24 June 2015

A capability-based view of service transitions

by Ornella Benedettini

Exploiting service opportunities often requires manufacturing firms to shift to new service-centric business models, logics, processes, values – in other terms to transition into what sometimes is a very different organisational setting. This transition must be supported by appropriate firm-level capabilities, this meaning that the firm has to possess the abilities, skills, knowledge and resources that underpin the development and delivery of the services that it decides to offer. While some capabilities can be leveraged from the product domain (which is a substantial advantage of manufacturing over pure service firms), others are service-specific, and hence need to be developed or acquired on purpose. It is therefore particularly important for manufacturers to have a clear understanding of what service-related capabilities they need in order to generate value and performance from their service strategy efforts.

Despite this background, the issue of capabilities has been rarely addressed directly in existing academic and practitioner studies of service transitions. For this reason, we decided to conduct a research project that analyses the service-relevant capabilities of a sample of servitized companies on the basis of the types of services that they offer and the financial performance that they achieve. In practice, with this project we would like to show three things: (i) how manufacturers orchestrate service-relevant capabilities in practice, (ii) how different services require different capabilities, (iii) how/if greater service capabilities lead to greater firm performance. The study is based on the cases of 138 companies from the aerospace and defence sector. We map the levels and sets of capabilities of these companies using the Alliance ‘Service Capability Audit’ tool. Developed by Alliance Director Andy Neely through case studies and in-depth interviews with senior managers at 12 leading servitized firms, the tool identifies 12 bundles and over 70 individual capabilities along 4 key categories: value proposition, ecosystem awareness, value delivery, and accountability spread. We draw the information regarding service capabilities from the companies’ annual report narratives using the content analysis technique and Wordstat software. We further consider 15 categories of services that aerospace and defence companies may offer and content analyse the Capital IQ long business descriptions searching for evidence of these service categories.

The study is currently in progress. The data collected so far suggest that different companies have different levels and sets of service-relevant capabilities. Intriguingly, while the literature tends to assume that all service-relevant capabilities are equally important, our empirical investigation reveals a difference in emphasis among categories and bundles of capabilities. For example, within the value delivery category, we found rich evidence of internal capabilities that enable the delivery of the value proposition but much less evidence of capabilities related to the coordination of multi-party delivery, suggesting that perhaps the sample companies tend to rely on an internal delivery system rather than on a networked one. Similarly, evidence related to the accountability spread category is focused on acknowledging that the companies are aware of business risks rather than that they have mechanisms in place to control, share or mitigate such risks. Although we haven’t yet examined the relationship between capabilities and performance, some performance differences have already emerged among the sample companies that can be potentially explained by nature and extent of the shift to services. Notably, we found an inverse U-shaped relationship between number of services offered and both firm profitability and market value. Specifically, more services mean better performance, but only until when the companies offer 8-9 services, i.e. there is a limit to the amount of service diversification that can be proficiently engaged.

The aim of the project is to contribute to the research stream of the service infusion in manufacturing, furthering the understanding of the capabilities that influence the ability to transition to services for different companies. Nevertheless, from a managerial standpoint, we seek to develop practical insights on how manufacturers could align the configuration of service strategy and organisational capabilities. For more information on this research please read this paper

No comments:

Post a Comment