(REVISITING) SERVITIZATION: WHEN IS SERVICE ORIENTED BUSINESS MODEL INNOVATION EFFECTIVE?

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• Ivanka Visnjic, Department of Managerial Economics, Katholieke University Leuven
• Tuesday 20 October 2009, 12:00-14:00
• Seminar Room One, Institute for Manufacturing.

If you have a question about this talk, please contact Peter Wild.

Servitization, a tendency of manufacturing firms to extend their product offerings towards providing services is becoming one of the most prevalent trends in industrial and high tech sectors (Fang 2009, Tuly 2008, Cusumano 2003). While early service management literature offered plausible rationales for his phenomenon – and hence outlined expected economic and strategic benefits (Bowen et al. 1989; Vandermerwe and Rada.1989; Heskett 1987; Quinn 1986; Chase 1981; Levitt 1980) – some of the more recent findings indicate that servitized firms face serious implementation hurdles that even may result in a decline of overall performance (Neely 2009; Gebauer et al. 2005; Oliva and Kallenberg 2003).

Within this contribution, we intend to add to our understanding of this “service paradox” by relying on constructs forwarded by organizational and economic theory. We conceptualize servitization as a business model innovation in services (Zott and Amit 2008), whereby product and service activities represent strategic complements (Siggelkow 2003, Milgrom and Roberts 1990, 1995). Building on this notion, we further argue that depending on implementation practices, servitization offers economies of scope in both production and consumption, resulting in an efficient and sustainable strategy for manufacturing firms (Tanriverdi et al. 2008, 2004; Cotrell et al. 2004; Milgrom and Roberts 1990, 1995; Teece 1982, Panzaar 1979).

When testing our propositions on product and service performance data of 48 national subsidiaries of a large international equipment manufacturing company by means of fixed effect panel data model, the presence of positive, strategic, complementarities becomes apparent. Moreover, adopting more sophisticated service models generates additional beneficial effects. In the second part of the analysis, we focus on effective implementation and we outline the organizational practices enabling the enactment of positive complementarities. Based on in depth case studies (12 subsidiaries of the same firm), we build a process model that reveals implementation activities, critical for the success of servitization (Bitner 2008; Van De Ven and Poole 2007; Hammer 1999, 1990). The process model implies the inference of desirable structural characteristics of the servitized manufacturer; the necessity to balance the dimensions of vertical, manufacturing organization with the ones of a horizontal, customer oriented firm becomes apparent (Gebauer 2007; Neu et al. 2005, Galbraith 2002, Matthieu 2001; Daft 1997, Mintzberg 1993, Lawrence and Lorsch 1967). Managerial implications of the choice of the business model, the relevance of supportive organizational arrangements, as well as directions for further research will be discussed.

This talk is part of the Cambridge Service Alliance Forum series.

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