There is a trend among manufacturing companies to augment their product offering with services due to competitive and economic reasons as well as changing customer demand. However, offering services is often a challenging task for manufacturing companies, as their core capabilities are in the manufacturing business. Therefore, this paper tries to identify which aspects are important to offer excellent industrial services and therefore constitute industrial service excellence. The results of our research based on literature and interviews with 26 managers from manufacturing companies in Austria and Bavaria show that there are five dimensions: high service quality, competitiveness of the services, economic efficiency, flexibility and internal service involvement. We use fuzzy set Qualitative Comparative Analysis within a sample of 242 manufacturing companies in Austria and Bavaria to analyze the configurations of the dimensions of industrial service excellence and sales force capabilities as well as firm size and importance of services that lead to financial performance of the service business, nonfinancial performance of the service business as well as enabler for the product business. We show that there are equifinal configurations that lead to performance and that these configurations depend on the contingency factors of firm size and importance of services. The dimensions of industrial service excellence are interdependent, as shown in the various configurations. As the configurations leading to the three performance dimensions are different, companies have to decide what their aim of servitization is in order find the configuration that supports their aim.
More and more manufacturing companies augment their offering with services. According to the seminal article of Oliva and Kallenberg (2003), there are three reasons for this servitization trend: Services have a steadier cash flow than products, especially in an industrial context. Due to a more complex environment, customers demand solutions consisting of a bundle of products and services and offering these bundles gives manufacturing companies a competitive advantage. Manufacturing companies have some advantages in the service business, compared with pure service providers, for example the installed base of their products (Ulaga and Reinartz 2011). However, servitization is not a straightforward path to success, as there are many barriers and challenges for manufacturing companies if they decide to enter the service business (Martinez et al. 2010, Zhang and Banerji 2017). Neely (2008) shows that many servitized companies are not as profitable as pure manufacturing companies are. One possible explanation for the barriers of servitization is the goods-oriented culture and strategy. Manufacturing companies have their key competences within developing and producing goods. In many servitizing companies, the service business is rather small compared to the goods business and the main focus is on the goods business. As a result of this focus, servitizing manufacturers do not have the capabilities and know-how needed for the service business. Some key capabilities of professional service providers are not implemented in servitizing manufacturers.
One of the most important topics in service literature is service quality. Much effort has been put into developing scales to measure service quality and to find ways to improve service quality. The effect of service quality on customer satisfaction and profitability has been investigated in detail (Taylor and Baker 1994, Zeithaml 2000). As the research on service quality has been focused on consumer markets in the beginning, scales for industrial markets have been developed as well (Vandaele and Gemmel 2004, Gounaris 2005). There are also approaches going beyond service quality, aiming at Service Excellence (Gouthier, Giese and Bartl 2012, Johnston 2004). However, these approaches are focused on service providers. The situation of servitizing manufacturers is different. Therefore, we investigate the components of industrial service excellence and analyze their effect on performance. Additionally, we analyze the sales force capabilities needed in servitizing manufacturers, as these capabilities are critical for market success of services in manufacturing companies. As the goals of servitizing manufacturers are different, we differentiate between three dimensions of performance: financial performance of the service business, non-financial performance of the service business and enabler for the product business. We use a neo-configurational approach, based on the proposition that causality is complex and the individual components of industrial service excellence are characterized by conjunction, equifinality and asymmetry (Misangyi et al. 2017).
Therefore, we focus on the configurations that are necessary to achieve performance instead of the net effects of the individual components (Fiss 2007).
2 Industrial service excellence in manufacturing companies
Wirtz and Johnston (2003) as well as Johnston (2004) describe service excellence as elusive and hard to grasp. However, we identify industrial service excellence as a five-dimensional construct. Service quality is one important part of it, but there are four additional aspects that should be considered as well. We base the definition of the construct on literature as well as an interview study among 26 service managers in Austria and Bavaria.
2.1 High service quality
The assessmentof service quality has been of utmost importance for service research. SERVQUAL developed by Parasuraman, Zeithaml and Berry (1988) and refined by Parasuraman, Berry and Zeithaml (1991) was used very often in research as well as in business practive. Many different tools to assess service quality have been developed (Cronin and Taylor 1992; Dabholkar, Thorpe and Rentz 1996). Gounaris (2005) and Vandaele and Gemmel (2004) developed a measurement tool for service quality in a B2B context to account for the specifics of business markets. Grönroos (1984) states that high service quality includes technical quality (outcome) as well as functional quality (process). There is some discussion on what is meant by high service quality. Some propose that to be excellent, the service has to be better than the customer expected it to be, which means that the service delights the customer (Rust and Oliver 2000). Johnston (2004) argues against this view and defines service excellence as being easy to doing business with. According to his framework, there are four components that are important to be excellent: delivering the promise, providing a personal touch, going the extra mile and dealing well with problems and queries. Despite the discussion on how good service quality has to be to be considered excellent, there seems to be consensus that high service quality is an important aspect of industrial service excellence.
