Unlocking Success through Service Infusion in Manufacturing

1. Successful Service InfusionHow Do Manufacturers Offer Differentiated Value to Customers? Why Do Collaboration with Customers and Suppliers Matter? Prof Stephan C. Henneberg Dr Nima Heirati Business Ecosystems Research Group (BERG) Queen Mary University of London

2. Who We Are? Introduction Business Ecosystem Research Group (BERG) • The Business Ecosystems Research Group (BERG) is a research group at Queen Mary University of London focusing on issues around B2B marketing, supply chain management, especially business relationships, and inter-organisational networks • BERG is meant to be a platform for research on business ecosystems, particularly with regard to systemic and interactive phenomena of business life. KAM is part of our area of interest. • BERG is a unique hub that brings together pioneer academics and practitioners across the world interested in business ecosystems

3. Who We Are? Introduction Business Ecosystem Research Group (BERG) – Research Streams Business Model Innovation Service Infusion Supply chain Management Customer Participation Triadic Service Infusion Business Relationships Innovation & Entrepreneurship BERG Sustainable Systems Network Dynamics Corporate Social Strategies

4. Who We Are? Introduction Business Ecosystem Research Group (BERG) - Engagement Business Model Innovation Service Infusion Supply chain Management Customer Participation Triadic Service Infusion Business Relationships Innovation & Entrepreneurship BERG Sustainable Systems Network Dynamics Corporate Social Strategies

5. Service Infusion - Servitization Introduction Definition Service Infusion (or Servitisation) • Service infusion is about competing through value propositions that integrate services with product offerings • Supplier-driven rationale: Competition, growth, market differentiation, cost efficiency • Customer-driven rationale: Differentiated value in forms of effectiveness/efficiency gains

6. Service Infusion - Servitization Introduction Different Forms of Industrial Services Source: Annual Manufacturing Report 2017

7. Service Infusion and KAM Introduction • KAM relationships are those that are complex, often involving customizing products/services, and sometimes pricing and distribution methods in the interests of developing collaborative long-term relationships • While KAM relationships are responsible for over 50% of sales in many firms, these relationships involve costs (investing in customization) and risks (customer and/or supplier power or dependence) that make value capture challenging • Service Infusion can be a new game changer in business relationships to offer superior value to customers and capture value for the firm and its suppliers Source: Annual Manufacturing Report 2017

8. Service Infusion Benefits Introduction Source: UK Servitization Impact Study 2013

9. Service Infusion Challenges Introduction Successful Service Infusion • Over 50% of many manufacturers’ revenue is from services • Manufacturers in 500 Fortune list are positioning themselves as solution providers • Few firms (less than 20%) succeed with their service transition strategies • Service infusion seems to represent a costly ‘business model innovation’, which is not always counterbalanced by benefits (e.g. by customer buying more, being more loyal, etc.) Source: Annual Manufacturing Report 2017

10. Service Infusion Challenges Introduction Source: UK Servitization Impact Study 2013

11. Service Infusion Research Programme Introduction Service Infusion Research Objectives • Success seems to be contingent, success factors seem not fully understood • Research Programme Objective is to gain a better understanding of: • Contingencies • Success and Failure factors • Supplier and Customer perspectives • Mechanisms of service infusion

12. Service Infusion Research Programme Introduction Service Infusion Research Programme • Interlocking research studies on service infusion • Service Infusion 1.0 “Sensitisation for Phenomenon” (FINISHED) • Objective: Deep understanding of dynamic elements relating to service infusion • Perspectives: Multi-actor, business model innovation • Service infusion 2.0 “Wide Structuring of Phenomenon” (FINISHED) • Objective: Structured comparison of phenomenon • Perspectives: Configurations, dyadic (supplier/customer), business model structure • Service infusion 3.0 “Generalisation of Phenomenon” (ONGOING) • Objective: Detailed generalizable understanding of multiple sub-areas of phenomenon • Perspectives: Multiple studies, focussing on portfolio, stage, capability, or mechanisms • Service infusion 4.0 “Triadic Service Networks” (ONGOING – Started in March 2017) • Objective: Multi actor (eco-system) perspective of phenomenon • Perspectives: Configurations, Triadic supply network structure

13. Service Infusion 1.0: Infusion/diffusion Understanding the Service Infusion Process as a Business Model Reconfiguration (IMM 2016) Introduction • Sensitisation for phenomenon; longitudinal interviews with supplier, customers, distributors – Case of Norwegian automated warehouse manufacturer • Main findings: Equilibrium within system (service diffusion necessitates service infusion elsewhere); business model realignment driven by knowledge management activities SI 1.0 Findings

14. Service Infusion 1.0: Infusion/diffusion Understanding the Service Infusion Process as a Business Model Reconfiguration (IMM 2016) Introduction SI 1.0 Findings

