Journal of Service Theory and Practice

Eight challenges of servitisation for the configuration, measurement and

management of organisations
Sai S. Nudurupati, David Lascelles, Gillian Wright, Nick Yip,
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Eight challenges of servitisation Eight

challenges of
for the configuration, servitisation
measurement and management
of organisations 745
Received 23 February 2015
Sai S. Nudurupati, David Lascelles and Gillian Wright Revised 22 June 2015
Department of Marketing, Operations and Digital Business, 10 August 2015
Accepted 11 September 2015
Manchester Metropolitan University, Manchester, UK, and
Nick Yip
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Norwich Business School, University of East Anglia, Norwich, UK

Abstract
Purpose – There is an extensive research literature on servitisation and the related field of
product-service systems that has emerged independently from different fields including engineering,
management, design and environmental studies. The purpose of this paper is to conduct a structured
literature review to explore, identify and synthesise the multi-disciplinary research challenges in the
journey towards servitisation.
Design/methodology/approach – The research approach is a systematic literature review using
key word searches and citation tracking for research reported between 1990 and 2013 in research
databases that cover the fields which have generated the body of knowledge.
Findings – One of the key findings from the extant literature on servitisation is that it suffers from
three fundamental weaknesses. First, numerous studies are conceptual in nature with limited
practicality. Second, there are relatively few empirical studies, and often the findings relate to a single
case study based on the insights of a limited number of senior managers. Third, often the dynamics are
insufficiently studied in these organisations because data for most cases are collected post-event.
Research limitations/implications – Based on the literature review and its shortfalls, this paper
proposes a holistic framework of eight themes that require further attention from academic
researchers in order that a more complete conceptual understanding of servitisation is developed to
support practice.
Practical implications – Each theme in the framework has an associated list of questions that can
be addressed through research and presented to managers as a challenge agenda to improve their
servitisation efforts. That servitisation is associated with differentiation and competitive advantage
makes this a valuable approach for managing corporate performance.
Originality/value – Research from multi-disciplinary sources is synergised in order to develop an
overarching servitisation agenda that transcends domain-based boundaries. This paves the way for an
approach to servitisation that is coherent and harmonious.
Keywords Competitive advantage, Differentiation, Servitization, Product-service systems,
Services management, Value-in-use
Paper type Conceptual paper

1. Introduction
In the quest for differentiation and competitiveness, service has become ubiquitous
(Baines and Lightfoot, 2014). With an increasingly pivotal role in today’s knowledge-
Journal of Service Theory and
based economies, services are receiving considerable attention from academics and Practice
practitioners (Gronroos, 2000; Prahalad and Ramaswamy, 2004; Spohrer and Maglio, Vol. 26 No. 6, 2016
pp. 745-763
2008). The trajectory of growth of the service economy underpins the notion of © Emerald Group Publishing Limited
2055-6225
servitisation, which increasingly requires a shift in perspective, from value-in-exchange DOI 10.1108/JSTP-02-2015-0045
 JSTP towards value-in-use (Vargo and Lusch, 2008; Ng and Nudurupati, 2010; Neely, 2014).
26,6 This new emphasis is further echoed in product-service system (PSS) studies
(Meier et al., 2010; Lamvik, 2001; Morelli, 2002). Despite an established definition of PSS
as offering “goods and services that are consumed over time in multiple consumption
episodes” (Mittal et al., 1999), there remains a lack of clarity concerning the concept:
some researchers refer to PSS as a “value proposition” (Tukker and Tischner, 2006),
746 others refer to it as an “innovation strategy” to remain commercially competitive
(Manzini and Vezzoli, 2003). Additionally, other researchers refer to PSS as a “concept”,
“form”, “structure” or “platform” from which to innovate efficient “systems” and
“models” for the benefit of the consumer (Bullinger et al., 2003; Mont, 2002). Regardless,
this suggests that, whether the value to the customer is delivered through products or
services, the value chain should be viewed from a customer perspective (Wise and
Baumgartner, 1999) and how the customer uses the product/service throughout its life
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cycle (Vargo and Lusch, 2004), including its impact on the environment (Manzini and
Vezzoli, 2003; Mont, 2002). It is further argued that the purpose of integrating service
with existing products improves competitiveness as well as identifying balance
between social, economic and environmental factors (Yang et al., 2009).
The transition from product-dominant to service-dominant thinking is challenging
for both researchers and practitioners, requiring fresh and innovative thinking as to
how organisations need to be configured, measured and managed (Ng and Nudurupati,
2010). The combined product/service offering creates pressure on organisations to fulfil
contractual obligations to customers who have extremely diverse and unpredictable
requirements, coupled with an internal pressure to deliver the offering as economically
as possible (Baines et al., 2011). Moreover, servitisation requires organisations to build
new people skills, technologies and capabilities (Reinartz and Ulaga, 2008). However,
despite the growing volume of academic papers on the subject, our knowledge of the
practicalities of implementing PSSs is still fairly meagre. There is a theoretical and
practical need to understand the drivers of success and failure of the transition from
product-dominant to service-dominant logic within business organisations (Neu and
Brown, 2008). It has been argued that a paradigm shift is necessary in the way
organisations work, to create a strong focus on outcome-driven culture and
risk-sharing agreements, in their journey towards servitisation (Barnett et al., 2013).
Much previous research has been theoretical, prescriptive or based on single
organisation case studies, thus limiting the generalisation of findings and potential
application of lessons to other organisations, industries or sectors ( Johnstone et al.,
2009). The aim of this paper is to review the literature, identify the core issues and
classify the research and organisational challenges into a framework of fundamental
themes that forms the basis for a research agenda.

