"The Role of Soft Factors in Implementing a Service-Oriented Strategy in Industrial Marketing Companies."

“The Roleof SoftFactorsin ImplementingaService-OrientedStrategyin

IndustrialMarketingCompanies.”

byChristianHomburg,Martin Fassnacht,ChristofGuenther,

UniversityofMannheim

ISBM Report18-2000

Institutefor theStudyof BusinessMarketsThePennsylvaniaStateUniversity

402 BusinessAdministrationBuildingUniversityPark,PA 16802-3004

(814)863-2782or(814)863-0413Fax

“THE ROLEOF SOFTFACTORS

IN IMPLEMENTiNG A SERVICE-ORIENTEDSTRATEGY

IN INDUSTRIAL MARKETING COMPANIES”

ChristianHomburgProfessorof BusinessAdministrationandMarketing

ChairoftheMarketingDepartmentDirectoroftheInstitutefor Market-OrientedManagement(1MM)

UniversityofMannheimD-68161Mannheim,Germany

Phone: +49-621-181-1555Fax: ±49-621-181-1556

E-Mail: [email protected]

Martin FassnachtAssistantProfessor

Institutefor Market-OrientedManagement(1MM)UniversityofMannheim

D-68161Mannheim,GermanyPhone: +49-621-181-1557

Fax: ±49-621-181-1556E-Mail: [email protected]

Christof GuentherConsultant

Prof. Homburg & Partner GmbHD-68161 Mannheim

Phone: +49-621-1582-0Fax: +49-621-1582-102

E-Mail: [email protected]

The authors gratefully acknowledge the financial support of the Institute for the Study ofBusinessMarkets(ISBM) atThePennsylvaniaStateUniversity.

The Role of Soft Factors in Implementing a

Service-OrientedStrategy in Industrial Marketing Companies

It hasbeenrecognizedthat in today’shighly competitive industrial markets, one of the few

ways left to gaindifferentiationfrom competitorsis by offeringvalue-addedservices. To do so,

however, requires a service-orientedstrategyand the active implementationof this strategy

which includes significant internal changes in managementphilosophy and approach.

Unfortunately,no studyhasexaminedtheimplementationaspectsof a service-orientedstrategy.

In this context, our researchfocuseson two important “soft factors”, corporateculture and

humanresourcemanagement,that are necessaryfor a successfulimplementationof a service-

orientedstrategyin industrial marketingcompanies.We analyzethemediatingroleof thesetwo

soft factors in the causal chain leading from a service-orientedstrategy to organizational

performance. We find that that the soft factorsplay an importantmediating role in the link

betweena service-orientedstrategyandorganizationalperformance.

The Role of Soft Factors in Implementing a

Service-OrientedStrategy in Industrial Marketing Companies

In today’shighly competitivemarkets,industrial marketingcompanieswhosecore offering is a

productor a setofproductsoften find thestrongneedto augmentthis coreofferingwith services

in order to competeeffectively (e.g., Andersonand Narus, 1995; Cooperand Jackson,1988;

Donaldson,1995; MatthyssensandVandenbempt,1998). Thecoreofferings of manyindustrial

companieslook very similar to customersin termsof importantareassuchasproductrangesand

prices(AndersonandNarus,1995; McMurrian andWilson, 1996;Quinn, Doorley,and Paquette,

1990). Dueto thesesimilarities, it is very importantfor industrialmarketingcompaniesto give

theircustomersrealreasonsfor consistentlychoosingtheir companyover theircompetition. One

ofthekeywaysleft to accomplishthis is to offer value-addedservices.Customersarenot solely

interestedin the pure productbut in bundleswhich comprisesproductsand services. These

“benefitsbundles”canfulfill theneedsfor customersbetterthanthepureproductandtherefore

are very attractivefor customers. Theinitiative to augmenttheproductswith servicescan be

tracedbackto theclassicstatementby Levitt (1972,p. 4 1/2) who highlights that “there areno

such things as service industries. There are only industrieswhose servicecomponentsare

greateror lessthanthoseofotherindustries. Everybodyis in service.”

However, the successful implementation of a service-orientedstrategy for industrial

marketingcompaniesrequiressignificant internal changesin termsof managementphilosophy

and approach. Becoming more service-orientedespecially requires changesin the firm’s

corporateculture and humanresourcemanagement. The relevanceof thesetwo factors are

stressedin the literaturewhich conceptuallydiscussesthe issue of implementinga service-

orientedstrategyin industrial marketingcompanies.Bowen,Siehl, and Schneider(1989,p. 82)

highlight that ,,manufacturingfirms ... havenothistorically includedservice-relatedgoals ... as

objectivesmayrequireclimate andcultural changesto supportthesegoals”. In a similar vein,

Mathe and Shapiro (1993,p. 28/29) commentthat humanresourcemanagementis critical in

implementinga service-orientedstrategy. To the bestof our knowledge,thereis no research

which empirically addressedthe topic of how to successfullyimplement a service-oriented

strategyinternally.

Against this background,our researchfocuseson internal changesthat are necessaryfor a

successfulimplementationof a service-orientedstrategy in industrial marketing companies.

