CHALLENGES TO OVERCOME IN THE SERVICE JOURNEY

Abstract: Background: During the last few years, the manufacturing industry has experienced a multitude of disruptions. One major strategic shift that is occurring across industries today is the implementation of services or “servitization”. Servitization is defined as the movement where firms are changing from the traditional way of thinking, where a firm can only be a service or product provider, to a firm that has integrated packages of products and services as a system. Manufacturing firms need to move into the service area to survive going forward. The products in the traditional manufacturing industry have become more connected, forcing the firms to provide services. It is essential to have the technology in place, but the critical issue for companies seems to be that firms fail to change their strategy, not technology. Companies need to have a clear transition strategy of becoming more service-focused, and firms will need to rethink the business model in this transition. Purpose: The purpose of this research is to create an understanding of the challenges that traditional manufacturing firms go through in the transition to servitization and to understand what requirements this transition is demanding on the manufacturing firms. Research Question: How can incumbent manufacturing firms transform their current business model to a more service-focused business model? Literature: The literature framework depicts the steps that need to be taken for an incumbent manufacturing firm to become more service focused and avoid the service paradox. The service paradox is when firms are investing in developing service offerings, which leads to higher costs but not generating relatively higher returns. It is vital to transform factors such as leadership, change to service culture (norms and values), and change to a service strategy to reach the full potential of servitization. Incumbent manufacturing firms must also make changes to the business model, which include value discovery, value creation, value delivery, and value capture. Business Model Canvas and Business Model Innovation are key tools use to help companies in the servitization transformation. Methodology: A qualitative research strategy was chosen along with an abductive approach. A combination of comparative design and case study design was selected to depict the study best. The comparative design was completed by comparing the business models of five different companies in both the manufacturing and service industries. The framework from the literature and comparative study was then used in the case study to analyze an incumbent manufacturing firm going through a transition phase of becoming more service focused. A case design (case study) is where the developed framework from the comparative design is tested with a case company. Comparative Study: Six main themes were identified after interviewing the companies from the comparative study. The first theme is transformation demand, meaning that firms have different motivations or agendas to transform into a more service-focused business. The second theme is related to the defined enabling factors, which consist of culture, leadership, and strategy. The last four themes are related to business model innovation, how firms discover, create, deliver, and capture value. The analytical framework from the literature review is further developed with the collected results from the comparative study. Case Study: The results from the case study were gathered from multiple managers from different departments in the case company. The results were examined with help from the analytical framework from the comparative study. Recommendations on how the company should move forward in the servitization transformation were then presented. Conclusion: The challenge with becoming more service-focused is the potential to fall into the service paradox, meaning that when firms are investing in developing service offerings it can lead to higher costs but not generating relatively higher returns. The main challenges related to this are the changes in the soft values, such as culture, leadership, and strategy. Our research concludes that a traditional manufacturing firm needs to reconsider the leadership, culture, and strategy and the firm’s business model to become service focused.