The Palgrave Handbook of Servitization

The integration of data-enabled services into an ever-increasing number of life aspects exemplifies how digital transformation and servitization are closely intertwined. For manufacturing firms, such digital servitization gives rise to new opportunities for long-term competitive advantage. However, it also poses new challenges and entails tradeoffs among strategic options. In addition, digital servitization changes not only intra-firm processes and customer relationships but also overall ecosystem dynamics. Against this backdrop, this chapter sheds light on the concept of digital servitization by discussing its key characteristics—and how it differs from “conventional” servitization—as well as the major opportunities and challenges for manufacturers. Drawing on an extensive study of a market-leading systems integrator, this chapter discusses the resource integration patterns that connect ecosystem stakeholders and the dual role of technology in increasing pattern complexity and facilitating the coordination of that complexity. To take full advantage of digitalization and go beyond the purely technological benefits, firms need to foster service-centricity and execute strategic change initiatives that are geared toward the internal organization, as well as the wider ecosystem. Furthermore, this chapter examines three strategic organizational shifts that underpin digital servitization: (1) from planning to discovery, (2) from scarcity to abundance, and (3) from hierarchy to partnership. Organizational identity, dematerialization, and collaboration all play key roles in this transformation.

This book chapter conceptualizes a manufacturer’s new identity in a digitally connected world as a socially constructed phenomenon. We acknowledge the possibility of ambiguity in corporate identity among manufacturers’ key stakeholders (personnel, customers, and suppliers) when manufacturers pursue digital servitization strategies. We typologize eight archetypes of identities for a manufacturer providing digitally enabled services and solutions. We suggest that managers should give attention to narratives, organizational culture, processes, resources, and capabilities when pursuing organizational identity change.

That shifting from a product- to a product-service system (PSS) business, manufacturing firms may increase revenues and build competitive advantage. Although this strategic transformation requires revisiting the traditional business model (BM) of a manufacturer, little research tries to develop a scheme of analysis of PSS through a BM perspective. To close this gap, this chapter proposes a typology through which different categories of PSSs are conceptualized based on the BM characteristics. This typology facilitates the formulation of servitization strategies, as it unveils the corresponding features of the BM components.

The identification of business model typologies of servitised firms is part of a long research tradition. However, the relevance of many existing typologies in the contemporary context, in which digitalisation is central to business model innovation, may be questioned. Thus, in this chapter, we revisit the existing literature and continue the conceptual discussion about the categorisation of product-service system business models. We propose a conceptual product-service system business model framework with three independent continuums: the degrees of ownership retention, results-orientedness and smartness. Based on this framework, we derive a new product-service system business model typology with eight categories that extends and bridges previous typologies in significant ways. The proposed framework is intended to serve as a sensitising concept for further research and the implementation of servitisation strategies in practice.

Manufacturing companies are increasingly focused on digitalization and service-led growth to gain new revenue streams and achieve sustainable competitive advantages. In this regard, offering product-service systems (PSS) is proposed as an attractive solution for manufacturing companies to achieve economic, environmental, and social benefits. More specifically, digital technology is used to offer services that integrate provider and customer operations, which increases efficiency, because each party focuses on its core competencies, and operations are optimized. Business model innovation represents a crucial component that may differentiate successful and unsuccessful PSS companies. Implementing digital business models for PSS provisions is a process with numerous challenges that constitutes a major reason why manufacturing companies struggle to increase the service and digitalization degree of their offerings. This chapter suggests that evaluating and understanding tactics, risk management, service network adjustment, and most importantly, alignment of activities are necessary for successful implementation of digital business model innovation for PSS. This chapter contributes to the PSS literature by proposing a four-phase digital business model innovation framework.

Manufacturers commonly introduce new digital services to increase the scope of the value proposition and improve financial performance. Digital technologies like Internet of Things (IoT), Artificial Intelligence (AI) and Big Data are often used to co-create value with customers, which raises the question of what a service business model built on digital technologies should look like. This chapter explores how the use of IoT, AI and Big Data influences business models and service provision.

