Euroma paper.pptx

A comparative assessment of the service cultures of industrial businesses in the DACH region and their impact on business performance 21st EurOMA 2014, Palermo

Dr Shaun West

INTRODUCTION)

EUROMA'2014'|'Dr'Shaun'West'

Problem)statement)based)on)the)survey)of)Angehrn)and)findings)of)others)

The$present$study$was$undertaken$to$assess$the$degree$of$servi5za5on$and$cultural$intensity$and$iden5fy$their$contribu5on$to$the$businesses’$performance$for$24$businesses$in$the$DACH$region.$Business$performance$was$based$on$ROS$with$the$aim$of$iden5fying$a$rela5onship$between$the$degree$of$servi5za5on$and$cultural$intensity.$$'


120131118_2330_RB Service study 30_Final document_E_PUBLIC VERSION.pptx

Zurich, November 2013

Service 3.0 Unraveling Value Pockets in the Service Business

INDUSTRY STUDY

A$desire$to$understand$the$reasons$for$the$differences$seen$in$the$performance$of$the$businesses'

Introduc@on)to)the)situa@on)described)in)Angehrn’s)study)of)24)industrial)companies)and)others)


Angehrn,'P.,'Siepen,'S.,'Schmi@,'P.,'&'Kern,'C.'(2013)'Service'3.0'H'Unraveling'Value'Pockets'in'the'Service'Business.'Roland'Berger.'Zurich.'Switzerland.''


16%

Transportation& mobility21%

Manufactruingsystems & robotics

21%

42%

< 30

14%

21 - 30 21%

10 - 20

29%

< 1036%

50%

< 1’000

12%

>5'000

2’000 - 5’000

19%

1’000 - 2’00019%

Companies in major EPHT segments took part in the international study – All company size categories represented

Participating companies1)

1) Participating in quantitative interview survey N = 20

INDUSTRY SEGMENTS

Machinery, tools& equipment

Energy equipment

Source: Service study Roland Berger 2013

OVERALL HEADCOUNT

OVERALL REVENUE [EUR]

SERVICE HEADCOUNT [% of overall]> 1 bn

62%20% 500 m -

1 bn

5%200 m -500 m

13%

< 200 m

A. KEY RESULTS AND STUDY FOCUS I BACKUP

•  >50%'of'the'businesses'had'20H40%'service'sales'

•  65%'of'the'service'business'had'profits'above'the'company'average'

The)framing)of)this)study)came)out)of)Gebauer’s)findings)of)the)impact)of)cultural)aspects)on)the)performance)of)service)delivery)

Gebauer’s'study'into'service'orienta\on'used'the'criteria:''

H  management'values'and'behaviours'

H  employee'values'and'behaviours'

To'model'overall'performance.'


Gebauer,'H.,'Edvardsson,'B.,'&'Bjurko,'M.'(2010).'The'impact'of'service'orienta\on'in'corporate'culture'on'business'

performance'in'manufacturing'companies.'Journal$of$Service$Management.'doi:10.1108/09564231011039303.'

hypothesized effects of the relationship between elements of the service orientation ofcorporate values and the service orientation of corporate behavior are supported.

H6 is stronger for the separated (s – separated) service organizations than for theintegrated (i – integrated) service organizations ( y1i ¼ 0.22, p , 0.05; y1s ¼ 0.51,p , 0.01). In an integrated service organization, the service orientation of managementvalues has a low impact on the service orientation of management behavior. In terms ofa separated service organization, however, the service orientation of managementvalues has a significantly stronger impact on the service orientation of managementbehavior. Similarly, it strongly enhances H8 ( y2i ¼ 0.19, p , 0.05; y2s ¼ 0.33, p , 0.05)and H7 is only significant as companies separate the service organization ( y3s ¼ 0.51,p , 0.01). In the case of integrated service organization, the association is notsignificant ( y3i ¼ 0.09, p . 0.1). According to the x 2 differences for hypothesesH6-H8,(Dx 2

H6 ¼ 4.2, p , 0.05; Dx 2H7 ¼ 6.7, p , 0.05 and Dx 2

H8 ¼ 5.5, p , 0.05) the nullhypotheses were rejected and the moderating effects are supported by size andsignificance.

