Global approaches to the service business in
manufacturing companies
Gunther Kucza
School of Management and Law, Zurich University of Applied Sciences, Winterthur, Switzerland, and
Heiko Gebauer
CIRUS: Center of Innovation in Utility Sectors, Eawag: Swiss Federal Institute of Aquatic Science and Technology,
Dübendorf, Switzerland
Abstract
Purpose – The article aims to investigate how product manufacturing firms can configure their global service approach.
Design/methodology/approach – A qualitative, multi-case research design was employed.
Findings – The following four global service approaches could be identified: integrated and ethnocentric; integrated and polycentric; separated and
polycentric; and separated and geocentric.
Research limitations/implications – The research findings are limited in generalizability because of the qualitative research approach.
Practical implications – Exploring global forms of and supply chain configurations for services supports the efforts of manufacturing firms in
developing new service-based and relationship-based value propositions.
Originality/value – The study contributes to the debate on integrating versus separating the service organization. It offers a complementary
explanation on integrating and separating the service business, through a differentiation into central and local (market) organizations.
Keywords Global organizational structures, Service business, Manufacturing companies, Service offerings, Service transition,
Internationalization of services, International business, Service industries
Paper type Research paper
strategy requires modifications in decision-making processes,
human resources, organizational structures and measurement
and reward systems. Unfortunately, the explored alignment
between service strategy and organizational approach does not
necessarily focus on the global service infrastructure.
Similarly, Galbraith (2002) claims that firms delivering
solutions combining products and services have to change
their organizational concept from product profit centers and
product teams towards customer segments, customer teams
and customer profit and loss responsibility. However,
Galbraith (2002) only partly explains how the organizational
concept of customer segments, teams, and customer profit
and loss responsibility should function within a global
organizational infrastructure.
Despite these noteworthy contributions, descriptions of
potential global organizational approaches for the service
business have largely been neglected in the existing literature
and an important research gap remains. This article tries to
close part of the research gap by investigating global
approaches to the service business in manufacturing
companies. The results are expected to contribute to
developing the appropriate organizational forms for global
markets and structures of the service supply chain. Exploring
global forms and supply chain configurations for services will
support the efforts of manufacturing firms to develop new
service-based and relationship-based value propositions.
The paper is organized as follows. The next section reviews
the existing literature on global service organizations and
develops a conceptual framework for our research efforts. The
third section introduces the research methodology. The
results are discussed in the fourth section. The final section
contains a discussion of the managerial implications and those
for further research.
Introduction
In the last couple of years, the service business has become an
important growth area in manufacturing industry. Since most
manufacturing companies have already reached a stage of
competitive maturity with respect to their products, they now
focus on their global service operations. This trend has been
intensified by a change in the business model of manufacturing
industries. Manufacturing companies have to cope increasingly
with lower margins in the product business and compensate for
this by extending the service business. In some industries,
products are even sold at cost level, thereby increasing their
market share of the installed base, leading in turn to increased
revenue and margins from their service business (Brax, 2005;
Gebauer and Fleisch, 2007; Jacob and Ulaga, 2008).
The research evidence on manufacturing firms with service
operations in place indicates that the global organizational
structure plays a fundamental role in whether or not the
service business is successful (Neu and Brown, 2008; Bowen
et al., 1989; Mathieu, 2001). In line with this reasoning, Oliva
and Kallenberg (2003) argue that setting up a global service
infrastructure is necessary in order to enter the market for the
installed base. Neu and Brown (2005, 2008) explore the
alignment between service strategy and organizational
approach and argue that the implementation of a service
The current issue and full text archive of this journal is available at
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Journal of Business & Industrial Marketing
26/7 (2011) 472– 483
q Emerald Group Publishing Limited [ISSN 0885-8624]
[DOI 10.1108/08858621111162271]
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Global approaches to the service business in manufacturing companies
Journal of Business & Industrial Marketing
Gunther Kucza and Heiko Gebauer
Volume 26 · Number 7 · 2011 · 472 –483
Literature review
includes design services to integrate components into a
functioning system. Operational services include the provision
of and responsibility for operating and maintaining products
(Davies et al., 2007). Business consulting is a service for
advising customers on designing, financing, purchasing,
maintaining and operating the capital goods (Davies, 2004).
All these service categories require direct interactions
between customers and service employees (Sampson and
Snape, 1985; Bhagwati, 1984). Differences occur in the
degree of interactions among customers and service
employees (Vandermerwe and Chadwick, 1989). Whereas
basic services for the installed base and maintenance services
require relatively low customer interactions, services such as
business consulting, R&D-oriented services and outsourcing
services entail strong interactions with customers.