For three decades, researchers have investigated the transformation from pure product-oriented manufacturers to comprehensive solution providers. However, there is a lack of research for small and medium-sized manufacturers, struggling to estimate the effort required to develop complex industrial solutions. As a result, the limited resources are misallocated. This paper develops a socio-technical taxonomy, which helps classify the portfolio of current and intended industrial product-service offerings. Furthermore, the applicability is demonstrated using examples, and a first correlation between the manufacturers’ portfolios and financial performance is provided.

The current book chapter addresses the result-oriented servitization business models coined in the academic literature as outcome-based contracts or performance-based contracts. Indeed, the given polarization in terms of academic terminology certainly does not serve to decrease the conceptual complexity of these business models. As extant arguments with the pro “outcome” prefix have built on its unambiguousness compared to “performance,” I intend to provide further insights into the debate by offering pragmatics- and syntax-based perspectives on the topic. In this effort, I draw upon a systematic literature review of over 80 top-tier academic journal papers (AJG3, AJG4, and AJG4*). Thus, the current chapter contributes to the concept stream of the outcome-based service (OBS) literature. For managers, the chapter synthesizes research trends, offers an outlook of the eminent research facets that publish on the topic, and provides some contextualized explanations and antecedents of the differences in academic terminology.

This chapter outlines the features of performance measurement systems for value-based selling when pursuing a solution business strategy. We argue for three main features of such performance measurement systems: systemic, customer relationship, and sales outcome performance measurement. Further, we identify that the value-based selling process requires input from strategic performance measurement processes for solution business and that the value-based selling process serves as a data-gathering process for strategic performance measurement. Through the outlined features, this chapter provides a basis for further development and implementation of performance measurement systems in solution business strategy and value-based selling. The main managerial contribution is to provide a basis for evaluating firms’ existing performance measurement systems as part of a solution business strategy, along with recommendations for the first implementation.

Many manufacturing companies are adopting servitization as a competitive business strategy to offer product-service combinations. The ongoing shift to digitalization and Industry 4.0 provides novel opportunities and benefits to industrial firms in this regard, and researchers termed the adoption of digital technologies to servitization as “digital servitization”. In order to successfully transition toward digital servitization, fundamental reconfiguration of resources, organizational structures, work practices, infrastructure, culture, etc. is required. The theory of Dynamic Capability provides an interesting analytical framework for holistically studying such strategic organizational changes and transformation. Hence, this chapter scans prior studies covering dynamic capabilities for servitization and digital servitization with related key enablers for the transition from one to another. The purpose is to identify and compare the dynamic capabilities needed to facilitate a smoother transition from “traditional forms” of servitization to digital servitization. In doing so, this chapter presents a theoretical framework of dynamic capabilities to enable digital servitization, providing 22 micro-foundations for servitization and digital servitization. The framework provides an important step for an enhanced understanding of how digital servitization can be built and nurtured from the currently ongoing servitization in industrial firms.

The literature on servitization-related research lacks theoretical diversity, which calls for frameworks to study digital servitization using different perspectives. As a central contribution, this chapter develops a multilevel framework that explores digitization capabilities by moving the analysis from the firm to the ecosystem level. The framework addresses the relationship between dynamic capabilities at the ecosystem level and the individual firms’ business model innovation when transitioning digital servitization. The discussion includes changes in structures and routines, technological and non-technological innovations, and their impact on business performance. Moreover, the chapter explores how digital capabilities and digitization capabilities can serve as value capture tools to improve business performance. Finally, it elaborates a heuristic proposal that includes tools and practices with managerial implications.

When looking at different types of services (base, intermediate, advanced) that industrial users can source from external suppliers, one observes how these services generate an increasing level of interdependence between users and providers. Consequently, users may ponder whether to make, buy from or network with external suppliers. For that purpose, this paper proposes transaction cost economics as a framework for analyzing the logic behind the governance modes that industrial users can apply when adopting different service types. By assessing base, intermediate and advanced services against asset specificity, level of interaction and uncertainties, insights are provided regarding when to internalize, outsource or go for hybrid solutions around services.