Interestingly, theH9 andH10 are not supported in size and significance because thex 2 differences were below the recommended level (Dx 2

H9 ¼ 2.2, p . 0.1, and

Serviceorientation ofmanagement

values

Serviceorientation ofmanagementbehavior

Serviceorientationof employee

values

Serviceorientation ofemployeebehavior

Overallperformance

Service orientation ofmanagement values 1Service orientation ofmanagement behavior 0.24 1Service orientation ofemployee values 0.58 0.46 1Service orientation ofemployee behavior 0.50 0.26 0.44 1Overall performance 0.29 0.29 0.41 0.20 1

Note: All correlations are significant at the p , 0.001

Table III.Correlations among latent

constructs

Figure 2.Results of the path

analysis

Service orientation ofmanagement values

Service orientation ofmanagement behavior

Service orientation ofemployee values

Service orientation ofemployee behavior

Overall performanceH3: y3 = 0.47,p < 0.01

H2: y2 = 0.30,p < 0.01

H5: y5 = 0.29,p < 0.01

H4: y4 = 0.10,p < 0.01

H1: y1 = 0.48,p < 0.01

Part 1: Hypothesized main effects among different culturalelements in order to increase the service orientation of corporate

culture in manufacturing companies

Part 2: Hypothesized main effects of serviceorientation in the corporate culture

on overall performance

Performance inmanufacturing

companies

251

“service$orienta5on$in$the$corporate$culture$is$posi5vely$associated$with$overall$performance”,'Gebauer'(2010).''

REVIEW)METHODOLOGIES)APPLIED))


Companies)included)in)the)study)were)all)based)in)the)DACH)region)of)Europe))


Publicly'available'data'' Interviews'

Ra\onale'H''

To'obtain'data'and'assess'consistency'

of'messages'and'used'in'detailed'

analysis'

'

Ra\onale'H''

To'obtain'more'details'from'the'

leadership'

Data)collec@on)was)based)on)publicly)available)data)and)interviews)for)the)benchmarking))


Annual Report 2013

CMD 2013–Sulzer Pumps

Page 4

Capital Market Day 2013 | Sulzer Pumps | slide 7

Sulzer PumpsEnd market assessment

� Continued growth of crude oil consumption

� Capital spending remains on a high level

� Number of projects is growing in ASP

� Pipelines and FPSOs are main growth drivers

Oil and Gas

� Pulp and Paper investments still weak; only demand for rebuilds and services is driving the market

� Growth of pulp and paper demand is expected mainly in South America and ASP

� General industry business suffering from lower activities in mining and biofuels

General industry

� Overall capacity has increased

� New planed and new approved capacity was added, driven by Asia-Pacific

� Coal fired and nuclear plants are investment drivers in Asia-Pacific

Power

� Municipal Water and Wastewater market slow but showing signs of recovery

� Industrial Wastewater stable

� Dewatering slow due to low mineral prices and low construction activity

� Desalination and water transportation market low but stable

Water45% 17% 23% 15%

Note: Sales share by end markets on 2012 figures

Divisional near-term outlook

Capital Market Day 2013 | Sulzer Pumps | slide 8

Flowserve, Clyde/SPX, Ruhrpumpen, ITT, KSB, Ebara

Addressable market size1 for centrifugal pumps by key marketsmillions of CHF

Sulzer PumpsLarge opportunities in key markets

KSB, Flowserve, Ebara, Clyde/SPX, ITT, Torishima

Xylem, Wilo, KSB, Ebara, Grundfos, Pentair

Key competitors:

Ebara, KSB, Andritz

Strategic focus on selling our full product portfolio into all markets and regions

1) Market size for new equipment (excl. aftermarket); Source: EIF World Pumps Market New Business, internal analysis

2'500

3'000

3'500

18'000Water

Oil and Gas

Power

General Industry

Theme) Ques@on)

Business'understanding' Market'intelligence'

Targets'and''

Full'market'demand'

Service'porgolio'' Service'lifeHcycle'

3rd'party'services'

Coverage'of'market'demand'

Organiza\on'and'processes' Clearly'defined'organiza\on'

StateHofHtheHart'lean'processes'

Effec\ve'incen\ve'systems'

Service'pricing' Package'offers'

Differen\a\ng'service'pricing'

Markups'

Unique'selling'proposi\on' R&D'

Propriety'design'and'supply'chain'

Selling'services'and'new'equipment'