With respectto theseinternalorganizationalcharacteristics,animportantdistinctioncanbemade

between“hard” and “soft” factors. Hard factorssuchasthe organizationalstructure(e.g., the

degreeof formalization) describestructural organizationalcharacteristics. In contrastto that,

soft factors refer to non-structuralorganizational characteristicssuchas sharedvalues and

employees’behavior. This paperfocuseson two important soft factors: corporateculture and

humanresourcemanagement.We analyzethemediatingrole of thesetwo factorsin thecausal

chain leading from a service-orientedstrategyto organizationalperformance. If thesefactors

really play an importantrole in the implementationof a service-orientedstrategy,theyshould

strongly mediatethe link betweenthepresenceof a service-orientedstrategyand organizational

performance(GinsbergandVenkatraman,1985,p. 428).

The paper is organizedas follows: In the next section,we outline a frameworkwhich

describesthe key constructsof interest,followed by a developmentof formal hypotheses.We

thendescribean empirical study which teststhesehypotheses.This is followed by adiscussion

of academicandpracticalimplications.

Framework and HypothesesDevelopment

StrategyImplementationResearch

In developinga frameworkandhypotheses,this studydrawson researchin theneglectedareaof

strategyimplementation. As notedby NobleandMokwa (1999,p. 57) “little attentionhasbeen

given to implementation... of strategy.”Whatlittle researchdoesexistaddresseshow strategy

influencesinternal organizationalarrangementparameters.Typically, therelationshipbetween

thestrategyandorganizationalarrangementparametershasbeenexplainedin a sequentialmodel

wherecompaniesdecideon a strategyandthenput in placeappropriateorganizationalchoices

2

(GinsbergandVenkatraman,1985; Piercy, 1998). Traditionally,researchershavelookedathow

strategyhas affected structural organizationalchoicessuch as organizationalstructure(e.g.,

Chandler,1962;GalbraithandNathanson,1978;HabibandVictor, 1991; Roth,Schweiger,and

Morrison, 1991; White, 1986) and design of information systems(e.g., Cravens, 1998; Das,

Zahra,and Warkentin, 1991; Karimi, Gupta,and Somers,1996; Teo and King, 1997). These

organizationalarrangementparameterscanbe classifiedashardfactors.

Since the 1 980s, soft (intangible) factors that may play a role in strategyimplementationhave

gainedinterest. Two importantofthesesoft variablesarecorporatecultureand humanresource

management. Davis (1983) highlights the role of humanresourcemanagementand corporate

culture in implementingstrategies. Similarly, Porter(1985,p. 24) stressestherelevanceof the

fit betweena generic strategyand corporateculture: “Culture ... hascometo be viewed asan

importantelementof a successfulfirm. However,different culturesare implied by different

generic strategies. ... Culture can powerfully reinforce the competitiveadvantagea generic

strategyseeksto achieve,if thecultureis an appropriateone. Thereis no suchthingasa goodor

badcultureper se. Culture is a meansofachievingcompetitiveadvantage,not an endin itself.”

Also Noble (1999, p. 132) highlights the key role of corporateculture: “. . .it seemsclear that

aspectsof thefirm suchasculture ... may have a profoundeffect on implementationprocesses.

More research is needed on the influence of these firm factors on strategyimplementation

success.

Although there is some research which investigates how strategy in general influences

corporateculture (e.g., Allaire and Firsirotu, 1985; Davis, 1983; Joyce and Slocum, 1990;

Schwartz and Davis, 1981) and human resource management (e.g., Davis, 1983; Govindarajan

andGupta,1985;Guptaand Govindarajan,1984aandb; Govindarajan,1989; Leontiades, 1982),

thespecificquestionofhow a service-orientedstrategyin an industrialmarketingcontextaffects

thesesoft factorshasnotyetbeenstudied. Thus,theorientationofthis paperallowsto fill a gap

in theliterature.

3

In conductingthis investigation, it is importantto note that the strategyimplementation

researchdescribedabove is rooted in the classicalassumptionthat structurefollows strategy

(Chandler,1962). In contrast,thereis somedebateconcerningthedirectionof causalityofthe

relationshipbetweenstrategyand organizationalarrangementparameters.To shedlight on this

issue, however, a systematiclongitudinal empirical studywhich was designedto examinethe

nature of the relationship between strategy and organizational arrangementparameters

(Amburgey and Dacin, 1994) found that strategyhasa strongerinfluence on organizational

arrangementparametersthanvice versa. In addition, Mintzberg(1990)notesthat oneimportant

schoolof thoughton strategy—thedesignschool tendsto promotethis directionof causality.

Thus, there seems to be some support for the causalpropositionthat strategydetermines

organizational arrangement parameters.

It is our view that this direction of causality is especiallytrue for industrial marketing

companieswhichaugmenttheir coreofferingswith value-addedservices. In theseorganizations,

soft organizationalarrangementparametershavetraditionally beenvery product-oriented. In

other words, a strategic focus on productshas led to a humanresourcemanagementand a

corporateculturewhich is centeredaroundproductsorbrands. Thus,adoptinga service-oriented

strategywould requireamajorchangein eachofthetwo soft organizationalfactors. This notion

of strategydetermining organizationalarrangementparameters forms the foundation for our

conceptualframeworkwhich wenow discuss.

