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Value Creation throughServices
- Positions and Movements on the Goods-to-Services Continuum
Associate Professor Lars WitellService Research Center
Karlstad University, [email protected]
3rd Industrial Business DayApril 27, 2006Finland
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Conducted by CTF together withIVF financed by VINNOVA,2004-2006
To contribute to the introductionof Functional Products inSwedish companies.
Value Creation through ServicesA RESEARCH PROJECT
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Many companies want to change from a position in the leftto a position in the right.
Changes occur through a continuous process.
Goods asadd-on
Services asadd-on
Oliva and Kallenberg (2003)
The change can be described in two ways Change in offering Change in organization
The Goods-to-Services ContinuumA CHANGE PERSPECTIVE
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(1) consolidating product-related services (services related to goods), (2) entering the installed baseservice market, (3) expanding to relationship-based services or expanding to process-
centered services, 4) taking over end-users operation
Oliva and Kallenberg (2003)
(1) manufacturing to (2) systems integration, then onwards to (3) integrated solutions in whichservices are added to systems, and further on to (4) operational services and even tointermediary services
Davies (2003)
(1) customer services (interactions between seller and buyer), (2) product services (support of goods), (3) service as a product (services independent of the companys goods)Mathieu (2001a)
(1) pure goods, (2) core goods with accompanying services, (3) core services with accompanyinggoods, and (4) pure services
Martin and Horne (1992)
(1) customer service is a component of the product, (2) service is an element of product strategy,(3) service-oriented goals are incorporated in the firm strategy, (4) service organizationarrangements are adopted
Bowen et al. (1989)
(1) the company is either in a goods or services business, (2) goods and services are combined inofferings, and (3) offerings are complex bundles of goods, services, information, support andself-service elements
Vandermerwe and Rada (1988)
(1) managing a quasi-manufacturing organization, (2) proffering mixed services or (3) pureservices
Chase (1981)
PositionsAuthors
The Goods-to-Services ContinuumAN OVERVIEW OF MODELS
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Pure ServicesTeaching
Financial ConsultingMedical Advice
Core ServicesAirlineHotelISP
Core GoodsAppliance
Data Storage SystemVehicle
Pure GoodsFood Product
ChemicalBook
Serv ic e s Ph ysic a l Goods
Products and services aremade more similar
The Goods-to-Services ContinuumCHANGE IN OFFERING
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An Empirical StudyCROSS SECTIONAL STUDY
To investigate how industries are positioned on the goods-to-services continuum.
Selection of companies (n=200) Industry codes SNI 15000 45500. On average 150 employees with a turnover of 295 MSEK.
Survey of Managers Research together with Professor Anders Gustafsson and
Ph.D. Candidate Bodil Sandn.
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Pulp and Paper Plastic
Metal Construction
The Goods-to-Services ContinuumPULP AND PAPER
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15
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Pure Services Core Services Core Goods Pure Goods
N o . o
f C o m p a n
i e s
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The Goods-to-Services ContinuumMACHINE INDUSTRY
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5
10
15
20
Pure Services Core Services Core Goods Pure Goods
N o .
o f C o m p a n
i e s
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The Goods-to-Services ContinuumELECTRIC
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10
15
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Pure Services Core Services Core Goods Pure Goods
N o . o
f C o m p a n
i e s
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The degree of Service Infusion seems to differ betweenindustries
The Goods-to-Services ContinuumSUMMARY : CHANGE IN OFFERING
Pure ServicesTeaching
Financial ConsultingMedical Advice
Core ServicesAirlineHotelISP
Core GoodsAppliance
Data Storage SystemVehicle
Pure GoodsFood Product
ChemicalBook
Pulp and PaperPlasticMetal
Construction
MachineElectric
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Position B:
Consolidationofproduct-relatedservices
Position C:Entering theinstalled base (IB)
service market
Position D:Expanding to
relationship-based
services
Position E:
Takingoverend-users
operation
Oliva and Kallenberg (2003)
Position A:Focus on
thecore goods
The Goods-to-Services ContinuumCHANGE IN ORGANIZATION
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Description The focus is on providing goods. Some services are delivered, but they are
seen as a cost to be able to sell goods.
Triggers
New products from competitors Actions
Excel in product development and manufacturing. Introduce services to increase sales of goods.