Service'marke\ng' Customer'segmenta\on'

Sales'channels'

Knowledge'of'installed'base'

Business'types'were'based'on'

Backhaus'

'

Customer'based'market'

segmenta\on'

'

'

'

'

'

The'assessments'were'based'on'the'

markets'the'customers'were'ac\ve'

Ra\onale'H''

Different'business'types'can'a@ract'

different'margins'

Ra\onale'H''

Different'customer'segments'a@ract'

different'margins'

'

The)data)was)analyzed)using)a)range)of)methods)to)aQempt)to)remove)other)factors)))


Product(business(

OEM(business(

Systems(business(

Project((business(

Supplier(insecurity(No(supplier(insecurity(

Buyer(insecurity( No(buyer(insecurity(

Market(segment(Individual(buyer(

Individualiza?on(

Single(tran

sac?on

(Re

Abuy(

Customer(rela?onship(

Service'cultures'typologies'' Degree'of'servi\za\on'was'based'on'

Vandermerwe''

Ra\onale'H''

To'iden\fy'the'organisa\onal'

intensity'and'the'service'specificity'of'

the'businesses'

'

Ra\onale'H''

To'iden\fy'the'maturity'of'the'

servi\za\on'

The)degree)of)servi@za@on)and)the)service)cultures)typologies)were)es@mated)from)the)publicly)available)data)and)the)interview)data))


Tac$c% Strategic% Cultural%

Customer%services%

A"Toll&free"numbers"

Dell"on&line"

Toyota/Lexus"

Product%services%

Basic"extended"warran;es"

GE"Medical"systems"

Caterpillar"

Service%as%a%product%

Non&OEM"repairs" Fiat"in"IT" IBM"Global"

Services"

Organiza;onal"intensity""

Service"specificity""

RESULTS)AND)ANALYSIS)OF)THE)STUDY))


H  Alstom'used'to'publish'financials'for'service'and'equipment'

H  Sulzer'may'do'doing'so'in'the'future'

Basic)financial)results)and)customer)segmenta@on)showed)some)problems)with)the)data)

H  Data'allowed'overall'firm'service'sales'%'

verses'business'ROS'to'be'plo@ed'

H  Data'provided'remained'at'a'high'level''

H  Mixing'of'service'spare'parts'with'new'

H  Impact'of'customer'market'segmenta\on'

was'inconclusive'

H  Star\ng'point'was'narrow'H  Business'iden\fied'several'segments'

'


Notes

! Count! Proportion!of!services!(Service(sales/Total(sales)!

ROS!!(Total(EBIT/(Total(sales)!

Business!types!based!on!Backhaus!(2005)!OEM(business( 7( 24.6%( 7.8%(Product( 6( 32.8%( 9.7%(Project( 2( 25.5%( 8.3%(Systems( 9( 24.8%( 10.3%(

Degree!of!servitization!based!on!Vandermerwe!(1988)!Product(+(minor(service( 12( 20.0%( 7.4%(Service(+(minor(product( 12( 33.6%( 11.1%(

Service!specificity!based!on!Mathieu!(2001)!Customer(services( 3( 28.7%( 8.0%(Product(services( 17( 27.4%( 10.1%(Service((as(a(product)( 4( 23.0%( 6.5%(

Organisational!intensity!based!on!Mathieu!(2001)!Tactic( 4( 19.5%( 5.0%(Strategic( 15( 24.0%( 9.7%(Cultural( 5( 41.0%( 11.4%(

Total!study! 24( 26.8%( 9.0%(

Overview)of)the)services)analyzed)using)different)approaches))

H  Business'Type'–'generally'inconclusive'H  Degree'of'servi\za\on'–'the'businesses'were'very'similar'

H  Service'specificity'–'most'of'the'services'supported'products'

H  Organisa\onal'intensity'–'%'sales'and'ROS'increase'with'intensity'EUROMA'2014'|'Dr'Shaun'West'

Analysis

Business)performance)based)on)organisa@onal)intensity)(Mathieu,)2001))provided)some)interes@ng)results)

H  There'was'significant'sca@er'with'the'‘strategic’'business'H  Separa\on'seen'between'the'‘tac\cal’'and'the'‘cultural’'Q'–'what'could'be'the'cause'of'this?'