This aspect of industrial service excellence was mentioned primarily by the interviewees in the expert interviews. They highlighted the big difference between industry sectors and services. In some industry sectors and for specific services the service quality offered by the competitors is very high and the price is quite low. However, in other industry sectors and for other services the quality is quite low and the prices are quite high. Some service even are not offered at all, despite a demand for them. The reason for this is that there are no companies that have the capabilities to offer these services at acceptable costs. One example are pay-per-use services for complex machines and plants. There are industrial customers that want to purchase such services. However, in some industry sectors, no company is able to offer that services. If a company is able to offer these kind of services with some minor problems of service quality, this company can be considered offering excellent services, as it offers a kind of service that no other company can offer at this level. Some companies offer very innovative services, but have minor quality problems in the beginning. On the other side, a company that offers a basic service with at quite a high service quality level, but there are numerous companies that can offer these kind of service at even a higher level of service quality, this company cannot be considered to offer „excellent” services. Therefore, some interviewees highlighted the importance of including this comparison with the offerings of the competitors into the industrial service excellence construct. According to them, excellence should be partly defined in comparison with the competitors.
2.3 Cost effectiveness
Wirtz and Zeithaml (2017) propose the concept of „cost effective service excellence” and describe it as a strategy that is focused on offering high service quality at low costs. Although high service quality and low costs have been seen as a trade-off, they propose strategies to achieve both cost-effectiveness and high service quality at the same time. This is hard to achieve, but leads to high long-term financial returns. Wirtz and Zeithaml (2017) describe three ways to achieve cost effective service excellence: a dual strategy, operation management approaches that try to reduce process variability and the focused service factory. Heracleous, Wirtz and Johnston (2003) describe how Singapore Airlines achieved cost effective service excellence. Our Interviewees highlighted the importance of cost effectiveness, especially for simple, standardized services.
Due to the nature of business relationships and of services, flexibility of industrial service providers is very important. Ivens (2005) as well as Han, Sung and Shim (2014) identify flexibility in industrial relationships as an important antecedent of satisfaction. They highlight the importance of informal mechanism in relationships. As B2B services are often provided in long-term business relationships, flexibility becomes more important. In line with Ivens (2005) we define flexibility as the willingness to modify an agreement in order to bring it in line with environmental conditions. This aspect was emphasized by our interviewees. They stated that industrial services are often provided in long-term relationships and therefore it is not possible that everything is regulated exactly in the contract that is made in the beginning. Environmental changes as well as internal changes due to customer request are the reasons to modify the services. If the service provider is ready to be flexible and adopt the services to the needs at hand, this is highly appreciated by the customer. Industrial service providers can only considered to be excellent, if they are flexible to fulfill the changing needs of their customers.
2.5 Internal service involvement
Some of the service managers stated that services are only a by-product. The focus is on the products and mentality and culture are product focused. Many companies do not even have a service department, in some companies there is not even a person dedicated to services. If there is a service department, it is often a neglected department and collaboration with other, product-focused departments is quite difficult. Analysing Singapore Airlines and looking for reasons why they are excellent in services, Wirtz and Johnston (2003) highlight the „total approach” they used. They look at the totality of the customer experience, not on specific details. Therefore, they train every employee to be customer and service oriented. This involvement of every employee is supported by a top management with emphasis on services. The importance of top management support for services is described by Prabhu and Robson (2000) as well. Asif (2015) stresses a system wide effort to support services while Lytle, Hom and Mokwa (1998) accentuates the importance of service orientation throughout the whole company. This does not mean that every employee is focused exclusively on services but that services are not seen as the job of the service department. Every employee including management should work towards offering the customer a better total customer experience.
