Strategic Options for Service Transformation Executive seminar: Service Transformation Strategies for Manufacturing Companies 30.8.2012 Anna Salonen Researcher Aalto University School of Business Department of Management and International Business [email protected]

What is a service transformation? A shift on the product service continuum towards greater service intensity Target position

Relative importance of tangible goods

• What do you offer today?

Relative importance of services

• Why do you want to expand your service offering? • What position should you occupy on the change line? • How should the change take place? • What are the most challenging change aspects?

Tangible goods as add-ons

Services as add-ons

Current position

• Why don’t you want to go even futher?

Source: adapted from Oliva and Kallenberg (2003)

Service based offerings

Basic services in support of the supplier’s product e.g product installation, maintenance, and repair

Basis for offering customer solutions

Ad-hoc reactive services •

Services offered to sell more products

Maintenance contracts •

•

Integration services

Services a distinct • business opportunity Better capacity • utilization of service infrastructure

Operational services

• Enhances competitiveness of the product based business • Bridge towards advanced services •

Consulting services

Helps to grow • service business further Can be accompanied with performance guarantees Supplier can retain ownership of equipment resulting in ”pay for use”

Can be sold on standalone basis, but often included as part of total solution

Advanced services in support of the client’s action e.g process oriented training or consulting

What is a solution? •

•

Definitions context-dependent and vary depending on the scope of the offering, the type of elements integrated, or type of industries studied (Lay, Schroeter, and Biege, 2009) Best to draw on a process-oriented view – longitudinal, relational processes that comprise the definition of customer requirements, the integration and customization of solution elements, the deployment of these elements into the customer’s process, and various forms of customer support after the delivery of the solution (Storbacka, 2011; Tuli, Kohli, & Bharadwaj, 2007).

Key solution ”themes” • •

Analysis of 52 multinational enterprises (mostly HQ in Finland, Netherlands, and Sweden), 216 in-depth interviews, 15 one-day workshops involving 151 managers 4 key themes that capture changes in provider’s business model – Customer embeddedness: they target selected customers and become embedded in their situations and processes – Offering integratedness: they integrate technical, business, and system elements, and as a result, aim at changing the earnings logic – Operational adaptiveness: in order to flexibly adapt to customers’ processes, they apply modular thinking – Organizational networkedness: they orchestrate a network of actors around the selected customers.

Storbacka, Windahl, Salonen, Nenonen (2012)

Final remarks • • •

Installed base industries attractive for building product related services, many firms extremely successful in building basic product related services Shift to services in support of the client’s process (i.e solution business) a significant departure (organizational mindset, capabilities, structure etc) and many struggle Struggle towards advanced services a useful one as it helps to reorient the firm’s value creation efforts from a goods to a service dominant logic (products/technologies enable rather than create value)

Additional reading •

• •

Fischer, T., Gebauer, H., Fleisch, E. (2012). Service Business Development, Strategies for Value Creation in Manufacturing Firms. Cambridge: Cambridge University Press. Salonen, Anna (2011). Service Transition Strategies of Industrial Manufacturers. Industrial Marketing Management, 40(5): 683-690. Salonen, Anna; Gabrielsson, Mika; and Al-Obaidi, Zuhair (2006). Systems Sales as a Competitive Response to the Asian Challenge: Case of a Global Ship Power Supplier. Industrial Marketing Management, 35(6), pp.740-750

And a warm welcome: Thesis defense: Essays on globalization and evolving competitive strategies of Finnish MNEs: transitioning from products to services and solutions. Fri, 2.11 2012 at 12, Chydenia Building, Stora Enso Hall.

References • • • •

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Lay, G., Schroeter, M., & Biege, S. (2009). Service-based business concepts: A typology for business-tobusiness markets. European Management Journal, 27, 442-455. Rogelio O. and Kallenberg, R (2003). Managing the transition from products to services, International Journal of Service Industry Management, 14(2):160-172. Storbacka, K. (2011). A solution business model: capabilities and management practices for integrated solutions. Industrial Marketing Management, 40(5), 699-711. Storbacka, K., Windahl, C., Salonen, A., and Nenonen, S. (2012). A Solution business model: comparison across business contexts. Presentation at the American Marketing Association SERVSIG International Service Research Conference, Hanken School of Economics, Helsinki, Finland, 7-9.6.2012. Tuli, K.R., Kohli, A.K., & Bharadwaj, S.G. (2007). Rethinking customer solutions: from product bundles to relational processes. Journal of Marketing, 71(3), 1–17.