7

• strategic tools, (eg, installed base database, customer relationship management systems, competitor database, etc);

• strategic KPIs, (eg, installed base coverage, capture rate of own equipment, percent of customer spend, etc);

• operational KPIs, (eg, net promoter score, delivery metrics, safety metrics, etc). The additional factors that could also have an impact on business performance are

the business type, market segmentation, business cycle and any service paradox issues. Only business type and segmentation were considered in this study. In order to consider the business cycle a longer time frame would have to be used and for the service paradox the impact of equipment densities/installed equipment bases.

It has to be noted that one business provided only services to owners and operators of

other manufacturers’ equipment; the business reported both services and products in their sales figures. More investigation is required to confirm if these were ‘spare parts’ or ‘products’ and therefore reported on a similar basis as the other 23 businesses.

Figure 2 – Plot of service proportion versus ROS for all companies in the study

Analysis and discussion of the results Using data from the interviews, an initial assessment was made of each organisation’s position on the servitization continuum (Vandermerwe, 1988). Due to the narrow range of companies studied all businesses fell within a narrow range on the servitization continuum making it difficult to use the data only with this dimension. Additional information was gathered from the organisations’ websites enabling each organisation to be plotted on Mathieu’s matrix of service specificity versus intensity (Mathieu, 2001).

The study shows the possibility of using externally published data to assess an organisation’s degree of servitization and is therefore in line with the findings of Neely (2008). This can provide the organisation’s leadership with an understanding of possible improvements in its service provision. Interview data confirmed that the level of servitization allowed the organisation’s service typology to be compared using

Analysis

What)contributed)to)the)scaQer)with)the)‘strategic’)businesses?)

H  Service'paradox'issues'(Gebauer,'2005)'

H  Different'stages'of'service'development'

H  Different'customer'markets;'

business'type/business'models;'

and,'business'cycles'


7










Interviews'provided'some'evidence'that'the'beQer)performers)approached'service'as'a'process'and'had'a'range'of'strategic'tools'

and'KPIs'(strategic'and'opera\onal)'

Analysis

What)were)some)of)differeances)between)the)businesses)with)‘cultural’)and)‘ta@cal’)orgnisa@onal)intensi@es?)


Tac@cal) Cultural)

Sales/marke\ng'leads'service' Leadership'

Immature'services' Mature'service'business'

Technology''first' Customer'first'

Inconsistent'messages' Consistent'messages'

General'manufacturing'metrics' KPIs'to'measure'service'performance'

Your$chance$of$success$is$higher$if$you$have:$clear$leadership,$a$larger$service$fleet,$put$your$customer$first,$stay$on$message$and$measure$service$performance$$

Analysis

Main findings

Summary)of)main)findings)from)the)analyses)


Issue) Implica@on)

Transparency'of'published'data' Lack'of'clear'service'financials'and'KPIs'

Contradic\ons'in'presenta\on'of'services' Leads'to'confused'messages'

Service'leadership'remains'important' Shows'value'placed'on'services'

Mathieu’s'model'more'relevant'than'

Vandermerwe'for'this'study'

Mathieu’s'model'helps'understand'the'

service'journey'

Use'of'systema\c'tools/process'help…' Need'for'service'tools'and'KPIs'to'help'

Segmenta\on'analysis'was'inconclusive' Study'size'was'too'small'

CONCLUSIONS)AND)RECOMMENDATIONS)


Main conclusions

Conclusions)based)on)the)findings)

H  Financial'repor\ng'alone'does'not'provide'a'reliable'assessment'

H  Ambiguity'in'‘product'sales’'was'seen''

H  Mathieu’s'matrix'can'described'a'‘servi\za\on'journey’'

H  Organiza\ons'with'a'‘cultural’'service'specificity'H  Generally'the'be@er'performers'

H  Tended'to'have'more'formal'processHbased'tools'to'support'service'

opera\ons''


It$is$postulated$that$the$use$of$a$number$of$tools$can$help$to$bridge$the$gap$between$manufacturing$and$service$provision$whilst,$helping$the$whole$business$to$understand$the$issues$faced$by$increasing$servi5za5on$

3)recommenda@ons)for)further)work)

1.  Undertake'a'wider'study'to'improve'data'

H  Collect'financial'data'for'product/spares'H  Improve'segmenta\on'to'isolate'secondary'factors'

2.  Development'of'assessment'tools'for'benchmarking'service'cultures'

from'the'customers'perspec\ve'

H  This'will'help'businesses'to'assess'their'status'3.  Iden\fy'serviceHfocused'processes,'tools'and'KPIs'

H  This'will'help'support'an'industrial'product'business'develop'a'service'capability''


To do

ACKNOWLEDGEMENTS))


Acknowledgements)

The'authors'would'like'to'acknowledge'the'24'businesses'that'took'part'in'

the'study,'the'support'from'the'Roland'Berger'with'undertaking'the'survey'

and'the'financial'support'from'Lucerne'University'of'Applied'Sciences'and'

Arts.''