2. Research design
The overall approach comprises a thematic analysis of the content of key contributions to
the body of work concerning servitisation. A systematic literature review (Denyer and
Tranfield, 2008; Rousseau et al., 2008) was performed on servitisation and PSS subjects
(Figure 1). Predefined search strings employed in the key word searches included
“servitisation”, “product service systems”, “service design” and “service innovation”.
These searches were used to identify articles published between 1990 and 2014 in specific
databases: Business Source Premier, Emerald Insight and Science Direct. Furthermore,
a number of specific journals were chosen for particular scrutiny because they attract a
large number of papers in the field of service research. Similarly, papers were also
 Eight
Research Aim: Structured Literature Review
challenges of
servitisation
Key Journal
Database Search
Search
747

Filtered 300 Articles

Title and Abstract Analysis

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Citation Tracking and Full Papers

Author’s Expertise Appraised Figure 1.
The methodological
basis for the
Themed Research Challenges Identified literature review

identified through citation tracking from the initial selection of papers. This approach
thus facilitated the exploration of a broad range of servitisation challenges from a
product-based organisation perspective (as advocated by Bititci et al., 2012).
The initial key word and journal database searches yielded around 300 articles.
On the basis of titles and abstracts, these articles were further filtered to obtain
40 papers. The criteria used for filtering the papers the assessment of whether a paper
was focussed on servitisation and/or PSSs. These 40 papers were further supplemented
by an additional 20 papers obtained through citation tracking. These 60 papers are the
basis of the analysis from which the themed challenges were derived. Whilst all of these
papers were appraised fully in order to conceptualise the current servitisation research
in product-based organisations, 12 were selected for thorough investigation. The choice
of these papers was to triangulate the clusters and validate the framework. These
papers were judged empirically validated and rigorous and are central in the field in
developing the challenges of servitisation. So, our approach was to use the most
credible papers that we identified as the core of our consideration of the validity of our
framework of challenges. It was part of our undertaking to carry out a thorough critical
review of the available research papers. From this, we identified the most robust
contributions from which to derive our overview and summary of the implications of
the extant literature on servitisation.
A grounded theory approach to coding the content of this body of literature was used
to reveal the themes without imposing preconceived mindsets and ideas (Glaser and
Strauss, 1967). We chose not to use software in the coding process, and believe it
important to explain this here. In our view, the integrity of coding is entirely dependent
on the skills and rigor of researcher(s). Certainly, for a literature application such as ours,
we reject the facility in NVivo that allows for automatic coding. The papers we used as
our source documents we formatted in different ways and used different spelling and
grammar conventions. They also used different terms to convey the same meaning.
This meant that interpretation at a micro level was important in evaluating our materials.
 JSTP We were looking further than to understand themes in the documents as would be the
26,6 objective of using NVivo for the analysis of empirical qualitative data. Instead, we sought
to make a judgement on the veracity of the research presented in the papers. In other
words, it was not only the content of the work that we assessed, but also the quality. This
was especially important in our first stages of filtering the material in our core articles.
In this sense, we felt that the use of NVivo could potentially undermine the quality of our