Servitization is an organizational change process. As organizations move from offering base services to advanced services, the relevance of financial changes increases. Against this backdrop, this chapter puts the spotlight on the concept of financialization, as the increasing preponderance of financial motives, markets, actors and institutions in the conduct of business. Accordingly, it argues that outcome-based services can be characterized as complex financial products, which require financial security, routines and know-how to be built-in by the firms offering them due to the uncertainties and risks inherent to these services. Consequently, it reveals four spheres of doing business that may require adjustments when providing outcome-based services, i.e.: accountancy and financial management practices; access to external financial actors and novel financial technologies; development and leveraging of financial management and engineering skills within the firm; and customer or B2B relationship management.

Complex transitions, such as servitization, require in-depth investigation to understand the changes taking place during the transformation. Practice-theoretical perspective can provide an interesting lens to understand the details of the changes taking place. This study presents a specific lens, Schatzki’s practice theory, to understand servitization. This article views servitization through practice emergence, persistence, and dissolution; we zoom in and out to understand servitization practices and discuss servitization-as-practice.

When discussing servitization, the human dimension is often forgotten. Recently, the microfoundations movement is gaining traction in strategy and organization theory. Uncovering the microfoundations of servitization—that is, the influence of individual-level factors on firm-level service decisions, actions and outcomes—may further explain the heterogeneity among firms and their varying degrees of success. It also supports practitioners by unveiling the complex interactions between individual and firm-level components. In this chapter, we consult and summarize prior research about the relationship between servitization and people’s cognitions, motivations, abilities, traits, and behavior. Based on the current literature, we present a conceptual framework as inspiration for future microfoundational research.

Digitalization presents manufacturers with new opportunities for differentiation. Yet, transitioning toward selling technology-enabled advanced solutions remains challenging. By applying an alignment theory lens to extant (digital) servitization literature, we open the black box to factors underwriting digital servitization transition success and/or failure. An alignment framework for digital servitization is developed. Propositions for future research are made.

This essay conceptualizes the role of managerial heuristics when manufacturers undergo service transition. The present conceptual article suggests that managers can learn different heuristics from experiences (e.g., trial-and-error) when transitioning toward services and solutions and discusses one missing element in the existing servitization literature: managerial heuristics and the use of simple rules to manage servitization and facilitate organizational learning (i.e., why, what, and how manufacturers learn when they servitize). This study encourages future studies to more broadly investigate the psychological foundations of the strategic change process in the context of servitization.

This article introduces a narrative network as a method to understand the evolution of smart solutions. The interconnection between social and material in our organizational lives, and the tremendously rapid rise of digital tools, give us a unique possibility to study the entanglement between servitization and digitalization. This paper sheds light on the evolution from product manufacturing towards outcome-based services and from remote diagnostics towards smart solutions in the context of servitizing companies. We intend to discuss these phenomena both from social and material aspects by using narratives to frame the temporal and spatial narrative fragments of the evolution of smart solutions.

The delivery of services creates major disruptive change to a business and involves a change management process at different levels of the service chain, thus really representing a journey for the firm and its partners. Strategically, management teams like the idea of developing service business because customers require after-sales services and margins are generally higher than in the traditional product sales business. But considering moving into service just “a good move” without first understanding the underlying barriers risks failure. This chapter provides a conceptual guideline that supports firms and practitioners to understand the change management aspects of servitization. The guideline is based on conceptual literature, combined with empirical data from a major study based on survey and interview data from 150 firms. It aids middle managers in developing an agile roadmap to allow them to take actions that support their strategic vision around servitization.