'



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Study authors

H. ROLAND BERGER AND CONTACTS

Partner

PhilippAngehrn

Partner

Sven Siepen

Consultant

ChristianKern

Senior Consultant

Dr. PhilippSchmitt


Please approach us for further questions – We would be happy to discuss your agenda


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Office Zurich

+41 43 336 8634

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+41 43 336 8670

[email protected]

Study authors

H. ROLAND BERGER AND CONTACTS

Partner

PhilippAngehrn

Partner

Sven Siepen

Consultant

ChristianKern

Senior Consultant

Dr. PhilippSchmitt

Dr)Shaun)West)Lecturer'for'Industrial'

Service'Innova\on'

Lucerne'University'of'

Applied'Sciences'and'

Arts''

Sven)Siepen)Partner'

Roland'Berger,'Zurich'

'

Dr)Philipp)SchmiQ)Senior'Consultant'

Roland'Berger,'Zurich'

'

Any)ques@ons?)


1

A comparative assessment of the service cultures of industrial businesses in the DACH1 region of Europe

and their impact on business performance

Dr Shaun West ([email protected]) Lecture for Service Innovation

Lucerne University of Applied Science and Art Technology and Architecture, Technikumstrasse 21, 6048 Horw

Dr Philipp Schmitt

Consultant Roland Berger, Holbeinstrasse 22, 8008 Zürich

Sven Siepen

Partner Roland Berger, Holbeinstrasse 22, 8008 Zürich

Abstract The objective of this paper is to compare the level of servitization and cultural topologies with the observed business performance of 24 industrial firms based in the DACH region. The majority of the firms evolved from product businesses serving a range of industrial market segments. The results identified that the best performing business had a service content in the range of 25-50%; those with more standardised tools/processes tended to outperform those with a more ad-hoc approach. This is important to know as the successful transition to services depends upon context (Neely 2011); including history, leadership, culture and tools/process. Keywords: Cultures; servitization; engineered-products. Introduction This preliminary study is based on the primary data collected by Angehrn (2013) from a servitization survey of 24-industrial/manufacturing businesses in the DACH (Germany, Austria and Switzerland) region of Europe. The results of that study showed that the businesses with around 25-50% of services tended to have better financial results when measured using the Return on Sales (ROS=Earnings before interest and taxation (EBIT)/Sales) basis. Angehrn’s (2013) results identified an underlying need to analyse the data further to identify the underlying reasons for these differences in financial performance with respect to the degree of servitization.

1 DACH region – Germany, Austria and Switzerland

2

Angehrn’s (2013) study is in general agreement with that of Neely (2013), who

showed that servitization had taken hold within the German manufacturing sector. Neely (2013) highlighted the importance that servitization plays in the business strategies of the industrial businesses and that this was often seen in terms of: lock-in/ lock-out, increasing differentiation, customer demand. He also discussed some risks for industrial businesses based around their engineering heritage which causes them to be slow or reduces the uptake of servitization. However Neely (2013) did not provide details on the sales values that come from the service and the manufacturing activities. Brax (2005) and Angehrn (2013) both agreed that some industrial businesses are able to create a service business of sufficient scale to overcome the operational costs.

Gebauer’s (2010) paper described the cultural aspects of performance and service delivery in the DACH region. For the study a series of questionnaires were sent to the businesses that allowed an service performance to be quantified, the criteria chosen were the service orientation of:

• management values and behaviours; • employee values and behaviours.

The results of the Gebauer (2010) study showed that in the businesses where service

and manufacturing operations were separated from each other there was a stronger cultural affinity for services; it also highlighted that businesses with the highest cultural affinity for services had the better overall performance. The key finding of the study was that the “service orientation in the corporate culture is positively associated with overall performance”, Gebauer (2010).