748 analysis rather than enhance it. We considered the purpose, theoretical base, methods,
investigations, findings and conclusions for each paper.
Moreover, we felt that the use of NVivo could prejudice and limit us as investigators,
we did not want to fall into the trap of relying on the software instead of understanding
the material and identifying the hidden and subtle trends and codes. In practice, the
investigators worked independently and then together in order to arrive at the codes
and created the clusters that are documented in Table I. These were triangulated
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against the 12 papers selected for thorough investigation. In this analysis, key point
coding was utilised in preference to microanalysis coding (Allan, 2003; Cranfield and
Taylor, 2008). Pragmatically, we also drew on our experiences of reviewing and
examining research that has used NVivo in the analysis of a literature review and we
are of the view that although it has potential, it potentially fails to add value and
insight. Indeed, we have experienced instances when using NVivo has appeared to be a
substitute for critical analysis and masked some important points that could only be
revealed through reader interpretation. The differences and quality of contributions of
the papers we scrutinised were often subtle, and we deemed that identification of such
would not be aided through the use of NVivo.

3. Integrating products and services: an analysis of the extant literature

The innovative integration of services with products to deliver value-adding customer
benefits to enhance competitive advantage has been a developing stream of literature
over the last 25 years (Wise and Baumgartner, 1999; Oliva and Kallenberg, 2003; Neely,
2007; Spring and Araujo, 2009; Baines et al., 2009; Baines and Lightfoot, 2014). The
principle of a firm offering bundles of customer-focussed combinations of products
with services such as support services, self-services and knowledge services has
become termed servitisation (Vandermerwe and Rada, 1988). The general management
literature refers to this impact of services as the “servitisation of products” or
“servicising” (White et al., 1999), suggesting that the old dichotomy between product
and service is being replaced by a service-product continuum (Lovelock and
Gummesson, 2004; Zeithaml et al., 2006). Consequently, in the services marketing
literature, Vargo and Lusch proposed the term “service dominant logic” to theorise two
premises. First that “goods are a distribution mechanism for service provision” and
second, “all economies are service economies” (Vargo and Lusch, 2004).
The integration of manufacturing and services is seen as an effective means for
growing and/or maintaining profits, plus potentially significantly increasing control
over the downstream elements of the supply chain by erecting barriers to rivals or new
entrants (Mathe and Shapiro, 1993; Schmenner, 2009). Neely (2014) summarises the
purpose of servitisation into three categories of benefits: economic, strategic and
environmental. However, according to Fang et al. (2008), the benefits of servitisation
strategies to the organisation only become obvious when the level of associated service
sales reach approximately 20-30 per cent of total earnings. Furthermore, these benefits
are dependent on how well the organisation leverages its unique resources to build
distinctive capabilities (Ulaga and Reinartz, 2011).
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Research challenge/ Spring and Morelli Sakao et al. Ulaga and Martinez Johnstone Baines et al. (2009, Bastl et al. Ng et al.
theme Araujo (2009) (2009) (2009) Reinartz (2011) et al. (2010) et al. (2009) 2011, 2013) (2012) (2010, 2011)

Theme 1: customer | | | | |
perspective
Theme 2: redefining the | | |
interface
a
Theme 3: revenue, | |b
pricing and selling
Theme 4: product/service | | | | | | |
system design
Theme 5: supply network | | | | |
Theme 6: organisational | | | |
architecture
Theme 7: performance |
measurement
Theme 8: cultural | | |
transition
Notes: ✓aAddresses sales/selling; ✓baddresses revenue/pricing
servitisation

