To gain insight into how companies are managing service development and servitization processes, particularly in their choices between stage-gate and agile approaches, the Institute of Manufacturing at the University of Cambridge is currently conducting some research. If you have experience in this area, please read the article and take their survey.
Managers in manufacturing firms have recognized the importance of services and product-service systems in addition to their product business for some time now. Services have long been considered a necessary evil and a cost-driver instead of a profit source. However, trends such as product commoditization and digital transformation improved the business case for industrial services. Enhancing physical products with services or offering products through service contracts yields higher profits, more stable revenues, closer customer relationships, lock-in effects, and enhanced differentiation from competitors. Also, the transformation to a service-oriented business, called servitization, appears to be an effective way of capitalizing on the digital transformation. Even though managers in the manufacturing sector recognize the importance of services, many firms are struggling to develop services that customers value and are willing to pay for.
To be successful with servitization, managers need to redesign the organizational architecture in various ways. First, servitization requires customer integration in the new service development process. While many manufacturers used to sell their products based on features, services require a thorough understanding of how offerings create value in the customer context. Second, servitizing firms must facilitate cross-functional collaboration to integrate knowledge from various disciplines. For example, services often require knowledge of product engineering excellence, data analytics, and maintenance routines. Third, servitization requires decentralized decision-making to quickly respond and customize service to the customer context. Fourth, to be successful with servitization, firms need employees who are flexible, resilient, and able to empathize with customers. Also, incentive and reward systems must be aligned with developing and selling service contracts, especially for salespeople who rather sell tangible products in high volumes rather than immaterial services. Finally, servitization requires a cultural shift from a transaction and production-oriented culture to relationship-oriented service culture.
The service transition requires careful and systematic management to prevent the so-called service paradox (i.e., the negative relation between servitization and profitability). Many manufacturing firms rely on traditional stage-gate processes to manage the service transition. These processes provide clear guidance on the innovation process by outlining intermediate and overall goals. Also, stage-gate processes foster the distribution and integration of various knowledge required for new service development. Furthermore, stage-gate stimulates communication and cooperation among different functional groups. However, stage-gate processes were designed for product development and cannot be simply transferred to a service context. Specifically, because new service development is often ambiguous and complex which complicates the formulation of predefined stages and decision criteria for the gates. Instead, servitizing firms are increasingly behaving like software companies.
Agile development is the dominant project management framework in the software industry. Given the increasing digitalization of manufacturing firms, servitizing firms are increasingly adopting agile co-creation methods to manage new service development. The main advantages of agile development are enhanced cross-functional collaboration and decentralized decision-making by working in diverse and autonomous teams. Also, firms can reduce servitization risks and deal with its dynamic character by working in sprints and incrementally developing small sub-solutions that accumulate into a comprehensive solution portfolio. Finally, agile development promotes frequent customer interaction to better understand their requirements. Still, the implementation of agile practices in manufacturing firms might be challenging. It is often difficult to divide the innovation process of physical products into short discrete development tasks because components are highly interdependent and non-interchangeable. As such, it is hard to establish dedicated development teams.
We can conclude from this discussion that investigates how companies manage new service development and servitization processes. So, if you are involved in new service design, neservice design and servitization must be carefully managed. To do so, managers can choose between a stage-gate or agile approach. To further understand the benefits and challenges of formalized management approaches in a servitization context, the Institute for Manufacturing at the University of Cambridge w service development, or servitization, you are invited to participate in this research. You can participate by completing a short questionnaire of approximately 10-15 minutes. After completing the survey, you will gain access to the results and new insights about methods and practices that improve new service development outcomes. Also, one of the respondents gets an Amazon gift card for £35. The survey can be found by clicking on this link https://cambridge.eu.qualtrics.com/jfe/form/SV_7PdW1of4qplIcYu. Any questions or comments can be sent to Xander Stegehuis (email@example.com).
About the authors
Xander Stegehuis MSc. is a Ph.D. researcher at the University of Twente. He is currently a visiting scholar at the Institute for Manufacturing at the University of Cambridge. His research focuses on servitization in small and medium-sized manufacturing companies. Specifically, Xander investigates how firms should shape their new service development processes and navigate in their ecosystems.
Dr. Florian Urmetzer is a Senior Research Associate with the Cambridge Service Alliance and is leading the research on business ecosystems and value mapping. Specifically, he is interested in helping managers fully understand the value exchange, to enable them to influence business models, and optimize B2B and B2C processes. Florian’s second research interest is customer satisfaction
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