The present study was undertaken to assess the degree of servitization and cultural

intensity and identify their contribution to the businesses’ performance for 24 businesses in the DACH region. Business performance was based on the ROS with the aim of identifying a relationship between the degree of servitization and cultural intensity. Review of the theories applied The service theories used in this study to review the 24 businesses were:

• servitization model based on Vandermerwe (1988); • service cultures typologies based on Mathieu (2001).!

The business benchmarking was based on Anderson (2009) for customer segmentation analysis and Backhaus (2005) for the analysis of business types. The servitization models Vandermerwe’s (1988) servitization model was used with the following definitions:

• product; • product + minor service; • service + minor product; • service; • product-service system.

3

These were used to provide greater granularity into the segmentation to allow a fuller understanding of the business. Service culture typologies The framework provided by Mathieu (2001) provided a typology for measuring both service specificity and organisational intensity (for services). The typology provided a powerful framework for benchmarking the businesses based on their affinity towards services. This approach has been used by others (Bikfalvi 2012; Brax, 2005; and others) to help benchmark businesses in terms of service. Mathieu’s (2001) model augments Vandermerwe’s model by analysing the data in 2 dimensions: one relating to the organisation and the other relating to the service(s) provided.

To assist with quantification of servitization and cultures, Neely (2008) used an automated approach to measure the classification of the business based on a process in Excel, based on the formula “=IF(ISNUMBER(SEARCH("consult*",$D4)),1,0)”, in addition to a manual search. Although using this approach is relatively simple it was shown to provide some level of quantification in addition to manual oversight. In Neely’s study the Excel-based approach was used with businesses that provided services for engineered products and so was relevant as it focused on provision of services for engineered products. A key conclusion of the study was that servitization was shown to becomes a route to obtained access to customer value pockets down-stream from the normal manufacturers’ business.

Schmidt (2003) described the importance of service culture. His study showed how leaders can move their organisations from one where services are viewed as a ‘necessarily’ evil to one where the service becomes ingrained in a business to the point where service is viewed as importantly as the product. This view of the importance of organisation intensity and hence the ability to move from tactical to cultural levels of organisational intensity have been confirmed by Turunen (2012) and Gebauer (2010). Schmidt (2003) also reviewed the importance of processes/tools to drive service improvements whilst ensuring that the rulebook does not become too cumbersome to remain useful and when it should be used to augment the culture and behaviours exhibited by the leadership. Business benchmarking Customer segmentation is a commonly used tool and is required to understand the market expectations in terms of margins (Anderson, 2009). The approach Anderson (2009) recommends is to use industrial groupings of firms with similar needs or requirements rather than using simple geographic segmentation. Backhaus (2005) provides a model that identifies 4 main business types (OEM, systems, project and product businesses) based on market behaviours and expectations in an industrial environment. Backhaus (2005) showed that different business types have different margin expectations, as is also the case with conventional customer segmentation. The business type classification was undertaken as it was considered to be an important differentiator when considering margins. This is a proxy for the main business model that is being followed by the company.

4

Methodology This study uses data collected by interviews with senior management during 2013 (Angehrn, 2013) from 24 industrial companies in the DACH region of Europe. All of the businesses were engaged in the provision of either engineered-products or services for engineered-products. The interviews provides information on the business models, types of services as well as financial data. The businesses requested that their data should be non-attributable. Degree of servitization The degree of servitization was another important factor that was used. The general categorization was based on that developed by Vandermerwe (1988). This allowed the position of each business to be identified. The assessment was based on the proportion of services as total sales and customer-focused materials.

Service benchmarking Mathieu’s service model based on the organisational intensity and the service specificity was used to allow the business to be compared. The assessments were all based on externally available materials published by the businesses. The materials used were both customer-focused materials and investor-focused materials. This approach allowed the identification of conflicting messages within the business that highlighted ambiguities. The assessments for the organisational intensity and service specificity were based on the following examples:

• organisational intensity – tactical “because the competition does it”; • organisational intensity – strategic “because the management says so”; • organisational intensity – cultural “because it is the way we do it”; • service specificity – customer services “freephone number provided”; • service specificity – product services “warranties, installation services for my

products only”; • service specificity – service (as a product) “we service all (our products and

others)”. To support and qualify the measure of the service culture a word count per page for

service (and other service related words) was undertaken. The word count used on recently published materials was based the application of the formula: “% service words” = count of “servic*” / (count of “servic*” + count of “produc*”).

