Service transformation in industrial companies

Motivation and idea for the Special Issue

The recent transformation of industry in the digital era, characterised by saturated and commoditised global environments, where companies strive for attracting and retaining customers, has pushed manufacturing organisations to rethink their traditional dominant logic based on the provision of artefacts. The development of differentiation strategies rooted on the product–service system (PSS) paradigm may represent a key element for a sustainable competitive advantage.

It is recognised that over one-third of large manufacturing firms offer services. The successful stories of IBM, Rolls Royce Aerospace, Siemens and Xerox, are only some popular examples of how competing on the basis of a service-based business model allows to prosper in markets affected by weak demand, hard competition and decreasing margins.

Firms that are going along the servitisation shift need to change their business models, organisational structure and mindset, operational processes as well as their relationships with the end-customers, the suppliers and their eco-systems. How do industries cope with all these challenges has yet to be better understood. While there are many cases where companies successfully made the shift to services, many others have faced severe financial damages.

The proposal of the Special Issue was inspired by the industrial panel on Service Engineering in Industrial Companies: Challenges, opportunities and solutions that were held in May 2015 in Ottawa within the 15th IFAC Symposium on Information Control Problems in Manufacturing INCOM. As a proof of its orientation towards a balanced mix between methodological rigourness and industrial pragmatism, the invited guest editors have a complementary academia and industrial background.

The year 2017 marks the 55th volume of the International Journal of Production Research (IJPR). Historically, this journal played a key role in publishing research on the product, processes, production, engineering challenges and benefits of manufacturing systems and operations management.

Among the outstanding researches that have been published throughout 55 years of history, IJPR addressed challenges and issues of manufacturing companies. However, the topic of service transformation throughout more customised and customer-oriented value propositions has been only the recent matter of publication in the volumes. Researches under the ‘servitization’ umbrella appear in IJPR starting from 2012 to 2013, some years later with respect to the overall research stream.

Thirty-one papers on IJPR volumes have been found in SCOPUS using ‘product-service system’, ‘Service engineering’, ‘Functional products’ or ‘Integrated offer’ as search terms. Among them, contributions based on the conceptualisation of servitisation concepts and (Mahut et al. 2017) to assessment of company readiness to PSS (Durugbo and Riedel 2013) and evolutionary level (Zhang et al. 2017) can be found. In the same stream are also available contributions dealing with research strategies in PSS (Wang et al. 2011). The remaining set of literature proposes heterogeneous research as in the following sample. (Zhang et al. 2016) focuse on PSS and logistic distribution; ( Szwejczewski, Goffin, and Zissis 2015 ) concentrate on the service requirement analysis during the PSS design phase; (Belvedere, Grando, and Bielli 2013) explore the role of ICT as a PSS enablers; (Shen et al. 2017) identify a cost configuration for PSS and (Rondini et al. 2017) analyse the service provision process through hybrid simulation modelling.

As a result, it emerges that the current body of literature in this promising research area needs to be significantly reinforced and expanded in IJPR.

New research in service transformation: the papers selected for this Special Issue

The papers selected for this Special Issue provide new relevant knowledge and concrete results on the transition of manufacturing companies through a servitisation process. Hopefully, these contributions will be instrumental at laying the foundations of PSS and servitisation research in IJPR.

Different perspectives showing different industrial challenges, experiences and best practices tackle the topic. Preference has been given to contributions which are co-authored by academicians and practitioners or do have a strong connection with industrial cases. Methodological rigorousness is in most cases matched with concrete and objective evidence of the results achieved in service transformations of companies.

In response to the call for paper, 94 extended abstracts were submitted from 27 different countries; only 55 percent (52 abstracts) were accepted by the reviewers’ panel and invited to submit full papers. To provide a fair review process, at least a two-to-one ratio was performed; in other words, no less than two independent anonymous reviewers were allocated per paper. 45 full papers were submitted and met the requirements in the first round of reviews. As a result, 16 papers were accepted with corrections and invited to resubmit. Three more rounds of reviews were performed and, finally, 11 papers originating from six different countries consolidated this Special Issue.

The Special Issue has a threefold perspective:

•	first, it discusses the main challenges and risks in pursuing a servitised model;
•	second, it investigates capabilities and drivers for enabling service transformation;
•	and finally, it provides insights on the role of key enabling technologies.