This chapter presents a framework that describes employees’ long-term reactions to and suitable management responses for engaging employees in servitization. We review the literature on servitization, organizational behavior, and organizational psychology to identify observable behaviors and reasons for three employee reactions to servitization: (1) support, (2) rejection and voluntary turnover, and (3) resistance. For each reaction, we present management responses that are intended to overcome the barriers to engaging employees in servitization while improving the decision-making behind the organizational transformation. Theoretical implications and practical advice for managers are provided.

A central part of a manufacturer’s transformation to solution selling involves recruiting and training salespersons who enact the critical relational processes of solution selling at the customer interface. Such solution selling involvement by the salespeople plays a key role in ensuring subsequent solution selling performance. However, given that the requirements for solution selling differ drastically from product selling, ensuring salesperson solution selling involvement is a challenging task in a transformation context. Given these difficulties, we suggest that the manufacturer undergoing a solution transformation can choose between two approaches. One alternative is to create a dedicated solution selling salesforce staffed with salespeople who possess the right set of motivations and abilities. The other is to implement a broader transformation program that facilitates the ability of the existing product-centric salesforce to engage in solution selling. It is likely that a dedicated solution salesforce staffed with suitable salespeople precedes a broader salesforce wide transformation.

This conceptual chapter utilizes extant servitization and digitalization theorization and discusses the impact of digital servitization on customization/standardization and customer interaction. The study argues that the transformation toward digital servitization is complex and goes far beyond the technological dimension. The study contributes to the digital servitization literature by demonstrating that industrial services shift from customized and co-created to mainly standardized-provided and informating when they are digitalized. These insights can assist managers of servitized manufacturing firms who wish to utilize digital technologies in their service provision.

To benefit from digitalization, providers and customers are moving away from transactional product-centric models to relational service-oriented engagement. This trend is referred to as digital servitization, and requires providers and customers to transform their relationship to co-create value and maximize benefits. This chapter integrates insights from literature on digitalization and servitization with the theoretical perspective of the relational view, and presents a relational transformation framework for digital servitization. The framework highlights four relational components (complementary digitalization capabilities, relation-specific digital assets, digitally enabled knowledge-sharing routines, and partnership governance) which evolve across three phases of provider–customer relationships (foundational, intermediate, advanced). By providing relational insights into the interdependence of activities throughout the transformation phases, we contribute to the emerging literature on digital servitization, and offer guidance for managers involved in digital servitization initiatives.

Parallel to the evolving literature on servitization, the notion of service-dominant (S-D) logic has evolved as a perspective on marketing. The research fields of servitization and S-D logic have mainly developed separately, even though they are highly relevant to each other. Combining these fields creates a framework that contributes to an improved theoretical basis for servitization. We argue that S-D logic can be seen as a missing link in servitization research and we discuss three implications for theory and practice; (1) a definition of servitization, (2) a foundational service business logic to guide servitization, and (3) a holistic view of servitization.

This book chapter describes a conceptual framework that can support the identification of value co-creation within the context of digitally-enabled Product-Service Systems (PSS). The framework was developed based on the understanding of how and where value co-creation takes place along the first two phases of the product lifecycle. It does this by understanding how and where co-creation occurs, and it also considers the translation of data into information that can become knowledge within the context of the digitally-enabled PSS. The framework glues the different aspects together with an underlying orchestration and governance that focusses on supporting value co-creation based on the integration of information with data. The starting assumption is that the framework could be applied to existing PSS with their underlying value propositions and business models.

This chapter addresses gaps in the literature about service innovation for servitization by developing a framework of service innovation activities across three dimensions. This research framework provides a basis for theory development since it enables the relationships between key concepts in the field to be articulated and classified. The framework proposed offers a mechanism for both classifying innovation efforts and developing an understanding of the interlinkages between the dimensions explored. It highlights that servitization efforts involve a balance of developing the right incremental and radical services; which match with the firm-level service strategy (from product-centric, through hybrid to service-centric); and that decisions should be seen in the context of the multiple levels that servitization operates at (micro—individual projects; meso—service offering portfolios and business models; and macro—industry-wide ecosystem elements and beyond). In articulating potential interactions between three key service innovation dimensions, the framework offers a systematic research agenda for servitization researchers, that provides a foundation for exploring how these factors and their interactions affect the service innovation–performance relationship.