Furthermore, within each service category, services differ in
the knowledge intensity required for the service delivery. For
example, repair services can be divided into basic repair
services and more complex repair services. In business
practice, differences in the knowledge intensity refer to first,
second and third service levels. As illustrated on the left of
Figure 1, the delivery of first-level services requires only basic
service skill(s), whereas the third service level entails
specialized service skill(s) such as behavioral competencies,
technical expertise and customer-focused attitudes (Neu and
Brown, 2005). The specifity of skill(s) required for delivering
second-level services is positioned between the basic skill(s)
for first service level and the sophisticated skill(s) for the third
service level. The left side of Figure 1 depicts the main service
categories and service levels and depicts various combinations
of service categories and levels.
Due to the fact that the depicted services require direct
interactions with customers, manufacturing companies must
either send service employees from their headquarter to the
various international customer locations or enter the actual
international markets. The market entry can be direct or
indirect. Indirect entry means that the service-providing
organization is only partly owned by the manufacturing
company. Direct entry means that a manufacturing firm
establishes its own organizational infrastructure for providing
services in international markets (Grönroos, 1999).
The background to the empirical study combines previous
findings on changing service offerings in manufacturing
companies and on global organizational structures. Both
research fields are discussed in more detail below and form
starting point for the conceptual framework.
Service offerings in manufacturing companies
Driven by strategic and financial opportunities,
manufacturing companies have increasingly extended their
service offerings over the last decade. The substantial
potential revenue, attractive profit margins and fact that
services are a more stable source of revenue than that from
products, constitute financial benefits of an extended service
offering (Cohen et al., 2006; Reinartz and Ulaga, 2008; Wise
and Baumgartner, 1999). Strategic opportunities are closely
linked to the financial benefits. By extending the service
offerings, it becomes more difficult to compare different
supplier offerings, leading to less direct competition on price
and improved profitability (Malleret, 2006). An extended
service business is also valuable for retaining existing
customers or attracting new ones (Homburg et al., 2003).
Thus, an extension of the service offering becomes a prudent
differentiation strategy in order to compensate for the
common lack of technological differentiation (Bowen et al.,
1989; Roscitt and Parquet, 1990; Vandermerwe and Rada,
1988).
Mathieu (2001) categorizes the service approaches of
manufacturers into customer service, product services, and
service as products. Customer service facilitates a company’s
customer relationship and loyalty at a general level. Product
services facilitate the sale of a product, which is sold by the
company, and support product operation. Purchasing the
product always precedes consuming the product service
(Brax, 2005). Services as products are independent of the
company’s tangible offerings and can be purchased separately
from other transactions (Mathieu, 2001). Similarly, Kotler
(1994) differentiates according to repair, maintenance and
business consulting services. Customers demand repair and
maintenance services while operating the product, whereas
business consulting is relatively independent from product
operations.
Oliva and Kallenberg (2003) classify service offerings into
two dimensions:
1 the focus of customer interactions; and
2 the focus of the value proposition.
Organizational elements for service business
Entering the service market for the installed base means to
attempt maximizing financial potential of providing services
such as spare parts, repair, inspections, hotline, and so on for
the total number of products currently used by local
customers. A global service infrastructure enables firms to
respond locally to the requirements of customers. However,
the investment decision to build an infrastructure will not
generate revenue immediately. Managers have to generate
sufficient knowledge on how to run a distributed service
network effectively. This includes the capability to diffuse
service-related competencies across the network and to
manage large organizations of service personnel. Through
the knowledge on local customer needs, managers are able to
make a decision on the degree of standardization of the
service offer, in order to balance the transferability of services
across markets and customization for individual customers
(Oliva and Kallenberg, 2003).
The organizational approaches include various elements
such as cultural aspects, human resources, measurement and
reward systems, decision-making processes, organizational
The focus of customer interaction can be either transactionor relationship-based. The end user’s product efficacy (i.e.
whether the product works as it should) and the product’s
efficiency and effectiveness within the end user’s process
represent the two categories belonging to the focus of the
value proposition. The combination of both dimensions leads
to four service types:
1 basic installed base services;
2 maintenance services;
3 professional services; and
4 operational (outsourcing) services.
Davies (2004) suggests some directions for moving towards
offering high-value solutions (integrating systems, providing
operational services and offering business consulting) that are
linked directly to service offerings. Systems integration
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Global approaches to the service business in manufacturing companies
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Gunther Kucza and Heiko Gebauer
Volume 26 · Number 7 · 2011 · 472 –483
Figure 1 Research framework
structure and service development (Martin and Horne, 1992;
Matthyssens and Vandenbempt, 1998; Oliva and Kallenberg,
2003). The service development includes the formality of
service development processes and the associated customer
involvement (Martin and Horne, 1992).
Cultural aspects involve corporate values and employee
behavior. Human resource management captures the
personnel recruitment, personnel training and personnel
assessment/compensation (Homburg et al., 2003). The latter
is directly linked to measurement and reward systems.
Decision-making processes reflect the distribution of
decision-making authority across central and other
organizational units.
Cultural aspects, human resource management and
decision processes can be classified further into ethnocentric
(home-country oriented), polycentric (host-country oriented)
or geocentric (world-oriented) approach (Perlmutter, 1969).