Framework and Constructs

Figure 1 presentstheconceptualframeworkwhich guides our researcheffort. This framework

focuseson changesof soft factorsthat areneededfor a successfulimplementationof a service-

orientedstrategy.

InsertFigure 1 abouthere

4

In this studywe conceptualizetheserviceorientationofa strategyof an industrialmarketing

companyin termsof two dimensions:(1) the numberof servicesoffered,and (2) how strongly

these servicesare emphasizedto customers. The numberof services itself is clearly one

important facet of a service-orientedstrategy. The more servicesan industrial marketing

companyoffers, the greaterthe ability to augmentthe core product offering. This variable is

similar to thebreadthof productrangewhich is consideredto be a key strategicdecisionin the

field of productmanagement(e.g., Lehmannand Winer, 1997; Wind, 1982). However,simply

studyingthenumberof servicesis not enough.Fora givennumberof servicesoffered, industrial

marketingcompanieshavea choiceof offering themvery activelyto customersversusoffering

them only whencustomersexplicitly askfor them. Thus, in additionto thenumberof services

offered, it is also importantto examinethe emphasisplacedon theseservices. The emphasis

placed on servicesrelates to the degree to which a companyactively offers servicesto its

customers.The importanceof this variablehasbeenhighlightedin theindustrialmarketingarea

(Morris andDavis, 1992; Wright,Pearce,andBusbin, 1997).

It is important to note that while these two constructsmay be interrelated, they are

conceptuallydistinct. A companycouldoffer only afew servicesbutemphasizethemheavilyor

anothercouldoffer a lot of servicesbutnot emphasizeany singleserviceto anygreatdegree.

Our frameworknextconsidersthe serviceorientationof two soft organizationalparameters,

thefirst beingserviceorientationofcorporateculture. Two importantdimensionsof acorporate

culture arevaluesandbehaviorsin the organization(Calori and Sarnin, 1991; Deshpand~and

Webster,1989; Hofstedeet al., 1990; Homburg and Pflesser,2000). Since we addressthe

implementationof aservice-orientedstrategy,wedrawour attentionto theextentto which these

two dimensionsof a corporatecultureare service-oriented. Thus, the first dimensionrefers to

the (abstract)value of serviceswithin the organization. By stressingthe valueof providing

services,companiescanhelpemployeesto realizethe relevanceof this value(Webster,1990).

Theseconddimensioncapturesthedegreeto which employeesbehavein a service-orientedway.

This behaviorreflectshowmuchthe(abstract)valueof servicesis lived out in theorganization.

S

In terms of human resource management,we distinguishbetweenthe three dimensions

personnel recruitment, personnel training, and personnel assessment/compensation.This

conceptualizationis adaptedfrom Schneiderand Bowen(1992)and Schuler(1996). We draw

our attentionto the extentto which thesethreedimensionsof humanresourcemanagementare

service-oriented.More specifically, (a) serviceorientationof personnelrecruitmentrefersto the

extent to which the selectionof personnelfocuses on service-relatedaspects,(b) service

orientation of thepersonneltraining capturesthe degreeto which the employeesaretrainedfor

interactionswith customers,and (c) serviceorientationof personnelassessment/compensation

refers to the extent to which service-related performance is evaluated and rewarded within the

organization. These aspects are highly important due to the fact that the production and

consumptionof servicesare inseparable(Zeithaml, Parasuraman,and Berry, 1985) which

implies that the company’semployeesand customersinteractdirectly on a regularbasis. The

high importanceof personalinteractionin delivering servicesis also visible from the research

streamon serviceencounters(Fisk, Brown, and Bitner, 1995; Bitner, Booms, and Tetreault,

1990).

Moving to thenextstageof theframework,we considerperformanceoutcomes. We makea

distinctionbetweenservice-relatedperformanceandoverallprofitability.

Service-relatedperformanceoutcomesinclude quality of customerrelationships (a non-

financial outcome) and direct serviceprofitability (a financial outcome). The first construct

comprises such aspectsas intensity of interaction with customers, intensity of personal

relationshipswith customers,and customersatisfactionandloyalty. We will later arguethat a

serviceorientationcontributesto establishinghigh quality customerrelationships. The direct

serviceprofitability relatesto the degreeto which industrial marketingcompaniesdirectly earn

moneythroughofferingandchargingservicesto their customers.

Overallprofitability relatesto theprofitability achievedby thefirm (orabusinessunit within

the firm) through marketingthe whole rangeof productsand services. Typical profitability

6

measuresinclude return on sales,return on investment,and return on assets(Chakravarthy,

1986).

HypothesesDevelopment

As describedandjustified before, we arguethat organizationalarrangementparametersfollow

strategy. Thus, for thefirst two hypotheses,ourgenerallogic is that strategicchoicedetermines

thetwo soft factors. This meansthat thetwo dimensionsofa service-orientedstrategy—number

of servicesandemphasison services—havea positive impacton theserviceorientationof each

ofthetwo organizationalfactors.

