Servitization strategy and financial performance of manufacturing SMEs: a necessary alignment
between the service concept and the operational service system
Laure AMBROISEa, Sophie PEILLONb, Isabelle PRIM-ALLAZc1, Christine TEYSSIERd
a
COACTIS (EA 4161), Université de Lyon/St-Etienne, 6 rue Basses des Rives, 42 023 St Etienne Cx,
FRANCE. [email protected]
b
COACTIS (EA 4161), Ecole des Mines de Saint-Etienne, Institut Henri Fayol, 158 cours Fauriel, 42023
Saint-Etienne, France. [email protected]
c
COACTIS (EA 4161), Université de Lyon/Lyon 2, ISH, 14-16 avenue Berthelot, 69007 Lyon.
[email protected],
d
COACTIS (EA 4161), Université de Lyon/St-Etienne, 6 rue Basses des Rives, 42 023 St Etienne Cx,
FRANCE. [email protected]
1
Corresponding author, +33 6 68 96 65 17
Abstract
This paper aims to investigate the relationship between servitization strategies and firms’ financial
performances. We postulate that it is the right alignment between the firm’s operational service system and
the type of service strategy (viewed as the service concept implemented) that is likely to increase the firm’s
overall profitability. We built a research model testing the impact of the type of service concept on the
relationship between the firm’s operational service system and its financial performance. Globally, the
more developed the service concept, the stronger the positive relationship between the dimensions of the
operational service system and the firm’s financial performance indicators. The model is tested on data
gathered from a survey conducted in face-to-face interviews with CEOs of 184 French manufacturing
SMEs offering services, and it is completed with financial indicators. Results indicate that to perform, firms
must focus on different operational service dimensions according to the service concept implemented.
While this is not relevant for a company proposing an added services-based strategy to invest in a complex
operational service system, firms adopting a reconfiguration-based service strategy should focus on the
service delivery system as firms offering PSS must develop a high level of service culture.
Keywords: Servitization; Service Concept; Financial Performance; Operational Service System
Acknowledgments
The authors thank the French Research Agency ANR for its grants to the ServInnov project as well as the
research center Coactis and the Rhône Alpes District for accessing the data needed for this study.
Servitization strategy and financial performance of manufacturing SMEs: a necessary alignment
between the service concept and the operational service system
Abstract
This paper aims to investigate the relationship between servitization strategies and firms’ financial
performances. We postulate that it is the right alignment between the firm’s operational service system and
the type of service strategy (viewed as the service concept implemented) that is likely to increase the firm’s
overall profitability. We built a research model testing the impact of the type of service concept on the
relationship between the firm’s operational service system and its financial performance. Globally, the
more developed the service concept, the stronger the positive relationship between the dimensions of the
operational service system and the firm’s financial performance indicators. The model is tested on data
gathered from a survey conducted in face-to-face interviews with CEOs of 184 French manufacturing
SMEs offering services, and it is completed with financial indicators. Results indicate that to perform, firms
must focus on different operational service dimensions according to the service concept implemented.
While this is not relevant for a company proposing an added services-based strategy to invest in a complex
operational service system, firms adopting a reconfiguration-based service strategy should focus on the
service delivery system as firms offering PSS must develop a high level of service culture.
Keywords: Servitization; Service Concept; Financial Performance; Operational Service System.
1. Introduction
While there is a growing literature on servitization, financial consequences of this strategy
have been little studied and only recent research is beginning to address the question more
systematically (Eggert et al., 2014; Visnjic and Van Looy, 2013; Gebauer et al., 2012b;
Evanschitzky et al., 2011; Cova and Salle, 2007). An implicit positive relationship is often
postulated between servitization and financial performance of the firm, but empirical results
are far from convergent. The “service paradox” concept postulates that substantial
investments in extending the service business lead to increased service offerings and higher
costs but do not generate the expected corresponding higher returns (Gebauer et al., 2005).