Ethnocentrism is the tendency to look at global organization
from a home-country perspective and entails the belief that
values and norms from the home-country headquarters are
superior to those of the local organizations. The polycentric
perspective acknowledges that subsidiaries are moving
towards maturity, and are, therefore, permitted to exercise
discretion in certain areas of decision-making, values, and
norms (Kotler and Keller, 2005; Kotabe and Helsen, 2004).
Geocentricity balances integration and differentiation among
cultural and structural dimensions. The geocentric approach
is one in which headquarters and subsidiaries are regarded as
“partners” (Perlmutter, 1969; Maddox, 1993; Scullion,
1994).
Organizational structure includes the (organizational)
distinctiveness and proximity of the service organization to
the customer (Gebauer et al., 2010). Organizational
distinctiveness represents the degree to which the service
business unit is established as a distinct business unit with
corresponding profit-and-loss responsibility (Oliva and
Kallenberg, 2003; Gebauer and Kowalkowski, 2011).
Service organization proximity to customers is the extent to
which external customers are aware of the service
organization and can identify appropriate points of contact.
Furthermore, proximity to customers reflects the geographic
density of the global service infrastructure.
With respect to organizational distinctiveness, whereas
Oliva and Kallenberg (2003) argue that the global service
infrastructure should be separated from the product
organization, Neu and Brown’s (2005) recommendation can
be understood as integrating both product and service
organization. Managers should thus integrate the
responsibilities of multiple business units to provide
complex product and service offerings.
Galbraith (2002) explores how firms moving into the
solution business adapt their organizational concept. Such
firms change the concept from that of profit centers for
products, reviews and teams for products, towards customer
segments, customer teams, and customer profit and loss
responsibilities. This leads to customer-facing organizational
units, such as those relating to global accounts, professional
services, and different regions. These customer-facing
organizational units have considerable resource flexibility
because they are responsible for assessing products and
service units.
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Gunther Kucza and Heiko Gebauer
Volume 26 · Number 7 · 2011 · 472 –483
Neu and Brown (2008) summarize the organizational
principles for extending the service business. These principles
include fostering a high degree of intra-firm collaboration,
basing management’s financial incentives on criteria that
focus on the performance of an inter-dependent cluster of
organizational subunits, design policies to select, develop, and
retain human resources to cope with market complexity,
vertically decentralizing decision-making authority for
strategy formation, and so on.
Despite the background of the various studies on
organizational principles for the service business, it remains
difficult to combine their key findings, because of differences
between the investigated industries and service offerings.
Regarding the industries studied, Oliva and Kallenberg’s
(2003) study of machinery manufacturers fits the purpose of
this current study better than Neu and Brown’s (2005, 2008)
investigation of the IT industry or Galbraith’s (2002)
exploration
of
organizational
designs
in
the
telecommunication industry. Thus, the investigated service
offerings cover a broad range, starting with local after-sales
service and moving on to major IT and communication
solutions.
and Stopford, 1968). We use the notions central organization
and market organization to distinguish into domestic and
local elements in the organization. The second element refers
to organizational distinctiveness, namely the degree to which
the service business unit is established as a distinct entity, with
the corresponding profit-and-loss responsibility (Oliva and
Kallenberg, 2003; Gebauer et al., 2009). The third element
includes the proximity of the service organization to the
customer. The fourth element covers organizational
functions, which are activities that companies must
undertake in order to create, deliver and sell services
(Gibson et al., 2006). The fifth element captures the
distinction into ethnocentric, polycentric and geocentric
organizational approaches. Figure 1 summarizes the relevant
elements of the conceptual framework.
Research approach
Data sample
The global approach to the service business is a contextbound organizational issue. For this reason, a qualitative,
multi-case research design was employed (Eisenhardt, 1989).
All case studies refer to Western European business-tobusiness manufacturing companies (capital goods
manufacturing companies). In contrast to Oliva and
Kallenberg’s (2003) study, which concentrates on
companies entering the service market, our data sample
contains companies, which already have service operations in
place. With respect to data confidentiality, the real names of
the companies are not revealed. Data were collected through
multiple primary and secondary sources. The main primary
data were based on interviews with managers in specifically
chosen internal projects on re-structuring the global service
approach. Altogether, about 60 managers were interviewed
(i.e. three to five in each internal project). Typically, those in
management functions such as global sales manager, global
service managers, and local sales and service managers,
participated in the interviews. The local sales and service
managers were chosen from various regions including Asia,
the Middle East, North America, South Africa and Western
Europe.
All 16 companies were attempting to restructure their
global service approach. The selection of was made to reach
diversity rather than statistical representativeness. Therefore,
it was appropriate to conduct a small number of in-depth case
studies. The intention was to cover different company sizes
and degrees of service offering. Altogether, six companies
employed between 250 and 500 people worldwide, four
companies between 501 and 1000, and six companies with
more than 1,000. According to the degree of service offering,
eight manufacturing firms concentrate mainly on basic
services for the installed base and customer service to
augment the product offering. The other eight companies
offer a variety of basic services for the installed base,
maintenance services, R&D-oriented services (design,
construction, and so on) and customer service.