Research challenges/

supported literature
challenges of
Eight

themes matrix with

Table I.
749
 JSTP Servitisation and PSS
26,6 The servitisation movement is also reflected in the “PSS” research, largely derived from
the engineering and environmental disciplines (Mont, 2003; Manzini and Vezzoli, 2003).
PSS refers to “a marketable set of products and services jointly capable of fulfilling
client’s needs” (Goedkoop et al., 1999). PSS is also understood as a “function-oriented
business model” where “tangible products and intangible services are combined so that
750 they are capable of fulfilling specific customer needs” (Tukker, 2004). PSS signifies a
competitive opportunity for many organisations by reducing consumption through
modification of their products by integrating services (Beuren et al., 2013). In general, the
classification of PSS falls into three categories: product-oriented, use-oriented and result-
oriented services (Brezet et al., 2001; Cook et al., 2006; Zaring, 2001). In product-oriented
services PSS, the ownership of the “material product” is considered as transferred to the
customer and a service arrangement is provided to “ensure the utility” of the artefact over
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a given period of time. This is different to use-oriented PSS which refers to a configuration
in which the ownership of the “material product” is retained by the service provider who
sells the “function” of the product to the customer. A typical example of this is leasing
products such as photocopiers, DVDs and cars. In the result-oriented PSS, the service
provider sells “results” rather than “functions”. In other words, the customer purchases
“utility” as an outcome instead of the “function” of the product and typically, under the
result-oriented PSS, there is no-predetermined product involved (Cook et al., 2006).
Similarly, Neely (2014) discusses five different options ranging from integration-oriented
PSS to results-oriented PSS on a servitisation continuum: integrated-, product-, service-,
use- and results-oriented PSS. Neely articulates that each of these options provide
different opportunities for organisation to servitise.
PSS and servitisation have essentially the same aim: to provide competitively a
solution that meets the needs of the customer throughout the life cycle of the offering
and increase an organisation’s competitiveness and profitability (Geng et al., 2010).
The competitiveness of the value proposition is derived not only from how innovatively
an organisation develops the combination of products with services, but depends also
on how the value proposition can be delivered with minimum disruption to the
customer’s business processes ( Johnstone et al., 2009). Whilst there are numerous ways
of configuring the resources of an organisation to create competitive advantage, few
organisations have tended not to invest in developing an understanding of the
complementary services needed to leverage the competitiveness of their products
(Anderson and Narus, 1995). Typically, management teams neglect to understand
customer service needs fully and provide the services required including standard and
optional offerings and the best ways of delivering them. Hence, Baines et al. (2013,
p. 638) identified three categories of services and categorised them as basic,
intermediate and advanced. The emphasis of a basic service is to focus on providing
products to the customer, whereas the emphasis for an intermediate service is to focus
on providing condition maintenance, advanced service focusses on providing
assurance of outcomes. It could be argued that providing advanced service is an
important element of servitisation and it involves organisational transformation.

Manufacturing innovation
Neely (2014) argues that servitisation is a journey in which a manufacturing firm
innovates its capabilities and processes to shift its focus to delivering integrated PSSs
that deliver value-in-use. Furthermore, there are various forms of product-service
combinations, which often involve a shift from selling a product to customers towards
 other transactional forms such as leasing, hiring, pooling and pay for use, Eight
availability or performance (Spring and Araujo, 2009). An additional challenge for challenges of
the organisation is to understand the changing nature of its collaboration with
customers. The distinctive feature of this transition is in the retention of ownership of
servitisation
the product by the organisation, which results in changes to cost structures as well as a
re-distribution of risks and incentives between the parties involved. This challenge is
amplified and becomes even more complex when the organisation shares its resources 751
across multiple contracts, each with different degrees of involvement with customers.
This situation is prevalent in complex engineering service systems such as those with
the defence industry (Ng and Nudurupati, 2010). Benedettini and Neely (2012)
argue that the importance of the complexity of manufacturing companies stems from
the complexity of the product supplied and the context in which the associated services
are offered rather than the service itself.
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In the servitised environment, management teams within business organisations