The reallocation of financial and managerial resources previously dedicated to the
development of products is not easy, and its consequences are difficult to predict. Neely
(2008) observes that in servitized firms, the cost of employment, the working capital and the
total asset per employee are higher than they are in other types of firms. The author (Neely)
also demonstrates that the failure rate is higher for servitized firms. These mitigated results
call for a better understanding of ways in which manufacturing companies can develop
successful servitization strategies and overcome hidden risks (Ostrom et al. 2015) while
continuing to benefiting from services (Gebauer et al., 2012a).
In this paper, we consider firms’ servitization strategies based on three types of service
concepts - added services, reconfiguration and PSS. We postulate that an adequate alignment
between the firm’s operational service system and the type of servitization strategy will likely
increase the firm’s overall profitability (Evanschitzky et al., 2011; Johansson and Olhager,
2004). A research model aimed to test the relationship among the type of service concepts, the
firm’s operational service dimensions and the firm’s financial performance is developed.
The remainder of this article is as follows. Section 2 defines the conceptual framework we use
to analyze servitization strategies, and section 3 stresses the main results stemming from
current literature on the relationship between servitization and financial performance of the
firm. It also includes the conceptual model. The research methodology is proposed in section
4, and the article continues with the presentation of results in section 5. The paper concludes
with a discussion of the theoretical and managerial implications in section 6.
2. Servitization strategies: service concept and operational service system
2.1. Service concept and service strategies
Through the servitization concept, Vandermerwe and Rada (1989) establish the idea that there
exists a continuum from the manufacturing company – the producer of goods – to the service
company – the producer of pure services. They further posit that this continuum includes
different intermediate forms of product-service bundles. In today’s business environment, this
continuum (Fig. 1) is the basis for most service strategy classifications, and thus, it underpins
the notion of an increased implication of responsibility with respect to the provider within the
customer value chain (Gebauer et al., 2010b).
Figure 1: Service strategies adapted from Gebauer et al. (2010)
Irrespective of the servitization field, the operations management literature has put forward
the “product-service system” (PSS) concept. This concept is clearly in line with sustainability
concerns (Mont, 2002) as the underlying aim is to go beyond integrated product-service
offerings by promoting function-oriented business models where the product itself is no
longer sold, but rather, only the use of the product is sold. In other words, the provider keeps
the product ownership and makes it available to the customer through different strategies or
devices (e.g., leasing, renting, sharing or pooling).
With respect to Baines et al. (2007), the concept of a Product-Service System - PSS - is a
special case of servitization. A PSS can be thought of as a market proposition that extends the
traditional functionality of a product where the emphasis is on the “sale of use” rather than on
the “sale of product”. The customer pays for using an asset rather than paying to purchase the
asset, and thus benefits from a restructuring of the risks, responsibilities and costs traditionally
associated with ownership. Thus, Tukker’s categorization (Tukker, 2004) complements the
product-service continuum, and places emphasis on the transition from a service offer
associated with a core product to an offer where there is no transfer of property rights (Fig. 2).
Figure 2: Service strategies adapted from Tukker (2004)
In this study, we bring together Gebauer and Tukker’s continuum and consider that a
manufacturing company can build its servitization strategy upon three types of service
concepts (Fig. 3). We then distinguish two stages between pure goods and PSS, as suggested
by Evanschitzky et al. (2011).
 The added services type corresponds to a product-oriented offer and incorporates Gebauer’s
customer service strategy (Gebauer et al., 2010b), after-sales service and customer support
service provider;
 The reconfiguration type includes services related to a product that is sold to the customer,
but it results in a modification within the customer activity chain, i.e., involves an outsourcing
partner and a development partner, as in Gebauer’s categorization (Gebauer et al., 2010b);

The PSS type of service concept requires both a use-oriented PSS and a result-oriented
PSS, as in Tukker’s typology (Tukker, 2004), which includes a non-transfer of underlying
product property rights.
