Knowledge Base for Managers
On these pages we will collate service related literature with practical value for managers. Where possible we’ll provide a short summary / review and links. Please note that some links may be behind a paywall.
Papers, Reports, Articles and Reviews
Service Series I Strategic Clarity by Titos Anastassacos (2014): This 30-page primer provides a review on why and how manufacturers and other industrial companies turned towards services, strategies that can and have been followed, insights into strategic errors and possibilities for the future, including through data analytics and the industrial internet of things
Overcoming the Service Paradox in Manufacturing Companies by Heiko Gebauer, Elgar Fleisch and Thomas Friedl (2005): Extending the service business in manufacturing companies often leads to a “service paradox”: Substantial investment in extending the service business leads to increased service offerings and higher costs, but does not generate the expected correspondingly higher returns. Based on work with over 30 equipment manufacturers the authors try to gain an understanding as to why this happens and to derive some guidance for managers
Corporate customers’ resistance to industrial service innovations by VTT Finland (2011): Servitization -in the sense of business model innovations to significantly increase service content of offerings- is seen as particularly important to gain and sustain competitive advantage. Nevertheless, many companies aiming to create new service business often stumble in their efforts as their customers are not willing to adopt the new services. This paper takes a closer look at customer resistance on the basis of case studies from Finland
Organizational and institutional barriers to value-based pricing in industrial relationships by Pekka Töytäri, Risto Rajala and Thomas Brashear Alejandro (2015): Value-driven competition necessitates value-based pricing (VBP). The study explores the barriers to exercising value-based pricing and suggests ways to overcome those obstacles in putting value-based pricing into action in B2B sales. This is a very difficult topic and the study highlights a number of problems with Value Based Pricing in B2B environments and, it should be noted, does not really provide solutions. Nevertheless recommended
The right service strategy for product companies by Byron G. Auguste, Eric P. Harmon and Vivek Pandit -McKinsey & Co. (2006): Key reasons for many product companies’ failure to succeed in services are strategic errors, in particular as to “strategic intent”: – defend the product business or grow a new business – and “sources of competitive advantage”: -scale or skills- and how they relate to the chosen organizational set-up to conduct the service business. The authors provide a thorough analysis and explain errors which lead many managements to, for example, set targets for aggressive service growth while organizing defensively on the basis of protecting the product (leading to product – service conflict) or try to conduct a skills based business model in a market requiring scale economies (leading to too high cost levels for the available market prices). One of the most insightful articles on service business with high practical relevance.
Seizing the Advantage: When and how to innovate your business model by IBM Institute for Business Value (2009): Follow up to IBM Global CEO Study (2008). Successful companies are innovating their business model in three ways: (1) Revisiting the enterprise model to reduce cost through new partnership models and by reconfiguring the asset mix, (2) Using strong financial resources to introduce alternative industry models and disrupt competitors and (3) Rethinking revenue model and value propositions to respond to a different set of customer behaviors and market requirements.
The New Age of Ecosystems by IBM Institute for Business Value (2014): Ecosystems are moving from the consumer to the industrial world. GE’s Predix platform is a case in point. An ecosystem reflects much more than a network, and it differs fundamentally from a market. While ecosystems will transform much of the way business operates today, it is important to understand why ecosystems are beginning to emerge now, how they differ from traditional markets, what new incentives will emerge and how individual organizations can respond
How to Design a Winning Business Model by Ramon Casadesus-Masanell and Joan E. Ricart (HBR 2011): The ways by which companies create and capture value through their business models is undergoing a radical transformation worldwide. Yet most enterprises haven’t fully come to grips with how to compete through business models. Much of the problem lies in companies’ unwavering focus on creating innovative models and evaluating their efficacy in isolation—just as engineers test new technologies or products. However, the success or failure of a company’s business model depends largely on how it interacts with models of other players in the industry. Because companies build them without thinking about the competition, they routinely deploy doomed business models.
Effect of Service Transition Strategies on Firm Value (2008) by Eric (Er) Fang, Robert W. Palmatier and Jan-Benedict E.M. Steenkamp: This is a very important paper based on empirical analysis and valuable for planning investments and pitching services expansion or transformation to boards and top managements. The authors investigate the effectiveness of service transition strategies for generating shareholder value by evaluating secondary data pertaining to 477 publicly traded manufacturing firms during 1990–2005. The impact of a firm’s transition to services on firm value (as measured by Tobin’s q) remains relatively flat or slightly negative until the firm reaches a critical mass of service sales (20%–30%), after which point they have an increasingly positive effect. Furthermore, the effect of service sales on firm value depends on both firm and industry factors. Service transition strategies are more effective at enhancing value when the service offerings are related more to the firm’s core business and when firms have more available resources (i.e., resource slack). The impact of adding services to core products on firm value amplifies as industry turbulence increases but diminishes when the firm’s core products are in high-growth industries.