need to move away from a mind set that delineates manufacturing as a separate entity
from service activities, because both offer service-based value to enable customers to
perform their own processes effectively (Quinn et al., 1990). Hence, it is important to
consider both aspects when designing the combined offering. However, most research
concerning PSS design limits its focus to methodologies for attaining environmental
benefits (Sakao et al., 2009; McAloone and Andreasen, 2004; Morelli, 2009). There is an
established argument for organisations to re-think the way in which they produce
(White et al., 1999) and that a functional economy will be one in which the focus of
consumption is not goods per se but on the services that those goods deliver and is also
closely associated with the concept of eco-efficiency. The central issue addressed in the
design of PSS is the belief that both the analysis of technological potential and the
investigation of users’ behaviour and attitudes are essential to the success of the PSS
(Morelli, 2002). Successful PSS design depends on a thorough understanding of the
interactions, or touch-points, occurring over the life cycle of the offering (Sakao et al.,
2009). These interactions encapsulate different human, behavioural, cultural,
mechanical and institutional factors (Morelli, 2009).
Organisations engaging in the transition to these “combined offers” must look beyond
the immediate transactions with their customers in order to provide the appropriate
offering ( Johnstone et al., 2009). Hence they need intimate knowledge of the customer’s
operations when designing their own value proposition (Gummesson and Polese, 2009;
Raddats and Easingwood, 2010). Smith et al. (2014) offered four value propositions for
delivering value-in-use within the context of servitisation: asset, recovery, availability
and outcome-based value propositions. They argue that the role and importance of
contextual variety increases going through these value propositions from asset to
outcome-based propositions. Integrating diverse knowledge areas throughout the life
cycle of the offering requires integrated teams encompassing several areas of skills and
expertise (Edvardsson et al., 2000). Therefore, knowledge area linkage in a service system
becomes a networked activity across company boundaries.
A major problem in PSS development is the lack of shared understanding with
respect to the many disciplines and functions involved in the development process
( Johansson et al., 2011). A suggested methodology for gathering knowledge to support
the design of a PSS, involves network mapping, network actor profiling, multi-media
data capture and process blueprinting (Morelli, 2009). The aim is to develop enriched
and explicit knowledge to enable the design of a more compelling value proposition.
A process of modularisation to enable organisations to create a portfolio of elementary
 JSTP building blocks for the product and service design process has been proposed, so that
26,6 the network partners could make use of equivalent building blocks individual
configuration of supporting elements for specific customer requirements (Aurich et al.,
2006). Building on this, a modified quality function deployment (QFD) tool
demonstrates how the products and services should be jointly developed during the
design phase to satisfy customer needs (An et al., 2008).
752
Servitisation capability for competitive advantage
Five distinctive capabilities have emerged (Figure 2) that organisations must develop
by deploying four unique resources for a competitive advantage (Ulaga and Reinartz,
2011). Organisations in their journey towards servtisation could use these unique
resources to create distinctive capabilities thus generating competitive advantage.
Although logical and coherent, these are derived only from the organisational
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perspective of the dyad and so need further validation from the suppliers/customers
perspectives for general applicability. It should be noted that the capabilities,
competences and resources of the organisation have to match the combined offer
provided for the contextual needs of the customer (Windahl et al., 2004). The associated
people skills required to develop these resources and capabilities are scarce and one
limiting factor is that many research agenda-setters and policy-makers still treat
manufacturing and services as distinct disciplines (Spring and Araujo, 2009). There is a
need to develop graduates with multi-disciplinary skills rather than specialist
knowledge in just one field. Contemporary management textbooks tend to place
insufficient attention on the detailed integration of manufacturing and services at
the level of configuration of internal resources to deliver the combined offering
(Heineke and Davis, 2007). A similar issue has been identified in marketing science,
with advocates emphasising the need to shift its focus towards a world in which service
and relationships dominate (Anderson, 2006).
It has been argued that the goal of an organisation is to develop on-going
relationships with customers, suppliers and complementors to jointly develop and
deliver the offering (Spring and Araujo, 2009). In this context, the key challenge for
the organisation is to design an appropriate combination of risk-pooling capacity
and contracts with customers: there is a need to develop methods and models for
distributing the risks across the various actors in the organisation’s network.
The contextual needs of individual customers evolve constantly over time and it is
crucial for the organisation to track their perceptions of new offerings via marketing
research in order to detect risks. Major organisational changes are needed to create
flexible modes of delivery to enable the customer to realise the maximum value from
the offering (Brady et al., 2005). Overall, the key issue for the organisation is to deploy