Combined products-services proposals
After-sales Activities
proposed to client
Sale of supplement
Services to enhance
product proposals
After-sales Providers
Customer Service
Support Provider
Customer Service
Provider
Added services
Pure service proposals
Assume some of
customers’ activities
Use-oriented PSS
or Result-oriented PSS
Outsourcing Partner
No transfer
of property rights
Development Partner
Reconfiguration
Figure 3: Service concept (SC) strategies
Product Service
System
Hence, we suggest distinguishing service strategies depending on the type of service concept
chosen by the manufacturing company. This choice reflects the degree of the provider
involvement within the customer activity chain. Consistent with the continuum proposition,
the service concept also refers to the maturity level of the manufacturing firm regarding the
servitization process.
2.2. The operational service system in a servitization context
According to Baines and Lightfoot (2011, p.107), “servitization is now widely recognized as
the innovation of a manufacturer’s capabilities and processes to move from selling products,
to selling integrated product-service offerings that deliver value in use”. Den Hertog’s widely
recognized model conceptualizes service innovation as a change in at least one of the
following dimensions (Baines and Lightfoot, 2011): service concept, customer interface and
service delivery/realization system. These last two dimensions are at the heart of the
operational service system and involve several elements.
The customer interface is both an interactive process of information and knowledge exchange
and a cooperation process between service provider and customer, and as such, they are a
required aspect of the service delivery (Baines and Lightfoot, 2011; Gadrey and Gallouj,
1998). The customer interface requires a more or less complex organization (Gadrey and
Gallouj, 1998) as well as a transition from a transactional to a relational logic (Grönroos,
1990).
The service delivery/realization system addresses the question of “how” the service concept is
delivered to target customers, and it requires that the design needs be aligned with the service
concept. Roth and Menor’s architecture (2003), which is the most recognized model for the
design of a service delivery system, consists of three elements: These elements include (i)
structural decisions regarding physical aspects of the delivery system; (ii) infrastructural
decisions related to the management of the service delivery system; and (iii) integration
decisions covering all organizational mechanisms needed to perform services and link the
service provider with the customer.
Moreover, servitization influences corporate culture and involves human resource
management issues (Gebauer et al., 2010a; Gebauer et al., 2005; Homburg et al., 2002). Den
Hertog and de Jong (2007) emphasize the need for employee empowerment and for
professional and relational skills enhancement. Gebauer et al. (2010a) contend that the service
orientation of the corporate culture focuses on the service orientation of managers and
employees’ values and behaviors. Managers and employees are motivated to develop a
service business if they understand and perceive the high value of services. Managers should
implement servitization strategies, emphasize entrepreneurial orientation for achieving service
revenue and profit growth, and coach employees in the selling, delivering and billing of
services. Correspondingly, employees should develop a customer orientation based on a
learning relationship and on the willingness to solve customer problems. Hence, corporate
culture and human resource management issues are of particular importance in servitization.
Based on these propositions, we consider an operational service system that is comprised of
three elements - customer interface, service delivery system, and service culture, which
includes human resource management and employee empowerment. By so doing, we are
aligned with the three key organizational challenges proposed by Salonen (2011).
3. Servitization strategy and financial performance
3.1. A positive postulated relationship
Financial objectives and, more precisely, the continuing need for profit growth are postulated
to be the main factors behind companies’ decisions to adopt a servitization strategy (Gebauer
et al., 2012b). Therefore, theoretically, there should be a positive effect of service infusion on
firm sales (Malleret, 2006; Antioco et al., 2008) and profitability (Homburg and Hoyer, 2002;
Malleret, 2006; Wise and Baumgartner, 1999; Gebauer, 2007). This hypothesized positive
relationship suggests at least three effects (Oliva and Kallenberg, 2003), all relying on the
idea that servitization will improve customer relationships (e.g., intensity of interaction and
personal relationships with consumers), customer satisfaction and loyalty (Homburg and
Hoyer, 2002).
First, researchers observe that in industries with a high-installed product base (e.g., aerospace,
locomotive, automotive industries), higher revenue potential often exists as service revenues
can be one or two orders of magnitude greater than new product sales (Gebauer et al., 2005;
Wise and Baumgartner, 1999; Slack, 2005).