Companieswhich decide on a certain strategy,will adequately(consistently)adapttheir

corporateculture (Allaire and Firsirotu, 1985; Davis, 1983; Joyce and Slocum, 1990; Noble

1999;Porter, 1985; SchwartzandDavis, 1981). Becausewe addressa service-orientedstrategy,

adequateness(consistency) implies a service-orientationof corporate culture. Industrial

marketingcompanieswhich movefrom a strategyofproductorientationto a serviceorientation

in termsof offering andemphasizingservices,will stressthevalueof servicesin thecorporate

culture(Bowen,Siehl, Schneider,1989). Furthermore,suchcompanieswill stronglyencourage

service-relatedbehaviorof theiremployees(MatheandShapiro,1993). By doing this, industrial

marketingcompaniesassurethat the (abstract)value of serviceis lived out in the company.

Thus,wederivethefollowing hypothesis:

Hi: Thehigher the serviceorientationof the businessstrategy(in terms of a: numberof

servicesandb: emphasison services),thehigherthe serviceorientationof corporate

culture.

Companieswhich have chosen a certain strategywill not only adequatelyadapt their

corporateculture but also their humanresourcemanagement(Davis, 1983; Govindarajanand

Gupta, 1985; Gupta and Govindarajan,1984aand b; Govindarajan,1989; Leontiades,1982).

Industrial marketingcompanieswhich have beentraditionally strongly product-oriented,but

want to becomehighly service-oriented,will select,train,andrewardemployeeswho arecapable

of dealingwith thenewchallengesthatservicesimply. In particular,theyneedto beableto deal

7

with themanypersonalinteractionswith customerswhich arerequiredby the implementationof

a service-orientedstrategy(Bowen, Siehl and Schneider,1989). The higher the numberof

servicesandtheemphasison services,the greaterthenumberof personalinteractionswhich will

occurwith customers.Thus, industrialcompanieswhicha adopta service-orientedstrategywill

assurethat employeesare selected, trained, and rewardedon a permanentbasis for these

encounters.Thus, wehypothesize:

H2: The higher the serviceorientationof thebusinessstrategy(in terms of a: numberof

servicesand b: emphasison services),the higher the serviceorientationof human

resourcemanagement.

Thenextset ofhypothesesexaminestherelationshipsbetweenthesoft organizationalfactors

and service-relatedperformance. First, industrial marketingcompanieswith a high service

orientationof corporateculturenot only stressthevalueof servicesbut alsolive out this value.

The employeesbehavein a service-orientedway and are characterizedby a high service

mentality. Industrial marketing companieswith employeeswho are selected,trained, and

rewardedin a service-orientedway will be more likely to deliver servicesduring the service

encounterwhich will fulfill customerneeds. Customerslike to interactwith suchkind of well-

educatedandwell-motivatedemployeeswhobehavein a service-orientedway. Also, customers

satisfactionand loyalty will be enhanced.Takingall this together,this leadsto a strengthening

of customerrelationships. This reasoningis consistentwith empirical findings that corporate

culture can affect and strengthencustomer relationships (Appiah-Adu and Singh, 1999;

HomburgandPflesser,2000). Against thisbackground,we derivethefollowing hypothesis:

H3: The higher the serviceorientationof the two soft organizationalfactors(a: corporate

culture and b: humanresourcemanagement),the higher the quality of customer

relationships.

For industrial marketing companiesthe measurementand the inspection of quality are

generally much more difficult for servicesas comparedwith products. The many personal

interactionsbetweenemployeesand customerscausedby servicesoffered leadto an increased

8

risk of failures. Correcting thesefailuresmay involve high costsfor an industrial marketing

company(Jacksonand Schuler,1992). Therisk of failurescan be reducedby employeeswho

arewell-trained,well-motivated,andbehavein a service-orientedway. This replacesextensive

and expensiveinspectionand correctionmechanisms. In additionto that, suchemployeesnot

only lower service-relatedcostsbut alsoincreaseservice-relatedsales. Customerswho interact

which this kind of employeesget more value out of this interaction. This increasesthe

willingness-to-payof customersfor services.Thus,wehypothesize:

H4: The higherthe serviceorientationof the two soft organizationalfactors(a: corporate

cultureandb: humanresourcemanagement),thehigherthedirect serviceprofitability.

The next hypothesis examines the link in the framework between service-related

performanceand overall profitability. We arguethat the quality of customerrelationshipswill

havea positive impact on overall profitability. In general,previousstudieshavefoundthat there

is apositivelink betweencustomersatisfaction(a facetof quality of customerrelationships)and

overall profitability (Anderson,Fornell,and Lehmann,1994;Anderson,Fornell, andRust, 1997;

Hallowell, 1996). A positivelink betweencustomerloyalty (anotherfacetofquality of customer

relationships)andprofitability hasalso beenin evidence(Hallowell, 1996;Loveman,1998). It

canbe arguedthat loyal customerscanincreaseorganizationalprofitability throughthe absence

of acquisitioncosts, lower operatingcosts, higherprice tolerance,and referrals (Kalwani and

Narayandas,1995; ReichheldandSasser,1990;Reichheld,1996). Thus,it appearsthat thereis a

generallink betweenqualityof customerrelationshipsandoverall profitability.