This chapter proposes an innovative reading of servitization which takes into account the heterogeneity of its definitions, objectives and related servitized value propositions. We explain how to operate a configurational approach to servitization, which aligns service strategies with digitalization capabilities and customer resources. Considering a multiplicity of situations and paths to success allows us to consider more than one way to overcome the digital service paradox. From a managerial perspective, we help manufacturing companies to implement servitization by proposing an integrative framework based on the configurational approach of servitization: we put forward different combinations of service strategies, digital capabilities and customer resources.

When moving towards digitally enabled advanced services firms are faced with the challenge of servicing heterogeneous customer requirements that emerge during product use. Whereas offers may have been designed with fixed functionality and a focus on stable outcomes, in the advanced service environment providers must respond to a variety of demands emergent from multiple contexts of use. Using a case example from healthcare, this chapter illustrates that adopting a modular systems approach to a firm’s offer enhances its ability to meet customers’ heterogeneous requirements in use. The chapter shows that through the application of modularity, in combination with digital and material technology, products can have the flexibility to absorb variety in use. Modularity and digitisation permit the binding of form and function to be postponed until requirements emerge in use, allowing the organisation to quickly tailor the offering to emergent demand.

Research and empirical evidence indicates that servitization changes the traditional manufacturing supply chain. Firms engaged in servitization must integrate with a network of actors ranging from component suppliers to intermediaries to customers. To develop a comprehensive picture of supply chain integration in the servitization context, this chapter proposes a service integration framework that explains the integration of supply chain partners to enable integrating service business in the firm’s existing value chain. The framework explores supply chain integration by distinguishing the supply chain dimensions (i.e. internal, supplier and customer integration), levels (i.e. operational and strategic integration), modes (i.e. resource and information sharing) and integration needs in relation to the type of services (i.e. basic services and advanced services).

Depending on the nature of the specific service offering and the industrial context, organizational structures of service provision (and receiving) differ. Structures include relatively simply service dyad set-ups, where buyer and supplier engage directly through provision and modification of materials, equipment, knowledge and expertise. In contrast, service triads increase complexity as operations of service provision are outsourced to an external supplier, changing the dynamics and interactions between the partners. Furthermore, service networks between a number of suppliers, an integrator and a customer create a dynamic, multifaceted landscape of interactions and operational exchanges. This chapter presents an overview of the opportunities, challenges and performance factors in service dyads, service triads and service networks based on the literature in the field. The aim is to offer a structured overview of the organizational structures found in service provision in the context of servitization.

Organizational structure appears as one of the major challenges in the servitization of manufacturing firms. Decisions about organizational structure are closely linked to those concerning strategy, and manufacturers need to decide whether to integrate or separate product and service business units. However, there is no consensus and the literature on servitization still does not provide a clear answer on the question of the separation or integration of service and product activities. In order to help alleviate the current stalemate, this chapter calls for a new direction in research on organizational structures in servitization, especially regarding its epistemological foundations. It first proceeds to a review of the “to separate or integrate” debate, then suggests some avenues for studying organizational structures in servitization within alternative and multiple epistemological paradigms.

Servitization has received increasing attention in the extant literature, yet the understanding of its implications for the service supply network is not as well developed. Servitizing firms are often beholden to external partner organizations for delivering services. To understand the service supply network perspective, we adopt the motivation-opportunity-ability (MOA) framework to examine how partner organizations need to be motivated to behave in a way that is congruent with the goals of the focal firm, which requires the focal firm to provide the opportunity and ability for service partners to deliver. We discuss the need for coordination and alignment among the different actors in a service supply network and how changes to one actor’s MOA is likely to impinge on others in the network.