ServiceFriday: Servitization Makes Dance Partners of Suppliers and Customers

Companies such as equipment providers have added services to their product offerings, responding to increased competition and changing customer expectations. In many cases, revenues realized from services now exceed revenues derived from products, and firms have new understanding of how to fulfill customers’ needs. The result is a new way of doing business where the old sell-and-deliver relationship between suppliers and customers becomes something more like a dance.

But the process for moving from a product to a service focus is complex and not always well-understood. Researchers at the WMG Service Systems Research Group at the University of Warwick saw this as a gap in operations research. Their report, “Servitization and Operations Management: A Service-Dominant (S-D) Logic Approach,” looks at the operational implications of the transition from products to service.

The transformation involves a shift in orientation. In a goods-focused mindset, value is created in the production and transfer of goods and service. A customer-focus orientation sees that the value most important to the customer is not a tangible product or service activity, but rather the outcomes. From this perspective, supplier and customer become partners in activities that produce the desired outcome.   

The team tested its ideas using the case method. They chose a prominent UK original equipment manufacturer (OEM) that supplies durable capital equipment to a world market. As the company added services to its offerings, it discovered that in order to achieve the results the customer desires, its processes by necessity involved the participation of customers. In other words, the value most important to the customer (uninterrupted use of the machinery) was co-created in activities shared by the customer and the OEM provider.

For example, after adopting capability contracts where payment is based on the customers use of an asset, the OEM had to anticipate and head off possible breakdowns. That created a need for a deeper understanding of the environment in which the customer operates.

“Taking an S-D logic approach, this paper considers the value propositions not according to ‵product’ or ‵service’ but in terms of how resources (both material and human) are optimally configured within the value propositions to co-create value with the customer. Our findings suggest an alternative approach towards ‵servitization’, as value propositions are manifestly interdependent.”

This creates new levels or organizational complexity for firms.

The full report is available on Emerald Insight at https://bit.ly/2XgNUoN (A fee may apply.)