Cranfield School of Management

High Value Manufacturing and Services : Moving Towards a Servitized World

Research into Product-Service System   

Industry Day - 3 March 2010: Understanding the Customers' Value-In-Use Created by Product Services

High Value Manufacturing and Services

During the last decade, UK Manufacturing output has remained relatively stable, whereas manufacturing profitability has been declining. There are several explanations for the relatively low level of UK manufacturing profitability, including the emergence of alternative low cost sources of supply. These low cost sources of supply affect every developed economy, not just the UK. The OECD (2007) and Porter and Ketels (2003) reports suggest that manufacturing in developed economies needs to move up the value chain and compete on the basis of value delivered rather than on the basis of cost.

Western economies have started to compete on the basis of value delivered by shifting their market share from manufacturing to more product-service oriented systems (Wise and Baumgartner 1999; Neely, 2007). This is linked to the view that manufacturing companies are becoming more oriented to the use of the product-service offering rather than the pure product (Manzini, Vezzoli and Clark, 2001; Mont, 2001; Manzini and Vezzoli, 2003). Thereby, many manufacturers have sought growth through the increased sale of services (Wise and Baumgartner, 1999). This journey towards a tightly-coupled combination of products and services is known as servitization (Vandermerwe and Rada, 1998).

Product-based manufacturing and process-based manufacturing have proved to be relatively easy to imitate by competitors, whereas product-service systems are less easy to replicate (Dickson, 1992; Ghemawat, 1986). This has pushed many manufacturers to recognise the strategic integration of services as a source of sustainable competitive advantage and corporate profitability (Oliva and Kallenberg, 2003; Cohen et al 2006; Rosen et al, 2003; DTI 2002; Newman and Cowling, 1996; Vandermerwe and Rada, 1988; Chase and Garvin, 1989). In theory, the implementation of product-service systems (PSS) leads to higher revenues and margins, but in practice, it takes times to build corporate profitability up (Gebauer, Fleisch and Friedli, 2005). The adoption of a new product-service strategy requires investments on capacity building such as the acquisition of new peoples’ skills, capabilities and technologies, etc (Reinartz and Ulaga, 2008). Therefore in the shorter term, it might be challenging for organisations to make huge revenues out of a new PSS transformation; it may only be in the longer term that a new PSS strategy delivers on its promises.

But what has been the impact?

Organisations such as IBM, General Electric, Xerox, Cannon and Parkersell have had a significant share of revenues and profits from services since the middle of 1990s; this is attributed to a shift from product to service perspective (Quinn, Doorley and Paquette, 1990). Oliva and Kallenberg (2003), Davies (2003) and Araujo and Spring (2006) argue that during this transformation to a combined product-service offering, organisations are likely to change their strategies, operations and value chains, technologies, people expertise and system integration capabilities. However, the transformation paths from a product-centric strategy to a combined product-service strategy are still poorly understood and remain a new and complex concept (Voss et al, 2005; Johnston, 1995; Miller, et al 2002; Tukker, 2004).

To gain a better understanding, this research group focused on two areas. First, the transformations to servitized organisational forms. Second, the assessment of value-in-use. These to research projects have been supported by the EPSRC/IMRC under grant number [IMRC 154], which is supporting Product Service Systems research.

Assessing and transforming your product and services

Organisational transformation for effective delivery of integrated products and services

Assessing Value-in-Use

For further information please contact:

Dr. Veronica Martinez (v.martinez@cranfield.ac.uk)

Links to Outputs and Publications

FREE DOWNLOADS

Assessing customer value in product-service systems.

Transformations to servitized organisational forms

Report

Technology Strategy Board (TSB) Report. Martinez V., Neely A., Ren G. and Smart A. (2008); “High value manufacturing: delivering the promise”; Study commissioned by TSB through the Advance Institute of Management (AIM).

Papers

Baines T., Lightfoot H., Evans S., Neely A., Greenough R., Peppard J., Roy R., Alcock J., Angus J., Bastl M., Cousens A., Irving P., Johnson M., Kingston J., Lockett H., Martinez V., Micheli P., Tranfield D. and Wilson H. (2007); “State of the art in product-service systems”; Proc. IMechE Part B: J. Engineering Manufacture; Vol. 221 (10): 1543-1552.

Martinez V. and Bititci, U. (2006); “Aligning value propositions in supply chains”; International Journal of Value Chain Management; Vol. 1 (1): 6-18.

Martinez V. (2006); “Make Promises that Turn Customers into Loyal Allies”; MIT Supply Chain Strategy; Vol. 2 (9): 4-7

MacBryde J., Beltagui A., Evans S., Moultrie J., Martinez V., Nixon B. and Pawar K. (2006); “Design scorecard: measuring design performance at the firm level”; PMA Conference, London, UK.