1. Products, Services, and Solutions - Past, Present, and Future The Spring Servitization Conference 2014 Transformation: Drivers, Processes and Results Heiko Gebauer Business Innovation, Swiss Federal Institute of Aquatic Research (eawag) Center of Service Research, Karlstad University, Sweden Aston, May 12-14

2. If services & solutions become more important, companies must understand the rules 3. PAST 4. Services and solutions are nothing new ... IBM 601 Multiplying Punch Caterpillar Tractor Company 5. Ted Levitt (Harvard Business Review 1960) People dont want to buy a quarter-inch drill. They want a quarter-inch hole 6. Hiltis strategic leap towards the solution business Products Services Solutions Fleet management solutions (e.g. fee for administering the fleet) Quality & innovation (e.g., drilling, demolition, cutting, sanding and screw fastening systems) Consumables (e.g., anchoring & installation) Repair Maintenance Financial services Theft-insurance Destroy customer value! Add customer value, but what customers do they attract? Delivery Maintenance Repair Replace Purchase 7. Evolution of the research domain highlights two (three) different phases 0 20 40 60 80 100 120 140 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Phase 1: Minor topic (until 1999) Phase 2: Rapidly emerging research domain (2000 to 2013) Number of contributions1 Years 1 - REF("Managing the transition from products to services") OR TITLE-ABS-KEY("Product service systems") OR TITLE-ABS-KEY("System supplier") OR TITLE-ABS-KEY("Industrial services") OR TITLE-ABS- KEY("Transition from products to services") OR TITLE-ABS-KEY("Service business development") OR TITLE-ABS-KEY("Solution provider") OR REF("A framework for analyzing customer service orientations in manufacturing") OR REF("Restructuring towards a service orientation: the strategic challenges") OR REF("Go downstream: the new imperative in manufacturing") OR TITLE-ABS-KEY("Servitization") OR TITLE- ABS-KEY("The role of soft factors in implementing a service-oriented strategy in industrial marketing companies") OR REF("Service strategies within the manufacturing sector: benefits,costs and partnership") OR TITLE-ABS-KEY("After sales service") AND DOCTYPE(ar OR re) AND SUBJAREA(mult OR arts OR busi OR deci OR econ OR psyc OR soci) AND PUBYEAR > 1987 AND PUBYEAR < 2014 Phase 3: Maturity and stagnation in the domain (2011 to 2013) 8. PRESENT 9. Product Services Solutions Value proposition Industries Strategic focus We sell and ensure high- quality products We improve product efficiency and effectiveness We make the customer more successful We optimize your shipping costs We decrease the handling costs for C- parts We prevent break- down of ship motors We improve your logistic efficiency Evolution from products to solutions 10. Evolution from products to solutions Product Services Solutions Strategic focus Investments Dominated by products Service paradox Dominated by services Value contribution 11. Airbus long way from the traditional product to value-added services and solutions Revenues in Billion (Euro) 7400 airplanes in operation Service revenues reach about 1.5 billion Euro (4% of total revenue) Deliveries increased from 305 to 612 Supply chain Leasing firms Flight operators Aircraft manufacturers Component suppliers Maintenance Inte- grated General Electric (50%) Lufthansa Technik (+5% p.a., 60% external) Boeing (15%) 0 10 20 30 40 2003 2004 ... 2011 2012 Product revenue Service revenue 10.4% revenue growth p.a. 10.2% more deliveries p.a. 20% more service revenue 12. Five reasons why you should learn the rule for providing services and solutions Complexity Product Services Solutions Competitors Few Many Fuzzy Offerings Homogenous Heterogeneous Individualistic Geography Similar Localized Customized Demand Sales forecast (un)predictable Customer forecast Scope 1 to 3 1 to 15 1 to 15 X 3rd party Adapted form Cohen et al. (2006) 13. Forecasting customers as mutualism 14. Adapted from Sawhney, 2004, Fischer, Gebauer, Guanjie, Gregory and Fleisch(2010) Primary customer activities Where do business opportunities occur? Supplementary customer activities SalesPre-Sales After-sales Reconfiguration Extension How do business opportunities occur?) How to approach business opportunities through services and solutions? 15. How to approach business opportunities through services and solutions? Adapted from Sawhney, 2004, Fischer, Gebauer, Guanjie, Gregory and Fleisch(2010) Reconfiguration Extension How do business opportunities occur?) Primary customer activities Where do business opportunities occur? Supplementary customer activities SalesPre-Sales After-sales Exploration Exploitation 16. Exploitation Example Bosch Packaging Fischer, Gebauer, Ren, Gregory & Fleisch, (2010) Exploitation Parameter Exploitation Example Organizational change Incremental Capabilities Operational capabilities Value constellation Improving existing value constellation Value contribution Long-term, continuous increase in service revenue (15 to 30% in 10 years) 17. FUTURE 18. Parameter Exploration Example Organizational adaptation Radical Capabilities Dynamic capabilities Value constellation Creation of a new value constellation Value contribution Short-term, significant increase in service revenue Exploration of uncontested markets Example - Hilti Exploration Fischer, Gebauer, Ren, Gregory & Fleisch, 2010 19. Service differentiation moderates the customer centricity and innovativeness Complexity of customer needs Customer centricity Innovativeness Business performance H3 (+) Service differentiation H4 (+) H2 (+) H1 (+) H5 (-) H6 (+) H7 (-) H8 (+) Based on Gebauer, Gustafsson, and Witell (2011) 20. Complexity of customer needs Customer centricity H3 (+) H2 (+)H1 (+) H5 (-) H6 (+)H7 (-) H4 (+) Innovativeness Service differentiation H8 (+) Business performance Service differentiation Impact of innovativeness on business performance Based on Gebauer, Gustafsson, and Witell (2011) Service differentiation shows a getting stuck in the middle phenomenon 21. Internet of everything accelerates the evolution from products to solutions Product Services Solutions Strategic focus Investments Service paradox Dominated by products Dominated by services Value contribution 22. Problematization of present research leads to four future research opportunities Assumptions Observations Research opportunities Service growth as an organic growth strategy Internal service revenue growth is only 50% Merger & Acquisitions Focus on traditional manufacturing companies in mature markets Services and Solutions relevant for many industries New empirical fields: Industries & Geography Toward value-added services and solutions as a one way street Multiple positions along the product, service, and solutions continuum Combining different business models or reverse servitization Organizational change process Lack of management theories Theory-building: Dynamic capabilities, resource-based view, knowledge-based theory of the firm and so on 23. Thank you very much