Second, as services seem to be a steadier source of revenue (Sawhney et al., 2004), increasing
service revenues can serve as compensation for declining revenues in equipment sales
(Sharma and Iyer, 2011; Reinartz and Ulaga, 2008), and because services are often countercyclical or more resistant to economic cycles, they can support steadier cash flows in periods
of economic turbulence (Wise and Baumgartner, 1999; Oliva and Kallenberg, 2003; Gebauer
and Fleich, 2007). Furthermore, service offerings tend to be less sensitive to price competition
and tend to promote customer loyalty (Malleret, 2006).
Third, services are globally more profitable. Due to their lower sensitivity to price
competition, service offerings are likely to provide higher margins and rates of return
compared to pure product offerings (Frambach et al., 1998; Neu and Brown, 2005; Oliva and
Kallenberg, 2003).
3.2. Mitigated results of empirical studies
As specific empirical studies on the relationship between servitization and firm financial
performance are still in their early stages (Gebauer et al, 2010b; Eggert et al., 2014, Visnjic
and Van Looy, 2013), their results are not convergent and do not definitively prove any
positive relationship between services and financial performance (Neely, 2008).
Empirical studies yield mixed results, and the possible positive relationships are far from
being always linear (Suarez et al., 2013). Indeed, many authors observe a curvilinear
relationship between services and financial performance. For example, Fang et al. (2008)
show that the impact of servitization on firm value is insignificant or slightly negative until
service sales reach 20 or 30% of total sales, and the impact becomes positive only beyond this
threshold. Cusumano (2008) finds that services contribute positively to profits until they are
approximately 20% of the total revenues, and that beyond that point and until they reach
approximately 60% of the total revenues, services result in a decrease in profitability. Suarez
et al. (2013) find that the inflection point where the contribution to performance of additional
services changes from negative to positive is approximately 56 % of the total revenue,
whereas Visnjic and Van Looy (2013) explain that the high profitability level reached when
levels of service activities are low results from attractive margins that can be achieved without
substantial investments in staff and organization. The intensification of service activity results
in a decrease in profit margins due to the need to invest substantially in a service-oriented
organization. A long-term profitability re-emerges only once a critical mass of service activity
is achieved and once economies of scale compensate the investment costs.
Eggert et al. (2011) observe that industrial service offerings do not automatically improve
firm profits as moderating variables, such as industry or service business characteristics,
influence the relationship between servitization and financial performance. These variables
concern the extent to which services are related to the firm’s core business or the availability
of slack resources (Fang et al., 2008), to the service orientation of human resource
management and corporate culture (Gebauer, 2007), to the level of product innovation activity
(Eggert et al., 2011) and to the decentralization of the decision-making authority (Eggert et
al., 2014). Consequently, the relationship between servitization and financial performance
should be indirectly addressed. As stated by Suarez et al. (2013), managers must focus
sufficient attention on service development, but they must devote even more attention to the
balance between short-term negative effects and long-term benefits, especially by adopting
measures that will help them reach the inflection point more quickly.
3.3. Model specification and hypothesis
Manufacturing firms must invest in a specific business model to provide profitable services
and to overcome the service paradox (Eggert et al., 2014; Wise and Baumgartner, 1999;
Eggert et al., 2011). Companies that financially succeed are those that are able to adopt an
integrated product-service business strategy, able to apply various managerial practices
designed to acquire service sales skills and information systems and tools, able to develop
dynamic capabilities that enable service deployment and able to generate and/or reinforce
customer proximity. The success of a service strategy requires not only managerial motivation
but also supporting organizational arrangements (Gebauer et al., 2012b; Gebauer et al., 2005;
Malleret, 2006) that entail, on the one hand, the customer relationship (market-oriented and
clearly defined service development, service offers focused on value proposition, and
relationship marketing), and on the other hand, the firm’s internal organization (clear service
strategy, separate service organization with profit and loss responsibility, decentralization of
decision-making, service culture).
In this study, we suggest that for the firm to gain financial benefits from servitization, it must
align its operational service system with its service strategy. The service strategy can be more
or less complex, depending on the service concept on which it is based, and the operational
service system should be consistent with this service concept. Hence, we assume that the
relationship between the firm’s operational service system and its financial performance is
influenced by the type of service concept the firm adopts.
