guest article by Christian Kowalkowski
Service growth in product firms has become one of the most active service research domains, to the point that it has been identified as a strategic research priority (Ostrom et al. 2015). Frequently referred to as servitization, the domain is concerned with product firms shifting from developing, manufacturing, and selling products to innovating, selling, and delivering services; that is, a transformational processes whereby a firm shifts from a product-centric to a service-centric business model and logic. This shift towards services is typically a strategic response to reaching the maturity phase in the product lifecycle, thus facing limited revenue growth. For example, in the elevator industry, companies like Otis and Kone enjoy maintenance service margins of 25-35% compared with a margin of approximately 10% for new equipment. If successfully deployed, services can become an important source of revenue and profits, ensure customer satisfaction and loyalty, and support firms’ growth (Kowalkowski et al. 2017b).
Across industry sectors, firms are actively pursuing service growth strategies. Examples include traditional manufacturing corporations as well as software firms. For example, Microsoft is increasingly orienting towards services with strategic initiatives such as re-formatting its Office suite into a cloud-based subscription model and IBM is transforming into a cognitive solutions and cloud platform company. However, there is also evidence that firms may have overextended themselves in moving toward service, and some are withdrawing from certain service initiatives. We refer to this process as deservitization. A case in point is Xerox, often cited as an example of a product firm that has successfully pursued a service growth strategy. In 2013, chairman and CEO Ursula Burns told investors that the “shift to a services-led growth portfolio is paying off” (Raval 2014). Less than three years later, the company decided to separate its service business, creating the independent firm Conduent as a vehicle for their service-centric business process outsourcing offerings while retaining hardware-centric operations such as high-end color and customized printing under the Xerox brand.
The processes of service growth and reduction can be described on two continua that reflect firms’ corresponding attitudes, practices, and modus operandi. In relation to service growth dynamics, we refer here to servitization and service infusion; in relation to service reduction, we refer to deservitization and service dilution. The concepts of operations-led servitization and marketing-led service infusion are often used interchangeably to denote service transition strategies and processes, but for analytical purposes it is constructive to distinguish between the two. We therefore present a framework that distinguishes between the service growth and reduction concepts (Kowalkowski et al. 2017a).
While theoretical and empirical work has been accumulating with a sharp rise in publications, special issues, and conferences in recent years, we find that articles increasingly replicate existing knowledge in an exploratory and descriptive manner. The identification and investigation of small empirical gaps dominates current contributions and results in incremental theoretical improvements. Much of the research still lacks a strong theoretical foundation and substantial theoretical extensions are rare. We find that while research in this area has a well-established tradition in terms of output, theoretically it is still largely in a ‘nascent’ phase (Kowalkowski et al. 2017b).
Our goal with the special issue was thus to move the service growth theory further. The special issue is divided into two sections, each corresponding to a specific call for papers. In total, 31 authors from a range of business and management disciplines have contributed; many are leading scholars in the field. Additionally, in the final contribution, IBM Director Jim Spohrer offers a personal reflection on the history of IBM from the perspective of service. The goal of the first section—Servitization and advanced business services as levers for competitiveness—is to capture the current state of the field before looking ahead to such future concerns as “smart servitization” in the context of B2B relationships and industrial networks. The second section—Critical perspectives on service growth—aims to promote and integrate critical research that challenges prevailing assumptions and strengthens the field’s theoretical foundations.
While the contributions advance our understanding of the research domain, we also identify suggested themes for further research:
(1) broader evaluations of the impact of service growth on performance and the environmental factors that affect it,
(2) the role of merger & acquisitions in the service growth strategy,
(3) the exploration of multiple positions and business models along the service transition line,
(4) the process of adding or removing services (service growth dynamics),
(5) leadership and business logic, and
(6) expanding the context of service growth to emerging economies, industries beyond manufacturing, and the early stages of the industry or product lifecycle.
Kowalkowski, Christian, Heiko Gebauer, Bart Kamp, and Glenn Parry (2017), “Servitization and deservitization: overview, concepts, and definitions” Industrial Marketing Management, Vol. 60, pp. 4-10.
Kowalkowski, Christian, Heiko Gebauer, and Rogelio Oliva (2017), “Service growth in product firms: past, present, and future,” Industrial Marketing Management, Vol. 60, pp. 82-88.
Ostrom, Amy L, A Parasuraman, David E Bowen, Lia Patrício, Christopher A Voss and Katherine Lemon, (2015), “Service research priorities in a rapidly changing context,” Journal of Service Research, 18 (2), 127-159.
Raval, Anjli (2014), “Xerox says shift to services is paying off,” Financial Times, January 24, 2014.
Spohrer, Jim, (2017), “IBM’s service journey: a summary sketch,” Industrial Marketing Management, Vol. 60, pp. 167-172.
Photo: Mike Wilson