Challenges and risks in pursuing a servitised model

Some research works identify the challenges and ‘lesson learned’ that manufacturing companies have to face through the servitisation transition.

The paper Designing and Providing Integrated Product-Service Systems – Challenges, Opportunities and Solutions Resulting from Prescriptive Approaches in two Industrial Companies by Matschewsky et al. studies the applicability of prescriptive approaches, based on lifecycle costing and a PSS design method, to detect, understand and alleviate the challenges in designing and providing product-based systems. The analysis, carried out through a tight collaboration with two distinct Swedish companies, enables the identification of the following challenges: (i) a persisting product-centred mindset, (ii) separation of product and service design, (iii) alignment with changing incentive structures, (iv) prevalence of product-focused information and costing structures. The applications of the prescriptive approaches on the two analysed cases show how to overcome such challenges.

Coreynen et al. in Internal levers for servitisation: how product-oriented manufacturers can upscale product-service systems also contribute to the identification of possible challenges during the service transition. Similarly to Matschewsky et al., they identify (i) the lack of sufficient knowledge or experience to develop fully-integrated PSS solutions and (ii) a still product-centred mindset. Furthermore, they argue that many companies lack of a proactive strategy during the go-to-market phase. To overcome such barriers, they propose a new methodology for companies to generate, prioritise and work out concepts for either new or improved PSS. The methodology consists of a diagnostic instrument and guided workshops. The diagnostic instrument allowed the researchers to evaluate the eight companies explored in their work through a participatory action research on the relevant features of each of the three highlighted barriers, and put into evidence potential weaknesses in bridging the gap between current and desired PSS position. The workshops instead helped companies in further prioritising and working out concrete PSS-enhancements.

An opposite perspective is provided by Lahy et al. in Developing a Product-Service System through a productisation strategy: A Case from the 3PL Industry where the authors explore the main ‘driving and restraining forces’ that characterise the evolution of a service company working to add tangible products to their services. The results achieved in a case study in collaboration with CasComp, a company working in ocean freight brokerage, highlight that the capillarity of a service company is one of the main factors supporting productisation strategy. On the other hand, the lack of skills and capabilities on products, together with the high investments required to physically produce the product could prevent a successful productisation transition.

Bigdeli et al. in Network Positioning and Risk Perception in Servitisation: Evidence from the UK Road Transport Industry and Hou and Neely in Investigating risks of outcome-based service contracts from a provider’s perspective approach the transition specifically looking at the risk involved.

The first paper explores the risks perception associated with the implementation of advanced services, and the ways in which such perception is affected through a strategic partnership with key supply network players. More specifically, a ‘payment card’ exercise has been adopted in order to estimate risk perception among companies operating in different positions within the UK road transport industry’s supply chain. One of the main findings suggests that decisions on how to implement advanced services depend on accumulated knowledge, firm resources and the disclosure dilemma. Although the analysis demonstrates that the perception of risk is high, the authors find out possible mitigation strategies and managerial implications: due to the high percentage of failed partnerships, the importance of selecting the right partner and the need for firms to ensure visibility of the entire value chain before taking any strategic decision.

In their paper, Hou and Neely in Investigating risks of outcome-based service contracts from a supplier’s perspective focus on risk and outcome-based contracts (OBCs). As a result of 24 semi-structured interviews among eleven companies, the authors identified two main risks: commercial risk (the contract negotiations and contract decisions, e.g. unsuitable contract decisions, complex negotiation process) and operational risk (regarding the contract implementation and delivery, e.g. complexity in service delivery, failure to achieve customer value). Besides, the analysis on the interviews allowed the definition of 23 factors that can lead to such risks along five dimensions: complexity, dynamism regarding the context of OBCs, capability, alignment and dependency among the stakeholders of OBCs. The results provide guidance to the managers that have to face the risk in such a context.

Capabilities and drivers for enabling servitisation

Another relevant group of papers within the Special Issue deals with capabilities and factors influencing or supporting the service transition.

Karlsson et al. in Product-Service System Innovation Capabilities: linkages between the Fuzzy Front End and subsequent development phases explore the capabilities required to face PSS innovation in the Fuzzy Front End design phase and in the subsequent phases of the PSS development. Based on a case study in metalworking industry, they demonstrated that there are four main links to innovation capabilities residing within either the Fuzzy Front End or later development phases, or transcending the two: adapting vocabulary and mental models to PSS, handling the ‘intangible aspect’, bridging organisational structures, and managing new business models.

