
units because their local markets are heterogeneous. As
a result, learning across regions is typically restricted. These challenges add complexity to the process of developing
and offering service innovation to global markets, as three
cases from our data illustrate (see “Three Illustrative Cases,”
p. 39). In these cases, unanticipated customer needs and
knowledge gaps led to a need to re-engineer the offerings
and, in one case, to failure of the offering, but also to new
learnings. Similar examples were found across the 13 case
companies.
Developing Global Service Innovation Capabilities
In the transition toward global service innovation, compa-
nies must address signifi cant challenges and develop inter-
nal capabilities to address diverse global requirements. After
identifying the high-impact challenges via the workshops,
the second step of our study focused on how these chal-
lenges were addressed by the back-end units via in-depth
interviews at the case companies. In analyzing interview
data, we identifi ed the strategies and tactics case companies
have adopted to cope with the challenges of global service
innovation, ultimately leading to the development of new
capabilities. Our analysis identifi ed key competencies that
underpin the development of global service innovation
capabilities, grouped across four dimensions: developing
global customer insights, integrating global knowledge, cre-
ating global service offerings, and building global digitali-
zation capabilities.
Developing Global Customer Insights
Manufacturing fi rms seeking to increase their service portfo-
lios through global service innovation will need to focus ex-
tensively on understanding customers, as service needs and
value creation opportunities may differ signifi cantly from
those associated with traditional physical offerings. Thus,
companies seeking to develop global service innovations
must develop new competencies to understand the often
intangible and intrinsic value that services deliver for global
TABLE 1 . Participating fi rms
Firm Primary ProductEmployees/Revenue
(Billion USD) Product-Service Offering Interviewees
A Heavy equipment 13,000 / $1.7 Total care solutions and diverse service agreements
Senior manager, Regional manager (2), Telematics manager (2), Service development manager, Portfolio manager
B Telecom network equipment and software
25,741 / $13.6 Network design/optimization services, systems integration
Senior manager, Project manager, Technology development manager, Service manager
C Press tools for the automotive industry
497 / $0.114 Tool optimization solutions Regional sales manager, R&D manager, Tool development manager
D Manufacturing tools 19,055 / $3.8 Productivity improvement solutions
Senior manager (2), Regional manager (2)
E Passenger automotive vehicles
24,124 / $122.2 Leasing combined with service agreements
Director Strategy, Product defi nition manager
F Aerospace components 3,500 / $0.293 Hours-of-operation solutions Senior process manager, Senior manager (2)
G Heavy automotive 40,953 / $1.1 Advanced technical services, fl eet management services
R&D manager, Senior manager (2), Project leader, Portfolio manager
H Mining equipment 15,644 / $4.1 Advanced technical services, outcome-based services
R&D manager, Sales manager, Project manager, Process specialist
I Mining and minerals 4,100 / $2.4 R&D services, customer analysis services
R&D manager, Project manager (2)
J Paper and packaging 4,300 / $ 2.5 Package design and performance testing
Development manager, Senior manager (2)
K Medical equipment 6,000 / $1.6 Safe transfer and movement solutions
Senior manager (2), R&D director, Technical Specialist
L Heavy machine drive and control
33,700 / $6.3 Extended warranties Technology director, Project manager
M Industrial robotics 4,600 / $9.5 Advanced service agreements, optimization solutions
Senior manager, Technical manager, Project Manager
Companies seeking to develop global
service innovations must develop new
competencies to understand the often
intangible and intrinsic value that
services deliver for global customers.
38 | Research-Technology Management Developing Global Service Innovation Capabilities
customers. As a technology development manager in a
telecom product company (Firm B) put it, “We don’t have
the suffi cient competence to develop these services, as we
don’t understand the bigger picture of services and how they
are creating value for customers. We know quite well how
this box will work and what it will do. But to imagine how
services can be delivered through this box is very diffi cult for
us.” Thus, comprehending diverse customers’ needs and the
various value creation opportunities across markets is critical
to successful global service innovation.
In the early stage of the service innovation evolution,
headquarters units typically fi nd it diffi cult to understand
their customers’ needs from a service perspective in a global
context. As a development manager from the paper and
packing industry (Firm J) remarked, “We had to transform
our mindset from what features can we add to the product
to what problems we could solve for the customer . . . this
motivated us to focus on understanding key value parame-
ters.” All of the case companies described similar journeys
in sense making about how their customers across various
geographies defi ne value. One important avenue for ad-
vancing customer insights is through extended access to
customers’ operations. This helps to contextualize the value
a service creates for customers, which can differ greatly
across regions. Deep insights into customers’ operations
help promote better customer understanding and stimulate
new ideas for service innovation. “If you know how their
operations work, you mostly know what hurts them the
most. Then it’s easy for you to see how you can solve their
problems with your services,” said an advanced product de-
velopment manager employed by a manufacturer of heavy
equipment (Firm A).
As the customer insights competency matures, service in-
novation teams place greater emphasis on understanding
customers’ activities and gleaning operational insights to le-
verage innovation efforts. This can involve working together
with lead users and early adopters across geographies to
identify the next generation of offerings. “Working with lead
users (i.e., customers) gives us an excellent opportunity to
fi ne-tune our offerings and to build on ideas for future in-
novations for our customers,” a manager in the R&D depart-
ment of a heavy equipment manufacturer (Firm A) told us.
Several companies also directed resources to equipping
specialized units to support customer insight mining from
TABLE 2 . Challenges in global service innovation
Challenge Impact Score Exemplary Quotations
Lack of understanding of heterogeneous global markets, conditions, and requirements
98 “Local adaption of the services is necessary and a major task for us, but we often lack the understanding required to adapt [the products] into something that is salable to our local markets.” ( Senior Manager, Firm J )
Dispersed, disorganized skills and competencies across regional units
97 “What we lack is sharing information from all the regions such as South America. Some of the market conditions are very similar to what we have in other regions, but we have trouble sharing insights on processes and competences between the regions” ( Regional Manager, Firm G )
Inability to understand and address the unique operational needs of global customers
94 “When offering industrial product-services, such as the availability of maintenance contracts, we design customized solutions. But we don’t always have a suffi cient understanding of the customers’ operational needs.” (Senior Process Manager, Firm F)
Scattered, disconnected IT systems in regional units
83 “The telematics systems connected to our physical products are of different generations. So their ability to provide relevant usage information varies; this makes it problematic for us to fully take advantage of our information and communication systems.” (Telematics Manager, Firm A)
Inability to deliver new services quickly to meet regional market requirements
78 “We take a really long time to develop new products, sometimes decades. Service development requires a much shorter cycle than the product development cycle. We are completely out of sync with the market’s needs when it comes to new service development.” (Senior Manager, Firm B)
Variation among regional units in offerings, sales, and delivery capacity
74 “Some local distributers are progressive and skillful in selling and delivering services, while the majority of local distributers are incompetent with offering service. We need to ensure that what we develop in global units would be possible for all types of distributers to implement, which makes things complex.” (Project Manager, Firm B)
Lack of collaboration between siloed teams across global regions
69 “There has been quite strong organizational borders almost like some kind of fence. Some part of the organization owns operations and data, some part of the organization owns customers and the customer connection.” (R&D Manager, Firm G)
Lack of specifi ed global – regional integrator roles
63 “We don’t have clear roles and responsibilities for communicating service inputs to the global service unit. It is an ad-hoc process.” (Regional Manager, Firm A)
Inability to join forces with external partners in global markets
58 “Depending on the market, we have different agreements with local delivery partners. At some markets, they are more partners and in others they are only outsourced contractors. Typically, we would prefer to have strong relationships with them, but it is problematic.” ( Regional Sales Manager, Firm C)
Developing Global Service Innovation Capabilities September—October 2015 | 39
regional units across global markets. For example, several
case companies established “customer solutions” units that
were committed to understanding customers’ needs in rela-
tion to service innovation.
In full-scale global service innovation, a focus on
co-creating value with customers becomes more established,
along with a stronger relational alignment with customers.
At this stage, companies and customers engage in joint “value
Three Illustrative Cases
Our study looked at numerous examples of services innova-tion, successful and unsuccessful, across the 13 participating companies. Here we present three cases that illustrate the complexity of global service innovation and the many chal-lenges that can arise. A common thread across these three cases is that unanticipated problems in developing service in-novations exposed capability gaps that stimulated companies to develop new organizational capabilities.
Case 1: Unexpected Customer Behavior
in the Aerospace Industry
An aerospace component provider, working in partnership with an original equipment manufacturer (OEM), offered re-sults-oriented service agreements for its engine turbines. The agreements guaranteed a defi ned number of hours of operat-ing time and included maintenance and repair of specialized parts. Within a short period of launching the service to global markets, however, the provider found that maintenance and repair costs were signifi cantly higher than had been predicted. The level of unexpected costs varied in different markets, but overall, the provider was losing money on the agreements. The company moved quickly to determine why costs were higher in some markets. Sensors were installed in the turbines and extensive analysis was performed on the resulting user data, a process that took some time, as cross-market com-parisons could be completed only after enough data had been accumulated.
At that point, however, the investment paid off—the analy-sis revealed that in some markets, airline operators were misus-ing the turbine, deploying its power for braking purposes. This resulted in additional wear and tear on the turbine and, ulti-mately, higher maintenance costs. This knowledge was used both to revise the original service agreements and to tailor fu-ture delivery of the service and design of service agreements across markets.
Case 2: Failure to Understand Regional Customer
Heterogeneity in the Heavy Equipment Industry
For a manufacturer of heavy equipment, the launch of new customer support agreements for a product-service solution presented a signifi cant challenge. The support agreements were developed to provide a standardized portfolio of service agreements for the company’s different products (wheel load-ers, dumpers). However, the headquarters function underes-timated regional variation in service needs and preferences across the markets and the need to work closely with local units as service innovations were developed. The company introduced standard customer agreements for the product-service solution, but the service achieved limited market penetration due to its misfi t with the needs and preferences of
local customers—for instance, some customers were not will-ing to allow the provider to monitor their machines.
When the problem became clear, some proactive, clear-thinking local-unit managers revised the customer agreements to provide better alignment between the services offered and local customer needs. When the success of these efforts be-came clear, the company began to capture these niche efforts and disseminate the learning across local units. In the next de-velopment cycle, the company prioritized leaving room for and learning from local adaptations in the customer support agree-ment. This allowed local units to be more involved in bench-marking the agreements across regions.
Case 3: Failure to Communicate Customer Operational
Requirements in the Mining Industry
A provider of mining equipment developed an integrated product-service material solution for a key customer; the prod-uct, which sold for more than $100 million, included an exten-sive service contract. However, after operating for just three months, the equipment started experiencing unanticipated failures and stoppages. Neither the customer nor the provider was able to identify the source of the problems that led to ongoing failures over the next several years. As the problems continued, the service contract proved to be more of a prob-lem than a solution, as confl icts emerged over the limits of the contract and the roles of the provider and the customer in maintaining the machinery. As the relationship broke down, the customer sought another solution.
For the customer, the failure of the service resulted in a loss of around $200 million in sales, as well as signifi cant costs to redesign and replace the service solution. For the provider, the loss of the service contract was only the fi rst-order impact. The failure of the contract was a signifi cant stain on the com-pany’s reputation as a dependable solutions provider, one that caused other customers to cancel service agreements.
Further analysis of the failure revealed that the provider had misjudged the need for different competencies during the development, sales, and delivery process. For example, local sales staff had limited understanding of the customer’s unique operational needs and failed to act on early warning signals. A disconnect between sales and back-end R&D meant that service innovation was interpreted differently by the two functions and the product-service combinations that were bundled into the offer didn’t respond adequately to the cus-tomer’s needs.
For the provider, this experience led to a revision of internal processes to better integrate back-end and customer-facing units and promote better understanding of customer needs and operating conditions across functions. In particular, efforts were made to promote better customer relationships.