Clearly, thedirect serviceprofitability increasestheoverallprofitability, Therefore,whenthe

direct serviceprofitability is high, all otherthings beingheldequal,theoverall profitability will

be higher. Thus,wederivethehypothesis:

H5a: Thehigherthequalityofcustomerrelationships,thehighertheoverall profitability.

H5b: Thehigherthedirect serviceprofitability, thehighertheoverall profitability.

9

Method

Data CollectionandSample

Our unit of analysiswasa StrategicBusinessUnit (SBU) in an industrial marketingcompany.

This level was selectedbecausedifferent SBU’s within one industrial marketingcompanycan

pursuedifferent strategiesconcerningindustrial services. We defineda SBU asa relatively

autonomousunit with the SBU managementhaving control of at leastthreeof the following

functions: marketing, sales, manufacturing,R&D, accounting/finance,and human resources

(Homburg,Workman,andKrohmer, 1999).

Precedingthe survey, we conducted10 face-to-faceinterviewswith experts. Thegoal of

theseinterviewswasto pretestapreliminaryversionof thequestionnaire.

A random sample of senior sales managernames in SBU’s were acquired from a

commercialdatabaseprovider. We verified the namesof thesemanagersthrough telephone

calls to the SBU. We included three industrial sectors: electrical engineeringindustry,

mechanicalengineeringindustry, andmetaiwareindustry. By including theseindustrial sectors,

we intendedto assurea broad range of productsconcerningtheir complexity ranging from

productionmaterial/componentsvia finishedproductsto engineeringprojects. As an incentive

to participate,managerswerepromisedtwo managerially-orientedworking papers(immediately

afterresponse)andamanagerialsummaryofresults(aftercompletionofthestudy).

In total, 1.270surveyquestionnaireswere sentout. 271 questionnaireswere returnedfor a

responserateof 21.3%. Table 1 providesinformationon samplecharacteristics.Approximately,

eachindustrial sectoris representedto onethird in thesample. In general,small, medium-size,

and largeSBU’s arerepresentedwith a significantsharein thesample. This holds alsotruefor

thethreeproducttypes.

InsertTable1 abouthere

10

Nonresponsebias was testedby comparingearly and late responderson all variables(as

suggestedby ArmstrongandOverton,1977). No significantdifferenceswerefoundbetweenthe

two groups. Therefore,thereis someevidencethat nonresponsebias wasnot a problemwith

thesedata.

MeasureDevelopmentandValidation

As mentionedearlier,theservice-orientedstrategyis conceptualizedin termsoftwo aspects:(1)

the numberof industrial servicesoffered, and (2) the emphasisplaced on industrial services.

Basedon a reviewof the limited literatureon industrialservices(e.g., Banting, 1984; Homburg

and Garbe, 1999) and the face-to-face-interviews,we identified five major categoriesof

industrial services(seeTable2). Within eachof theseservicecategorieswe identifiedbetween4

and 8 specificindustrial services(seeTable2). In sum, this leadsto a comprehensivelist of 31

serviceswhich coversthe rangeof servicestypically offered by industrial marketing firms to

their customers.

Foreachof the31 industrialservices,we askedon adichotomousscale(with ‘O=not offered’

and ‘1=offered’) whether this servicewas offered. The numberof servicesoffered is then

directly calculated as the total of the services for which the respondentchecked a ‘1’.

Furthermore,for eachof the five categoriesof industrial services,we askedon a Likert-type

scale(with theanchors‘1=totally disagree’and ‘5=totally agree’)to which extenttheseservices

were offered actively to customers. The constructemphasison serviceswill be measuredby

thesefive items.

Consistentwith our conceptualizationof service orientation of corporate culture and of

humanresourcemanagement,we usedtwo scalesfocusingon valuesand behaviorand three

scales referring to personnel recruitment, personnel training, and personnel

assessment/compensation(seeTable2). Dueto thefact that,to thebestofourknowledge,there

is no researchwhich empiricallyaddressedthetopic ofhowto successfullyimplementa service-

orientedstrategyinternallywe couldnot useestablishedscales.Thus, we developednewscales.

11

To someextent, scaledevelopmentwas guided by the work of Bowen, Siehl, and Schneider

(1989)andMatheandShapiro(1993).

In terms of performancemeasures,the constructquality of customerrelationships was

operationalizedusing items which refer to aspectsof the interaction with customers(e.g.,

frequency, intensity), to customer-relatedknowledge, and to customer satisfaction/customer

loyalty. The constructdirect serviceprofitability was assessedusing two items which concern

the degree to which SBU’s earn money with services. The overall profitability was

operationalizedusing two itemswhich referto return on sales(seeTable2). Returnon salesis a

widely acceptedperformancemeasurein the industrialmarketingarea.

