The strategic transition to services: a dominant logic perspective and its implications for operations

The recent transformation of industry, characterised by saturated and commoditised global environments and where companies strive to attract and retain customers, has pushed manufacturing organisations to rethink their traditional dominant logic based on the provision of artefacts. Research and anecdotal cases have shown that competing on the basis of product-delivery strategies has its limits, whereby companies’ continuous race towards the market proposition of advanced technological and functional features into a product could translate into the value destruction of their own business (Gebauer and Friedli 2005; Oliva and Kallenberg 2003). On the contrary, the development of differentiation strategies rooted in the product–service paradigm may represent a key element for competitive advantage (Brax and Jonsson 2009; Matthyssens and Vandenbempt 2008). It is recognised that over one-third of large manufacturing firms offer services (Visnjic Kastalli, Van Looy, and Neely 2013). The success stories of General Electric, IBM, Rolls Royce Aerospace, Siemens and Xerox are just some of the popular examples of how competing on the basis of a service-based business model allows for prosperity in markets affected by weak demand, hard competition and decreasing margins (Quinn, Doorley, and Paquette 1990; Reinartz and Ulaga 2008; Spring and Araujo 2009). The growing importance of services in manufacturing has been underlined by a noticeable upsurge in studies on a phenomenon, widely acknowledged with the term of servitisation of manufacturing, which has been characterising the scientific and managerial literature since its first appearance in 1988 (Vandermerwe and Rada 1988). Different schools of thought, related to a multitude of disciplines, have sought to explore the variegated angles and facets of the phenomenon, often adopting various geneses, motivations, and cultural and methodological approaches. After 25 years, the research communities have been converging around a common understanding: in essence, it is a transformational journey, which commits industrial organisations to move along a continuum, from the provision of products and artefacts, through the proposition of product–service solutions, to a change in their structural and infrastructural capabilities and decisionmaking processes. Despite the economic (Cohen, Agrawal, and Agrawal 2006; Wise and Baumgartner 1999), financial (Brax 2005; Neely 2009), strategic (Gebauer, Fleisch, and Friedli 2005; Oliva and Kallenberg 2003) and marketing benefits (Corra et al. 2007; Gebauer and Fleisch 2007) of servitisation, the literature has underlined that most firms find it extremely difficult to provide services effectively (Spring and Araujo 2009). As revealed by surveys, servitisation often means higher investment costs and a greater risk of failure and bankruptcy, due to companies’ incapability to boost the sovereignty of services and develop the same awareness towards service with their partners and customers (Gebauer, Fleisch, and Friedli 2005). This involves the inability to transform service-based interactions into resource-efficacy or cost-efficiency (Håkansson and Waluszewski 2002, 2007). Several studies demonstrate how firms cannot merely add services to their original goods-dominated offerings to evolve into well servitised organisations (Cavalieri and Pezzotta 2012; Gaiardelli et al. 2014; Martinez et al. 2010). There is still a debate over whether an effective servitisation journey would require a radical and abrupt change in the way organisations think about their operations and value delivery. For instance, the effect of selling outcome-based services such as the miles per gallon from MAN Trucks and Busses Ltd or the EffiFuel service provided by Michelin, as opposed to selling products such as trucks or tyres, radically changes the way in which industrial firms operate (Martinez et al. 2011). It forces organisations to learn about new operations and strategies, such as service contracts, pricing, selling, asset management and risk sharing, in order to propose the promised service: value and experience to customers. However, as much as the service dominant logic (SDL) foundational premises shape the understanding of a service offering and its market implications (Vargo and Lusch 2004, 2008), they lack the strategic, functional and tactical directions for organisations to apply. The organisational changes and adaptation encapsulated in servitisation, the action of transformation to services, still appear to be an unexplored topic. Most of the existing studies still dwell on a static and spotted perspective, where the suggested organisation and business models are functional in order to respond to the need and