In their contribution Transitioning Defence Aerospace Support System to Service Commercial Sector Maintenance Repair and Overhaul, Hodges and Mo focus on capability for a specific service transition, that is the shift of airline service transport business from the defence industry to the commercial sector. The analysis sheds the light on ten main requirements in this kind of service: characterising servicescape of maintenance repair and overhaul services, selecting customers, demanding operation conditions, product–service system within the defence sector, logistics supply chain, safety management, performance-based contracts, communication complexity, service culture and regulatory compliance. As a key result, service culture and regulatory compliance emerge as the main missing competencies that have to be acquired before the transition to the civil passenger transport.

The research ‘Relationship Archetypes in Aftermarkets’ developed by Wagner et al. can be also considered a hint to support companies towards servitisation. Based on the analysis on 29 companies (either customer, OEM, supplier, or competitor) the authors identify 17 aftermarket archetypes representing the interplay of actors with respect to their position in market. Such archetypes (5 triadic and 12 tetradic) would help the companies in: (i) investigating relational dynamics in aftermarkets (ii) constructing successful after-sales strategies to meet the company’s objectives and (iii) being more effective and successful in their competitive aftermarkets.

The role of key enabling technologies

Other contributions envision the main technology-driven capabilities to deal with servitisation.

The paper Remote Monitoring Technology and Servitized Strategies – factors characterising the organisational application from Grubic and Jennions explores the role of the complex relationship existing among the remote monitoring technology (RMT) and the servitisation strategy. They argue that research in the RMT domain is predominately technology oriented and lacking the wider assessment of the technology’s value creation potential in a business context, thus omitting the concepts of value and risk, which are essential for servitisation. Through the exploration of four case studies, they propose an explanation framework to understand the factors that enable or constrain the adoption of such technology in a servitised scenario. Six factors that have been found to characterise application of remote monitoring in the context of servitised strategies: value proposition enabled by RMT, nature of product, its hierarchical level in the customer’s business, RMT functionality necessary to support delivery of value proposition, type, amount, and frequency of data collected by RMT, and other considerations that either enable or constrain application.

Ardolino et al. in The role of digital technologies for the service transformation of industrial companies explore the role of digital technologies – such as the Internet of Things (IoT), cloud computing (CC) and predictive analytics (PA) – in facilitating service transformation in industrial companies. The work, based on 4 industrial cases, study 11 main capabilities required for the service transformation and their relationship with digital technologies. Besides, specific technologies that could be used to support different servitisation trajectories are also listed. Among the main implications of the work, it is remarkable the potential support to managers in identifying the potential of their product–service offering and the selection of the proper technologies to embrace a specific evolutionary path of their companies.

The work Design of Smart Connected Manufacturing Resources to Enable Changeability, Reconfigurability and Total-Cost-of-Ownership Models in the Factory-of-the-Future by Brad et al. is more focused on the conceptualisation of smart solutions into the future manufacturing context. The work suggests how to include changeability and reconfigurability of solutions in the future factory context also taking into account the total cost of ownership of the entire solution. Main results associated to the work are (i) an index to measure changeability and reconfigurability inside each company, (ii) a model to assess economic feasibility of a solution considering the overall lifecycle and a methodology to support the design of smart solutions.

At the end of this editorial process, we really hope that the content of the papers selected for this Special Issue, their insights and directions could be thought provoking for researchers, inspiring and driving them for their future research activities. Given the richness and thoroughness of case studies and practices thereby reported, we are also confident that practitioners and professionals could get relevant models and solutions for mastering at best the transformation process they are currently experiencing in their companies.

Sergio Cavalieri
CELS – Department of Management, Information and Production Engineering, University of Bergamo, Bergamo, Italy
Zied M.Ouertani
ABB Corporate Research Centre, Ladenburg, Germany
Jiang Zhibin
Shanghai Jiao Tong University, China
Alice Rondini
CELS – Department of Management, Information and Production Engineering, University of Bergamo, Bergamo, Italy

Acknowledgements

We would like to thank all the authors for submitting their papers to the Special Issue and the numerous referees that with their valuable comments supported us in selecting valuable works. We are also grateful to Professor Alexandre Dolgui, Editor-in-Chief of IJPR, for the guidance in developing this issue and Mr. Janno Labrador, Peer Review Coordinator Taylor & Francis.