Outcome based services and performance contracting are increasingly gaining traction, though the practice in some industries goes back a really long time. The concept can have significant benefits for customers, even an entire industry or the economy by aligning incentives and creating “win / wins”, however things are less clear for suppliers. In order to be successful a company must change its business model and operating system and therefore must undertake substantial initial investment and, probably, accept permanently higher overhead. To be justified the model needs to scale. Customers however require choice -an adequate number of suppliers providing services under the new model- before they change what and how they buy. A “chicken-and-egg” problem ensues. So in industries without “facilitators” (organizations with oversized influence), suppliers need to proceed carefully so that on the one hand they don’t overextend and on the other they don’t fall behind when their industry transitions. To achieve that they must prioritize systematically and target their efforts initially at those markets, industries and customers that offer the best chance for quickly reaching critical mass. But a correct strategy is a necessary but not sufficient condition for success. Suppliers must get other things right as well, including how to design offerings and contracts, engage and influence customers, achieve buy-in from personnel, manage risks and determine pricing and revenue patterns.
Achieving Breakthrough Service Delivery Through Dynamic Asset Deployment Strategies (2006) by Morris A. Cohen, Narendra Agrawal, Vipul Agrawal. Many firms have shifted their focus from their products to their customers and the value derived from owning and using the products. They see after-sales service as an important source of revenue and profit, customer acquisition and retention, and competitive differentiation. However, they also find it challenging to manage their service-supply chain. Service organizations must position and manage service-supply-chain resources optimally to support the delivery of after-sales service. They must also develop capabilities to respond rapidly to the demand for service in a cost-effective manner. To succeed in implementing a service-centric strategy, firms must determine what items in their products’ service bill-of-material hierarchy should be deployed throughout their geographical hierarchy of service support locations. They must make these complex and interrelated decisions in anticipation of service demand, which is uncertain. Firms must also be flexible and should understand the mechanisms in a service-supply chain needed to fulfill customers’ demands for service and the resulting demands for support assets and capacities. Dynamic asset deployment (DAD), a collection of management policies that promote this flexibility, can be used to develop the capabilities needed to effectively and profitably deliver services. These policies require a real-options-based optimization approach to decision making. Highly recommended
Winning in the Aftermarket (HBR 2006) by Morris A. Cohen, Narendra Agrawal, Vipul Agrawal. Despite the aftermarket’s obvious charms, however, most organizations squander its potential. They perceive after-sales services to be a necessary evil and behave as though big business-to-business service contracts, small business-to-consumer warranties, and everything in between were—like taxes—a needless expense. That’s mainly because after-sales support is notoriously difficult to manage, and only companies that provide services efficiently can make money from them. It’s shocking to see how poorly large companies manage service networks, which the production and sales functions treat as stepchildren. Highly recommended
Country reports and analyses
UK National Strategy for Engineering Services (2016): Some 50 firms and organisations with an interest in through-life engineering services (TES) were convened by Cranfield University at a workshop in May 2015 to explore the opportunity for cooperative development of capability in TES and the specific action areas that might provide greatest impact. This was written up in a white paper that prompted the subscribers to this strategy document to form a steering group to develop a National Industrial Strategy for TES summarised in this document. Making things work: Engineering for life – developing a strategic vision.
The definition of “through-life engineering services” (TES) is: the design, creation and in-service sustainment of complex engineering products with a focus on their entire life cycle, using high-quality information to maximise their availability, predictability and reliability at the lowest possible through-life cost. The proposition is that by collaboratively accelerating the development of capability in engineering services significant improvements can be made in output and productivity in high value added manufacturing sectors which currently account for some 16.8% of UK GVA.
Servitization Impact Study UK (2013) by Aston Business School: How UK based manufacturing organisations are transforming themselves to compete through advanced services
Future perspectives of the German Machinery Industry (2014) by VDMA and McKinsey & Co.: Status, challenges, potential, success factors. Our analysis can be found here
The Servitization of French Manufacturing Firms (2014) by CEPII: Status and challenges
3D printing will disrupt the spare parts market by Titos Anastassacos (2015): An analysis of the potential impact of 3D printing on the OEM spare parts business