In termsof measurementvalidation, all reflective multi-item constructstogetherwere then

subjectedto a confirmatoryfactor analysis. The overall measuresindicatea goodfit with the

hypothesizedmeasurementmodel(x2/ d.f= 1.03,GFI = .95; AGFI .94; CFI = 1.00;RMSEA =

.015). Compositereliabilities ofthe individual scalesrangefrom .75 to .94 (seeTable2) which

provides further evidenceof the measures’soundpsychometricproperties(Bagozzi and Yi,

1988). Discriminantvalidity was demonstratedthroughthe test recommendedby Fornelland

Larcker (1981). Together the results provide evidencethat the measureshave the sound

psychometricpropertiesnecessaryfor hypothesistesting.

InsertTable2 abouthere

Results

The hypothesizedmodel was estimatedby structuralequationmodelingtechniques,using the

LISREL 8 program(J&eskogand S&bom, 1996aandb). The resultsof theLISREL analysis

arereportedin Figure 2. Theoverall fit measuressuggestthat thehypothesizedmodel provides

a goodfit for thedata. Thechi-square-degreesof freedomratio showedstrongresults(x2/ d.f. =

12

1.26). Theotheroverall measures(GEl = .94; AGFI = .92; CFI = .98; RMSEA .043)alsomeet

therequirementssuggestedin therelevantliterature(e.g., BagozziandYi, 1988).

InsertFigure2 abouthere

The first two hypothesesdealwith the effectsof the two dimensionsof a service-oriented

strategy—numberof services and emphasis on services—onthe two soft organizational

factors service orientation of corporateculture and service orientationof human resource

management.As seenin Figure 2, both hypothesesconcerningthe link betweenemphasison

servicesand the two soft factors (712 = .68, p =.01—Hlb; 722 = .64, p =.01 H2b) are very

strongly supportedin termsof significanceand sizeof effects. Theotherhypothesesrelatedto

numberof servicesarenot supportedsincetheparameterestimatesarepositive (ashypothesized)

butnot significant (711 = .05, n.s.—Hla;721 .05,n.s.—H2a).

Thenext setof hypothesesexaminedtheextent to which thetwo soft organizationalfactors

influence the two dimensions of service-relatedperformance. As shown in Figure 2, all

hypothesesare supported. Specifically, the quality of customerrelationshipsis positively

influencedby the serviceorientationof corporateculture (f331 .26, p =.01—H3a) and the

serviceorientationofhumanresourcemanagement(1332 = .33,p =.05—H3b).

Furthermore,the direct serviceprofitability is positivelyaffectedby theserviceorientationof

corporateculture (134v .17, p =.05—H4a) and the service orientation of human resource

management(1342 .17,p =.01—H4b).

As shownin Figure 2, hypothesesH5a andHSbarealsosupported.Theoverallprofitability

is stronglyandpositivelyinfluencedby thequalityof customerrelationships(1353 .36,p S .01—

HSa)andmoderatelyaffectedby thedirect serviceprofitability (f3s~r .08, p =.10—HSb).

In summary,our empirical analysesprovidessupport for our theoretical reasoning. We

essentiallyfind supportfor our hypotheseswith the exceptionof the effectsof the numberof

serviceson organizationalarrangementparameters.

13

Discussion

As mentioned previously, there has been a paucity of empirical researchon strategy

implementation. What little researchexists has focusedon how strategyinfluencesinternal

organizationalarrangementparametersin termsof a causalsequenceof eventswherecompanies

decide on a strategyand thenput in place appropriateorganizationalchoices(Ginsbergand

Venkatraman1985; Piercy 1998). Our studycontributesto this importantareaby analyzingthe

mediatingrole of soft organizationalfactorsaskey variables for the successfulimplementation

of a specific strategyin an industrialmarketingsetting—aservice-orientedstrategy. To thebest

of our knowledge, there is no researchwhich empirically addressedthe topic of how to

successfullyimplementa service-orientedstrategy. Therefore,our studyattemptsto addressan

importantresearchgapin ourknowledge.

Our study showsthat, oncean industrial marketingcompanyhas formally decidedupona

service-orientedstrategyin termsofhow many serviceswill be offeredwith what emphasis,the

two soft organizationalfactors—corporateculture and humanresourcemanagement must be

brought in line to implementthis strategy. Thus, from a theoreticalperspective,the service

orientationofthesoft factorsis averycritical stepin implementingaservice-orientedstrategy.

An interestingobservationis that the effectsof the two soft factors on the non-financial

performancemeasure(i.e., quality of customerrelationships)are strongerthantheeffectson the

financial performancemeasure(i.e., direct serviceprofitability). Additionally, the quality of

customerrelationshipsinfluencesoverall profitability to a muchhigher degreethandoesdirect

serviceprofitability. Thus, the direct impactof a service-orientedstrategyanda corresponding

orientation of organizationalarrangementparametersis essentiallymediatedby quality of

customerrelationshipsandnot so muchby direct serviceprofitability. In otherwords,industrial

marketing companiesthat focus on servicesand design their culture and human resource

managementin a service-orientedmannerperform betternot so much becauseof the direct

profitsgeneratedby servicesbut ratherbecauseofimprovedcustomerrelationships.