Consistent with previous developments, we focus on three areas -customer interface (CI),
service delivery system (SDS) and service culture (SC). The underlying assumption is that to
succeed, from a financial perspective, managers must focus on the customer relationship and
reinforce their personal knowledge about their customers, implement an appropriately aligned
service delivery system and create a service culture within the firm.
4. Research methodology
4.1. Data collection
Data were gathered from a survey administered in face-to-face interviews with CEOs of 690
French SMEs from the Rhône-Alpes region. These are rather small companies as 39% have
less than 10 employees and 49% have between 10 and 49 employees. Additionally, 78% have
a turnover lower than €5 million. The survey includes approximately 600 variables in all
management fields, including strategy and business models, customer relationships, finances,
production, innovation, human resources, etc.
We focus here on manufacturing firms, more specifically on 184 companies that offer a
combination of products and services. The service strategy of these firms is studied through
items aimed to measure (1) the type of service concept implemented by the firm and (2) the
firm’s operational service system in terms of customer interface, service delivery system and
service culture (Appendix A).
As mentioned in 2.1, we considered three types of service strategy, depending on the
underlying service concept - a service strategy based on added services (AS), a service
strategy based on “reconfiguration activities (R) and a service strategy based on PSS (PSS).
Firms proposing only added services activities were classified in the AS category and
included 45 firms. Firms proposing added services and/or reconfiguration activities were
classified in the R category and included 98 firms. Finally, firms proposing PSS were
classified in the PSS category, regardless of whether they were also proposing added services
and/or reconfiguration activities. This third group included 41 firms.
For each company, the data were matched with the DIANE-NEO database to obtain financial
indicators. The financial performance of service strategies is generally measured from three
perspectives - growth, profitability and value - through homogeneous indicators (Fang et al.
2008; Neely, 2008). Here, we used two profitability ratios extracted from the DIANE-NEO
database - the operating margin ratio (EBITDA / Sales) and the net profit margin ratio (Net
Profit / Sales).
4.2. Data analysis1
Measurement scales of the operational service dimensions were developed based on the
literature on servitization (Gebauer et al, 2010b; Tukker, 2004). These scales were pre-tested
among selected members of the target population, none of whom participated in the final
study. The individual items used to measure the constructs are presented in Appendix A. An
exploratory component factor analysis was first conducted on the items of the customer
interface (CI), the service delivery system (SDS) and the service culture dimensions (SC). The
three hypothesized dimensions are presented in Table 1. The values of the Cronbach’s alpha
are greater than 0.7 (for the first dimension) or slightly lower than 0.7 (for the second and
third dimensions), indicating that the combination of these items in three dimensions is
statistically consistent (Churchill, 1979).
A confirmatory analysis was then conducted to verify the reliability and internal validity of
the three dimensions (CI, SDS and SC). All indicators confirmed the reliability and the
validity of the scales as all Alpha values are between 0.950 and 0.986 and all Rho’s values are
between 0.982 and 0.991 (Joreskög, 1971; Malhotra et al., 2012) -cf. Table 1-.
Latent Variable
Dimensions
Cronbach's
Alpha
Customer Interface
3
0.974
D.G.
Rho
(PCA)
0.985
Service Delivery
System
3
0.950
Service Culture
4
0.986
Conditioning Critical
Number
Value
Own
Values
7.660
12.266
35.152
1.048
0.599
0.982
6.306
11.893
0.991
10.355
14.368
33.859
0.969
0.851
55.395
0.885
0.676
0.517
Table 1 – Reliability and convergent validity of operational service system scales
Considering the relative complexity of the model, we used a structural model (PLS approach
conducted with XLSTAT). This approach bypasses problems of traditional covariance
structure analysis linked to small sample size and the need for multivariate normal distribution
(Bagozzi and Yi, 1989). Moreover, variance analysis at a latent level - using a structural
equations model - not only enables the measuring of the overall effect of variables but also
estimates the breaking down of each modality for the selected explanatory variables.
