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SERVITIZATION IN SME MANUFACTURING FIRMS ─ A ONE-WAY ROAD? Victor Aichaguia, A.Elisabeth Johanssona, Nina Löfbergb and Lars Witellab a Linköping University, SWEDEN b Karlstad University, SWEDEN

Published 2015 in Conference proceedings of QUIS 14: The 14th International Research Symposium on Service Excellence in Management 2015, Shanghai China, pp. 965-968. ISBN: 978-0-692-46156-3 Keywords: Servitization, SMEs, Service-orientation, Product-orientation The importance for manufacturing firms to add services to their offerings has been asserted over and over again (Neu and Brown 2005). Adding services to product sales require manufacturing firms to develop other types of offerings such as maintenance services, hybrid offerings or integrated solutions. This implies using new and often unknown practices to be able to provide services. Previous research has focused on the benefits of servitization (Gebauer, Gustafsson, and Witell 2011), albeit in larger firms. Hence, similar research on Small and Medium sized Enterprises (SME) has been scarce. Furthermore, servitization as a unidirectional transition process can be questioned as researchers argue that manufacturing firms might offer different types of services simultaneously and might not have the intention to take the next step that a transition process suggests (Kowalkowski et al. 2015). Moreover, previous research shows that the step from offering after-sales services and repair to offering more advanced services, e.g. process-related services, is rather big. For those services different mindsets are required within the organization; more advanced services would require a service oriented mindset, whereas after-sales services only requires the firm to have a product oriented mindset (Löfberg 2014). This study aims to fill the aforementioned research gaps by developing a model that describes the servitization process in SMEs using the following steps; (I) Identify, (II) Package, (III) Sell, and (IV) Innovate. So far nine interviews with SME manufacturers have been performed. The interviews made it possible to identify how product- or serviceoriented the manufacturers were and the different activities within each step of the model. Six additional manufacturing SMEs included in an 965

action research project have finished the first step (“Identify”) and have started to work with the second step (“Package”) in the model. Activities of the servitization model Step I: Identify. This part of the model implies that the manufacturing company needs to identify what services it already offers. Oliva and Kallenberg (2003) argued, the first step in the transition process to “consolidate the firm’s existing service offering”. Step II: Package. When bundling services and products a degree of speculation of what customers want in the future is made (Nordin et al. 2011) and a balance between customization and standardization must be decided on. Step III: Sell. Research has shown the selling of services in manufacturing firms to contain obstacles. Both in starting to “sell” services at an early stage by giving it away for free and selling services and products combined as solutions (Ulaga and Loveland 2014). There is no coherent strategy in how to start selling services. Step IV: Innovate. Service innovation is challenging to firms when organized new service development processes are lacking (Löfberg, 2014). Hence new strategies and mindsets, that are different from those traditionally employed for product innovation in manufacturing firms, must be implemented to successfully enable service innovation. We argue that these four steps in the model misses that different types of services require different types of activities and therefore a firm needs to change its mindset. After-sales services can be seen as services supporting the product and are consistent with a product-oriented mindset, advanced services, such as services supporting the customers processes requires a service-oriented mindset (Mathieu 2001). Hence it is easier for a product-oriented firm to identify services closely related to the product. A quote from the CEO of a waste disposal firm exemplifies this well; “We do not offer services, we sell products and our seller works as an advisor but we do it only with the aim of selling the product.” A service-oriented mindset on the other hand enables more advanced services; as the owner of a coating firm puts it; “Depending on what our customer sends us, the question is whether we can do something more with the stuff they send us." Different activities take place depending on whether the firm has a product oriented or service oriented mindset. Therefore, the servitization process of SMEs could be better described as continuously ongoing (see Figure 1) in relation to the mindset of the firm. Activities differ between mindsets but there is no need for manufacturing firms to aim for one mindset or the other per default, 966

instead such choices should be made according to the type of service the firm wants to offer. Although previous research has focused on manufacturers’ possibilities of higher profitability with a service-oriented mindset our study shows that there are benefits for SMEs to be able to change mindsets in both directions. To conclude, the presented model with its four steps and different orientation focus enables a deeper understanding of how SMEs servitize and that servitization in itself is not necessarily synonymous with a trajectory in a single direction.

Figure 1: Firm orientation servitization model (building on Kristensson et al., 2014) REFERENCES Gebauer, H., A. Gustafsson, and L. Witell (2011), “Competitive advantage through service differentiation by manufacturing companies,” Journal of Business Research, 64 (12), 1270–80. Kowalkowski, C., C. Windahl, D. Kindström, and H. Gebauer (2015), “What service transition? Rethinking established assumptions about manufacturers’ service-led growth strategies,” Industrial Marketing Management, 45, 59–69. Kristensson, P., Gustafsson, A. and L. Witell (2014), Tjänsteinnovation, Lund, Studentlitteratur, Sweden. Löfberg, N., (2015), Service Orientation in Manufacturing Firms Understanding Challenges with Service Business Logic, Dissertation no 2014:30, Karlstad University Studies, Sweden. Mathieu, V. (2001), “Product services: from a service supporting the product to a service supporting the client,” Journal of Business & Industrial Marketing, 16 (1), 39–61.

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Neu, W.A. and S.W. Brown (2005), “Forming Successful Business-toBusiness Services in Goods-Dominant Firms,” Journal of Service Research, 8 (1), 3–17. Nordin, F, D. Kindström, C. Kowalkowski, and Jakob Rehme (2011), “The risks of providing services: Differential risk effects of the servicedevelopment strategies of customisation, bundling, and range,” Journal of Service Management, 22 (3), 390–408. Oliva, R. and R. Kallenberg (2003), “Managing the transition from products to services,” International Journal of Service Industry Management, 14 (2), 160–72. Ulaga, W. and J.M. Loveland (2014), “Transitioning from product to service-led growth in manufacturing firms: Emergent challenges in selecting and managing the industrial sales force,” Industrial Marketing Management, 43 (1), 113–25.

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