15. Service Infusion 2.0 Introduction Driver Configurations for Successful Service Infusion (JSR 2017) • Wide structuring of phenomenon • 3 studies as part of SI 2.0 (progression of perspectives) • 25 business relationships, use of multiple key informants (usually CEO and/or production director on customer side; CEO and/or service director on the supplier side). • 94 interviews with supplier respondents, 43 interviews with customer respondents (interview length 60-120min.); Scandinavian manufacturers (average size 22,000 employees; average service share 35%) as suppliers. • Starting point: Questions remain how successful service infusion can be achieved, i.e. what are key drivers and how do they work (together)? Conceptual Framework: • Service infusion as a business model - Use of business model concept by Johnson, Christensen, and Kagermann (2008) as they focus on the levers available to effectively change business models • This includes a value creation and delivery focus which necessitates dyadic considerations (i.e. how an offering provides value at the customer) – Three different perspectives on service infusion value are employed: • Supplier service infusion value - Customer service infusion value - Dyadic service infusion value SI 1.0 SI 2.0

16. Service Infusion 2.0 Introduction Business Model Components • Value proposition (Service offering) • Profit formula (SI Price de-bundling) • Key resources (Service capabilities) • Key processes (SI Process) Configuration theory • Configuration theory allows to identify different recipes for success based on different contingencies SI 1.0 SI 2.0

17. Service Infusion 2.0 Introduction • Service offering: presence indicates service infusion is based fully on SSCs, absence indicates service infusion is based fully on SSPs. • Service pricing: presence indicates that all services are de-bundled, absence indicates that all services are bundled together. • Service infusion process: presence indicates service infusion process is radical, absence indicates service infusion process is incremental. SI 1.0 SI 2.0 Findings

18. Service Infusion 2.0 Introduction • Service offering: presence indicates service infusion is based fully on SSCs, absence indicates service infusion is based fully on SSPs. • Service pricing: presence indicates that all services are de-bundled, absence indicates that all services are bundled together. • Service infusion process: presence indicates service infusion process is radical, absence indicates service infusion process is incremental. SI 1.0 SI 2.0 Findings

19. Service Infusion 2.0 Introduction • Service offering: presence indicates service infusion is based fully on SSCs, absence indicates service infusion is based fully on SSPs. • Service pricing: presence indicates that all services are de-bundled, absence indicates that all services are bundled together. • Service infusion process: presence indicates service infusion process is radical, absence indicates service infusion process is incremental. SI 1.0 SI 2.0 Findings

20. Service Infusion 2.0 Introduction Findings & Implications • There are different recipes for success – “There is no single solution” or “‘more is not always better” • Configurations causing customer value (e.g. based on price-de-bundled SSPs) are in fact not mirror images of those for supplier service infusion value (e.g. based on price-bundled SSCs) • A dyadic perspective shows that both SSCs as well as SSPs can be successful (as part of particular configurations). • Our findings suggest the important and active role customers play in securing service infusion success. • For all solutions of dyadic service infusion success, internally facing customer service capabilities are present. • Service infusion can be achieved based on very different capability endowments in the business relationship (with virtually no capabilities being present by both customer and supplier; or all being present). SI 1.0 SI 2.0 Findings

21. Outlook on Service Infusion 3.0 (ONGOING) Introduction Service Infusion 3.0 “Generalisation of phenomenon” • SI 3.1: Understanding service infusion portfolios • SI 3.2: Understanding customer service infusion value mechanisms • SI 3.3: Driving Service Infusion Adoption • SI 3.4: Understanding service infusion states • Multiple survey and objective data from manufacturers (tool manufacturer) • 14 quarters of 50,000 customer data, sells ‘tool solution’ offering • Objective data min. 500 customer relationships • Objectives: • Understanding value creating mechanisms and contingencies • Understanding of drivers of ‘jump’ from product offering to service infusion • Understanding of drivers of transitions between stages and performance implications SI 1.0 SI 2.0 SI 3.0

22. Outlook on Service Infusion 4.0 (ONGOING) Introduction Service Infusion 4.0 “Triadic Service Networks” SI 4.1: Understand triadic service infusion process • Interview with Key Account Managers SI 4.2: Success factors of different service infusion strategies (triadic perspective) • Survey from managers and objective data SI 1.0 SI 2.0 SI 3.0 SI 4.0

23. Outlook on Service Infusion 4.0 (ONGOING) Introduction Service Infusion 4.0 “Triadic Service Networks” SI 4.1: Understand triadic service infusion process • Interview with Key Account Managers SI 4.2: Success factors of different service infusion strategies (triadic perspective) • Survey from managers and objective data Invitation • We would like to invite KAM managers in Equipment and Machine Tool Manufactures to participate SI 4.1 – 20 minutes interview at your company’s premises or over the phone/skype • We do not ask confidential information and there are no costs to your organization • The findings will be disseminated to participants through a documented report and a workshop – Please contact Dr Nima Heirati: n.heirati@qmul.ac.uk SI 1.0 SI 2.0 SI 3.0 SI 4.0

24. MANY THANKS BERG@qmul.ac.uk n.heirati@qmul.ac.uk