Furthermore, the methodology used allows a multi-group analysis of variance based on the
1
In this first version, exploratory and confirmatory analysis are conducted on the same databse which is an
important limit to this work. From the time of the conference, the authors will have a new extraction of this ongoing database –actually by the end of January 2016-, allowing them to conduct the exploratory and the
confirmatory analysis on two separate samples. A new version of the paper will then be proposed for the
conference.
service concept implemented by manufacturing firms (Bagozzi et al., 1991) - Appendix C.
For each latent variable and each structural coefficient, the methodology tests for the
difference between the value obtained for a given group and the value obtained for the rest of
the sample (Appendix D). Hence, the influence of the service concept category (AS, R, PSS)
on the specific latent variable can be directly specified.
5. Results
Control variance analysis was conducted to verify that there were no significant differences
among the three groups (AS, R, PSS) regarding the firm turnover, the growth rate of turnover,
the service percentage in the global turnover, and firm number of employees (Appendix B).
Regarding the goodness of fit estimation, all indices confirm the stability of the three models.
Appendix C shows the very close values of absolute Gof and bootstrapped absolute Gof for
each model. The results summarized in Table 2 highlight that, according to the service
concept implemented by the firm, the operational service system dimensions have contrasted
influence on financial performance.
R² (Bootstrap)
Added Services (AS)
Reconfiguration (R)
Operating Net Profit
Margin
Margin
Operating
Margin
.307
.205
.306
PSS
Net
Profit Operating Net Profit
Margin Margin
Margin
.293
Customer Interface
-.166
-.178
Service Delivery
System
-.263
-.196
.422
.417
Service Culture
-.229
-.147
.184
.173
Only significant values (p<.1)
are presented
Table 2 – Main results – β values (PLS)
.429
.503
.190
.096
.431
.585
With respect to the AS-based strategy, the more developed the operational service system, the
less profitable the firm. This hold true for the three dimensions (Figure 4).
Customer Interface
- 0,166
Operating
Margin
- 0,178
Service Delivery
System
- 0,263
- 0,196
- 0,229
- 0,147
Net Profit
Margin
Service Culture
Figure 4 – Added services
With respect to the R-based strategy, results show a strong positive impact of the service
delivery system on firm profitability as well as a lower positive influence of the service
culture on profitability. Customer interface has no significant impact (Figure 5).
Customer Interface
NS
Operating
Margin
NS
0,422
Service Delivery
System
0,417
Net Profit
Margin
0,184
0,173
Service Culture
Figure 5 - Reconfiguration
With respect to PSS-based strategy, profitability is related to a high level of service culture.
The influence of customer interface, while positive, is lower. The service delivery system has
no significant impact (Figure 6).
Customer Interface
0,190
Operating
Margin
0,096
Service Delivery
System
NS
NS
0,431
0,585
Net Profit
Margin
Service Culture
Figure 6 – PSS
These results show that it would be essential to adopt the operational service system and to
focus on singular dimensions according to the firm service strategy because this alignment has
positive impacts on firm profitability. Results and managerial implications are discussed
herein.
6. Discussion
Our results indicate that investing in a complex operational service system is not relevant in
the context of an added services-based strategy. As a consequence, firms that adopt or
implement this type of strategy should maintain a relatively basic operational service system.
Indeed, the implementation of a new service delivery system generates costs, and if these
costs are not totally integrated into invoiced prices, this could penalize profitability.
Therefore, with respect to this strategy, we suggest that financial performance stems mainly
from the core product, a result that is consistent with those of Gebauer et al. (2007), who
recommend that service providers offering only basic services should not develop a specific
service organization but rather should integrate the service activity into the product
organization.
Results indicate that firms adopting a reconfiguration-based service strategy should focus on
the service delivery system. Within this strategy, the service provider performs some of its
customers’ activities (outsourcing or close partnership). In the early stages, the provider and
the customer must build their partnership, and the provider must develop an in-depth
understanding of the customer’ operational requirements for the process output (Gebauer et al.