3 Sales force capabilities
The selling of services differs from selling products. The selling approach as well as the capabilities of the sales force are different (Storbacka et al. 2009, Tuli, Kohli and Bharadway 2007, Reinartz and Ulaga 2008). Ulaga and Reinartz (2011) describe in their study that one third of product salespeople are good at selling services as well, one third need additional training and one third is not able to sell services. Therefore, strategic sales management has to take care which salespeople are responsible for products and for services. Special attention should be given to the capabilities of the sales force that is selling services. The following capabilities have been mentioned as important for service salespeople by Ulaga and Loveland (2014), Reinartz and Ulaga (2008) as well as in our interviews with service managers: They need profound technical knowledge, as they can explain the value of the services only if they understand how the service as well as the products work together. Technical knowledge also fosters the acceptance, especially if they talk to technicians. As many services are in need of explanation, they should be able to present the value of the services in a clear and concise manner. It is important to emphasize the monetary value of the services for the customer. Especially for services, the needs of the customers are quite different. Therefore, the salespeople have to listen exactly to discover the needs of the customers, especially the latent needs they cannot express easily. They have to be flexible to respond to changes and specific needs. Cultural aspects have to be handled in the service business as well. Bao and Toivonen (2015) find that in China it is very hard to sell something intangible, therefore it is advisable to sell services together with a product or to add something tangible to the service. In other countries, it is much easier to sell services separately. Within the service business, the sales staff is not the only staff with customer contact. Service technicians and other service employees have a lot of customer contact, sometimes they stay at the customers site for months or go there regularly. The customers trust these persons. Therefore, strategic sales management should look how these „part-time marketers” (Gummesson 1991) can use their customer contact to assist the sales force in initiating new sales.
4 Neo-configurational perspective
The neo-configurational perspective (Misangyi et al. 2017) is based on the configurational approach (Meyer, Tsui and Hinings 1993). A configurational approach emphasizes the complexity of causality, especially through three features: conjunction, equifinality and asymmetry. Conjunction means that some capabilities usually appear together, equifinality emphasizes that there is more than one solution to reach a certain target and asymmetry means that the presence or absence of a capability may produce the same outcome, depending on its combination with other capabilities. One problem of the configurational approach was a mismatch between theory and method, as most of the studies relied on regression based methods that analyze additive, unifinal and symmetrical effects (Misangyi et al. 2017, Fiss 2007). The development of Qualitative Comparative analysis and especially fuzzy-set qualitative comparative analysis (Ragin 1987, 2000, 2008) and its adoption in management studies (Kan et al. 2016) offered new possibilities for studies using a configurational approach. The neo-configurational perspective therefore builds on the intellectual roots of configurational theory, but uses Qualitative Comparative Analysis instead of regression-based methods.
5.1 Fuzzy set qualitative comparative analysis
In line with the underlying assumptions of the neo-configurational perspective we use fuzzy-set Qualitative Comparative Analysis to analyse the effects of industrial service excellence as well as sales force capabilities on performance. fsQCA uses a causes-to-effect approach and looks for the configurations of conditions that lead to a certain outcome (Fiss 2007). This is in contrast to regression analysis and structural equation modeling, which pursue an effect-to-causes approach, looking for the net effect of the variables on the outcome. Because of this approach, fsQCA takes into account nonlinear and asymmetric relationships as well as interaction effects (Fiss 2007, 2011) fsQCA was developed for applications in political science and historical sociology (Berg-Schlosser et al., 2009), but is now applied in management (Kan et al. 2016) and marketing studies (eg. Frösen et al. 2016). Some servitization studies use this approach as well (Böhm, Eggert and Thiesbrummel 2017, Forkmann et al. 2017, Sjödin, Parida and Kohtamaki 2016, Ambroise, Prim-Allaz and Teyssier 2018). We used fsqca 3.0 (Ragin 2017) as a software to calibrate the measures as well as to derive the configurations.
Based on literature and 26 interviews with service and general managers in servitizing companies, we developed formative measures for industrial service excellence. As we defined each component of industrial service excellence based on literature and on our interview study, formative measures were adequate to catch all the five components (Diamantopoulos and Winklhofer 2001). For sales force capabilities we developed formative measures adopted from Behrman and Perreault (1982), Raddats et al. (2015), Homburg (1998), Gebauer, Edvardsson and Bjurko (2010) and Terho et al. (2015). We distinguished between three performance dimensions: financial performance of the service business, which was operationalized on a two items reflective scale, adapted from Gebauer and Fleisch (2007). The scale for non-financial performance was based on five items adapted from Oliva, Gebauer and Brann (2012), Kingshot and Pecotich (2008) and Mathwick, Malhotra and Rigdon (2001). The construct enabler for the product business was measured on a three items scale adapted from Raddats et al. (2015). All these constructs were assessed with a 7-point Likert scale. Importance of service was measured through a six-point service continuum scale adapted from Oliva and Kallenberg (2003) whereas firm size was operationalized through number of employees.