Business benchmark The businesses were benchmarked based on publicly available data and where possible using the respective annual reports. For business that were either not publicly listed or business where there was no publicly available data the data were gathered from interviews with senior management, the following financial data were collected:

• total firm sales and EBIT; • proportion of sales categorized as ‘services’; • service growth. The data were then plotted as ROS versus service content. The reporting period

2012-13 was chosen to limit variability of data in particular due to market changes.

5

This however creates a very narrow snap-shot of the benchmark data and may not give a full representation of the medium term benchmark.

The Backhaus’ (2005) business types classification and customer market

segmentation was undertaken using publicly available materials (eg, website, investor relations materials and brochures). Findings and results of the study There were a total of 24 businesses in the study, all of which were from the industrial product segment located in the DACH region. The breakdown of customer segments served by the businesses is given in Figure 1. A number of the businesses reviewed targeted very specific market segments, whereas others were less targeted. No assessment was undertaken to identify if those who were more targeted had better business performance that those who worked in many segments.

Figure 1 – Customer segmentation of the businesses

Table 1 provides an overview of the key results from the study. Based on the analysis of the businesses all were based around ‘product + minor service’ or ‘service + minor product’, the proportion of services sales identified agrees with the degree of servitization. The margins also moved in the expected direction (increased) with higher service contents (service + minor product). In all cases the businesses were providing services to support some sort of industrial product and as such were part of a “Product Service-System” as described by Baines (2007).

Service specificity has the majority of the businesses based on ‘product services’

with this group enjoying the highest margins (Lay, 2010). Organisational intensity has a reduced spread of data between the three categories. The lowest levels of service content and ROS are both in the tactical category with the highest in cultural. The proportion of “service” words to “product” words was found to increase from 27% (tactical) to 37% (cultural) in line with the increasing organisational intensity for services. Table 2 provides a breakdown of the percentage of service sales and the average margins using Mathieu’s service model. In the most bottom right quadrant

Medtech/pharma,-18%-

Automo4ve,-15%-

Energy/resources/O&G,-

15%-Manufacturing,-12%-

Aero,-7%-

Food,-5%-

Chemical,-3%-

Packaging,-3%-

Transport,-3%-

Construc4on,-3%-

Others,-16%-

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(cultural/service as a product) there appears to be a drop in the margins, additional investigation, including review of additional businesses are needed to better understand this result. The most popular quadrant for the businesses in the study was the strategic/product service box (13 of 24).

Table 1 – Overview of the services segmented using different approaches

Count Proportion of services (Service sales/Total sales)

ROS (Total EBIT/ Total sales)

Business types based on Backhaus (2005) OEM business 7 24.6% 7.8% Product 6 32.8% 9.7% Project 2 25.5% 8.3% Systems 9 24.8% 10.3%

Degree of servitization based on Vandermerwe (1988) Product + minor service 12 20.0% 7.4% Service + minor product 12 33.6% 11.1%

Service specificity based on Mathieu (2001) Customer services 3 28.7% 8.0% Product services 17 27.4% 10.1% Service (as a product) 4 23.0% 6.5%

Organisational intensity based on Mathieu (2001) Tactic 4 19.5% 5.0% Strategic 15 24.0% 9.7% Cultural 5 41.0% 11.4%

Total study 24 26.8% 9.0%

The results of the Backhaus business type assessment are shown in Table 1. The overall ROS for all businesses in the study was 9.0%, however the volume of data in the study did not allow for useful segmentation using this dimension.

