Another Performance Paradox?: A Refined View on the Performance Impact of Servitization

30 Pages Posted: 25 Jul 2012

See all articles by Ivanka Visnjic

Ivanka Visnjic

ESADE Business School; University of Cambridge

Andy Neely

University of Cambridge; London Business School

Frank Wiengarten

Independent

Date Written: July 4, 2012

Abstract

Manufacturing firms are increasingly adopting ‘servitization’ – a business model innovation whereby existing product offerings are extended through related services. Despite the widespread uptake, questions remain regarding the impact of servitization on firm performance. This study investigates the performance effects of two core dimensions of servitization: service investments and service market approach, characterized by breadth and depth of service offering. Results suggest that service investments – though often underestimated by manufacturers – represent a prerequisite for growth. With respect to profit performance, we identify the negative effect of increasing service breadth, measured in number of services offered, while increasing service depth, measured in completeness of service offering, results in higher margins and an increase in market value. Depth of service offering also has a positive effect on market value. At the same time, the interplay between service depth and product innovation investments turns from positive to negative at the highest extent of service depth, suggesting trade-offs between ‘full-scope’ servitization strategy and innovation strategy.

Keywords: servitization, firm performance, product–service system, service, strategy

JEL Classification: M00, M11

Suggested Citation

Visnjic, Ivanka and Neely, Andy D. and Wiengarten, Frank, Another Performance Paradox?: A Refined View on the Performance Impact of Servitization (July 4, 2012). ESADE Business School Research Paper No. 231. Available at SSRN: https://ssrn.com/abstract=2117043 or http://dx.doi.org/10.2139/ssrn.2117043

Ivanka Visnjic (Contact Author)

ESADE Business School ( email )

Avda. de Pedralbes 60-62
Barcelona, 08034
Spain

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

Andy D. Neely

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

HOME PAGE: http://www.ifm.eng.cam.ac.uk/people/adn1000/

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Frank Wiengarten

Independent ( email )

No Address Available
United States

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