The sample consists of 242 manufacturing companies from Austria and Bavaria. Service managers or general managers served as key informants within an online-survey. Only managers that have intimate knowledge of the service business of their companies were allowed to fill in the survey. Initially, a mail with a description of the project and a link was sent to 1938 companies, with two reminders after two and five weeks. After eliminating datasets that were lacking some data, 242 complete answers remained, leading to a response rate of 12.5%, an acceptable number, taking into account that only managers with intimate knowledge of the service business were accepted as respondents. Of these 242 companies, 92 were SMEs. The sample included several industries, most prominently machinery and plant engineering (96), metal industry (29) and electronics (25).
We used direct calibration for our measures. As there are no theoretical based thresholds available, we defined the median as the crossover point, the first quartile as full in the set and the last quartile as fully out of the set (in line with Frösen et al. 2016). This assures that only meaningful variance is reflected in the calibrated values. We used the summated Likert scale scores as input for the calibration process. Only firm size was dummy coded, with companies that have less than 250 employees coded as 0, all companies with 250 or more employees coded 1.
6.1 Necessity analysis
First we tested whether any of the conditions is necessary. Necessary means that this condition has to be present to lead to the outcome. However, using a threshold of 0.90 as recommended by Greckhamer et al. (2018), no single condition leads to the outcome.
6.2 Sufficiency analysis
To test for sufficient conditions, we used the truth-table algorithm. We used a frequency threshold of 3, meaning that only configurations, that appeared at least three times were included in the final solution. The consistency cut-off was set at 0.80, as recommended by Greckhamer et al. (2018). The solutions are presented in configuration charts as suggested by Greckhamer et al. (2018) in Tables 1-3. White circles indicate the presence of a condition, crossed circles the absence of a condition. All of the solutions have a consistency higher than 0.80, as recommended by Greckhamer et al. (2018). The coverage varies between 0.42 and 0.52. This means that a large part of the successful companies can be explained by the configurations in the solution, but that there are still other ways to achieve performance. One explanation for the lower coverage results are the different industries in our sample as well as different market conditions, which are not covered in this model, as this would increase the complexity.
There are four configurations leading to financial performance of the service business. Configuration one is the empirically most important one and needs conditions two to six to be present and is valid only in companies where services are important.
The other three configurations are only for large companies. Configuration two needs all six conditions to be present, the other two configuration need four conditions to be present. For non-financial performance, there are six possible configurations. The empirically most important configuration is configuration one, which needs all six conditions to be present and does not depend on contingency factors. All other solutions need three to five conditions to be present, but are valid only in specific circumstances. Most of these configurations are restricted to large companies.
Four configurations enable the product business through the service business. All of these configurations depend on the contingency factors and need four or five of the conditions to be present.
A neo-configurational perspective proposes complex causality due to conjunction, equifinality and asymmetry. Our study therefore includes six conditions as well as the size of the firm and the importance of services within firms to assess their influence on performance. To differentiate between different goals, we analysed three performance dimensions separately. As there is no single necessary condition, all configurations need at least three conditions to be possible and the presence and absence of conditions depend on the other conditions, the neo-configurational approach is suitable to assess the dimensions of industrial service excellence that influence performance. The inclusion of sales force capabilities in the model is justified as well, as the absence or presence of sales force capabilities is an essential part of some of the solutions.
Firm size and the importance of services can help companies to better understand which configurations are applicable for them. There is only one configuration that is not dependent on firm size or the importance of services namely configuration one for the presence of non-financial performance of the service business (Table 2). This shows that contingency factors are important in the study of industrial service excellence and servitization.
The results show that there are multiple paths for servitizing manufacturers to achieve performance through industrial service excellence. Defining industrial service excellence as a multi-dimensional construct enables a more fine-grained analysis of the success factors for performance in the service business. High service quality is often used as a synonym for service excellence. Our results show that service quality is indeed part of most of the configurations that lead to performance, but there are other ways as well. It is quite interesting that internal service involvement is part of all configurations that lead consistently to performance. This is remarkable as this dimension of industrial service excellence is a special challenge for manufacturing companies. In professional service firms, the focus on services is the standard, but in most manufacturing companies services are only a by-product. One important take-away of this study is therefore the importance of internal service involvement. All solutions leading to performance included at least two dimensions of industrial service excellence, most of them included four. This indicates the multi-dimensional nature of industrial service excellence.