40 | Research-Technology Management Developing Global Service Innovation Capabilities
imagination,” which involves working with the customer to
envision and develop a customized solution to fi t specifi c op-
erational product-service requirements. This level of custom-
ization requires customers, headquarters, and regional units
to engage together in discovering value creation opportuni-
ties at all levels of the customer organization, from the shop
fl oor to the strategic management level. An R&D manager at
a tool manufacturer (Firm C) remarked, “With services, you
need to have multiple perspectives on value; we fi nd that we
know value at the shop fl oor, but we also need to understand
the top management strategic perspective on how we can
help the customer be more profi table.” This kind of pervasive
engagement helps fi rms address both operational concerns
and the need for strategic value-added services.
Integrating Global Knowledge
A key dimension of success in global service innovation is the
effective management of the diverse and often distributed
knowledge required to develop and commercialize innova-
tive product-service combinations. Integrating global knowl-
edge entails managing not only technical knowledge about
the product and service combinations but also knowledge
about market characteristics, customer types, delivery pro-
cesses, and sales strategies. This knowledge is typically widely
distributed and often diffi cult to locate within large, multina-
tional organizations. For example, a service development
manager from a heavy equipment manufacturer (Firm A)
remarked, “We are a global organization with business in
more than 150 countries, and it’s very challenging to have
insights into all the product-service combinations and mar-
ket conditions in all our markets.” Similarly, an R&D man-
ager from a heavy vehicles company (Firm G) remarked,
“The units that we need to work with in service innova-
tion to develop an attractive service are often both func-
tionally and globally spread. . . . I think the cross-functional
team needs to be global and has to be able to create this all-
encompassing service offer.”
Thus, service innovation increases the importance of
boundary-spanning roles and of active knowledge sharing
both between headquarters and regional units and among
regional units. As a regional manager from the tool industry
(Firm C) said, “One key role for us in service innovation is to
maintain close collaboration with dealers and capturing and
distributing market signals from them.” All case companies
acknowledged that successfully implementing a full-scale
service innovation strategy required that regional managers
have a formalized role in capturing and disseminating new
learning from their regions. For example, a senior manager
from Firm A explained that its Netherlands market had sev-
eral highly successful examples of how regional units could
drive adoption of advanced service innovations, such as us-
ing technology to provide optimized service delivery. The
unit’s learnings were later shared with headquarters by the
regional manager; ultimately, the insights were shared glob-
ally to ensure market penetration.
To facilitate knowledge sharing, and increase understand-
ing of other functions’ and units’ skills and capabilities, case
companies often moved resources among different units. A
respondent from a global telecommunications manufacturer
(Firm B) explained, “There is a lot of cross movement of peo-
ple between research and development units globally and lo-
cally.” In addition, companies enhanced the ability of regional
managers to coordinate global service innovations proac-
tively by making knowledge-sharing activities part of their
operational processes—for instance, by creating a formal
agenda point to be included in weekly briefi ngs. A senior
manager (Firm M) explained, “Our regional managers are
experienced individuals with a wide knowledge about their
markets. . . . We need them to coordinate and share the
know-how that we have from one region to another.”
Another key domain on which our fi rms focused during
this stage was building knowledge networks to facilitate
knowledge sharing among regional units. A portfolio man-
ager (Firm A) explained, “We focus extensively on the im-
provement of the channels through which we capture
customer, dealer, and regional inputs about service offering
needs.” Sharing knowledge among networks of internal and
external distribution partners is particularly important, espe-
cially because new service innovation requirements are fre-
quently captured locally. Furthermore, identifying best
practices from global markets can be helpful in rapidly devel-
oping knowledge around the value that service innovations
create for customers.
As companies mature, developing more advanced, long-
term service innovations, they begin to integrate business
processes across global functions to facilitate knowledge
sharing. Regional managers are tasked with orchestrating
knowledge fl ows across units and facilitating cooperation
among globally distributed expert competencies to enable re-
use of knowledge. A critical step in this direction is the con-
struction of competency maps that explicitly capture the
existence and location of valuable service knowledge within
the organization, across both regional units and back-end
functions. For example, Firm C created an online platform
for sharing knowledge about best practices and competency
areas among the global service units; the platform provides a
space where contact information and codifi ed knowledge
can be stored. It has provided an effi cient way to capture,
retain, and utilize knowledge across the organization as the
company moves toward full-scale service innovation.
Creating Global Services Offerings
Creating global services offerings requires an ability to com-
bine product and service components to create a service
innovation that generates value for diverse customers.
Service innovation increases the
importance of boundary-spanning roles
and of active knowledge sharing.
Developing Global Service Innovation Capabilities September—October 2015 | 41
Achieving this requires that regional units be involved to
varying degrees in the development process to allow back-
end R&D to capture varying delivery requirements. The full-
scale version of this competency will also involve external
delivery partners and customers in the development process
to ensure market adaptation. As the service offering compe-
tency matures, the potential to develop more highly custom-
ized offerings increases.
In the initial stages of the service innovation evolution,
companies usually focus on add-on product-service offerings
such as technical support, maintenance, and installation ser-
vices. These initial offerings tend to represent marginal ad-
ditions to the company’s repertoire, focused mainly on
enhancing use of the product, and they tend to be highly
standardized. For example, a tool manufacturer (Firm D) in
our sample offers logistics services, education services, and
application center services. Such limited moves toward ser-
vice innovation allow better control of offerings for global
markets, because almost identical service innovations can be
provided to different regions. As a senior manager from the
aerospace industry (Firm F) explained, “Offering identical
service offers to customers from diverse markets is a chal-
lenge, so one way to solve it is by developing only those ser-
vices where we can maintain certain quality and similar
packaging.” In this stage, the role of regional units in devel-
oping and delivering services is restricted, as predefi ned
product-service combinations offer limited scope for local
adaptation.
As the service offering competency evolves, companies
begin to offer customer-oriented product-service combina-
tions, such as uptime guarantees, preemptive maintenance
services, and remote diagnostics, frequently powered by
physical components integrated into the product (for in-
stance, sensors that enable active monitoring of usage and
machine status so that companies can provide required ser-
vice before a machine breaks down). These services repre-
sent a progression from add-on product-service combinations
in that they place growing emphasis on addressing global
customer needs through increased interaction with regional
units. For example, some case companies at this stage created
specialized R&D teams that interacted with regional units to
capture, develop, and test customized options in high-priority
global markets. A regional sales manager from the tooling
industry (Firm C) explained, “We needed to sell standard of-
fers with local fl avors. This is not possible without working
closely with our market interface. In our customer support
agreements, we have added certain standard and several
elective options to enhance customization possibilities.”
At the full maturity level, we found case companies offer-
ing unique customer-specifi c service innovations, such as
outcome-based integrated offerings. For example, a provider
may work with a customer to reduce operational costs by a
targeted amount, perhaps 5 percent. These kinds of offerings
represent creative combinations of product and service in-
novations to provide a higher level of customization. Such
customized product-service combinations demand active in-
volvement by external regional delivery partners, customers,
and regional units to create an ecosystem of partnerships fo-
cused on delivering the greatest possible customer value.
Building Global Digitalization Capabilities
Global digitalization capabilities represent an advanced abil-
ity to use smart and connected physical products to facilitate
global service innovation. For example, GE Aviation has
climbed the customer value ladder by offering optimized as-
set and operations services using historical and real-time data
analytics powered by embedded sensors. Sophisticated IT
systems and sensors enable GE devices to be connected with
each other and to transmit critical information that enables
maintenance to be tailored to deliver increased operational
effi ciency. For most manufacturing companies, building a
digitalization capability goes hand in hand with adopting a
servitization strategy. According to a telematics manager
from the heavy automotive industry (Firm A), “We have to
expand our digital capabilities to create digital platforms on
which several industrial services can be offered to global
market.”
Initially, manufacturing companies invest in building in-
telligent and connected IT functionalities in physical prod-
ucts. At this stage, case companies used IT platforms to offer
basic services to global markets, such as automated analysis
of operational information and warning signals that repair
or maintenance may be needed. A well-known example is
Scania’s offering of “tachograph” services, which allow cus-
tomers to download and store activity reports remotely and
automatically. The scalability of such offerings after the ini-
tial investment is signifi cant, but the largest gain may be in
customer relationships that can support further move-
ments toward servitization. According to a senior manager
from the tooling industry (Firm D), “The greatest advantage
with smart products is with improved sales, marketing, and
service support activities at regional markets. This truly pro-
motes better understanding of customers’ service require-
ments in the entire organization.”
The next stage of maturity in digital competency requires
considerable investments in developing skills and infra-
structure in IT; this investment may include installing serv-
ers, developing software and analytic tools, and recruiting
new personnel. One major issue is fi nding or developing
tools to navigate the torrential data stream generated by
these smart products. As a senior manager from the health-
care industry (Firm K) put it, fi rms fi nd themselves “cap-
turing more data than we can analyze.” Building skills and
Global digitalization capabilities
represent an advanced ability to use
smart and connected physical products
to facilitate global service innovation.
42 | Research-Technology Management Developing Global Service Innovation Capabilities
systems for advanced analysis, both at headquarters and at
the unit level, is the backbone of companies’ global service
innovation capability. For example, an industrial robot
manufacturer relies on its digital competency to offer life-
cycle management services, which include scheduling pre-
ventive maintenance based on real-time data.
A full-scale digitalization competency includes the capa-
bility to analyze and share large amounts of longitudinal
data. Thoughtful analysis of data gleaned from early service
innovation customers can help support strategic investment
decisions to expand the service portfolio by facilitating a
deeper understanding of global customer requirements.
According to a portfolio manager from heavy machinery
(Firm A), “Traditionally, we rely on our regional markets to
provide information on customer usage, which tends to be
outdated and biased. But now we have access to real-time
data at global headquarters. This provides the possibility to
make much more informed decisions about service develop-
ment than what we could a few years ago.” Companies may
also connect customer usage data with customer relationship
management systems, forming a digital bridge between
headquarters functions and regional units.
As they develop their digitalization capabilities, forward-
looking companies may opt to take a platform approach,
opening their digital platforms to selected distributers, third-
party service providers, and regional units to allow indepen-
dent development of additional features and functions. This
approach can be especially fruitful for a number of reasons.
First, the lifecycle of digital functionalities (software) is much
shorter than that of more traditional services and physical
products; allowing third-party developers to access the plat-
form can help regenerate the software elements, keeping the
product and services fresh. Second, individual markets may
have unique service requirements that are best understood
by regional units and third-party providers working in the
area. Giving these parties freedom to develop new services
based on standard digital platforms can lead to innovative
services that meet needs particular to a given market. Finally,
it can be expensive to control such developments across
global markets; authorizing them can allow the company to
participate in the value they create.
The Path to Global Service Innovation
Our analysis of the data gathered from these frontrunner
companies offers insights for understanding how the head-
quarters organization developed the internal capabilities
needed to increase the intensity of its relationships with
front-end units, regional partners, and customers. For most,
this happened in a gradual manner, via a three-step path
( Table 3 ). To move along this path, the case companies in-
vested substantial resources and efforts in their global service
innovation efforts. Each step in the progression towards full-
scale global service innovation capabilities requires a distinct
focus—collaboration, integration, and fi nally orchestration. 1. Collaboration: In the fi rst step, companies focused on im-
proving collaboration across headquarters and regional
units to better understand customers’ needs and develop
capabilities in regional units. Key aims were to initiate
increased collaboration with regional units and to build
relationships with and gain access to key customers. This
process also allowed the back-end units to begin experi-
mentation with new service offerings, often connected
to investments in building intelligent functionalities and
capturing data through sensors.
2. Integration: In the second step, formalization of the global
service innovation capability occurs through the in-
creased integration of activities with and among regional
units. A key aim at this step was to build on success sto-
ries and benchmark experiences while building synergies
among regional units, customers, regional actors, and head-
quarters activities. This step required an increased focus
on formalizing integration processes and organization-
level adoption of a global service innovation mindset.
Building equipment usage analysis competences both at
headquarters and at regional units was also found to be
a strong enabler for effective global integration by means
of digitalization.