Unique Resources Distinctive Capabilities

Installed base product Service-related data processing and
usage and process data interpretation capability

Figure 2. Product development and Execution risk assessment and Competitive

manufacturing assets mitigation capability Design-to-service Advantage
Organisation-specific capability
resources and Product sales and
distribution network Hybrid offering sales capability
capabilities for
competitive Field service organisation Hybrid offering deployment capability
advantage
Source: Ulaga and Reinartz (2011, p. 10)
 the necessary capabilities to enable the customer to co-create value with them to deliver Eight
value-in-use (Vargo and Lusch, 2008). This focus on organisations and customers challenges of
co-creating value by integrating their resources (Barrutia and Gilsanz, 2013) has
become an enduring notion in the servitisation paradigm. Since the customer plays an
servitisation
active part in delivering value-in-use, it is necessary to understand and capture
knowledge on their individual behaviour (Aurich et al., 2010).
Ng et al. (2010) identified seven co-creation attributes that are useful in delivering 753
value-in-use outcomes (advanced services as articulated above): behavioural alignment;
process alignment; congruence in customer expectations; congruence in firm expectations;
empowerment and perceived control; behavioural transformation; and complementary
competencies. These seven attributes enable value co-creation with customers and their
impact on organisational capability to deliver complex combined offerings. It is argued
that an organisation’s capability should be configured to enable effective co-creation
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through a value-web (capability integration perspective), rather than delivering its value
proposition through a value chain (vertical integration perspective) (Ng et al., 2011).
Similarly Martinez et al. (2010) explored five challenges that organisations should address
in their journey towards servitisation: embedded product-service culture, delivery of
integrated offering, internal processes and capabilities, strategic alignment and as supplier
relationships (all in the servitised context). Both these studies emphasise the importance of
transforming an organisation’s service culture and aligning it to customer’s values and
perceptions to maximise value-in-use, a notion echoed generally in the body of service
research (Sakao et al., 2009; Johnstone et al., 2009; Edvardsson et al., 2000). The operations
strategy for developing a servitsed offering should be a subtle blend of the two extremes
of pure product and pure service associated operation strategies (Baines et al., 2009). Based
on this belief they identified how an organisation should develop and build their structural
(process and technology, capacity, facilities, supply chain positioning, planning and
control) as well as infrastructural (human resources, quality control, product/service range,
new product/service introduction, performance measurement, supplier relations and
customer relations) characteristics. Similarly, Baines et al. (2013) identified six behaviours
and their associate skills-sets that are crucial in the successful delivery of advanced
services that emphasise the delivery of outcomes.
Organisations that are “vertically integrated” (through actions such as locating their
facilities closer to the customer operations and understanding, monitoring,
conditioning and servicing of sophisticated technology systems and their use) would
ensure speed and effectiveness of their response to customer needs while minimising
their costs (Baines et al., 2011). Additionally, several areas are affected within the
organisation in this transition journey, these include facilities, information and
communication technologies, performance measurement systems, organisational
processes and human resources. In the servitised context, five relationship
behaviours have been identified (information exchange, operational linkages, legal
bonds, co-operative norms as well as buyer and supplier adaptation) (Bastl et al., 2012).
However, most studies are derived either from single case studies or the views of a few
selected senior managers, limiting their generalisation. Hence, more empirical research
is needed to identify models, methods, tools, techniques and procedures to support
organisations in the development of offerings that are economically viable.