8 Implications and outlook
8.1 Theoretical implications
From a theoretical perspective, the neo-configurational perspective proves to be a useful perspective for the analysis of the impact of industrial service excellence on the performance of manufacturing companies. Due to the conjunction between the different conditions and numerous equifinal results a configurational approach seems necessary. Another aspect is the differentiation between performance aspects. As the solutions for the performance aspects are different, these fine-grained view of performance seems important, especially in servitizing manufacturers, where the strategic focus is sometimes more on the financial results, sometimes more on the enabling function of the service business for the product business. Concerning the construct of industrial service excellence it seems necessary to differentiate between industrial service excellence in service companies and industrial service excellence in manufacturing companies, especially concerning the internal service involvement.
8.2 Practical implications
Manufacturing companies that add services to their offering have their desired goal in mind, especially if the focus is on building a profitable service business or to enable the product business. Depending on their goal, different dimensions of industrial service excellence are important.
Dimensions of industrial service excellence should not be treated separately. As the results have shown it is important to analyse the configurations in total and not in separate parts. Therefore, servitizing manufacturers have to analyse their whole service business and find configurations that support their servitization goal.
Special care should be given to contingency factors such as firm size and the importance of services. Depending on these contingency factors different configurations lead to the performance dimension in question.
Manufacturing companies should be careful when adopting service quality and service excellence concepts that were developed for B2C markets or for professional service companies. Internal service involvement is common within these companies, in manufacturing companies it is a major challenge.
8.3 Limitations & outlook
Despite the implications mentioned above, this study has its limitations. First, the sample consists only of companies from Austria and Bavaria and includes several industries. A focus on one single industry could reveal industry-specific configurations. Analysing the impact of industrial service excellence on performance in other countries could reveal differences between countries. As we used subjective performance, studies with objective measures of performance could show if there are differences or not.
It would also be important to further evaluate the concept of industrial service excellence in manufacturing companies. To verify the usefulness of a neo-configurational perspective a comparison between the results of Qualitative Comparative Analysis and regression-based methods within the same study would be an interesting avenue for further investigation. Furthermore, additional aspects and contingency factors should be used as conditions, allowing the analysis of even more sophisticated configurations.
The work described in this document has been conducted as part of the project ISEM (industrial service excellence monitor), a research project funded by the European Fund for Regional Development through Interreg Austria-Bavaria 2014-2020.
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Kľúčové slová/Key Words
industrial services, manufacturing, sales force capabilities
priemyselné služby, výroba, schopnosti predajnej sily
JEL klasifikácia/JEL Classification
Dokonalosť priemyselných služieb vo výrobných spoločnostiach: neo-konfiguračná perspektíva
Medzi výrobnými spoločnosťami existuje trend rozširovať ponuku produktov o služby z konkurenčných a ekonomických dôvodov, ako aj z dôvodu meniaceho sa dopytu zákazníkov. Ponúkať služby je však pre výrobné spoločnosti často náročnou úlohou, pretože ich základné schopnosti sú vo výrobnom podnikaní. Preto sa tento príspevok snaží identifikovať, ktoré aspekty sú dôležité pre ponúkanie dokonalých priemyselných služieb a preto predstavujú dokonalosť priemyselných služieb. Výsledky nášho výskumu na základe literatúry a rozhovorov s 26 manažérmi z výrobných spoločností v Rakúsku a Bavorsku ukazujú že existuje päť dimenzií: vysoká kvalita služieb, konkurencieschopnosť služieb, ekonomická efektívnosť, flexibilita a zapojenie interných služieb. Použitá bola neostrá množina kvalitatívnej porovnávacej analýzy na vzorke 242 výrobných spoločností v Rakúsku a Bavorsku na analýzu konfigurácií rozmerov schopnosti priemyselných služieb a predajných síl, ako aj veľkosti firmy a dôležitosti služieb, ktoré vedú k finančnej výkonnosti podnikania so službami, nefinančný výkon v oblasti služieb, ako aj ako aktivátor pre obchod s produktmi. Poukazujeme, že existujú ekvifinálne konfigurácie, ktoré vedú k výkonu a že tieto konfigurácie závisia od náhodných faktorov veľkosti firmy a dôležitosti služieb. Parametre excelentných priemyselných služieb sú vzájomne závislé, ako je znázornené v rôznych konfiguráciách. Pretože konfigurácie vedúce k trom dimenziám výkonnosti sú rôzne, spoločnosti sa musia rozhodnúť, aký je ich cieľ pri poskytovaní služieb, aby našli konfiguráciu, ktorá podporuje ich cieľ.
6. March 2019 / 11. March 2019