Conceptual framework
Despite the existing literature on service offerings and
organizational design factors, very little attention has been
paid to the contingency between service offerings and the
organizational design factors associated with a global
approach to the service business. This means that the
research to date neglects how an extension of the service
offering interacts with the organizational approach. Services
such as spare parts delivery, installations, or basic training
might fit into an ethnocentric centralized global service
approach, in which service activities are concentrated in the
home country. However, maintenance services probably
require a polycentric and decentralized organization. In the
latter case, local service organizations are established to
respond to service adaptation requests.
Another difficulty arises because the global service
organization is closely coupled to the product organization.
Researchers have contradictory views on how manufacturing
companies should distinguish between product and service
business. As discussed in the last section, Oliva and
Kallenberg (2003) argue that distinguishing between the
product and service business leads to a separation of business
units for products and for services. Neu and Brown (2005)
point out that product and service businesses should be
integrated so as to fulfill complex customer needs.
By using the above literature, we develop a conceptual
framework that combines service offerings with design
elements of the global service approaches. As illustrated in
Figure 1, potential service offerings include customer service,
basic services for the installed base and maintenance services
(Davies, 2004: Gebauer, 2008; Neu and Brown, 2005).
Against the background on global organizational design
(Galbraith, 2002; Neu and Brown, 2005), we believe that
decisions about organizational structure entail five highly
interrelated elements. The first element captures the global
organizational structure. In general, global organizational
structures consist of domestic and foreign elements. In the
present context, domestic elements refer to the central
headquarters of the company. Foreign elements include the
market organization at the regional or country level (Fouraker
Data collection
In order to reduce the risk of false interpretation and to obtain
construct validity, a distinctive feature of case study research
is the triangulation of sources of evidence (Miles and
Huberman, 1994; Yin, 1994). Besides primary interviewee
data, secondary data, specifically on organizational charts and
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Global approaches to the service business in manufacturing companies
Journal of Business & Industrial Marketing
Gunther Kucza and Heiko Gebauer
Volume 26 · Number 7 · 2011 · 472 –483
descriptions of service offerings and organizational functions
as well as responsibilities, were obtained. This leads to
multiple and different sources of information, which ensures a
triangulation of sources of evidence.
The interviews were semi-structured around the previously
explained conceptual framework. The semi-structured
interview guide was designed to collect data on the service
offerings and global organizational approach to the service
business. Consistent with the “narrative approaches” (Miles
and Huberman, 1994), follow-up questions were used to
explore the global organizational approach, as well as key
challenges during implementation. At the end of each
interview, informants were asked for additional comments,
which allowed additional organizational factors to emerge
inductively from the fieldwork (Miles and Huberman, 1994).
Primary interview data and secondary data provided during
the interviews were transcribed, coded and recoded in NVivo
7.0q (Strauss and Corbin, 1998). In order to strengthen
construct validity, each respondent reviewed the interview
transcripts (Eisenhardt, 1989). The reviews often led
respondents to provide more detailed background
information. By allowing all informants to review their
interviews, we were able to eliminate some of the bias
normally associated with interviews.
Based on the interviews transcripts, we wrote a draft
summary on global organizational approaches. Before sending
the summary to the interviewees, the research team often
inserted follow-up questions to clarify and extend the content.
The interviewee reviewed the case summaries, identified gaps
in the analysis and suggested any appropriate additional data
collection. His or her perceptions of the case study were
discussed during a follow-up meeting. The evolving case
reports are typically ten pages long. To further enhance
validity and reliability, external industry experts and
researchers again reviewed the entire report on all case
studies of the 16 companies.
analysis, the team looked for similarities and differences in the
global service approach across all case studies. Pairs of global
service approaches were selected, which entailed various
similarities and differences. This tactic forced the research
team to look for subtle patterns in the global service
approaches emerging from the case studies.
The within and cross-case analysis of the 16 cases was
considered the point where theoretical saturation was
reached. Of course, it is not enough simply to state that
data collection and analysis are concluded once saturation is
reached. Therefore, the following guideline was employed: the
emerging patterns of global service approaches were
considered saturated if they were reflected in more than 90
percent of the case studies and confirmed by interviewee
feedback and if they made in terms of prior research (Bowen,
2008).
Patterns on global service approaches
This section summarizes the findings on how companies
approach their global service business. The following four
global service approaches represent recurrent patterns and
entail several commonalities:
1 integrated and ethnocentric global service approach;
2 integrated and polycentric global service approach;
3 separated and polycentric global service approach; and
4 separated and geocentric global service approach.