Table 2 – Details results of business financial performance based on Mathieu (2001)

Tactic Strategic Cultural Average of Service content Customer services 18% 50% Product services 21% 25% 48% Service (as a product) 16% 30% Average ROS Customer services 5% 15% Product services 6% 10% 13% Service (as a product) 5% 8% The benchmark data plot for ROS versus services content, shown in Figure 2, shows

a general increase as the service content increases. There is significant scatter in the data with the R2 correlation being 0.30 for the data from all of the businesses studied. This shows that there are other aspects that are not being taken into consideration and is therefore in agreement with the findings of Brax (2005) who described the “service paradox”. When the data is broken down and categorised by organisational intensity (Mathiue, 2001) the businesses with a more tactical approach have the lowest ROS and services content, whereas the businesses with a cultural intensity to service have significantly higher ROS and services content. There is a greater scatter for businesses with strategic intensity, data from the interviews provided some evidence that those with the best performance here approached service as a process and use a number of tools and key performance indicators (KPIs) to support and measure service performance:

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Mathieu’s (2001) service matrix. Use of more automated tools could be combined to create an effective system for assessing the service organisational intensity and degree of servitization within a business. It was considered important to use external facing ‘customer’ materials because this is the likely view of the customer, it also highlighted some ambiguities and contradictions within the firms studied. It is possible that a more comprehensive assessment tool could be built up that reviews the servitization and its service typology: from the new customer view; from the existing customer view; and, from the employees view.

Where the product/service mix of the business was in the range 25-50% it was found

that organisations with highest service specificity were amongst the best performers (on a return of sales basis) allowing for major market segment differences. In the case of a business without a link to a manufacturing part, the lack of any integration between manufacturing and services appeared to agree with the hypothesis of Baines (2009) in that it had a lower financial performance on a ROS basis. The business’ split of service to ‘product’ type sales was due to the reporting of replacement parts required for the service (services + minor product). The degree of scatter in the study data is the impact of limited numbers in the study (24) and different market segments having different margin expectations and different phases in the economic cycle (Anderson, 2009). It would be valuable to extend the number of businesses studied to at least 200 to improve the results and identify the detailed reasons for the scatter. Gebauer (2011) undertook a successful study with over 300 manufacturing companies where the business performance was measured within the context of servitization although here his study was considering service differentiation.

Of the businesses reviewed, those with a more formal process-based tools tended to outperform the businesses that took a more ad hoc approach. Schmidt (2003) highlights the important role tools can have in supporting culture change and embedding processes in the context of service leadership. The scatter seen in the business performance for the businesses within the ‘strategic’ organisational intensity shows a relationship with process-based tools (eg a database of installed base) supported by strategic (eg installed base coverage) and operational (eg net promoter score) performance indicators. Conclusions This work is relevant to manufacturing companies transforming their business from a traditional manufacturing-based business into operations-based with a greater emphasis on providing services. The benchmarking against Mathieu’s service matrix can be a useful tool for mapping an organisation’s ‘servitization journey’.

The degree of servitization and the cultural differences were compared for industrial services business in the DACH region. The degree of servitization and cultural topologies were then compared with operational performance (based on a ROS measure). From the results, it was identified that organisations with higher service specificity were amongst the best performers. The same organisations tended to have more formal process-based tools to support service operations. A more comprehensive survey to review theses topics over a longer-time frame would further improve the quality of the data and hence the results.

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One business was only active in services; the business noted some ‘product’ sales, mostly in the form of spare parts. The breakdown of the definition of ‘service’ content is an important detail that needs to be better understood so that highly servitized businesses can be correctly compared with others. Further investigation with business models and service reporting (both financial and non-financial/KPI-based) should be undertaken to better understand this issue to ensure accuracy of results.

It is postulated that the use of a number of tools can help to bridge the gap between

manufacturing and service provision whilst, helping the whole business to understand the issues faced by increasing servitization. The use of a common assessment tool for benchmarking the degree of servitization was helpful in this study. From this, it is also postulated that the servitization journey could be plotted in more detail. This is important as the servitization journey (Neely, 2011) for each organisation varies depending upon the context (eg, history, leadership, culture, tools/process) and these factors could be seen to have an impact within an organisation. Recommendations for further work From the study, it is recommend that a more in depth study into service culture and the necessary tools require to support it is carried out, in particular:

• Undertake a wider study with more firms so that the segmentation, business cycles and business type/business models issues can be isolated from the servitization issues.

• Development of assessment tools for benchmarking servitization and service cultures from a customer perspective.

• Identify the key tools/processes and KPIs required to support an industrial product business successfully develop a service capability.

Acknowledgements The authors would like to acknowledge the 24 businesses that took part in the study, the support from the Roland Berger with undertaking the survey and the financial support from Lucerne University of Applied Sciences and Arts. References Anderson, J., Narus, J., & Narayandas, D. (2009). Business Market Management: Understanding,

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