4. Discussion – research agenda and management implications

Our review of servitisation research shows that a considerable body of literature has
developed over the past 25 years. This research has emerged independently, from
 JSTP different fields including engineering, marketing, management, environmental and
26,6 design studies. As a consequence, the extant literature pertaining to servitisation does
at times appear fragmented and suffers from three fundamental weaknesses.
First, numerous studies are theoretically conceptual in nature with limited practicality
(Barrutia and Gilsanz, 2013; Beuren et al., 2013). Second, there are relatively few
empirical studies, and often the findings relate to a single case study based on the
754 insights of a limited number of senior managers. This again limits the applicability of
the findings across organisations. Third, often the dynamics are insufficiently studied
in these organisations as data for most cases are collected post-event. A pragmatic
approach might be to develop a multi-disciplinary research framework based on the
challenges that product-based organisations must overcome in order to implement
effective strategies. With these limitations in mind, though research challenges are
discussed in the context of our evaluation of all 60 papers, 12 contributions were chosen
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for thorough investigation. These papers report research from which the findings are
strongly supported by robust empirical studies, and these are the basis of our
development of a multi-disciplinary research framework, represented in Table I.
The outcome of the multi-disciplinary thematic analysis of the literature concerned
with the various challenges of product-based organisations in their journey towards
servitisation was the synthesis of eight themes presented in Figure 3.
The first theme is to explore the customer perspective, where understanding
value-in-use plays a significant role in contrast to product requirements. Although few
authors have conducted research and attempted to develop tools and techniques (Ulaga
and Reinartz, 2011; Morelli, 2009) for understanding value-in-use, it is not yet
completely clear how to develop such a capability and its associated resources to

Customer Perspective Redefining the Interface Revenue, Pricing & Selling

• How to develop capability to • How to price the offerings?
• How to identify economically
understand the contextual • Are the offerings economically
sustainable approach to liaise
variety of customer needs viable
with customer
• What are the resources needed • Do we need new sales
• What are the risks and
to build this capability capability? Why?
incentives in the approach
• What are the tools and • What are these capabilities and
• How to re-distribute them
techniques? associated resources

Cultural Transition Product /Service System Design

• What skills are required and how Eight challenges of • Do we need a new approach for
to source or develop them? this design?
product-based
• What behaviours are developed • What methods, tools and
and transformed?
organisations in their techniques are available?
• Is there an appropriate
journey towards • What organisation capabilities and
management style to lead this servitisation their associated resources
journey? required?