B C D EA
Position AFOCUS ON THE CORE GOODS
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Description Services are seen as an important ingredient to increase customer
satisfaction and it is consolidated within a single organization.
Triggers
Customer complaints Competition
Actions Move services under one roof Monitor effectiveness and efficiency of service delivery
Add services to support quality initiative
B C D EA
Position BCONSOLIDATION OF PRODUCT-RELATED SERVICES
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Description Services are seen as a strategy to increase profits. Structures and processes
are set up to realize the potential of services.
Triggers Profitability potential Competition Customer satisfaction Change in management
Actions Definition and analysis of service market Creation of a separate organization to market and deliver services Creation of infrastructure to respond to local service demands
B C D EA
Position CENTERING THE IB SERVICE MARKET
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Description A change from transactions to relationships and from value propositions
based the product to the end-user process.
Triggers Customer requests
Utilization of product development skills Utilization of service infrastructure
Actions Develop consulting capability Achieve cost advantage Assume operating risk Expand to include other manufacturers
B C D EA
Position DEXPANDING TO RELATIONSHIP-BASED SERVICES
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Description Organizations take over the entire responsibility of parts of the customer
operations.
Triggers
A long track record as service provider Actions
Establishing systems for managing long term establishments withincustomer operations.
Development of a new capability
B C D EA
Position ETAKING OVER ENDUSERS OPERATION
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To investigate how companies position and move on thegoods-to-services continuum.
Selection of companies (n=23) Machine Industry (SNIkod 29) 500-1000 employees
Interviews with 17 development managers Example of Companies
Divisions of Ericsson, Volvo, Atlas Copco, Electrolux, Bosch, etc.
Research together with Ph.D. Anders Fundin fromBombardier.
An Empirical StudyWITHIN INDUSTRY STUDY
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The Goods-to-Services ContinuumPOSITIONS
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Position A Position B Position C Position D Position E
N u m
b e r o
f c o m p a n
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Pure Goods Relationship-basedServices
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The services has appeared over the years. Then we have gathered ittogether in a service division where they are responsible for sparepartsand all other after salses businesses.
There are a lot of services... It is financing of machines, training and education. Total maintenance, where the whole service of a factory is taken over. Contract Management, when both machinery and service personell are leased. Field service are spare parts and services.
One strategy is to provide a service for free in the beginning, but in thelong run we put a price on the service.
The Goods-to-Services ContinuumA COMPANY THAT HAS REACHED FAR
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It happens that we sign a localservice agreement with afactory. We gurantee that for XSEK we will repair allmachines.
Often it has ended in more orless catastrophy , it has costedus to much
The Goods-to-Services ContinuumOTHER EXPERIENCES
We are rather strict withsticking to our corecompetence.
The sercice area is ratherspecial, especially to plan for.We actually need anotherbusiness model.
We have not got burnt, but we
try to stay within the limitswhere we are today. It is whatwe do best!
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Position B:Consolidation
ofproduct-
relatedservices
Position C:Entering theinstalled base (IB)
service market
Position D:Expanding to
relationship-based
services
Position E:Taking
overend-users
operation
Position A:Focus on
thecore goods
The Goods-to-Services ContinuumMOVEMENTS
Slow increase of the service content
Stand Still
Reduction of service content
Fast increase of the service content
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Companies that choose tointegrate product and servicedevelopment.
Companies that separateproduct and servicedevelopment.
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Ad-hoc Structured
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i e s
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Ad-hoc Structured
N o . o
f c o m p a n
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Service DevelopmentSEPARATE OR INTEGRATED
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The Goods-to-Services ContinuumECONOMICAL EFFECT OF POSITION ON CONTINUUM
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810
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Position A Position B Position C Position D and E
P r o
f i t M a r g
i n [ % ]
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Position A Position B Position C Position D and E
D e v e
l o p m e n
t o
f P r o
f i t M a r g
i n [ % ]
The Goods-to-Services ContinuumDEVELOPMENT OF PROFIT MARGIN
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Service infusion appears both on industry and companylevel.
There are a number of strategies available, i.e. to find theright position and movements on the goods-to-servicescontinuum.
Service infusion can be a profitable strategy, but duringthe capacity building period large investments areneeded. Investments that takes time to pay off!
The Goods-to-Services ContinuumSUMMARY : CHANGE IN ORGANIZATION
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