Integrated and ethnocentric global service structure
Figure 2 shows the first pattern. At the central, headquarters
level, the companies have integrated the service department
into the product organization as a cost centre. The central
product organization is a relatively autonomous unit
controlling the following functions: marketing, sales,
services, manufacturing, R&D, accounting/finance, and
human resources. Locally, these companies work with sales
agents or subsidiaries, which sell products and provide
customer service to augment the product during the sales
phase of the product. The sales agents or subsidiaries also sell
basic services for the installed base, but the central service
department provides these services. Spare parts, for example,
are delivered directly from the central warehouse, or service
technicians from the central service department go the
customer and provide repair services or install spare parts.
As one interviewee explained, “we mainly include prices for
our customer service and basic services for the installed base
in the product price. Only in a few cases do we charge our
services separately to the customers. We use services only to
achieve a price premium for our products”. Thus, services do
not contribute fundamentally to total revenue and profits.
The behavior of the sales agents and subsidiaries is driven by
the central product organization and can be described as
ethnocentric. This means that the structure and competencies
are kept fairly simple in the local market organizations. Only
the central product organization includes a broad range of
competencies and a decision-making authority that is low in
the structure of market organization. Product prices and basic
services are predefined by the central sales function, and the
market organization has only the authority to decide how
much customer service should be provided to augment the
product offering. Sales managers in the market organization
are recruited and developed in the home country, so that they
identify themselves with the headquarter (domestic) behavior,
Data analysis
Traditional inductive research methods were used to analyze
the case studies (Eisenhardt, 1989; Miles and Huberman,
1994). Iterative-grounded theory (Orton, 1997) was applied,
where the research team examines the literature relevant to
the research gaps and employs the empirical data. The case
studies of the 16 companies were systematically and iteratively
analyzed through within and cross-case analysis, until the data
were saturated and consistent organizational structures
emerged (Strauss and Corbin, 1990). In order to ensure
reliability and validity of the data analysis, manual and
computer-aided content analysis, based on the mentioned
NVivo 7.0q procedure were applied to the case studies.
More specifically, the within-case analysis of the global
service approach forms the starting point of the data analysis.
This procedure enables the research team to become familiar
with each case, which accelerates the cross-case comparison.
The within-case study analysis allowed the unique pattern of
the global service approach in each case to emerge before the
research team proceeded to transfer the findings during the
cross-case analysis (Eisenhardt, 1989).
The cross-case analysis is closely coupled with the withincase analysis. By doing a cross-case search, the research team
used the elements of a global service approach that had been
described either in the conceptual framework or which
emerged in the within-case analysis. During the cross-case
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Global approaches to the service business in manufacturing companies
Journal of Business & Industrial Marketing
Gunther Kucza and Heiko Gebauer
Volume 26 · Number 7 · 2011 · 472 –483
Figure 2 Integrated and ethnocentric global service approach
leads to a situation where most market organizations develop
local sales and service employees for key positions”.
The central organization in the integrated and polycentric
global service approach is similar to that in the first approach.
However, the central organization possesses a relatively low
level of authority and decision-making power. The final
product prices and charges for services are decided in the
market organizations. The central organization can only
determine the transfer prices, but does not control how the
market organization sets the price for the end customer. The
central organization simply negotiates goals with the market
organization and defines key performance indicators. The fact
that the central organization is still product-oriented and the
services remain as a cost centre within the product
organization means that the key performance indicators
concentrate on the product business. Typical examples of key
performance indicators are market share of products, overall
profitability, and the number of products sold or product
revenue. The local market organization is empowered to
decide how to achieve the defined goals.
The volume of communication and information from the
central to the market organization is low. However, the
different market organizations also share limited information
and experiences on effective sales arguments, customer
expectations, or services. Compared to the first
organizational approach, the second one not only
concentrates on customer service and basic services for the
installed base, but also includes some maintenance services.
Most of the services are still included in the product price and
not charged separately. Services are used to make it more
difficult to compare different product offers from other
rather than the local cultures. The communication flow from
central product organization and local market organization
can be described as one-way communication. The central
organization communicates intensively with the local
organization, including commands relating to product prices
and basic services for the installed base.
The key drawbacks of integrated and ethnocentric global
service structure were described by an executive in the
following way: “The main disadvantage of our global service
approach is the lack of sensitivity to the service expectations of
local customers, high travel costs for service delivery, and an
insufficient consideration of an extended breadth of service
offering”. Thus, an integrated and ethnocentric global service
structure constrains the financial results that could be
obtained through services. Manufacturing firms should
maintain this organizational form only if their customers
expect basic services and are willing to cover the travel costs.
This organizational form is typical of smaller companies,
because of specialization advantages, scope and scale effects,
and limited resources.
