The service marketing literature is full of examples about servitization of products. How companies like Rolls Royce, KONE, IBM and many others have turned the game around by servitizing the traditional product oriented business. The literature has been evolving from product-related services to service orientation and new services development as areas of exploration for manufacturers. Recently the literature has been questioning why companies are servitizing and what are the benefits and related problems related to this shift (Turunen 2013).
Taija Turunen from Aalto University found a gap in the operational implications of this phenomenon: How to actually make such transformation? Turunen’s doctoral dissertation examines and explains the process of servitization, the organizational structure characteristics assisting transformation and the operational premises allowing this revolution, like the author strongly describes the organizational change, needed in order to succeed.
The thesis explores organization’s journey from product centric business towards service orientation and servitizing. Turunen’s study is based on wide literature review together with 8 case studies and 95 interviews. Turunen defines servitizing as the transformation process of product companies towards services, including service aspects to the product. In the literature review Turunen shows the evolution of literature related to servitization from 1988 all the way to day. Thesis draws the background with literature review exploring the provider benefits associated with servitization and the market orientation as a driver for servitization. Turunen then continues discussing the challenges associated with servitization: The different logic between products and services, transforming company to service culture, service development and innovation, managing service operations, building a service strategy, and understanding the customer interface. Based on Turunen these are all factors that are yet unfamiliar to fully product oriented manufacturing firms. Turunen does not claim that much this kind of companies exists but wants to describe the contrast between the two extreme ends. Ford’s legendary T-Ford car works as an example for the extreme behavior of manufacturing firm: The whole design was based on the goal of not needing any after-sales services. The car was made so simple that any farmer could fix it with their own tools. Manufacturer had no interest about the usage of the product. This aspect of behavior has later brought challenges to the manufacturers who have tried to move towards servitization. They have had no record about their products: who bought the product, where the product is now, how the product is used, etc.? They did not have the interest before to collect this data.
Based on the wide literature review Turunen builds up a diagram illustrating the evolution of the service offerings in manufacturing firms: From offering pure products to offering the outcome – from cars to movement.
The listed challenges reveal the linkage of servitizing and service innovation, Turunen argues, pointing out that these companies have not been in service field before. But how does this servitization then happen? Based on Turunen servitization is moving from transactions to relationships. Relationships have always been, but in the context of servitization the relationships are deeper than before – you need the deeper relationship to provide the services that provide additional value for the customer. In his dissertation Turunen recognizes three different change patterns from the literature and current practice: Traditional, partial and reversed servitization. In traditional step-wise change the servitization usually starts from providing simple after sales services like repairs or maintenance. Through longer relationships and gaining understanding to the customer’s challenges the company increases the services in stages towards more advanced services. Sometimes it can be wise to servicize only partly. Company can make a strategic selection to keep the manufacturing clearly the main business for example to bring security and ground, but presents services only in selected business or focus areas. In the reversed servitization the company starts its services from advanced (consultancy type) service offerings and only thereafter moves toward basic (repair and maintenance) services.
No matter the servitization process or level of servitization, Turunen argues that product design needs to be linked to the service process. If providing better service needs changes in the actual product, it should be able to do so. This brings some guidelines to the organizing of operations. The goals of separate production are not necessarily in line with the goals of e.g. after sales services. For example producing cheaper product can mean decisions to make the after sales process actually harder. On the other hand making it easier to repair the product can mean more expenses in production. Only through management of the whole can the process work. Turunen’s opponent professor Tim Baines from Aston Business School (UK) made a good question if services should then be kept “in-house”, as well as the manufacturing. Turunen replied and recognized the main challenge 3rd party service partner brings: monitoring the soft side of the service process. Partnering is of course option but should be done with deep relationships where the motivation for good customer service is mutual. Based on Turunen servitized organization is close to customer and it supports interaction between teams and people. Servitized organization is often spread around like network and its relationships go beyond its own organization. The key is to have the customer input in the process. These characteristics put some requirements to the employees. In servitized organization the employees are interested on the customer. They are the advocates of the company to the customer – people who the company can show to the customer, who can come along with the customer. Turunen is engineer herself and shows some self-irony when stating that servitization is a matter of the whole organization, not only engineers, but changing the mindset of the engineers can be the key to success.
Turunen points out that there are alternative ways to organize, however the customer information seems to play a key role when planning organizational structure and design. Turunen also notice that different industries seem to servitize in different ways. The organizational environment can partly determine how manufacturers in one industry servitize. Based on Turunen these effects coming from an environment seem to be population density, competing populations, resource dependency, institutional linkages, technology, and political forces.
One interesting aspect of the thesis study is the selected methodology. Turunen uses so called grounded theory methodology (Glaser and Strauss). Grounded theory approach aims on building theories, rather than verifying them. In practice this means that Turunen went to the case studies first and formed the research questions during the process. Turunen defends her dissertation and thoroughly rationalizes the selected methodology leaving no space for arguments except the conflict between the selected methodology and how the dissertation report itself is structured. Turunen’s opponent professor Baines challenged her on writing the thesis in a form of traditional scientific study by presenting the research problem and questions in the very beginning of the thesis; even they were actually formed during the empirical research. In her counterargument Turunen shortly answered that she actually had originally structured the thesis report more in line with the actual progress of the study, but was advised by the supervisors to re-structure the report to the dominant academic structure.
I found a linkage between Turunen’s study approach and the service design approach. Service design and innovation is all about understanding the customer and building value to the customer. In practice this means taking the case study first to find out the directions for the development. It was nice to see that even on the highest academics level there can be a practical approach. Instead of finding the theoretical gaps from the existing knowledge Turunen selected to go and study first the existing challenges in practice. Turunen then searched if the literature already had answers to the questions. With this approach Turunen found the gaps from the existing knowledge and could re-direct her study to contribute in filling those gaps.
Professor Baines further questioned if the actual contribution of the dissertation is actually forming the research questions instead of verifying them. Turunen admits that the population of cases could have been bigger in order to really prove the results but argues that the study has been deep and solid enough to provide important information to the academic field: The findings about the three operational applications of servitization and presenting the concept of reversed servitization. On the other hand she confirmed Baines’s argument by stating that isn’t it one of the roles of science to ask these questions?
Forming a service organization is an innovation and R&D investment and successful servitization can bring benefits like new revenue streams. Turunen’s doctoral dissertation explores how manufacturing firms are servitizing and what an organization need to do to be successful in servitizing their operations. Worth looking in to.
Turunen, T. 2013. Organizing Service Operations in Manufacturing. Aalto University publication series, Doctoral dissertations 4/2013.
Permanent link: http://urn.fi/URN:ISBN:978-952-60-4962-5
Text by: Mikko Sirenne, SID Master’s student