3. Orchestration: In the last step of the progression, case
companies focused on orchestrating activities to balance
global development effi ciency with regional adaptation
to maximize customer value. To do so, headquarters
units revised their role from controlling to supporting
global service innovation in the front-end units. In prac-
tice, this means giving more control to product and ser-
vice development to regional units so they can shape the
fi nal offers to meet their local customers’ needs. Another
key effort was the mapping and utilization of competen-
cies across regional and headquarters units and the link-
ing of these competencies via open IT systems.
In progressing along this three-step path, case companies
navigated many of the challenges inherent in global service
innovation. While the complexities of offering product-
service systems to heterogonous global markets remain prob-
lematic, applying specifi c tactics to meet particular challenges
allowed the manufacturing companies in our sample to build
robust global service innovation capabilities. In doing so, the
companies also increased the relationship intensity and in-
teraction among headquarters R&D and local units, custom-
ers, and service partners. These developments enabled
headquarters units to progressively develop a focus on col-
laboration, integration, and ultimately orchestration within
the overall value network.
Implications
Multinational manufacturing companies are increasingly ea-
ger to pursue global service innovation and the opportunities
it offers, but in moving towards increased servitization, com-
panies must address signifi cant challenges and develop inter-
nal capabilities to address diverse global requirements. Our
study suggests how successful companies have accomplished
this undertaking. The four competencies and the map of
their development through the three developmental stages
Developing Global Service Innovation Capabilities September—October 2015 | 43
can help guide other large manufacturing companies facing
similar challenges in developing services innovations.
Our key insight is that successful global service innovators
progressively intensify relationships between headquarters
R&D functions and regional units, customers, and delivery
partners. Three key decisions can facilitate these develop-
ments. First, the company must develop incentive models
that align the diverse interests involved and promote win-
win relationships between headquarters and regional units.
Appropriate, thoughtful incentives can encourage R&D and
regional units to work together, allowing R&D to access criti-
cal market and customer information and promoting knowl-
edge sharing. Second, headquarters R&D units must focus on
orchestrating service innovation activities and sharing
knowledge across regions. Identifying best practices and
benchmark examples from individual regions and sharing
these lessons across the company can promote the develop-
ment of scalable global services. Third, the role of headquar-
ters and regional units should be revised to allow regional
units to take on a greater role in designing and delivering
new service offerings. Allowing regional units this latitude
will allow the organization to access service innovation
opportunities driven by customers’ operational needs and
effectively address particular characteristics of individual
markets.
On a practical note, the digitalization competency is
a key element highlighted by all our interviewees, as
digitalization provides a platform to support global ser-
vice innovation. Indeed, the possibilities of exploiting
smart and connected physical products for service innova-
tion are vast and largely underexplored by many compa-
nies. Developing a digitalization competency requires
TABLE 3 . Global service innovation capabilities
Global Service Innovation Capabilities
Competency Step 1—Collaboration Step 2—Integration Step 3—Orchestration
Develop global customer insights
• Focus on sense-making processes to identify customer needs
• Work with lead users to generate service innovation insights and benchmark experiences
• Develop skills for imagining value in collaboration with global customers
• Gain access to key customer operational requirements
• Set up specialized units to support customer insight mining at regional units
• Formalize processes for designing customized service innovation through front-end and back-end integration
Integrate global knowledge
• Initiate cross-regional integration in focus groups
• Promote cross-regional relationships through job rotation
• Formalize integrated cross-regional business processes
• Promote boundary-spanning roles for sharing service knowledge between headquarters and front end
• Revise role of regional managers to proactively coordinate sharing of service knowledge
• Dedicate regional managers to orchestrate knowledge sharing across units
• Identify best practices for regional front-end units
• Build knowledge networks to facilitate knowledge sharing among front-end organizations
• Build competency maps through knowledge mapping across global front-end and back-end units
Create global services offerings
• Create add-on product-service combination offerings
• Create customer-oriented product-service combination offerings
• Create outcome-based product-service combination offerings
• Develop standardized offerings for control and quality assurance
• Develop standardized offerings with customized options for regional adaptation
• Develop customized offerings for global market adaptation
• Involve regional units on a limited basis
• Actively involve regional units • Intensively involve front-end units, external partners, and customers
Build a global digitalization capability
• Invest in building intelligent and connected information technology (IT) functionalities
• Invest in IT infrastructure and personnel to facilitate digitalization
• Build global usage database to support customer-centric service innovation portfolio
• Automate basic data analysis and support for service innovation
• Build skills in advanced analysis of customer usage data at front-end units
• Connect usage data with customer relationship management system to support customizable offers
• Train regional units to use information to generate customer value
• Use digitalization platforms to offer proactive services across global markets
• Open proprietary digitalization platforms to regional units and external delivery partners
Successful global service innovators
progressively intensify relationships
between headquarters R&D functions
and regional units, customers, and
delivery partners.
44 | Research-Technology Management Developing Global Service Innovation Capabilities
signifi cant investments in infrastructure, tools, and soft-
ware as well as the development of new types of skills
and capabilities. But making the investment in digitaliza-
tion, both at headquarters and at front-end units, and
building digital platforms that can be accessed by various
partners allows for the development of new value cre-
ation possibilities.
Conclusion
Although developing a service innovation capability can be
diffi cult and risky, it is well worth pursuing. Companies that
succeed with global service innovation can increase value
creation for customers, providers, and service partners, ulti-
mately leading to higher sales growth, greater market pene-
tration, and increased fi rm profi tability.
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sion Sciences 40 ( 3 ): 513 – 540 . Reim , W. , Parida , V. , and Örtqvist , D. 2015 . Product–service
systems (PSS) business models and tactics: A systematic lit-erature review . Journal of Cleaner Production 97 ( Special vol-ume: Why have “sustainable product-service systems” not been widely implemented? ): 61 – 75 .
Wallin , J. , Parida , V. , and Isaksson , O. 2015 . Understanding product-service system innovation capabilities development for manufacturing companies . Journal of Manufacturing Tech-
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Servitization and co-existing product and service orientations: Triggers, manifestation, and consequences of organizational ambivalence. Lenka, S., Parida, V., Sjödin, D. R., & Wincent, J. (In Press). International Journal of Operations & Production Management
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Achieving alignment in business model for product-service systems: Insights from global manufacturing firms. Lenka, S., Reim, W., Frishammar, J., & Parida, V. (Under peer review).
Paper II
Developing global service innovation capabilities: How global manufacturers address the challenges of market heterogeneity. Parida, V., Sjödin, D. R., Lenka, S., & Wincent, J. (2015). Research-Technology Management, 58(5), 35-44.
Paper III
Digitalization Capabilities as Enablers of Value Co-Creation in Servitizing Firms. Lenka, S., Parida, V., & Wincent, J. (2017). Psychology & Marketing, 34(1), 92-100.
Paper IV
Exploring the microfoundations of servitization: How individual actions overcome organizational resistance. Lenka, S., Parida, V., Sjödin, D. R., & Wincent, J. (In Press). Journal of Business Research
Paper V
Digitalization Capabilitiesas Enablers of Value Co-Creationin Servitizing FirmsSambit LenkaLulea University of Technology
Vinit ParidaLulea University of Technology and University of Vaasa
Joakim WincentLulea University of Technology and Hanken School of Economics
ABSTRACT
As manufacturing companies pursue a servitization strategy, they are increasingly relying ondeveloping digitalization capabilities to interact and co-create value with their customers. However,many lack an understanding of what constitutes digitalization capabilities and how they can createvalue with customers. To address these questions, the study builds on qualitative data from fourindustrial manufacturing firms to conceptualize three underlying subcomponents of digitalizationcapabilities, namely, intelligence capability, connect capability, and analytic capability. The studyidentifies and explains how digitalization capabilities enable value co-creation with customersthrough perceptive and responsive mechanisms. This study contributes to the servitization literatureby showcasing how digitalization capabilities are enabling value co-creation in abusiness-to-business context. © 2016 Wiley Periodicals, Inc.
In contemporary industrial marketing research, schol-ars point to the increasing importance of servicesin traditional manufacturing firms to help differen-tiate and create value (Baines, Lightfoot, Benedet-tini, & Kay, 2009; Kohtamaki, Partanen, Parida, &Wincent, 2013; Parida, Sjodin, Lenka, & Wincent,2015). Adding services (i.e., servitization of manufac-turing firms) is viewed as a critical strategy for capital-izing on opportunities to address unmet customer needsand achieve sustainable competitive advantage (Oliva& Kallenberg, 2003; Vandermerwe & Rada, 1988). Akey consideration in the servitization transformationis the emphasis on interaction with customers thatrequires provider to offer customized and total solu-tions (Kohtamaki et al., 2013; Reim, Parida, & Ortqvist,2015; Viljakainen & Toivonen, 2014). The focus onco-creation of value with the customers creates newchallenging situations for product-based manufactur-ing firms as value co-creation with customers requiresdevelopment and utilization of new capabilities (Baineset al., 2009; Sjodin, Parida, & Wincent, 2016; Smith,Maull, & Ng, 2014; Wallin, Parida, & Isaksson, 2015).
Recent studies highlight that firms undergoingservitization, increasingly rely on their ability to uti-lize digitalization as a viable path toward addressing
increasingly complex and dynamic customer interac-tions (Lerch & Gotsch, 2015; Parida et al., 2015). Thistrend toward digitalization is also transforming theway manufacturing firms interact with their customersby enabling new connected product functionalities andintegrating various operational processes to increaseopportunities to co-create value through advanced ser-vice offerings (Porter & Heppelmann, 2014). For exam-ple, instead of selling trucks to their customers, truckmanufactures are selling rental agreements or fleetmanagement services. Such offer requires truck man-ufacturers to integrate their products, services, andother support processes using digital platform and com-ponents. Although some studies have emphasized thisgrowing role of digitalization in supporting interactionand value co-creation with customers (Kowalkowski,Kindstrom, & Gebauer, 2013; Lerch & Gotsch, 2015),limited insights exist on what constitutes digitaliza-tion capabilities and how digitalization capabilities en-ables manufacturing firms in co-creating value withcustomers.
Contemporary research suggests that the customerand the provider co-create value together in a jointsphere through direct interaction in this value cre-ation process (Gronroos, 2011a; Gronroos & Voima,
Psychology & Marketing, Vol. 34(1): 92–100 (January 2017)View this article online at wileyonlinelibrary.com/journal/mar
© 2016 Wiley Periodicals, Inc. DOI: 10.1002/mar.20975
92
2013; Vargo & Lusch, 2004a; Vargo, Maglio, & Akaka,2008). In such value co-creation process, the qualityof the interaction and a merged interactive processwith the provider are key to creating value for thecustomer (Gronroos, 2011a). Despite the growing in-terest in industrial marketing research toward under-standing the underlying mechanisms of interaction andvalue co-creation, few empirical studies explain thisphenomenon from a business-to-business perspective(Gronroos & Voima, 2013). Therefore, this paper ad-dresses two research questions. First, it conceptualizesand defines digitalization capabilities and second, it ex-plains what mechanisms digitalization capabilities en-able for value co-creation with customers.
Building on qualitative data from four large indus-trial manufacturing firms, the findings contribute tothe servitization literature by highlighting the role ofdigitalization capabilities in the value co-creation pro-cess. More specifically, the study provides conceptual-ization of the digitalization capabilities by outlining aset of prominent sub-dimensions, which contributes tothe growing interest of digitalization in manufacturing.Second, the findings also clarify the value co-creationprocess in the joint sphere and the customer interac-tion mechanisms that underlie this process. This studyalso contributes by taking a closer look at the value co-creation process in an empirical setting in a business-to-business (B2B) context, which has been previouslyoverlooked.