14

Our results show that one dimensionof a service-orientedstrategy—emphasison services

and not numberof services—hasthebiggestimpactin termsof changingtheserviceorientation

of corporatecultureand humanresourcemanagement.Onepossibleexplanationfor this canbe

that the emphasison servicesmuchmore stronglyreflectsascomparedwith numberof services

the switch from a product-orientedfirm to a serviceprovider. In businesspractice,it could be

observedhistorically that industrial marketingcompaniesoffered servicesnot systematically;

somecustomersaskedfor servicesand thesedesireswere often fulfilled. Thus, the rangeof

offered servicesreflecteda rather reactiveactivity and not a consciousactivity of industrial

marketingcompanies. Following this thought,offeringmany servicesmustnot imply a switch

from aproduct-orientedfirm to aserviceprovider.

Another contribution of the presentstudy is the introduction and developmentof new

measures.This holds truefor theserviceorientationof thetwo soft organizationalarrangement

parameters especiallyfor the serviceorientationof humanresourcemanagement.We define

theseconstructsandprovidevalidatedscalesformeasuringthem.

It is importantto notethat our studyonly examinesservice-orientedstrategyimplementation

issuesin an industrial marketingcontext. It would be interestingto examinewhethersimilar

relationshipshold in otherareaswhereservicesaugmentthe coreoffering. Onekey areawould

be that ofretailing. It is possiblethat thefindingsof this studymaysomewhatgeneralizeto this

areaas well. At the very least, the sameframework could be applied in future researchto

examinewhetherorganizationalsoft factorsmediatetherelationshipbetweena service-oriented

strategyandorganizationalperformanceaswell.

We addressedthe mediating role of soft organizationalfactors as key variables for the

successfulimplementationof a service-orientedstrategy. It would be interestingto analyzethe

role of hardorganizationalfactorssuchasorganizationalstructureandinformationsystem. This

would answerthequestionif theyarealsoplaying a key rolein implementinga service-oriented

strategy. By doing this, one could alsocomparetherole of soft andhardorganizationalfactors.

15

Are soft factorsmoreimportantthanhardfactorsin implementinga service-orientedstrategyor

viceversa?

There are severalkey managerial implications which follow from our findings. First,

industrial marketingcompanieswhich want to switch from being a totally product-focusedfirm

to being a serviceprovidermust faceand masterthe challengeto adapttheirsoft factorsin a

service-orientedmanner. This challengeis highlighted by Bonoma (1984, p. 69/70): “It is

invariably easierto think up clever marketingstrategiesthan it is to makethem work under

company,competitor, and customerconstraints. ... How to accomplishthe strategy— the

marketingimplementation— is problematic.” If industrial marketingcompaniesdo not master

this task,theyhavedifficulties to geta successfulturnarounddonefrom being aproduct-focused

firm to beinga serviceprovider.

Clearly a major change in soft organizational factors will often require a significant

investmentin terms of resourceand time on thepart of industrial marketingcompanies. Our

results do indicate,however, that theseinvestmentscan pay positive dividends in terms of

service-relatedperformanceandoverallprofitability.

Our study identified a high effect of one dimensionof a servicestrategy emphasison

services—onchangingthe two soft organizationalfactorswhich in turn positively influence

service-relatedperformance. This implies that industrial marketingcompaniesshouldstrongly

stresstheir servicesto their customers. This shouldbe doneindependentlyfrom thenumberof

servicesoffered.

In termsof aspectswhichpositively affect organizationalprofitability we identifiedthehigh

importanceof quality of customerrelationships(a non-financialoutcome)and not of direct

serviceprofitability (a financial outcome). This can interpretedas an indicator that many

industrial companiesdo not adequatelyprice their services. In the past, many industrial

marketingcompanieshavegiven awaytheir servicesfreeof charge(AndersonandNarus, 1995).

Comingfrom this startingpoint, industrial marketingcompaniesshouldchargeservicesto their

customers.

16

Finally, our results suggestthat industrial marketingcompaniesshould not emphasizethe

formulation of a strategyover implementation. The implementationof a strategyis critical.

Thus, while managersshouldbe careful to developan appropriateand effectivestrategy,they

should assignthe largeportion of their attentionand resourceto activities and taskswhich are

relatedto implementation. In particular,our study suggestthat thetwo soft factors—corporate

cultureandhumanresourcemanagement areareaswhichmerit significantattention.

17

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20

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Table 1. SampleCharacteristics

Industrialsector

Mechanicalengineeringindustry 35.4 %

Electricalengineeringindustry 29.2 %

Metalwareindustry 35.4 %

Numberofemployeescategory(size)

Lessthen 50 employees 18.3 %

50 to 99 employees 14.0%

100 to 249 employees 18.3 %

250 to 499 employees 16.0%

500 to 999 employees 8.6%

1,000to 2,499employees 8.9%

2,500to 5,000employees 2.7 %

Morethan 5,000employees 13.2 %

Distributionof producttype which thehighestsales

Productionmaterial/components 30.6%

Finishedproducts 41.8%

Engineeringprojects 27.6%

Table 2. Items,ScaleMeans,StandardDeviations,andCompositeReliabilitiesfor

Measures

Construct Meanl Composite Items*StandardDeviation

Reliability

Serviceorientationof 4.44/ .65corporatevaluesofthecompany

Serviceorientationof 3.86 / .69employees’behavior

Serviceorientationof 3.82 / .71personnelrecruitment

Serviceorientationof 3.64 / .94personneltraining

Serviceorientationof 3.14 / .92personnelassessment!compensation

.89

.94

.75

.82

.81

Customerserviceis oneof thecore valuesof ourcorporateculture.