2010b). However, once the provider, together with the customer, has defined the processes
and the expected outputs, the operations are performed internally by the provider, who works
autonomously and on his own. This could explain why the service delivery system is
important, especially the performance assessment dimension of the system. This claim is
consistent with Oliva and Kallenberg (2003), who note that challenges at this stage consist of
valorizing, delivering and invoicing services. As the provider also enters into a hard-to-imitate
competency position (Davies, 2004), customers become captive and loyal, which explains
why there is no need for strong customer interactions. Finally, in a reconfiguration-based
service strategy, the value proposition of the provider depends primarily on his savoir faire
(people skills).
When firms offer PSS, profitability is related primarily to a high level of service culture, i.e.,
to the savoir-être (qualities) of the firm and its employees. Offering PSS often implies that the
provider’s employees are present within the company and directly participate in the
company’s activities. As a consequence, the customer interface is also important. The
provider’s employees must be autonomous, qualified, able to communicate with customers,
able to gather information for their firm, and able to engage in a relational mode of
exchanges. Hence, the service culture becomes a key element in the firm’s performance.
Manufacturing firms cannot succeed in PSS-based strategies without moving from their
traditional manufacturing culture to a new service-oriented culture, as suggested by Ostrom et
al. (2015). In a customer-oriented logic, service is fully integrated into the business strategy,
and as such, it becomes a fully recognized source of competitiveness. While price competition
is not a priority, firms must develop an accurate pricing of all of their services (Sharma and
Iyer, 2011). This is consistent with Frambach et al. (1998), who show that due to their lower
sensitivity to price competition, PSS offerings are likely to provide higher rates of return than
pure product offerings.
From a practical point of view, understanding the impact of service strategy on financial
performance can encourage manufacturing companies to better prepare for and effectively
manage their transition. For instance, when managers are willing to go beyond the added
services on the service concept continuum, they must focus on corporate culture issues to
benefit from their strategy. According to the chosen service strategy, managers must
emphasize either the service delivery system (R) or the service culture (PSS), not both
dimensions at the same time.
Our work provides quantitative support that emphasizes the adequate alignment of the firm’s
operational service system and its service concept to increase profitability. As a whole, results
confirm the assumption that the operational service system must be adapted to the service
strategy to attain expected financial benefits (Matthyssens and Vandenbempt, 2008). While
managers of manufacturing firms are skeptical that service could generate potential revenue
and real value compared to product sales (Gebauer et al., 2005; Oliva and Kallenberg, 2003),
our results indicate that potential benefits from developing services do exist, providing the
right operational service system is implemented.
Appendix A: Principal component analysis on operational service system dimensions
Dimensions
Service production requires a high
level of autonomy for front line
employees
Our service production requires a
high level of expertise difficult to
imitate by our customers
Our service production requires
good communication with our
customers
Our service production requires
great experience in customer
relationships
We have a complex customer
interface due to the division of
responsibility
Our service production requires a
complex customer interface
technical system
Our service production requires
frequent contacts with our
customers
We have performance scoreboards
for our service delivery system
dedicated to our service production
We systematically collect and
analyze data through our service
delivery system
Our service delivery system
impacts our customers’ new
products and services development
processes
Explained variance: Total: 63.263
Cronbach's alpha
KMO=0.844; Bartlett's test,
p=0.000
Service
culture
.985
Customer
interface
Service
Delivery
System
.752
.668
.570
.910
.779
.670
.918
.619
.608
41.304
0.792
11.438
0.693
10.521
0.651
Appendix B: ANOVA tests on control variables among the three categories of firm
services concept
Growth rate of
Added services
turnover 2012/2011 Reconfiguration
PSS
Total
Percent of services / Added services
turnover 2012
Reconfiguration
PSS
Total
Percent of services / Added services
turnover 2011
Reconfiguration
PSS
Total
Turnover
Added services
kEUR
Reconfiguration
2012
PSS
Total
Turnover
Added services
kEUR
Reconfiguration
2011
PSS
Total
Total number of
Added services
employees
Reconfiguration
PSS
Total
Mean
0.111
0.084
0.273
0.135
0.250
0.251
0.233
0.246
0.260
0.238
0.207
0.237
4 341.695
5 833.087
4 419.775
5 133.589
3 977.725
5 936.822
4 480.804
5 115.128
24.133
33.567
27.950
30.000
ANOVA
Signification
.211
.971
.825
.505
.366
.285
Appendix C: PLS Multigroup analysis
Added services
Absolute
Relative
External model
Internal model
Reconfiguration
Absolute
Relative
External model
Internal model
PSS
Absolute
Relative
External model
Internal model
GoF
0.316
0.706
0.988
0.714
GoF
Std.