Integrated and polycentric global service approach
The second pattern is interpreted as an integrated and
polycentric global service approach (see Figure 3), capturing a
situation in which the service culture and behavior can be
described as polycentric. The local market organization
achieves medium complexity. As one interviewee put it: “Our
market organizations are relatively independent units, with
the local sales managers having control of product sales, the
provision of customer service, basic services for the installed
base, a few maintenance services, and human resources. This
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Global approaches to the service business in manufacturing companies
Journal of Business & Industrial Marketing
Gunther Kucza and Heiko Gebauer
Volume 26 · Number 7 · 2011 · 472 –483
Figure 3 Integrated and polycentric global service approach
still make attractive product margins and do not necessarily
place much emphasis on achieving high service revenue and
profits.
suppliers, avoiding direct price competition and improving
overall profitability. The extended service offering is valuable
for retaining existing customers, but the financial contribution
is still quite low in terms of share of service revenue to total
revenue, or share of service profit to total profit. The market
organization provides most services directly to customers and
has technical competencies to provide first-level and secondlevel service support for the installed base. Local service
employees are recruited to serve as reliable service providers
including repair, inspection, and maintenance services.
Market organizations even set up local warehouses for spare
parts delivery. The third-level support associated with the
high-level and in-depth technical skills remains in the central
organization and typically belongs to the R&D function.
Considering the advantage and disadvantages of the
integrated and polycentric global service approach, one
interviewee explained: “Our global service approach offers a
quick and inexpensive way to respond to local needs for
servicing our installed machines. However, it also means
giving up the advantage of a centralized service organization”.
Nevertheless, if the installed base has been served traditionally
from the central headquarters, the companies have
exceptionally rational motives to locate service centers
within the market organizations. Without localizing services,
a company will come under enormous competitive pressure
from both customers and competitors. Competitive pressure
from customers means that customers influence company
efforts to enhance their service capabilities. However, the
success of manufacturing companies shows that an integrated
and polycentric global service approach can be highly
competitive and successful when manufacturing companies
Separated and polycentric global service approach
The third global service approach includes a polycentric
orientation and is additionally characterized by a separation of
the product and service organization at the central
headquarters level (see Figure 4). Manufacturing companies
set up two independent business units with their own profitand-loss responsibility. The business unit for products has
control of the following product-related functions: product
marketing and sales, manufacturing, R&D, accounting/
finance, and human resources. The business unit for
services controls service development, spare parts logistics,
and service support functions.
Single market organizations that are still responsible for the
product and service business remain in each individual
country, despite the separation at the central level. However,
cost transparency between product and service business
makes it possible to report profitability and product or service
revenue to the central business units. The service delivery is
organized similarly as the integrated and polycentric global
service approach. As one interviewee expressed it: “Our
market organization provides first-level and second-level
support. The distinct and separated central service
organization takes over the responsibility to provide thirdlevel support. This third-level support is a collaborative effort
between the central service organization and the R&D
function”.
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Global approaches to the service business in manufacturing companies
Journal of Business & Industrial Marketing
Gunther Kucza and Heiko Gebauer
Volume 26 · Number 7 · 2011 · 472 –483
Figure 4 Separated and polycentric global service approach
The main advantages of the separated and polycentric
global service structure derive from its ability to put more
emphasis on the financial outcomes of an extended service
offering. Thus, the success of manufacturing companies
demonstrates that a separated and polycentric global service
approach can be highly competitive and successful, when both
the product revenues and margins of manufacturing
companies are under pressure and require compensation
through attractive service revenues and margins. However, the
success of this approach may be limited by low synergies and
efficiency.
Furthermore, the interviewee continued, “The enhanced cost
and revenue transparency for products and services within the
market organizations limits the behavioral orientation to
include services in the product price. As a result, services are
mainly charged separately facilitating our service
profitability”. Only customer service is still integrated into
the product price so as to achieve a product price premium.
Basic services for the installed base and maintenance services
are charged separately (Reinartz and Ulaga, 2008).
The other components of the behavioral orientation remain
similar to the integrated and polycentric global service
structure. This is characterized by high level of marketorganization independence, with relatively low-decision
making authority that remains in the central service
organization, and minimal communication between the
central business unit for services and local service centers,
and among the local service centers of various market
organizations. Furthermore, the development of service
technicians and managers concentrates on local people.
The disadvantage of the separated and polycentric global
service structure lies in the lack of communication and
information flow. One executive described the shortcoming in
the following way: “In our present global service structures,
there are often cases where different market organizations
develop services simultaneously”. This entails considerable
costs, which have to be re-financed by the service
organization. The lack of communication and information
flow also limits the service standardization. The companies
experience difficulties in balancing the transferability of
services across market organizations and the customization
of services for one specific market organization.
Separated and geocentric service approach
Compared to the three service approaches discussed above,
the separated and geocentric global service structure is
becoming increasingly complex and inter-dependent. The aim
is to enhance the product and service business and control
service costs through a collaborative approach between both
central business units (products and services) and the market
organizations (see Figure 5).
In order to enhance the collaborative approach,
manufacturing companies have installed regional functions.