High-qualitycustomerserviceis of similarlyhighimportanceto usasthe qualityof ourproducts.

Weunderstandourselvesnotonly asa supplierofproductsbutas aproviderof comprehensiveperformancebundlesfor thesolutionof ourcustomers’problems.

Theemployeesare awareof the importanceof acomprehensiveanda high-qualitycustomerserviceandtheyactaccordingly.Theemployeesactivelytaketheroleofproblem-solversfor thecustomers.

Theconcemsof thecustomersareofhigh importancefor theemployees.

Theemployeeshavea distinctiveservicementality.

Theemployeesengagestronglyin the solutionofcustomers’problems.

Weareableto find talentedjunior stafffor service-relatedactivities.

Socialcompetenceandtheabilitiesin face-to-face-contactswith customersaredecisivecriteria forrecruitment.

Thereadinessfor customerserviceof newly recruitedemployeesis required.

We examinethereadinessfor customerserviceofnewlyrecruitedemployees.

Newly recruitedemployeesare trainedcarefullyfortheinteractionswith customers.

Qualificationmeasuresnotonly takethetrainingoftechnicalcompetenceinto considerationbut alsothetrainingof social competence.

Theperformanceof employeesis recordedandevaluatedsystematically.Outstandingperformancein customerserviceishighlyappreciated.

Employeeswith a distinctiveserviceorientationhaveverygoodopportunitiesfor careerdevelopment.

Outstandingperformancein customerserviceisrewardedin thecontextof compensationfor examplethroughbonuses.

Table 2. Continued(1)

Construct Mean! Composite Items*StandardDeviation

Reliability

Quality of customerrelationships

Direct serviceprofitability

Overallprofitability

Numberofservices

3.67/.54

3.10/1.14

3.61 /1.08

13.10/4.08

.89

.86

.90

**

Frequencyof interactionwith customers.

Intensityof interactionwith customers.Intensityofpersonalrelationshipswith customers.

Understandingof the customers’business.

Knowledgeof customerneeds.

Exploitationoftheexistingsalespotential.Developmentof newsalespotential (crossselling).Realizationof customersatisfaction.

Retentionof existingcustomers.

Theservicesweofferareprofitable.Throughtheofferingof serviceswe generateasubstantialamountofprofit.Averagereturnon sales(operatingresultbefore tax /sales)of thebusinessunitoverthe lastthreeyears.

Averageretumon salesin comparisonto industryaverage.

Servicesfor technicalsecurityand optimization:

• Assembly/installation/implementing

• Technicalsupportfor similarproductsof othermanufacturers

• Dismantling/recycling/disposal

• Rearmament/retrofit/upgrading,adaptationof theproductto specific customerneeds

• Inspection/maintenanceServicessupportingtheprocessesof cooperation:

• Consignmentstorage

• Just-in-time-delivery0

0

0

Projectmanagement/primecontractorship

Customersupportfor adjustmentof EDP-systemsElectronicordering/orderprocessing(EDI)

Table 2. Continued(2)

Construct Meanl Composite Items*StandardDeviation

Reliability

Numberof services 13.10 / - ** Informationandconsultingservices:

• Personalconsulting/salesforcevisits

• Productdemonstration/sampledelivery

• Cost-benefit-calculation/visualizationofbenefits

• Customermagazine

• Customerconsultingandsupportby phone

• Written informationmaterial/documentation

• Technicalusertraining

• Websitewith productinformation.

Servicesfor trainingandfurtherconsulting:

• Businesstraining

• Seminars/lectures/eventsfor customers

• Feasibilitystudies/problemanalyses

• Cooperation/supportin researchanddevelopmentServicesin thebusiness-relatedfield:

• Procurementaid

• Salesaid/advertising/marketingsupport

• Insuranceservices

• Rent/mediationofmachinery/tools

• Businessconsulting

• Financialaid (e.g., leasing,mediationof loans)

• Dealingwith secondhandproducts

• Rent/mediationofpersonnel

Emphasison services 3.67/ .83 .77 Extentto which theservicesfor technicalsecurityandoptimizationareofferedactivelyto customers.

Extentto which theservicessupportingtheprocessofcooperationare offeredactivelyto customers.

Extentto which theinformationand consultingservicesareofferedactivelyto customers.

Extentto which theservicesfor trainingandfurtherconsultingare offeredactivelyto customers.

Extentto which theservicesin thebusiness-relatedfield are offeredactivelyto customers.

* All items,excepttheitemsfor numberof services,weremeasuredon a 5-pointscale( 1 lowestscore,5 =

highestscore). Theitemsfornumberof servicesweremeasuredon a dichotomousscale(with ‘0 = notoffered’and‘1 = offered’).

** Compositereliabilityisnotapplicablefor theformativemeasurenumberof services.

4.08