The 21 st Century Manufacturer: : The Role of Smart Products in the Transition from a Product to a Service Based Focus in Manufacturing Industries

Abstract: Background: Service industries have grown extensively over the past few decades on the back of globalized business trends. With increasing competition, product firms are struggling on product sales alone. Hence, both products and services are being bundled into what is known as offerings. Moreover, firms are looking into how they can improve their offerings to meet customer needs with the help of smart products. Smart products are described as products able to communicate and interact with other electronic devices as well as being self aware. One of these examples is conditional monitoring whereby the product is houses built in sensors to communicate with a back end ERP system providing the supplier a transparent view and real-time update into the status and service needs for both the product and customer. Purpose: The aim of this thesis is to explore how smart products can help leverage services for product firms moving towards a service focus. Method: In addressing the purpose a case study strategy was applied. An inductive approach was used, and interviews were conducted with two Swedish manufacturers, SKF and Atlas Copco. SAP, a software provider was also interviewed. Lastly, a qualitative approach was used and secondary data was collected through annual reports, as well as public company information. Conclusions: Smart products show the capability of being able to record, transmit and act upon their behavior and usage. One major finding from the thesis is that smart products enable product firms to extend their service portfolios from a transactional to a relational standpoint through real time information feeds. This includes asset maintenance as well as monitoring and visibility into client operations. In addition, traditional product firms help product firm’s move towards a service strategy. Another finding of the thesis is that information visibility shows a positive co-relation with the service provider’s ability to take on more risk increasing service revenues and customer lock in and increase value co-creation. On the other hand smart products show to be challenging to product firms new to service development. These challenges include increasing initial infrastructure costs and high level of maintenance and complexity of the smart products.