THEORETICAL FRAMEWORK
Digitalization Capabilities andServitization of Manufacturing
In the context of increasing connectivity and the om-nipresence of information technology in everyday life,adopting digital technologies is changing the very na-ture of the products and services that manufactur-ing companies offer their customers today. The indus-trial management literature defines the digitalizationof manufacturing as the phenomenon of intelligent con-nected machines that information and digital technolo-gies power (Lerch & Gotsch, 2015; Parida et al., 2015).Digitalization offers opportunities for new functional-ity, higher reliability, greater efficiency, and optimiza-tion possibilities that exponentially increases the valuethat manufacturing companies deliver to customers(Porter & Heppelmann, 2014). Parida et al. (2015) ar-gue that digitization provides great potential for pro-viding interactive platforms to engage with customersand co-create value with them.
Manufacturing firms are increasingly adoptingdigitalization to pursue a servitization strategy(Kowalkowski & Brehmer, 2008). This means invest-ing significant resources in building new capabilitiesto support digitalization initiatives in their organiza-tions and to maximize the value creation potential
that exists in their relationships with customers. How-ever, prior research provides limited insights on un-derstanding what constitutes digitalization capabilities(Parida et al., 2015). Some studies show that manu-facturing firms are vying for technological superiorityamong their products by embedding more intelligenceand remote functionalities (Iansiti & Lakhani, 2014).Meanwhile, other studies observe that data gatheringand analysis is the main focus to help manufacturingfirms achieve the benefits of maximizing value wheninteracting with customers (Opresnik & Taisch, 2015).However, there is lack of studies specifying what digi-talization capabilities are necessary for supporting thephenomenon of servitization and value co-creation inmanufacturing firms.
Value Co-Creation in the Servitizationof Manufacturing
Manufacturing companies are increasingly adding ser-vices and combining products and services to differen-tiate themselves and provide more value to their cus-tomers (Baines et al., 2009; Oliva & Kallenberg, 2003;Parida, Sjodin, Wincent, & Kohtamaki, 2014; Vander-merwe & Rada, 1988). The phenomenon of servitiza-tion of manufacturing has brought to prominence thecentrality of services in contemporary industrial mar-keting research (Kowalkowski, Windahl, Kindstrom, &Gebauer, 2015). In services, the centrality of the dis-course is that of value creation as a means of servicesdefinition. In fact, researches portray services as a “per-spective on value creation rather than a market cate-gory” (Edvardsson, Gustafsson, & Roos, 2005, p. 118).The contemporary service-centered view challenges thetraditional view of value creation, which focused on theexchange value of goods and services, where value isa part of the provider’s products and services. Thisview also explicitly considers that value creation de-rives from the customers’ use of the product and ser-vices (Vargo & Lusch, 2004b; Vargo et al., 2008). Inthis perspective of service logic, the customer is solelyresponsible for creating value (Gronroos, 2008; Smithet al., 2014), and the provider plays the role of the co-creator of value (Gronroos, 2008; Salomonson, Aberg,& Allwood, 2012). Co-creating value, however, can onlyoccur when both the provider and the customer inter-act in the value creation process (Gronroos & Voima,2013). Contemporary scholarly works in this field sup-port this notion and call for a better understanding ofthe co-creation process (Mostafa, 2015; Ramaswamy,2008).
Although many scholars highlight the importanceof value co-creation, this concept still remains elusive,and the nature and modality of value creation differsgreatly among scholars (Dey, Pandit, Saren, Bhowmick,& Woodruffe-Burton, 2016). Little information ex-ists about the value co-creation process in practice(Echeverri & Skalen, 2011; Vargo et al., 2008). Fewstudies in industrial marketing research empirically
DIGITALIZATION CAPABILITIES 93Psychology & Marketing DOI: 10.1002/mar
Table 1. Description of Case Firms.
Firm Products/Industry Employees (Nos.)Revenue (USD in
Millions) Industrial Service offer Number of interviews
Firm1 Heavy Machinery 13,000 $ 1,712 M Availability ofequipment
11
Firm 2 TelecommunicationsInfrastructure
25,741 $ 13,640 M Network design andoptimization solution
9
Firm 3 Machine Tools 19,055 $ 3,825 M Productivityimprovement solution
4
Firm 4 Renewable packagingmaterial
4,300 $ 3,990 M Pack design, prototypeand performance
testing
4
investigate the on-going value co-creation processesthat involve both providers and customers (Salomon-son et al., 2012). However, many of the researchersconceptually studying value co-creation support thenotion that value co-creation occurs through interac-tions among providers and customers by integratingresources and applying competences (Gronroos, 2011b;Gronroos & Voima, 2013; Vargo et al., 2008). Gronroosand Voima (2013) suggest a model of the value creationprocess in which the value production occurs in theprovider sphere. However, value creation takes placewhen the customer uses the service in the customersphere and in the joint sphere where the provider andthe customer engage in creating joint value. They alsosuggested that the quality of the interaction and amerged process in which the resources, processes, andoutcomes of the customer and provider interact is keyto value co-creation. Some researchers suggest the con-ditions under which this joint value co-creation is morelikely to happen (Anderson & Rosengvist, 2007; Praha-lad & Ramaswamy, 2004), whereas others stress theneed to build capabilities to support the interaction toco-create value (Mostafa, 2015). Nevertheless, a lack ofinformation exists on how capabilities support this jointmerged process of value co-creation and through whatmechanisms value co-creation actually happens. Thisstudy empirically examines how digitalization capabil-ities enable value co-creation in a servitizing process inmanufacturing firms.
METHOD
This study follows a qualitative case-study approach be-cause of its exploratory nature, which is appropriate forstudying a phenomenon that is evolving and changing(Gephart, 2004). A multiple case study allows adaptingto the terminologies across the different industries andfinding patterns across the organizations (Eisenhardt,1989, Yin, 2003). This process also helps to improveexternal validity and observer bias (Voss, Tsikriktsis,& Frohlich, 2002). Table 1 presents the details relatedto the case firms, which are large, traditional indus-trial manufacturing firms headquartered in Europe.Their selection owes to their position as pioneers ofservitization in their respective industries. In addition,
these firms offer a wide portfolio of advanced servicesand have advanced digitalization capabilities that sup-port servitization and business operations in general.These firms also have an on-going program that usesdigitalization platforms and components for advancedservice development and delivery for a range of cus-tomers.
The data come from respondents handling serviceresearch and development, digitalization and informa-tion technology, and service management roles. Re-spondents worked across all levels of the organization,which gave an overview of the entire phenomenon re-lated to the enquiry. Data collection followed an open-ended questions approach. This approach ensured ade-quate coverage of wide areas of enquiry (Patten, 2002)and gave the interviewees freedom to respond to ques-tions (Bryman & Bell, 2011; Schober & Conrad, 1997).This procedure involved a total of 28 interviews.
An inductive analysis of the data followed a natural-istic enquiry method (Lincoln & Guba, 1985) and con-stant comparison technique (Strauss & Corbin, 1990) toidentify relevant analytical themes. The analysis thenprogressed through a series of iterations involving cod-ing the transcripts using labels and phrases, to thencollapse them into the first-order categories (Van Maa-nen, 1979). Then, identifying relationships and pat-terns, the authors aggregated the first-order categoriesinto distinct second-order themes, which were then ab-stracted into third-order dimensions (Nag, Corley, &Gioia, 2007; Van Maanen, 1979). This analysis processidentified and conceptualized the digitalization capa-bilities as well as the value co-creation mechanisms.Figure 1 presents this emergent analysis structure. Toensure rigorousness of the analysis, multiple membersof the group developed this coding scheme indepen-dently. In the event of a disagreement, discussion andmodifications followed until reaching a consensus.
RESULTS
Conceptualization of DigitalizationCapabilities
Building on empirical data from case companies, thisstudy identifies and conceptualizes the underlying
94 LENKA, PARIDA, AND WINCENTPsychology & Marketing DOI: 10.1002/mar
Figure 1. Data structure: Digitalization capabilities and value co-creation mechanisms.
capabilities associated with digitalization. To untanglethese capabilities, the study specifically focuses on var-ious digitalization initiatives that enable the case com-panies to interact and engage in co-creating value withcustomers. The results from the structured coding andanalysis yield patterns related to three distinct digital-ization capabilities, namely intelligence, connect, andanalytic capabilities.
Intelligence Capability. Intelligence capability rep-resents the ability to configure hardware componentsto sense and capture information with low humanintervention. According to research, this configura-tion entails two sub-dimensions. The first dimen-sion relates to upgrading hardware components withsmart subcomponents, such as embedded sensors, mi-croprocessors, embedded operating systems, softwareapplications, and digital user interfaces. All of thesesubcomponents enhance intelligent functionalities. Asa telematics manager at Firm 1 explains:
The advancement of technology in sensors is provid-ing us with the ability to design our machines to actlike living objects that can respond to their environ-ment in a real-time basis.
The second intelligence capability dimension relatesmainly to providing new possibilities to collect infor-mation about the condition of the products and thecustomers’ operational usage of the products. For ex-ample, intelligence capability includes information ofload indications on the ball bearings of a crane. Suchinformation could provide real-time diagnostics to thecustomer who could respond quickly to failures to im-prove first-call resolution and increase equipment up-time. Thus, intelligence capabilities act as the backboneof digitization. Furthermore, in many cases this is thefirst step case companies take toward digitization. Aresearch manager at Firm 2 notes:
The intelligence on the machines enables us toknow what’s happening in the field . . . [We know] if
DIGITALIZATION CAPABILITIES 95Psychology & Marketing DOI: 10.1002/mar
something is going to break-down soon so we canhave effective resolution mechanisms [in place] toensure high availability and low downtime for ourcustomers.
Connect Capability. Connect capability denotes theability to connect digitalized products through wirelesscommunication networks. Such communication net-works could consist of ports, antennas, software, and In-ternet protocols, which enable connectivity to an intel-ligent product via wireless connections. The empiricalanalysis provides two sub-dimensions of connect capa-bility. The first subdimension enables the transmissionof information or signals from intelligent products tostorage and processing centers, which the case compa-nies virtualize in the cloud. This digitalization reducesthe need for onsite storage and processing, as well asproduct functionalities, thus enhancing efficiencies andreducing costs. For example, customers can now buyand download additional power for their vehicles whenneeded instead of having a larger vehicle with a stan-dard higher power output. As the interviewees oftenobserve and note, this capability enables the possibil-ity of value co-creation in an interactive and real-timebasis with the customers. A global product manager atFirm 1 says:
Our [platform name] on the machines are connectedto our central processing center in the cloud, wherewe get all information regarding the operations andthe conditions of the machines. This helps us informour customers when they need to take actions or ifthey need any specific information about the perfor-mance of the machines.
The second dimension highlights the potential forconnectivity between the intelligent product that couldbe singular (one-to-one) or simultaneous (one-to-manyor many-to-many). The potential to connect various in-telligent products or hardware at a network level opensup new value creation scenarios through greater moni-toring, control, and optimization opportunities. For ex-ample, a fleet management system could connect nu-merous intelligent machines to fulfill customers’ overalloperational requirements. Thus, without connect capa-bility, dynamic functions and real-time managementwould not be possible even with a very high level ofintelligence embedded in the machines. The case com-panies express that intelligent products without con-nection functionality provide limited benefits towardvalue creation for customers. A senior researcher withFirm 2 explains that:
The connected network is the key to enabling thevarious devices to talk to each other. The benefit thatcan be derived from the devices can be multiplied ifthey are connected. This will add higher value tocustomers as we can add more complex functions.
Analytic Capability. Digitalization in manufactur-ing firms results in generating huge amounts of datafrom intelligent products and networks (Opresnik &Taisch, 2015). The massive amount of data not only pro-vides opportunities, but also challenges related to dataoverload. To take advantage of the data, the case firmshave a strong analytic capability that supports themin their digitalization strategy. Analytic capability isthe ability to transform the data available at hand intovaluable insights and actionable directives for the com-pany. The study finds evidence for two sub-dimensionsrelating to analytic capability. First, analytic capabil-ity involves developing rules, business logics, and algo-rithms that process information or data into predictiveinsights that have operational value for the organiza-tion. Predictive insights help tremendously in the grow-ing, complex, and competitive market to proactivelyengage with the customers and capitalize on the emerg-ing opportunities. Analytic capability also provides thecustomers with insights to plan and allows them to ex-ecute a mitigation strategy for potentially high-risk sit-uations. A project manager at Firm 1 says:
[After] we have the data of operations for many yearsinto our system, we can see when is it most likelythat some breakdown will happen or some replace-ment needs to be done. Our customers can benefit bynot having to go through downtime, and our distrib-utors can call our customers and plan well withoutany emergency kind of situation coming up.
