Guest article by Nima Heirati, Stephan Henneberg and Alexander Leischnig.
“It may seem paradoxical, but knowledge-based innovation is more market-dependent than any other kind of innovation. Careful analysis of the needs—and above all, the capabilities—of the intended user is essential.” (Drucker, 1985).
Servitization has become an important element of manufacturers’ innovation strategies to escape product commoditization traps and (re-)gain a competitive edge. Often referred to as being part of developments summarized as the fourth industrial revolution (Industry 4.0), servitization is driven by disruptive trends, including the rise of data and connectivity, sensor technology and analytics, machine learning, and improvements in robotics. While technology is an important enabler, it is only half of the servitization equation. Servitization represents a strategic shift for manufacturers from having a product-centric to a (more) service-oriented business model. This shift goes beyond selling products with add-on after sales services. It’s about taking responsibility for the entire lifecycle of a product and creating long-term value for customers through services. Customers realize the benefits of such servitized offerings through reduced manufacturing lead times, better customer service, customized solutions, and overall improved operational performance.
Despite the growing prevalence of servitization, manufacturers may not always accomplish their performance targets by increasing their service ratio. Servitization often creates tensions between product-oriented and new service-oriented business units and requires significant investments in developing new capabilities, new pricing strategies, and even new organizational architectures as part of the business model transformation (Forkmann et al., 2017a; Heirati et al., 2023). Moreover, successful servitization requires the consistent alignment and transformation of the business models of different stakeholders (i.e., manufacturer, customer, and third-party supplier) across the supply chain, something often hampered by differing priorities and leadership styles. Manufacturers that achieve impressive results with one customer through servitization may struggle to replicate that success elsewhere. So, how can academics in service research and marketing help manufacturers navigate the complexities of servitization and stay competitive in the market? Here are three key research areas:
Customer-centric Servitization
It is difficult to cite a significant modern marketing concept that was not first introduced by Peter Drucker. He contends that what satisfies customer needs and aspirations is so complicated that it can only be answered by the customers themselves. While this advice may sound tautological given the advances in the literature on customer orientation and customer centricity, it points to an important lacuna in our knowledge of servitization. Most of the research on B2B services and servitization has been conducted from the perspective of manufacturers. This creates a knowledge gap: What truly drives customer value through servitized offerings? How do manufacturers put customers (not products, services, or technologies) at the center when pursuing customer-centric servitization? The fact that servitization creates value for customers is often implicitly assumed in the extant literature but rarely studied or corroborated through data. Future research should rebalance the existing literature on supplier-focused servitization knowledge by exploring the value of B2B servitized offerings from the customer perspective. For example, little is known about when and under what conditions servitization affects a client firm’s operations (e.g., by improving process efficiency, or enhancing the ability to innovate new products/services) and ultimately its financial performance (e.g., the return on purchasing servitized offerings from a supplier). Examining the value of servitization from the customer’s perspective will help to better understand customer needs and desires. This approach puts customers at the center of interest to pursue customer-centric servitization.
Multi-Actor Alignment
Successful servitization depends on an aligned transformation of a manufacturer, its third-party suppliers, as well as its customers (Forkmann et al., 2017b; Heirati et al., 2023). This transformation therefore affects multiple actors throughout the supply chain. Each of these actors represents an organizational entity that embodies different functional and hierarchical levels and has the potential to contribute significantly to the servitization transformation process. Most of the literature on B2B services and servitization has adopted a monadic perspective to examine servitization, which creates another knowledge gap: How do manufacturers ensure that their customers and third-party suppliers are prepared and aligned to support successful servitization? For example, the lack of customer readiness will lead to resistance to giving a manufacturer access to real-time information about a machine’s performance using IoT sensors and replacing human interactions with automated machine-to-machine interactions. The inconsistent transformation of organizational processes and employee roles at both the manufacturer and the customer can therefore significantly hamper servitization implementation (Forkmann et al., 2017a). Future research should go beyond a monadic perspective, recognize servitization as a relational phenomenon, and embrace a dyadic, triadic, or even network perspective.
Strategizing for Servitization
Considerable effort has been devoted to advancing the understanding of what servitization strategies or servitized business models are or should be (i.e., the content of servitization). For example, current research suggests that manufacturers should develop new capabilities or adapt their organization architecture to pursue servitization (Heirati et al., 2023). However, little is known about process issues: How do firms formulate (and implement) servitization strategies? Who is involved in these decisions? How do different levels of management perceive and respond to the transformation challenge of servitization? To date, there is limited knowledge about what expertise and levels of management seniority should be involved in such strategizing (Zaki et al., 2021). In addition, less attention has been given to how employees perceive the impact of servitization on their daily work and whether they support or resist this change. Furthermore, it is not clear how Chief Marketing Officers (CMOs) can act as a primary catalyst in formulating strategies to ensure that the servitization transformation enables a manufacturer to create customer-centric solutions. Many manufacturers, such as Xerox and Rolls-Royce, have replaced their traditional business model of selling products with subscription or pay-per-hour models. Creating and optimizing such new value capture models is essential for offering differentiated value to customers and ensuring servitization success. Future research should examine how manufacturers formulate and then implement servitization strategies. Additionally, more research is needed to better understand the role of CMOs in formulating consumer-centric servitization strategies.
In conclusion, the landscape of manufacturing and B2B industrial services is changing. By focusing on the key areas outlined above, service research and marketing academics can provide manufacturers with further insights and tools to thrive in the era of servitization.
Nima Heirati
Associate Professor of Marketing – University of Surrey
Stephan Henneberg
Professor of Marketing and Strategy – Queen Mary University of London
Alexander Leischnig
Professor of Business-to-Business Marketing – Technische Universität Bergakademie Freiberg
References
Forkmann, S., Henneberg, S. C., Witell, L., & Kindström, D. (2017a). Driver configurations for successful service infusion. Journal of Service Research, 20(3), 275-291.
Forkmann, S., Ramos, C., Henneberg, S. C., & Naudé, P. (2017b). Understanding the service infusion process as a business model reconfiguration. Industrial Marketing Management, 60, 151-166.
Heirati, N., Leischnig, A., & Henneberg, S. C. (2023). Organization Architecture Configurations for Successful Servitization. Journal of Service Research, DOI: 10946705231180368.
Zaki, M., McLeay, F., Henneberg, S., Heirati, N., & Leischnig, A. (2021). How to Create a Digitalisation Strategy that Works. Cambridge Service Alliance, University of Cambridge.
Image credits: Christopher Burns.
Very insightful. I’m really interested in the evolving role of AI in this transition, specifically their potential impact on enhancing the dynamic capabilities.
As a long-time managerial practicioner in the servitization of the it-industry and later as consultant to manufacturers in their servitization efforts I completely support the diagnosis of the authors and their recommendation to the service research which is particualrly scarce in the field of industrial services i. e. B2B services of manufacturers. Historically manufacturers took care mainly of services which were accompanying the products and where they were obliged to offer and provide them for the sake of customer satisfaction. Due to todays capabilities in digital and smart services their success and particualrly their commercial success depends on different marketing skills and strategies including their whole eco-system. Due to the lack or scarce contents in research these different skills are nearly complete absent in academic education either in engineering or business administration curricula.