Instead of having warehouses in each local market, regional
warehouses are established (e.g. North America, Europe, and
Asia). This reduces the working capital costs in the local
markets, but quick delivery times are still achieved by using
express deliveries. The higher logistics costs of express
deliveries do not play an important role for customers,
because of the expected high availability of spare parts in the
regional warehouses. These warehouses belong to service
hubs that support the market organizations directly (Gebauer
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Global approaches to the service business in manufacturing companies
Journal of Business & Industrial Marketing
Gunther Kucza and Heiko Gebauer
Volume 26 · Number 7 · 2011 · 472 –483
Figure 5 Separated and geocentric global service approach
et al., 2011). For medium-sized companies with relatively
small market organizations and few requests for second-level
service support, the service hubs take over the provision of
second-level support. The service hubs are essentially
specialized service centers with advanced technical skills.
The bundling of specific service skills in the service hub
increases the level of capacity utilization.
As one interviewee put it, the rationale behind setting up a
service hub can be described as follows: “Setting up service
hubs seem to make the complete separation between product
and service business work. We considered the hub as an
intermediate controlling level for services and parts operations
whereby the distinct service business unit assumes full end-toend responsibility for the service and spare parts logistics
supply chain, from the suppliers to the customers. This has
become essential, because our customers increasingly demand
enhanced service levels and because of increasing cost
pressure”. The increasing cost pressure is the result of
regulatory and governmental pressure for open market
competition, in which customer lock-in as a result of
proprietary after-sales models is increasingly being viewed as
monopolistic. Consequently, one interviewee expressed: “our
service and parts operations are focusing increasingly not only
on our own installed-base portfolio, but also on competitor
and supplementary products”.
Within this pattern of a separated and geocentric service
approach, companies have discovered that, by servicing
competitor or supplementary products they can build longterm customer relationships, with the potential for converting
these customers to their own product portfolio in the future.
The service hub, with its integrated service and parts
operation, seems to be a necessary antecedent to attacking
the installed base of competitors.
Nevertheless, our findings do not demonstrate convincingly
that companies following the third pattern of a “separated and
polycentric global service approach” should not operate
regional warehouses, since they are often more efficient than
local warehouses. Setting up regional warehouses seems to be
a potential way to improve cost efficiency, without necessarily
focusing on their services strategically.
Furthermore, the market organizations seem to place more
emphasis on selling preventive services and service contracts.
Planned preventive service interventions and service contracts
reduce the variability and unpredictability of demand with
respect to service capacity, leading to higher average capacity
utilization. Because established service organizations typically
have fixed costs, capacity utilization becomes the main driver
of profitability (Oliva and Kallenberg, 2003). Through
bundling advanced service skills in the service hub and
putting more emphasis on preventive services and service
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Global approaches to the service business in manufacturing companies
Journal of Business & Industrial Marketing
Gunther Kucza and Heiko Gebauer
Volume 26 · Number 7 · 2011 · 472 –483
Discussion
contracts, the separated and geocentric service approach
improves service profitability. The emphasis on preventive
services and service contracts changes the core service
offering from basic services for the installed base to
maintenance services.
The service hubs facilitate information flows between the
central and market organization and promote the exchange of
experiences between the different market organizations.
Consequently, the volume of information and
communication between market organizations and central
service organization is increasing.
By intensifying the information flows and creating an
exchange of experiences, the service hub diffuses knowledge
on communication and behavioral skills across the global
service network. These communication and behavioral skills
trigger the sales of service contracts and preventive
maintenance. Based on the information flows, the service
hubs can make appropriate decisions on the degree of
standardization of the service offer in order to balance
between the transferability of services across market
organizations and customization for individual clients.
Managing directors of the different market organizations
and the heads of the business unit services are typically part of
the hub management team. Within this service approach, it is
possible to recruit and develop the best employees anywhere
in the world for key positions across the global service
network. The separated and geocentric service approach
enables manufacturing companies to be close to customers
and facilitates a global service program. The separated and
geocentric organization overcomes the disadvantages of the
polycentric behavioral orientation, while retaining high
emphasis on the financial benefits of an extended service
business. Additionally, it offers considerable synergy potential
and enhances service profitability through bundling secondlevel support in the service hub and focusing on maintenance
services.
The separated and geocentric service approach also
reinforces the separation of product and service business at
the level of the market organization. The separation takes
place in considerable large markets and leads to two different
local legal entities. The first is responsible for selling products,
whereas the second is responsible for selling services. Such a
separation of the local organization would also have been
possible in the separated and polycentric global service
approach, but participants argued that splitting the local
organization into two legal entities means two administrative,
controlling and financial functions. This entails considerable
costs, which have to be re-financed by the service
organization. The cost efficiency of the separated and
polycentric global service approach was not sufficient
enough to finance these additional costs. By contrast, the
intermediate structure of a service hub facilitates cost and
resource efficiency and enables companies to set up two
distinct legal entities in the markets.