Second, a constant inflow of data from the deployedintelligent and connected products that customers useprovides potential to visualize value through customer-centric simulations. These simulated scenarios help inexperiencing critical interdependencies in a virtual en-vironment and testing the levers that firms can useto optimize customers’ key performance indicators. Forexample, firms can use simulations in product develop-ment to visualize the outcomes to customize solutionsthat best align with customers’ requirements. A net-work service manager at Firm 2 explains this situation:
When we have so much data from our managed net-works, we have an in-depth knowledge of our cus-tomers. We probably know their problems and rele-vant outcomes better than they do themselves. Weuse this information to draw up various cost-benefitscenarios that work for both of us in terms of costsand revenue. It’s about structuring a win-win forboth of us.
Value Co-Creation Mechanisms
The analysis of the case firms reveals various in-stances when digitalization capabilities increase inter-action among the resources and processes of both theprovider and the customer to co-create value. Two broadmechanisms, perceptive and responsive mechanisms,drive this value co-creation process. To clarify the
96 LENKA, PARIDA, AND WINCENTPsychology & Marketing DOI: 10.1002/mar
proposed relationship between digitalization capabili-ties and value co-creation, this study highlights empir-ical evidence for each mechanism.
Perceptive Mechanisms. Perceptive mechanisms al-low the companies to identify, assess, and address spe-cific customer needs. Digitalization capabilities enablethe manufacturing firms to capture customer needs andprovide additional opportunities to support them in ameaningful way for value creation. This behavior drawsthe customer into a merged engagement process withthe firm. Longitudinal analysis of intelligent-connectedproduct data provides insights on potential opportu-nities to use the asset effectively. Sharing such infor-mation with the customer can help them in taking ac-tion to improve both the effectiveness (doing the rightthings) and the efficiency (doing things right) of theasset in use. Such analysis of connected assets at anoperations level can help customers find untapped op-portunities for additional value creation. Thus, digital-ization capabilities can promote continuous auditing ofcustomers’ operations and enable manufacturing firmsand their customers to work together to reduce processand resource use inefficiencies and improve overall per-formance. A portfolio manager at Firm 3 notes:
Over time we have gathered so much informationabout our customer usage behavior that in certaincases, we can be highly accurate to what they maybenefit from. Such deeps insights are very helpfulin communicating with the customer that we under-stand their operational needs.
With enhanced virtualization of the product func-tionalities in the cloud and the potential to integratedigitalized components through a connected network,the firm can customize the solution (offering) configura-tion and its implementation. This virtualization helpsprovide customers with solutions that firms can recon-figure and align to their requirements. A change man-ager at Firm 2 states:
With cloud-based virtualization, the ability to offercustomized versions of our solutions has become areality. Customers no longer have to wait for us tosend in teams to configure and do customization ofour products, which would take a long time and costmuch as well.
Through digitalization-enabled perceptive mecha-nisms, therefore, the customers are tightly integratedand engaged with the manufacturing firms’ processesand resources. Furthermore, over a period of time, theyare jointly able to discover and exploit opportunities forvalue creation.
Responsive Mechanism. Responsive mechanism isthe second value co-creation mechanism enabledthrough digitalization capabilities. The responsivemechanism entails how quickly and proactivelycompanies react to their customers’ changing and
emerging demands so that the firms can participate invalue co-creation. In a dynamic market environment,the customers face rapid changes that call for quickand effective solutions to help them in their value cre-ation process. Manufacturing firms address these re-quirements through virtualized analytics and productfunctionalities in the cloud, which allow customers toaccess new or complimentary product functionalities inreal-time and with limited downtime. These capabili-ties also enable multiple installed bases’ simultaneousaccess to functions through a connected network. Digi-talization capabilities enable customers to become agileand responsive to their changing environments and op-erational needs. Virtualized analytics and functionali-ties allow the manufacturing firms to assess the risksand to deploy functionalities at low marginal costs, thusenabling firms to offer flexible revenue models to theircustomers that sometimes entail risk and profit shar-ing. A service research manager at Firm 2 said that“the network function virtualization is making it possi-ble for our customers to provide these functions on theirexisting hardware instead of needing to upgrade them.They can also scale them up and down easily when theyneed.”
In addition, manufacturing firms use digitalizationcapabilities to develop predictive insights, which enablethem to develop proactive readiness strategies to capi-talize on emerging opportunities to create value withthe customer. For example, customers can schedulepreemptive maintenance services on an installed assetbase according to the known cycles of breakdowns inmachinery or drawing on real-time usage information.A technology planning manager at Firm 1 explains:
After many years of installation, we know when itis likely that they might need a particular service,and we can offer it to them as part of our originalequipment service contracts instead of losing themto a local service organization who would probablybe employed in case of an unplanned downtime ofthe machine.
Thus, we find evidence of how manufacturing firmsare able to interact with their customers’ processes andoutcomes to support them in being responsive and flex-ible in a dynamic business environment to co-createvalue.
Framework for Digitalization CapabilitiesEnabled Value Co-Creation
Digitalization capabilities provide new avenues for in-teracting with customers’ resources, processes, and out-comes to co-create value. The value co-creation model,according to Gronroos and Voima (2013), consists ofa provider, the customer, and the joint spheres. Theysuggest that firms and customers co-create value in thejoint sphere when the service provider’s and the cus-tomer’s value creation activities merged into a singleprocess. The empirical evidence in the present study
DIGITALIZATION CAPABILITIES 97Psychology & Marketing DOI: 10.1002/mar
Figure 2. Framework for digitalization capabilities enabled value co-creation.
shows that, indeed, digitalization capabilities enablethis merged interaction of the resources, processes, andoutcomes between the manufacturing firms and theircustomers to co-create value.
The perceptive and responsive mechanisms of valueco-creation in effect, expand the joint sphere of inter-action between the provider and the customer by en-hancing the breadth and depth of the interaction in themerged value creation process. Breadth of the inter-actions increases as the provider starts offering moreservices and scouts for new opportunities to co-createvalue on a continuous basis through increased under-standing of the customer’s sphere. Depth of the in-teractions increases with establishing closer coopera-tion with the customer and formation of strategic part-nerships through win–win interactions. For example,traditionally operational audit reports were generatedfor the production unit but with repots becoming au-tomated, real-time, and easily accessible they are be-coming relevant at all levels within the unit and acrossfunctions in the organization. This opens up new valuecreation opportunities, such as decision support met-rics that could be generated to help strategic decisionmaking and which becomes part of the customers over-all decision support systems over the long run. Addi-tionally, dissemination of real-time information of op-erations across all levels of the production unit couldhelp in optimizing the logistics and decision-making ef-ficiencies, thus helping in establishment of long-termoperational processes across the strategic and opera-tional levels in the organization. Similarly, the financeunit may capture revenue implications of the opera-tions in real-time and be able to prevent misalignedperformance goals. Digitalized analytics could be in-tegrated into the audit reports to provide the purchas-ing department with supplier evaluations related to the
promised value delivered. The suppliers and purchas-ing department can then perhaps renegotiate contractsaccording to the information they obtain, which couldsubstantially increase the present engagement termsand conditions.
Drawing on the value co-creation model of Gronroosand Voima (2013), this study conceptualizes a frame-work (Figure 2) that illustrates how digitalization capa-bilities enable interaction between customers and man-ufacturing firms. Such cooperation leads to a mergedinteraction process in which the firm co-creates valuein the joint sphere through increasing its breadth anddepth of interactions. In effect, therefore, the interac-tions provide the manufacturing firms with the abilityto expand the value co-creation sphere. In the litera-ture, many scholars discuss value co-creation as a resultof interactions between the provider and the customer.Yet, the literature fails to provide an accurate un-derstanding of the driver and underlying mechanismsof these interactions in real-world situations. Concur-rently, studies argue that digitalization increases in-teraction between the provider and the customer, andenables value co-creation. This framework effectivelybridges this gap in the literature and empirically show-cases how digitalization benefits expressed in terms ofits capabilities enables value co-creation in customerinteraction processes in an industrial B2B context.
IMPLICATIONS AND FUTURE RESEARCH
Focus on value co-creation and digitalization is gain-ing momentum in the servitization literature (Lerch& Gotsch, 2015; Parida et al., 2015; Porter & Heppel-mann, 2014, Smith et al., 2014). This research indicateshow the providers’ digitalization capabilities enable
98 LENKA, PARIDA, AND WINCENTPsychology & Marketing DOI: 10.1002/mar
value co-creation in implementing a servitization strat-egy. This research has several theoretical and manage-rial implications and several interesting avenues forfurther research.
From a theoretical perspective, this study con-tributes to the servitization literature by highlightingthe role of digitalization capabilities in the value co-creation process and showcasing the mechanisms ofthis value co-creation in a manufacturing firm and cus-tomer interaction process. This finding also adds to theunderstanding of manufacturers and customers’ useof digitalization capabilities to expand the value co-creation sphere in which they interact. The study alsocontributes to the growing view in service research thatsees skills and capabilities as important for co-creatingvalue (Salomonson et al., 2012; Vargo et al., 2008). Fur-thermore, the study outlines the content and structureof digitalization capabilities in the context of provid-ing service in manufacturing companies; thus, answer-ing the literature call for conceptualizing digitaliza-tion capabilities and understanding its effect for valueco-creation.
This study also points to some interesting ques-tions for further research. From a theoretical perspec-tive, understanding the digitalization capability devel-opment process and the antecedents to digitalizationcapabilities would be interesting. This study examineshow some mechanisms enable value co-creation; in-deed, these mechanisms may have differing influenceon the value co-creation process. Future research canexamine the level and extent of the influence of thesemechanisms on the value co-creation process. Futurestudies could also determine other mechanisms thatexpand the joint sphere of value co-creation.
Service development managers in manufacturingfirms can use this study to understand how they can in-crease the value co-created with their customers usingdigitalization capabilities. The study also helps man-agers in strategic functions to develop a strategy forbuilding digitalization capabilities that is in line withtheir present and planned portfolio of offerings. In gen-eral, managers can also use this framework to enhancetheir understanding of the mechanisms that may im-prove the potential for value creation with their cus-tomers.
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The authors are grateful to Assistant Professor DavidRonnberg Sjodin, Lulea University of Technology, and Asso-ciate Professor Pankaj C Patel, Villanova University, for theircareful reading and suggestions on revising this paper.
Correspondence regarding this article should be sent to:Sambit Lenka, Entrepreneurship and Innovation, Depart-ment of Business Administration, Technology and Social Sci-ences, A3206, Lulea University of Technology, 971 87 Lulea,Sweden ([email protected]).
100 LENKA, PARIDA, AND WINCENTPsychology & Marketing DOI: 10.1002/mar
Servitization and co-existing product and service orientations: Triggers, manifestation, and consequences of organizational ambivalence. Lenka, S., Parida, V., Sjödin, D. R., & Wincent, J. (In Press). International Journal of Operations & Production Management
Paper I
Achieving alignment in business model for product-service systems: Insights from global manufacturing firms. Lenka, S., Reim, W., Frishammar, J., & Parida, V. (Under peer review).
Paper II
Developing global service innovation capabilities: How global manufacturers address the challenges of market heterogeneity. Parida, V., Sjödin, D. R., Lenka, S., & Wincent, J. (2015). Research-Technology Management, 58(5), 35-44.
Paper III
Digitalization Capabilities as Enablers of Value Co-Creation in Servitizing Firms. Lenka, S., Parida, V., & Wincent, J. (2017). Psychology & Marketing, 34(1), 92-100.
