2. Research Review
2.4 The process of “servitization”
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incorporation of products from other companies (Miller et al., 2002; Davies, 2004;
Vandermerwe and Rada, 1988). Successful companies recognize the necessity to ensure close customer relationships, establish routines and communications for satisfying customers (Levitt, 1983). Oliva and Kallenberg (2003) consider customer orientation service consisting of two separate elements. Firstly, a shift from offering product-oriented services to “user’s processes” oriented services. For example, a shift from a focus on ensuring the proper function or use of the product to pursue efficiency and effectiveness of end-user’s processes relating to the product. Secondly, a shift of the nature of customer interaction from transaction-based to relationship-based. For example, a shift from selling products to establishing and maintaining a relationship with the customer.
2.4 The process of “servitization”
Manufacturing companies that decide to utilise service-oriented strategies have to adapt their organizational structures and processes (Mathieu, 2001b; Gebauer and Friedli, 2005; Oliva and Kallenberg, 2003; Gebauer and Fleisch, 2007). This section reviews literature that discusses the processes manufacturers should follow to successfully move to service stages and what capabilities should they develop during the processes.
Oliva and Kallenberg (2003), explore the factors required when creating “service”
in the context of capital equipment manufacturers. Moreover, they also suggest a structural approach to navigate the transition. Figure 2 is the process defined and below are some descriptions.
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Figure 2. The servitization process in capital equipment manufacturers 3a. Expanding to relationship-based
services Trigger
Customer’s request
Utilization of service infrastructure Goals
Increase utilization of service infrastructure
Actions
Assume operating risk: pricing in terms of availability
Achieve cost advantage through:
economies of scale, learning curve, network effects
3b. Expanding to process-centered services
Trigger
Customer’s request
Utilization of PD skills Goals
Increase utilization of PD and system integration capabilities Actions
Develop consulting capability
Create “new” distribution network
Expand to include other manufacturer
4. Taking over the end user’s operation Triggers?? Goals?? Actions??
Entering the Install Based service market Triggers
1. Profitability potential 2. Competition
3. Customer satisfaction 4. Management change Goals
(1) Tab the revenue in the IB service market Actions
(2) Definition and analysis of IB market
(3) Create separate organization to market and deliver service (4) Create infrastructure to respond to local service demand
Consolidating product-related services Triggers
1. Customer’s’ complaints 2. Competition
Goals
3. Improve efficiency, quality and delivery time Actions
4. Move services under one roof
5. Monitor effectiveness and efficiency of service delivery 6. Add services to support quality initiative
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1. Consolidating product-related services：The first step taken by the firms is to consolidate the firm’s existing service offering under a single organizational unit.
The goal is to improve the service performance. This happens when organizations find out that services are an important component of the consumer satisfaction indicators and want to improve the delivery of those services.
2. Entering the installed base service market：During this process, the firms identify a profit opportunity within the service operation in the previous stage or after seeing a competitor work with high margins in the service market and setting up the structures and processes to exploit it.
3. Expanding to relationship-based service/process-centered services ：The expansion of the service offering takes place when the core functionality of the service organization has already been set, and it may happen through two distinct transformations. The first transition is to change the focus of customer interactions from transaction- to relationship-based. The second transition is to change the focus of the value proposition to the end-user from product efficacy (i.e. whether the product works) to the product’s efficiency and effectiveness within the end-user’s process.
4. Taking over the end-user’s operation：In this stage, the manufacturer becomes“pure service organization”, which includes taking over an end-user’s maintenance or operating organization.
Also, according to Davies (2004), a framework is developed to analyze business strategies for developing integrated solutions. Four main stages have been identified through researching five companies in capital goods industry. There are four capabilities need to cultivate; operations, business consultancy, finance and integration (see figure
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Figure 3. The process of developing into integrated solutions
Gebauer et al. (2011) integrates the findings of the relevant research into a conceptual framework which contains four parts; drivers, offerings, capabilities and organization (see figure 4). Drivers have inspired capital equipment manufacturers to create service offerings that meet customer needs in different levels. Accordingly, services can be added into a product lifecycle. For example front-end services, product sales and operations and back-end services. Developing each value-added service not only involves direct changes to the capabilities of company, but also has some challenges for existing organization functions, such as research and development (R&D), product design and production, finance, and human resource management.
Moreover, to enable capability development and cross-functional cooperation, manufacturing companies have to transform their organizational arrangements.
Earlier
(Backwards) Vertical moves (Forwards) Capabilities
Operations Business consultancy
Finance Integration
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Figure 4. An integrated framework of servitization
Based on the above knowledge, it is clear that in order to adopt value-add services into the original operation value stream paths are used. They all begin from the upper stream that focuses on manufacturing or raw materials. Then to the lower stream, which focuses on marketing. However, this literature relates more to capital goods than consumer goods (Davies,2004; Oliva and Kallenberg,2003 ). They are less focused on changes from Products to “Back-end services”. Shih (1996) points out that although the failure rate of OBM is high, it is helpful for manufacturers to have long-term
Business Drivers
To satisfy customer’s need over time
To achieve competitive advantages
To enhance financial performance Driver
Implication for organizational arrangement Offerings
Capabilities
Organizations
Front-end Service Product-sales and operations
Back-end Service
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development. In Taiwan, there are successful cases, but seldom research to integrate them and show the transformation path they took. To fill this gap, this research focuses on how manufacturers changed from OEM/ODM to OBM utilising value stream paths and figuring out what capabilities they need to develop during these changes.