(Bootstrap)
Deviation
0.372
0.053
0.685
0.066
0.951
0.033
0.721
0.072
GoF
0.390
0.753
0.923
0.815
GoF
Std.
(Bootstrap)
Deviation
0.392
0.061
0.712
0.079
0.901
0.050
0.791
0.086
GoF
0.460
0.849
0.917
0.925
GoF
Std.
(Bootstrap)
Deviation
0.479
0.066
0.800
0.064
0.913
0.042
0.876
0.057
Operating Margin 2012
Added Services
Latent variable
Customer Interface
Service Delivery
System
Service Culture
R²
(Bootstrap)
0.307
Net Margin 2012
P
**
Added Services
Value
(Bootstrap)
P
Latent variable
-0.166
**
-0.263
-0.229
**
*.
Customer
Interface
Service Delivery
System
Service Culture
R²
(Bootstrap)
0.205
p
**
Value
(Bootstrap)
P
-0.178
**
-0.196
-0.147
**
*.
Reconfiguration
R²
(Bootstrap)
0.306
Value
Latent variable
(Bootstrap)
Customer Interface
-0.271
Service Delivery
System
0.422
Service Culture
0.184
PSS
Latent variable
Customer Interface
Service Delivery
System
Service Culture
R²
(Bootstrap)
0.429
Value
(Bootstrap)
0.190
-0.316
0.431
R²
(Bootstrap)
0.293
P
**
P
n.s.
*
**
P
*
Reconfiguration
Value
Latent variable
(Bootstrap)
Customer Interface
-0.259
Service Delivery
System
0.417
Service Culture
0.173
R²
(Bootstrap)
0.503
PSS
P
Latent variable
*
Customer Interface
Service Delivery
System
Service Culture
n.s.
**
***: p<0,05; **: p<0,10; *: p<0,15
Appendix D: Group comparison
Comparisons: Added Services vs Reconfiguration
Latent variables
Diff.
Customer Interface -> Operating Margin
2012
0.207
Service Delivery System -> Operating
Margin 2012
0.683
Service Culture -> Operating Margin 2012
Customer Interface -> Net Margin 2012
Service Delivery System -> Net Margin 2012
Service Culture -> Net Margin 2012
0.374
0.211
0.605
0.298
P
Sign.
n.s.
No
n.s.
No
n.s.
n.s.
n.s.
n.s.
No
No
No
No
Value
(Bootstrap)
0.096
-0.318
0.585
p
**
p
n.s.
**
*
p
*
p
*
n.s.
*
Comparisons: Added Services vs PSS
Latent variables
Customer Interface -> Operating Margin
2012
Service Delivery System -> Operating
Margin 2012
Service Culture -> Operating Margin 2012
Customer Interface -> Net Margin 2012
Service Delivery System -> Net Margin 2012
Service Culture -> Net Margin 2012
Comparisons: Reconfiguration vs PSS
Latent variables
Customer Interface -> Operating Margin
2012
Service Delivery System -> Operating
Margin 2012
Service Culture -> Operating Margin 2012
Customer Interface -> Net Margin 2012
Service Delivery System -> Net Margin 2012
Service Culture -> Net Margin 2012
Diff.
P
Sign.
0.411
**
Yes
0.125
0.669
0.276
0.267
0.728
n.s.
***
n.s.
n.s.
***
No
Yes
No
No
Yes
Diff.
P
Sign.
0.618
n.s.
No
0.808
0.295
0.488
0.872
0.430
n.s.
n.s.
n.s.
**
n.s.
No
No
No
Yes
No
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