Paper IV
Exploring the microfoundations of servitization: How individual actions overcome organizational resistance. Lenka, S., Parida, V., Sjödin, D. R., & Wincent, J. (In Press). Journal of Business Research
Paper V
Contents lists available at ScienceDirect
Journal of Business Research
journal homepage: www.elsevier.com/locate/jbusres
Exploring the microfoundations of servitization: How individual actionsovercome organizational resistance
Sambit Lenkaa,⁎, Vinit Paridaa,b, David Rönnberg Sjödina, Joakim Wincenta,c
a Luleå University of Technology, SwedenbUniversity of Vaasa, Department of Management, FinlandcHanken School of Economics, Helsinki, Finland
A R T I C L E I N F O
Keywords:ServitizationResponse tacticsMicrofoundationIndividual levelProduct-service systems (PSS)Advanced servicesOrganizational resistance
A B S T R A C T
Servitization research has principally focused on the transition of organizational-level strategy, systems, cap-abilities, and processes for firms to be able to offer advanced services to their customers. Less is known of theunderlying microfoundational dynamics of such transitions at the individual-level. Based on a multiple casestudy of six large multinational industrial firms engaged in servitization efforts, this paper identifies the tactics(i.e., evangelizing, bootlegging, leveraging, and collaborating) that individuals adopt to overcome organiza-tional resistance to servitization. This study also presents the conditions that are necessary for individual em-ployees to adopt these tactics. The present study provides theoretical and practical implications of the micro-foundations of servitization, focusing attention on individual-level actions that affect the outcomes at theorganizational-level to drive servitization efforts.
1. Introduction
Manufacturing companies across numerous industries are movingtoward providing advanced services to their customers (Kowalkowski,Windahl, Kindström, & Gebauer, 2015; Martinez, Bastl, Kingston, &Evans, 2010; Reim, Parida, & Sjödin, 2016). Several factors, includingproduct differentiation, competitive advantage, new and recurringrevenue streams, and profitability, have driven this organizationalchange (Kowalkowski, Gebauer, & Oliva, 2017; Lenka, Parida, &Wincent, 2017; Oliva & Kallenberg, 2003). This transformational pro-cess is known as servitization (Baines et al., 2017; Vandermerwe &Rada, 1988). In practice, though, this transition toward more advancedservices is often challenging for manufacturing companies(Kowalkowski et al., 2015; Lightfoot, Baines, & Smart, 2013). Thesecompanies face resistance to this transition, and many fail in their ef-forts to provide advanced services.
Researchers have reported many firms' failure to achieve servitiza-tion goals because service provision requires a shift from the existingproduct-oriented perspective to a more service-oriented approach(Bowen, Siehl, & Schneider, 1989; Storbacka, Windahl, Nenonen, &Salonen, 2013). Adopting a service-oriented approach entails sig-nificant organizational change from top to bottom, which affects in-dividuals, teams, units, and the organization. This organizationalchange results in innumerable complexities and conflicts that lead to
resistance, which organizations must manage or mitigate to ensuresuccessful servitization efforts (Huikkola, Kohtamäki, & Rabetino,2016; Turunen & Toivonen, 2011). The organizational change literatureacknowledges that much of the resistance to change within organiza-tions arises from individuals who oppose any change in the status quo.Therefore, the key to overcoming resistance to change lies in addressingthe issues and challenges at the individual level (Jones, 2004;Lawrence, 1973). This calls for a deeper understanding of the role thatindividuals play during servitization.
Although significant contributions have been made to the serviti-zation literature, there is a lack of knowledge of the microfoundationsor the individual-level focus on how to respond to organizational-levelresistance to servitization. This gap in the knowledge is significant forseveral reasons. First, interactions among individual tactics at themicro-level lead to collective organizational-level outcomes. Therefore,individual tactics play a vital role in a firm's ability to attain organi-zational-level goals (Felin, Foss, & Ployhart, 2015). Second, focusing onthe individual could clarify how change emerges under the influence ofindividual agency. Indeed, it is individuals who search for and identifyvaluable opportunities for new services and then champion their de-velopment and use within the firm. Finally, understanding how re-sistance to servitization emerges and how individuals within the firmcope with this resistance is crucial for understanding the overall changeprocess during servitization. Servitization studies have focused on
https://doi.org/10.1016/j.jbusres.2017.11.021Received 21 June 2017; Received in revised form 13 November 2017; Accepted 15 November 2017
⁎ Corresponding author.E-mail address: [email protected] (S. Lenka).
Journal of Business Research xxx (xxxx) xxx–xxx
0148-2963/ © 2017 Elsevier Inc. All rights reserved.
Please cite this article as: Lenka, S., Journal of Business Research (2017), https://doi.org/10.1016/j.jbusres.2017.11.021
various firm- and network-level issues to explore resistance to serviti-zation (Martinez et al., 2010; Parida, Sjödin, Wincent, & Kohtamäki,2014). However, insight into how individuals, who are central to ser-vitization, influence this transformation is lacking. Therefore, the pur-pose of this study is to advance our understanding of how individualsrespond to organizational resistance and drive servitization efforts inmanufacturing firms.
By presenting a case study of six large industrial firms that suc-cessfully provide advanced services to their customers, we contribute tothe servitization and microfoundation literature in several ways. First,we identify micro-level, individual response tactics that individualsemploy to overcome resistance to servitization initiatives. This findinghighlights the critical importance of understanding the role of in-dividuals in servitization (Felin et al., 2015; Finne, Brax, & Holmström,2013). Second, we outline the conditions for individuals to adopt suchtactics in servitization firms. Identifying these conditions furthers ourunderstanding of when and why individuals adopt such tactics to sup-port servitization initiatives in firms. This finding thereby contributes tothe nascent discussion on the motivation and cognitive responses ofindividuals during a servitization process (Gebauer, Fleisch, & Friedli,2005). Finally, we extend the microfoundation theory in the context ofservitization, depicting the micro–macro interaction effect (i.e., theeffect of individual-level actions on firm-level outcomes in servitizingfirms).
2. Literature review
2.1. Servitization, change, and organizational resistance
Organizations constantly face the challenge of transforming them-selves to adapt to their increasingly dynamic environment. To meet thischallenge, organizations must change their strategy, culture, structure,and processes (Al-Haddad & Kotnour, 2015; Galbraith, 2002). One ex-ample of such a transformation is servitization, whereby manufacturingfirms transition from product manufacturers to providers of serviceofferings to customers (Baines et al., 2017; Baines, Lightfoot,Benedettini, & Kay, 2009; Oliva & Kallenberg, 2003; Vandermerwe &Rada, 1988). Extensive organizational change and organizationalchange management research has shown that resistance is the foremostchallenge faced in transforming firms (Kotter & Schlesinger, 2008;Rafferty & Jimmieson, 2016; Van de Ven & Poole, 1995). However,most firms that are engaged in servitization continue to struggle withresistance to change, which emanates from organizational inertia due tostructural rigidity, ambiguous processes, a lack of capabilities, in-effective incentives, and a lack of buy-in from employees (Bailey &Raelin, 2015; Bravo, Matute, & Pina, 2017; Hannan & Freeman, 1984).
The servitization literature identifies varying degrees of organiza-tional-level resistance faced by manufacturing firms in their transitionto becoming service providers (Brax, 2005; Gebauer, Edvardsson,Gustafsson, & Witell, 2010; Lightfoot et al., 2013). The servitization andchange management literature cites four types of organizational-levelresistance during servitization: resistance related to strategy, culture,structure, and processes (Table 1). Strategic resistance to servitization isprimarily attributed to the change that is required to move from atransactional to a relational business model (Ferreira et al., 2013; Reimet al., 2015). This change entails a shift in the overall outlook on marketand financial performance, which causes individuals to become wary ofservitization efforts (Neely, 2009; Parida et al., 2014). Cultural re-sistance is mostly due to a greater emphasis on relational value creation(Martinez et al., 2010) through customer problem solving, which oftenclashes with traditional engineering-based, product-focused cultures(Brax, 2005; Gebauer et al., 2012). Structural resistance emerges be-cause of the shift from a traditional centralized control structure to adecentralized structure, where frontline and regional organizations aremore empowered to take decisions (Neu & Brown, 2008). Also, tradi-tional structures built around product development and sales must be
reoriented to address customer requirements through cross-functionalefforts (Gebauer & Kowalkowski, 2012; Turunen & Toivonen, 2011).Procedural resistance emerges because of the greater need for processesthat intimately involve customers and network partners as co-creatorsof value (Huikkola et al., 2016; Lenka et al., 2017; Sjödin, Parida, &Wincent, 2016). Introducing new processes such as integrated pro-duct–service development processes, which involve merging two tra-ditionally separate development processes (Kindström & Kowalkowski,2009; Parida et al., 2015), also creates friction within the organization.All such organizational resistance prevents manufacturing firms fromsuccessfully adopting servitization. To understand how to address ser-vitization resistance, however, specific focus on microfoundations orindividual-level responses might be important because such a focusmight unearth the missing link between an organizational shift towardservitization and the successful adoption thereof.
2.2. Understanding the microfoundations of servitization: individuals andtheir actions
The tenets of microfoundations have received strong support in thestrategy and organization literature (Felin & Foss, 2005; Martinkenaite& Breunig, 2015). The focus of this literature has been “to unpackcollective concepts to understand how individual-level factors impactorganizations, how the interaction of individuals leads to emergent,collective, and organization-level outcomes and performance, and howrelations between macro variables are mediated by micro actions andinteractions” (Felin et al., 2015, p. 576). It is important to understandthe individual level because to do so provides insights into the under-lying dynamics that help explain the link between lower-level originsand higher-level outcomes. In servitization, insights from the study ofmicrofoundations may shed light on the way individual-level actionsmitigate resistance to servitization.
In its simplest form, an organization is an aggregation of individualsand their actions. Behavioral research in the context of the firm hastried to explain the role of individuals in influencing organizationaloutcomes (Gavetti, Levinthal, & Ocasio, 2007). Individuals, as man-agers and workers, affect how the organization behaves, which is ulti-mately reflected in the organization's performance (Groysberg & Lee,2009; Zucker & Darby, 2001). In the servitization literature, however,very little is understood regarding how individual tactics in response toresistance affect servitization efforts in the firm. Individuals' cap-abilities and choices are pivotal in understanding individuals' actionsthat collectively manifest themselves as outcomes at the organizationallevel. Although rationality of individuals is seen as the cornerstone oftheir actions, individuals' values, preferences, and beliefs greatly affectthe tactics these individuals adopt (Felin & Hesterly, 2007; Zenger,1992). Moreover, individuals' relational ability (i.e., the ability to in-teract and engage with others) and integration ability (i.e., the ability tomake sense of differing elements such as knowledge and artifacts) alsoplay an important role in individuals' choice of tactics and consequentlythe outcomes within the organization (Felin et al., 2015). Therefore, ina servitizing firm, where individuals face multiple fronts of resistance,the varying beliefs, goals, human capital, and relational and integratingabilities of individuals should affect their choices and ultimately thetactics they adopt to respond to resistance.
A few servitization studies have suggested that employees in pro-vider firms need to adapt their roles to become advisors and problemsolvers and act as consultants for customers when offering advancedservices (Gebauer et al., 2010; Ploetner, 2008). Additionally, Gebaueret al. (2005) and Ulaga and Loveland (2014) have outlined few of themanagerial motivation factors that support servitization within firms.Beyond this, however, not much is known about the way individualsexperience resistance to servitization and how their personal char-acteristics or external conditions affect their adoption of specific tacticsthat contribute to organizational-level outcomes that hinder or supportservitization efforts.