However, according to market size and maturity, one
interviewee argued that “it does not make always sense to set
up two legal entities (services and products) and to offer both
first and second level service offerings through the local
organizations. Thus, there might also be combined forms
[“hybrids”], where, in specific markets our service and
product business still belong to the same legal entity, or where
local organizations either offer only first-level services or first
and second-level services”.
Theory replication and extension
This study explores the types of global organizational
approaches to the service business in manufacturing
companies. The four service approaches are considered to
extend the existing theory in the following ways.
The study contributes to the discussion of integrating
versus separating the service organization (Gebauer et al.,
2005; Neu and Brown, 2005; Oliva and Kallenberg, 2003),
because it offers a complementary explanation of integrating
and separating the service business, through a differentiation
into central and local (market) organizations. The identified
separation of the service business supports Oliva and
Kallenberg’s (2003) argument that separating the service
business is positively associated with an entry into the service
market for the installed base. The integration of product and
service businesses at the level of market organization is in line
with Neu and Brown’s (2005, 2008) argument in favor of
integrating the various business unit responsibilities.
The findings also extend Neu and Brown’s (2008)
propositions on:
1 basing management’s financial incentives on criteria that
focus on the performance of an inter-dependent cluster of
organizational subunits;
2 designing policies to select, develop, and retain human
resources, so as to cope with market complexity; and
3 vertically decentralizing decision-making authority for
strategy formation.
The different behavioral orientations confirm the proposal to
decentralize decision-making and transfer it to the global
service structures.
Interestingly, the optimal service structure for extending the
service business does not have a complete decentralized
decision-making authority. A moderate decentralized
decision-making authority, which is associated with regional
service hubs responsible for spare logistics, second-level
support, and information flows, seems to be most appropriate
for increasing financial service-related performance outcomes,
such as share of service revenue and service profitability.
The behavioral orientation replicates policies for selecting,
developing, and retaining human resources. It distinguishes
clearly between home country, local, and global approaches
for recruiting, staffing, and developing service executives and
managers and links these different approaches to different
types of service offers and service performance. The means
that the integrated and ethnocentric service structure is
managed through centralized, and product-related financial
performance outcomes. The integrated and polycentric
service structure is managed by decentralized, productrelated objectives, and so on broaden Neu and Brown’s
(2008) argument in favor of managerial financial incentives
on criteria that focus on the performance of an interdependent cluster of organizational subunits. The four global
service approaches offer a more comprehensive view of the
link between service offerings and organizational elements.
Overall, service researchers now have empirical evidence on
how the global service structure is related to extending the
service business in manufacturing companies.
Interestingly, the four global service approaches share few
similarities with Galbraith’s (2002) findings on designing
organizations for the delivering complex solutions. There
remains little evidence on changing the organizational concept
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Global approaches to the service business in manufacturing companies
Journal of Business & Industrial Marketing
Gunther Kucza and Heiko Gebauer
Volume 26 · Number 7 · 2011 · 472 –483
from product profit centers and product teams in the
direction of customer segments, customer teams and
customer profit and loss responsibility. The absence of
strong evidences could result from the data sample itself.
Customers of the participating companies were mainly local
and very few had entered into international deals. Thus, there
is no compelling need to move from product teams towards
customer segments, teams and profit and loss responsibility.
Future research should therefore apply the present findings to
companies confronted with international customers and their
various needs and preferences.
validity (generalizability) of the four global service approaches
could not be assessed accurately. However, in the context of
qualitative research, the number of cases is not relevant as long
as the patterns observed in the data are not incidental. In order
to generalize the four specific patterns, they need to be tested in
other areas and would benefit from insights obtained from
quantitative data. This is beyond the scope of the present
research. In addition, the study is limited by the fact that it
concentrates on the behavioral orientation, organizational
structure, and service offerings. There may well be other
factors such as processes and service strategy, which could yield
additional insights into the global service approach. An
interesting topic for future research would be the
combination of different service strategies (Mathieu, 2001;
Davies, 2004; Gebauer, 2008) and global service approaches.
Managerial implications
The findings provide a complementary perspective to the
many ideas advocated by managers in the field. The key
managerial implications and recommendations are as follows.
The description of the four global service structures offers
guidance for managers seeking to design and adapt their
organization to the requirements of an extended service
business. The four service approaches yield detailed
descriptions of service offerings, behavioral orientations, and
organizational structures. The descriptions make it relatively
easy to develop an action list for improving the global service
organization. Most conspicuously, the developed action list
suggests that a global service approach is a complex
managerial task. Managers contemplating a change project
in the global service approach have to consider not only the
organizational structure, but also the service offerings and
behavioral orientation.
As demonstrated in Figure 6, managers can enhance the
financial contribution of the service business in terms of share
of service revenue to total revenue through the separation of
product and service business at the central level. Changing
the behavioral orientation from a polycentric to a geocentric
orientation additionally enhances service profitability.
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Corresponding author
Heiko Gebauer can be contacted at: [email protected]
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