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3. Research method and data analysis
3.1. Research approach
This study uses exploratory case studies to obtain a rich dataset andcapture the detailed dynamics of servitization (Eisenhardt, 1989;Siggelkow, 2007). An exploratory case study approach is suitable whenthere are limited data for a given phenomenon—in this case, under-standing the microfoundations and individual-level responses to re-sistance during servitization. Six large manufacturing companies wereselected for case study based on four parameters. First, these firms areleaders in their respective industries in offering advanced industrialservices to customers. Each firm has clear strategic objectives for ser-vitization. For example, Firm 2 seeks to generate more than 60% of itsrevenue through industrial service offerings, while Firm 1′s vision is todevelop and offer a portfolio of advanced services across global mar-kets. Second, these firms cover different industries. This multi-industryscope provides an opportunity to capture variations in the data andinvestigate microfoundations in diverse contexts. Third, prior interac-tion with these firms indicated that they have faced considerablechallenges and resistance to implementing a servitization strategy. Fi-nally, as the companies continue to expand their industrial serviceportfolio and increase revenue through industrial services, we can ex-pect to find real-world examples of individual-level responses to orga-nizational-level resistance to servitization. Table 2 provides a de-scriptive background of the firms in this case study.
3.2. Data collection
Data were collected through semi-structured interviews (Yin, 2003).In total, 35 interviews were undertaken with diverse respondents atdifferent organizational levels and units within the firms. The
respondents belonged to various units, including R&D, sales and dis-tribution, and regional units. These units were chosen because theywere actively involved in developing and implementing new serviceofferings. The respondents were chosen based on their active partici-pation in driving key servitization initiatives. To ensure reliability,multiple researchers conducted the interviews. To create overlap be-tween data collection and data analysis, the authors held frequentdiscussions and continually took field notes. Secondary data were alsocollected in the form of archive materials and websites.
3.3. Data analysis
We followed a naturalistic inquiry method and performed constantcomparisons (Lincoln & Guba, 1985; Strauss & Corbin, 1990) to identifyrelevant analytical themes. Accordingly, our analysis progressedthrough a series of iterations that built on differences and commonal-ities between first-order categories, second-order themes, and third-order aggregated dimensions (Nag, Corley, & Gioia, 2007; Van Maanen,1979) (Fig. 1).
First, we systematically coded the verbatim transcripts. Similarterms, labels, and phrases were transformed into common codes acrossinformants. These codes were then collapsed into first-order categories(Van Maanen, 1979). We then began to analyze and identify relation-ships and patterns among these first-order codes, and we aggregatedthem into theoretically distinct second-order themes. As an additionalstep in the coding, we developed more abstract, overarching third-orderdimensions that arose from the second-order themes. To ensure rigorand increase confidence in our analysis and the assigned codes, multiplemembers of our group developed the coding scheme independently. Inthe event of a disagreement or difference, we discussed and modifiedthe coding scheme to reach a consensus. Finally, we compared the textpassages and ensured the data were correctly represented.
Table 1Literature review of resistance during servitization.
Type of resistance Description Example references
Strategic resistance Resistance due to changes in the overall business strategy regarding the business modeland financial performance
- Ferreira, Proença, Spencer, & Cova, 2013; Reim, Parida, &Örtqvist, 2015 (business model of the firm)- Neely, 2009; Parida et al., 2014 (financial performance)
Structural resistance Resistance due to a shift toward a more decentralized organizational structure andestablishment of service SBUs
- Neu & Brown, 2008 (decentralized structures)- Gebauer & Kowalkowski, 2012; Gebauer et al., 2010; Raddats& Burton, 2011; Turunen & Toivonen, 2011 (service SBUs)
Cultural resistance Resistance due to a shift in the culture of the organization toward relational valuecreation and solution selling
- Martinez et al., 2010 (relational value creation)- Brax, 2005; Gebauer, Ren, Valtakoski, & Reynoso, 2012 (focuson solving problems)
Proceduralresistance
Resistance due to changes in established processes with regard to co-creation of valueand the design and development of services for connecting, sharing, and integratingcustomers and network partners
- Huikkola et al., 2016; Lenka et al., 2017; Sjödin et al., 2016(customers and partners as co-creators of value)- Kindström & Kowalkowski, 2009; Parida, Sjödin, Lenka, &Wincent, 2015 (design and development of services)
Table 2Summary of case study firms.
Case Firms F1 F2 F3 F4 F5 F6
Case organization Manufacturer of heavyconstruction equipment
Provider of telecomequipment andsoftware
Manufacturer ofmachine tools
Manufacturer oftrucks and buses
Manufacturer ofaerospace components
Manufacturer of paperand packaging materials
Example of advancedservice provided
Availability ofconstruction equipment
Life-cycle solutions Productivityimprovement
Fleet managementsolutions
Componentavailability solutions
Complete packagingsolution
Typical customers Mine operators andconstruction companies
Telecom providers Mining, tunneling, andautomotivemanufacturers
Transportationcompanies
Aero engines andaircraft manufacturers
Packaging manufacturersand retail chains
Number of respondentsin this study
8 7 6 4 5 5
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4. Findings
4.1. Individual responses to servitization resistance
Transformations during servitization in manufacturing firms resultin complexities, conflicts, and resistance to organizational change. Thisstudy sheds light on the way individuals employ tactics to overcomeand respond to organizational resistance to servitization.
The experiences of the companies in this case study confirm resultsreported in the servitization and organizational change literature, im-plying that the implementation of a servitization strategy is hamperedby organizational resistance to change. Four commonly discussed formsof resistance in the change management and servitization literature(resistance related to strategy, culture, structure, and processes) mani-fested themselves in this case study. For example, a Service Manager atFirm 2 described cultural resistance as a key problem:
“The internal culture has been deeply affected with increased revenuefrom the service side of business. This is not being seen positively by many,and there is a constant struggle to change our way of working.”
Similarly, a Director of Technology Planning at Firm 1 spoke aboutprocedural resistance during implementation:
“Measuring the benefit of new services is not very easy. Since we do nothave the decision support systems in place, managers are not very keen totake decisions…so how do you proceed with the new offerings? We areconstantly fighting with this in our new service development efforts.”
The results of this study illustrate how initiatives of individualscommitted to the servitization strategy (i.e., convinced of the im-portance of servitization) are often key to overcoming organizationalresistance. Specifically, the study highlights four tactics (bootlegging,evangelizing, leveraging, and collaborating) that are used by individualemployees within servitizing organizations to drive the strategy im-plementation forward and combat organizational resistance. Each ofthese tactics is associated with a specific kind of resistance that acts as atrigger. The conditions for their adoption are also identified. Thefindings underline the impact of such tactics on the general outcome ofservice implementation in the firms. Details of the triggers, conditions,and impact on servitization implementations appear in Table 3.
4.1.1. Evangelizing tactic: converting non-believers to support servitizationefforts
Evangelizing entails attempts by individuals to convey their mainmessage and persuade others—especially opponents or those who areunaware—to embrace their point of view. The trigger for adopting sucha tactic is cultural resistance to a service-oriented approach that focuseson relational value creation through servitizing. Individuals adopt thiskind of tactic to change mindsets that may not relate directly to aspecific action or the implementation of any particular initiative. Theunderlying focus of such a tactic is to convert non-believers into be-lievers. In the words of a Service Manager at Firm 4:
“Because you need to bring out a message. So you need to makepeople understand that this is an opportunity and there is somethingthat we could do. So it's a lot like working as missionaries …goingout there and explaining to people. You can do it by normal powerpoints and setting up meetings in the industrial organization, andalso using technology demonstrators or business service demon-strators. These are tools to use when you need to convince people.”
Evangelizing individuals in the firms seem to exploit every opportunityto expound their views. They use meetings, coffee room discussions,common discussion forums, innovation programs, and individual inter-actions to constantly promote the benefits of servitization initiatives toothers in the firm. Their efforts focus on identifying influential opponentswho could be converted to believing in a more service-oriented approachand become allies in garnering support across the firm. Their personaldrive and conviction about the benefits of offering services is the primemotivation for adopting such a tactic. Their tireless efforts focus onbuilding consensus and encouraging colleagues to buy into their ideas andinitiatives. This helps generate overall support for servitization im-plementation among employees. This kind of tactic is more prevalent infirms with medium-level servitization (i.e., a few moderately successfulservice initiatives). Individuals who employ this tactic have a clear valueproposition to share with their colleagues. As a manager at Firm 3 reports:
“If you are able to provide a business benefit, especially one alignedto the market, then of course you get heard. Nobody can just ignoreyou.”
1st Order Categories 2nd order themes 3rd order aggregate dimensions
- Trying to convert non-believers- Constantly finding opportunities to spreadown belief
- Operating under the radar- Carrying on tasks without authorization
Evangelizing tactic
Bootlegging tactic
- Maximizing access to resources andcapabilities- Capitalizing on opportunities throughwin-win outcomes
Leveraging tactic
Individual tactic toovercomeresistance toservitization
- Using strong personal relationships toinfluence action- Using collegial and legal authority tofront-end the fight to remove roadblocks
Collaborating tactic
Fig. 1. Emergent data structure.
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In most cases, they develop clear ideas and arguments of how offeringnew services would benefit the firm and individuals. These individuals workmainly in strategic or tactical level roles within the firm and have strong,extensive networks, which they use successfully to employ this tactic.
4.1.2. Bootlegging tactic: hiding servitization effortsAnother tactic employed by individuals is bootlegging. Bootlegging
entails promoting new service initiatives by operating under the radarand acting in a near-clandestine manner. Often, this kind of responsetactic is undertaken without authorization from the firm. This kind oftactic is triggered by structural resistance within the firm, where de-centralized units or strategic business units (SBUs) are not recognizedor do not receive due support within the firm. The underlying focus ofsuch a tactic is therefore to take actions with or without the legal au-thority to do so. Many individuals who adopt this tactic are not overlyconcerned about consensus or acceptance. Rather, their focus is onachieving outcomes such as developing new service offerings. Themeans are considered less important than the end. As a BusinessDevelopment Manager at Firm 6 recalls:
“Of course it was totally skunk works I would say because we weregeographically outside the mill and it was a lot of things that we did notask were ok. We just did it and then learned from it and built knowledgeand services around that. So everything from building our equipment,when it was not possible for us to buy it, we were not asking for newinvestment. Instead, we used the regular cost budgets and used that fordifferent things than it was [meant for]. So instead of going through theregular channel, we used this budget to get our things done.”
The individuals who adopt a bootlegging tactic often act in-dependently. These individuals are not afraid to take risks and breakrules. This kind of tactic is employed in firms with low level of servi-tization (i.e., firms in the initial stages of introducing service initiativeswith little official evidence of the success of such initiatives). Also, most
individuals who employ a bootlegging tactic work in operational rolesand have faced rejection or have received a lack of support from theirsuperiors. Undeterred, they continue in their efforts with very little orno resources from the firm, often employing additional personal timeand resources to see the service initiative through to fruition. This kindof tactic helps establish proof of concept for servitization initiatives.Once there is moderate acceptance of service offerings and successfulimplementation of such initiatives, the individuals often give up thistactic. This kind of response tactic becomes either unnecessary or im-possible to hide. As a senior manager in Firm 5 reports:
“It was more common before [working on services under the radar]…. but it [service-oriented initiatives] is getting more structured sothere is less of those things now [working on services under the radar].”
4.1.3. Leveraging tactic: maximizing what you have to drive servitizationefforts
Another common tactic is leveraging. Leveraging is meant to boost anongoing effort or obtain an advantage by capitalizing on internal andexternal resources and competencies. The goal is to maximize support andthereby increase the service initiative's chances of success. The trigger foradopting this tactic is associated with strategic resistance that leads to asqueeze on the resources that are available for supporting servitizationinitiatives. Accordingly, the focus of leveraging is on seeking out and ca-pitalizing on all accessible resources and capabilities to support the ser-vice-orientation initiative. Individuals who adopt a leveraging tactic havea strong entrepreneurial attitude, always seeking situations to exploit.Tirelessly striving to maximize their resources, these individuals constantlyseek opportunities to find others with a similar agenda and persuade themto cooperate. As a Senior Expert at Firm 4 reports:
“One way to promote service strategy is of course through internaldevelopment and internal research. But there are other wonderful op-portunities provided by national research funding organizations, and if
Table 3Response tactics – triggers, conditions for adoption, and impact on servitization.
Organizational resistance Tactic adopted by individuals Organizational impact
Trigger for responses in individuals Description Conditions for adoption of tactic Impact on servitizationimplementation
Evangelizing tacticCultural resistance: prevents the organizational shift
toward relational value creation throughservitization initiatives
Building awareness and convincingothers to adopt servitizationinitiatives
- Individuals with strong internal driveand conviction- Few moderately successfullyimplemented service initiatives- Tactic adopter working in strategic andtactical roles in the organization
Generating organization-widesupport for servitizationimplementation
Bootlegging tacticStructural resistance: prevents transfer of power and
recognition of decentralized structures and set-up of service SBUs to implement servitizationinitiatives
Working on servitization initiativescovertly and without authorization
- Individuals willing to take risks andbreak rules- Very few service initiatives implementedwith little evidence of success- Tactic adopter working in operationaland tactical roles in the organization
Establishing proof of concept andunique selling points forservitization implementation
Leveraging tacticStrategic resistance: leads to a squeeze on resources
to support servitization initiativesUsing internal and/or externalresources and competencies toenhance efforts for servitizationinitiatives
- Individuals with a strong entrepreneurialattitude- A few moderately successfullyimplemented service initiatives- Tactic adopter working in tactical roles inthe organization
Keeping servitizationimplementation moving despiteresource scarcity
Collaborating tacticProcedural resistance: stifles any established process
change that might facilitate servitizationinitiatives
Using collegial or legal authority toovercome obstacles to servitizationinitiatives
- Individuals able to build strong personalrelationship with others- Many successfully implemented serviceinitiatives and general organization-wideacceptance of the need to servitize- Tactic adopters working in strategic andtactical roles in the organization
Ensuring high-level legal andcollegial support for servitizationimplementation
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you look at the European platforms … those programs provided thepossibility for (industry) companies like Firm 4, Competitor 1, Competitor2, and others in Europe to try new technology, and we did it together. Itallows the companies to try new technologies and also leverage on whatothers are also putting in as well.”
The individuals who adopt leveraging tactics are keen to find otherswho can complement and enhance their efforts. These individuals havea positive outlook on their efforts and believe they will somehow findthe missing resources or capabilities to support what they started with.Individuals who use a leveraging tactic must have an innate sense foridentifying win-win scenarios. They use this win-win argumentation toget others to provide resources and share capabilities to achieve acommon goal. Such actions help keep the servitization implementationmoving despite the resource scarcity for such initiatives. This kind oftactic is more prevalent in firms with a medium level of servitization(i.e., a few moderately successful service initiatives). Individuals whoadopt this tactic mainly work in tactical level roles, where they have tofind a way around the scant resource allocation that reflects seniormanagement's low buy-in to the servitization initiative.
4.1.4. Collaborating tactic: using collegial support to drive servitizationefforts
Many individuals employ a collaborating tactic to overcome pro-cedural resistance to servitization. Individuals who use such a tacticattempt to find support from a collegial or legal authority to influenceor bypass others' opposition to the change that implementation of theservice initiative entails. This support can be achieved in numerousways; however, individuals employing this tactic directly approach anduse their personal rapport with figures of authority to overrule otherindividuals who resist their efforts. The result of employing such atactic is that servitization receives the required legal and collegialsupport to overcome resistance. A Senior Portfolio Manager at Firm 1describes the tactics he employs:
“And if there are people who totally refuse…then you kind of pushthem to the side and make their point of view less important in theprocess. There are several ways of doing that. One way is to escalate itto higher management. Another would be to assemble as many influ-ential people as possible that you already know and have them work foryou. Have them bring the issue to the right forum and [discuss] it. Usethem to get people to your side and then get the bigger buy-in than theperson stopping this and then sooner or later his boss is going to tellhim that you need to do this.”
This kind of tactic is more prevalent in firms with a high level ofservitization (i.e., where many well-documented service initiatives havebeen successfully implemented) and with a generally high level of ac-ceptance of servitization as an important initiative within the firm.Despite this general acceptance of service initiatives, however, a fewindividuals resist servitization efforts in the firm. Individuals employ
this tactic to overcome this resistance. Individuals adopting this tacticusually work in strategic and tactical level roles.
4.2. Individual tactics as enablers of servitization implementation
This study provides an alternative view of servitization resistance andimplementation by highlighting the importance of understanding the mi-crofoundations of servitization in the form of individual actions. Arrow a)in Fig. 2 shows how the presence of organizational resistance to serviti-zation motivates individuals to adopt tactics to overcome resistance. Forexample, according to the Director of Global Solutions at Firm 1,
“My unit is facing the biggest struggle within the organization as weare trying to shift away from our old systems and people who had a lotof power within the organization. Every successful launch of our cus-tomer solutions in the market is making a difference to the way we didbusiness and is slowly shifting our organization toward a more solution-oriented company. This is what gives me my motivation to work andwin against all odds.”
In addition, individual tactics often substantially support the im-plementation of servitization strategies at the firm level, as shown byarrow b) in Fig. 2. According to a Service Engineer at Firm 2,
“We recently made a simple tracking installation in transatlanticfreight ships and without our knowledge few engineers started ana-lyzing the shipping route data. They found some unusual patterns re-lated to routines, which meant we could add the service of route op-timization for 400 ships. This was not only a new service business for usbut also generation of new revenue. This would have never happenedwithout the proactive actions of the engineers.”
Another example from our data illustrates how the application ofindividual tactics affects overall servitization efforts. For example,service researchers at Firm 2 had long been evangelizing about themerits of servitization within their organization but had faced sig-nificant cultural resistance from the product-focused culture (e.g., “wemake best-in-class products”) and structural resistance due to the or-ganizational separation of required competencies. Despite this re-sistance, an example of the success of these efforts is the establishmentof a cross-functional unit focused on service development, includingcompetencies in product, service, and business model design. As aservice development manager at Firm 2 remarks,
“It seems like what we have been preaching all these years has finallyhad some results, and I do believe that this new unit will enable us toproceed much faster in developing new service concepts and ultimatelymake many on the technical side appreciate the merits of services.”
Further indicators of organizational-level servitization arising fromindividuals' application of tactics include a) broader service portfolio, b)entry to a new market segment through customized solutions, c) a newstream of revenue from services, d) new processes for reducing machinedowntime, and e) reorganization of the organizational structure.
Fig. 2. Overall interaction of the organizational and individual levels during servitization.
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5. Discussion and conclusions
While significant contributions have been made toward under-standing the responses required to address organizational-level pro-blems and resistance (Baines et al., 2017; Kowalkowski et al., 2015;Turunen & Toivonen, 2011), insights into the underlying dynamics ofservitization from an individual-level perspective are still lacking. Thisstudy advances our understanding of how individuals respond to or-ganizational resistance to support servitization efforts in manufacturingfirms. Our analysis highlights important insights suggesting that servi-tization efforts face resistance relating to changes in four areas: orga-nizational culture, strategy, structures, and processes. The analysisshows that individuals respond by adopting various tactics to overcomethis resistance and support servitization in their firms. We also docu-ment the conditions and personal characteristics that influence thechoice of tactics adopted by individuals. These are all important forunderstanding the microfoundations of servitization. The findings haveseveral implications for servitization theory and practice.
First, by enumerating the tactics that individuals adopt to supportservitization efforts in firms, we provide a unique perspective of howindividuals contribute to servitization. This finding highlights the cen-tral role that individuals play in overcoming resistance to servitization.The servitization literature contains scarce research on this issue(Gebauer et al., 2005). Instead, the servitization literature tends tofocus on various firm- and network-level approaches to dealing withresistance to servitization (Baines et al., 2017; Kowalkowski et al.,
2015). Second, each tactic identified in our study is unique, as is itseffect on overall servitization implementation. For example, evange-lizing is designed to be publicly visible to generate widespread accep-tance of servitization initiatives within the firm. In contrast, boot-legging is kept clandestine to prevent others from becoming aware of it,with a focus on somehow setting up a proof of concept of servitization.These differences in tactics show that individuals' relational and in-tegration ability, personal values, preferences, and beliefs uniquelyinfluence the tactics that they adopt (Felin, Foss, Heimeriks, & Madsen,2012; Zenger, 1992). These findings also provide insights that add tothe discussion on the role of individual cognition during servitization(Gebauer et al., 2005; Ulaga & Loveland, 2014). Third, we identify theconditions that are conducive to the adoption of a given tactic. Theseconditions relate to the individual's personal characteristics, the in-dividual's position within the organization, and the degree of serviti-zation within the firm. Although each of these three conditions influ-ences the adoption of the tactic, all three conditions were typicallypresent together when the tactics were adopted. For example, bothcollaborating and leveraging tactics are employed in firms with mod-erate level of servitization, but variation in the individual's role in theorganization and personal characteristics leads to the adoption of dif-ferent tactics. This contingency perspective in the context of individualactions extends our understanding of individual-level dynamics in ser-vitization firms. Fourth, the outcomes of employing the tactics areunique and support servitization implementation in different ways. Forexample, bootlegging helps establish proof of concept. This proof of
– Solutions
Manager F2 - Portfolio Manager F1
Senior Expert
– Project Manager F3
- Senior
Researcher F5
– Senior Application
Specialist F6
Low Medium High
Op
era
tio
na
l L
eve
lTa
ctica
l L
eve
lS
tra
teg
ic L
eve
l
Fig. 3. Dynamics of individual tactics adoption in servitizing firms.
S. Lenka et al. Journal of Business Research xxx (xxxx) xxx–xxx
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concept provides support for servitization implementation, which iscritical in an organizational environment that is characterized byskepticism toward servitization and its benefits. Meanwhile a colla-borating tactic maintains the initial momentum in firms with a mediumlevel of servitization. This tactic is therefore necessary to ensure thatthese initiatives do not lose the momentum that they gathered initially.These findings contribute to the discussion on the success factors fortransitioning from basic service to advanced services in the servitizationliterature (Baines et al., 2017; Kowalkowski, Gebauer, Kamp, & Parry,2017). Finally, by explaining the underlying dynamics of individual-level actions and their impact on servitization initiatives at the orga-nizational level, this study illustrates the link between individual-levelactions and organizational-level outcomes in servitization. The study,thus extends the microfoundations discussion in organizational beha-vior theory to the context of servitization (Felin & Foss, 2005;Martinkenaite & Breunig, 2015).
From a practical perspective, understanding the dynamics of tacticadoption (Fig. 3) can help individuals at all levels adopt the actionstrategy that is best suited to their situation. Individuals can alsoevaluate their attitudes and personality to choose the best tactic to helpmaximize efforts to support servitization initiatives within the firm.Senior managers can also become aware of the tactics that individualsare most likely to adopt under certain conditions so that they can takeappropriate actions to align the expected individual actions with thegoals of the unit or organization. In addition, given the stage of servi-tization and levels within the firm, individuals could predict the actionof managers and colleagues based on their personal characteristics.Doing so could help these individuals take proactive action to eitherprevent or encourage adoption of the right tactics.
In terms of limitations, the present study is based on case studymethodology, so the findings should be seen as initial hypotheses thatrequire further testing using confirmatory approaches. Nevertheless,this study presents an attempt to open the black box to study multi-levelperspectives that could further our understanding of the challenges andunderlying dynamics in servitization. While our study provides onlypreliminary insights into these dynamics, we believe this domain ishighly relevant to future studies within the servitization literature. Inparticular, understanding the motivations and reasons for individualresponses during specific phases of servitization may offer further in-sights into different capability roadmaps and servitization frameworks.Of particular interest are the interactions between emergent individualtactics and the nature of organizational resistance, as well as the in-dividual motivation and incentives for supporting servitization. In ad-dition, the servitization literature may benefit from drawing on othertheoretical perspectives such as ambivalence (Ashforth, Rogers, Pratt, &Pradies, 2014; Rothman, Pratt, Rees, & Vogus, 2017) and paradox(Eisenhardt, 2000; Jay, 2013) to explain tensions, opposition, anddualities experienced by individuals that foster responses during ser-vitization. Further research could also test the findings of this paper inlongitudinal studies to broaden our understanding and observe howindividual responses change over time.
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