Performance Measurement Organisational Architecture Supply Network

Figure 3. • What structural changes are

• How to measure value-in-use • Are the current suppliers
required in the organisation?
A holistic framework through life? affected in this journey?
• What changes are required to
for research • What are the metrics? the infrastructure and resources?
• Do they need to redefine their
challenges of • Is it necessary to involve relationships? If so how?
• How to capture and manage
product-based customer in evaluating the knowledge on all aspects of this • Do they need to vertically
offering through life? If so how? integrate? To what extent?
organisations journey?
 explore the contextual variety of customer needs. Based on an understanding of these Eight
contextual needs, an organisation has to explore different ways of addressing them, challenges of
which leads to the second theme of redesigning the interface with the customer. In other
words, an organisation has to decide whether to aim for gaining competitive advantage
servitisation
through transferring or retaining the ownership of product to/from the customer and
perform the associated services. This leads to an exploration of different contracting
approaches, such as leasing, renting, availability or performance-based contracts. 755
However, the challenge here is to find which contracting mechanism is optimally
economical and beneficial to both parties. Despite the identification of various risks
involved in outcome-based contracts for complex engineering services, the findings are
limited to a specific industry (Ng and Nudurupati, 2010). Hence, there is a need for more
research to explore the different risks and incentives involved in these approaches and
how to re-distribute them.
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Further challenges in this theme are concerned with defining the use, availability
and performance of the product, how to measure them, and how to allocate necessary
resources. Due to the uncertainty in the nature of services consumed, which are often
state dependent and contextual in nature, it is difficult to establish the necessary
resources required to provide that service, making the pricing of the service complex
(Bakos and Brynjolfsson, 1999).
If services are overpriced, the organisation will be less competitive and lose revenue,
and if the services are under-priced, the organisation will suffer a loss of income.
This leads us to the third theme of revenue, pricing and selling. Organisations need to
know how to price their offerings and assess whether the additional services result in
expected revenue generation. Organisations need to explore whether they need
additional capabilities in selling the servitised offering. Future research needs to focus
on identifying additional selling capability and associated resources.
Much literature has already reported issues concerning the design of product/service
systems, predominantly from a sustainability point of view, delivering environmental
benefits with limited research focussing on economic benefits from sustaining
competitive advantage. However, as argued earlier most of the findings are either
conceptual or limited when it comes to general application. Hence, the fourth theme of the
product/service system design has emerged – the necessity to develop a generic
approach for designing a product/service system and to understand the various methods,
tools and techniques available to support it (such as an amended version of QFD). It is
essential to explore the organisational capabilities required and their associated
resources when designing the servitised offering. In today’s economic environment,
many businesses (customers) are concentrating on their core competencies and
outsourcing the less important activities and this is one of the rationalisations for
servitisation from a supplier perspective. The organisation that provides servitised
offerings to its customers could, in turn, outsource some of the elements of these offerings
to its own suppliers. This leads to the fifth theme of supply network. It is necessary to
explore how an organisation can renew its relationship with its suppliers in their journey
towards servitisation, and the literature on this aspect is scarce. Previous research
supports this need for the construction of relationships to enhance loyalty among
consumers and strengthen alliances among parties involved in the business (Aurich et al.,
2010). The research agenda that emerges is to understand how organisations should
vertically integrate with suppliers and to what extent this proves beneficial.
Exploring the organisational architecture is the sixth theme. As reported in the
previous section, two lines of enquiry were identified by Baines et al. (2009), namely,
 JSTP structural and infrastructural changes. In line with their study, further research is
26,6 needed to explore, validate and generalise the findings. One of the key elements within
this architecture that need further exploration is knowledge management and the key
challenge is to explore ways of capturing and managing knowledge throughout the
journey of servitised offerings.
It has been suggested that performance measurement should transform business
756 strategy and service design to deliver value-in-use (Ostrom et al., 2010). However today,
the majority of customer-facing measures, such as on-time delivery, flexibility,
responsiveness, accuracy of documentation and even customer satisfaction, tend to
focus on value-in-exchange rather than value-in-use-through-life (Bititci et al., 2012).
This leads to the seventh theme of performance measurement, which emphasises
the identification of metrics to measure value-in-use-through-life. It would also be
interesting to explore whether it is beneficial for the organisation to measure or involve
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customers in the evaluation of value-in-use-through-life.

The eighth theme is the cultural transition from product to service-oriented
thinking. It is not sufficient for service engineers to demonstrate technical skills such as
repairing and fixing equipment they also need to demonstrate people skills such as the
ability to communicate and train the user when appropriate. Although a few
researchers (Reinartz and Ulaga, 2008; Spring and Araujo, 2009; Ng et al., 2011) have, to
some extent, explored this issue, further research needs to be done to explore the
required people skills in the servitisation journey. It will be essential for the
organisations to find the appropriate behaviours and the ways of developing and
transforming them. It is also useful to explore different kinds of management styles
that are suitable in this journey.
The holistic framework presented above represents an agenda for research and
exploration in practice. Research, particularly action research, could play an important
part in this. From an analysis of the extant literature, it is clear that the servitisation
research agenda has been focussed predominantly on complex engineering service
systems covering maintenance, repair and overhaul services in support of the core
product. However, the dearth of knowledge and evidence in this research field has
excluded organisations operating in non-engineering sectors from adopting
servitisation. Addressing the eight challenges identified above will have a direct
impact on businesses and their willingness to adopt servitisation in order to retain and
increase competitive advantage. Practitioners will be better equipped with the
necessary knowledge to support decision making in their transition to servitisation.
As we have pointed out in this paper, servitisation on one hand has the potential to
generate higher revenues and customer satisfaction. On the other hand, it has huge
potential for contributing to the sustainability agenda, thus bringing synergistic
impact on environment and society.

5. Management implications
Manufacturing organisations are transitioning towards servitisation for a variety of
reason: economic, strategic and environmental (Neely, 2014). These include competitive
pressures from low-cost rivals emerging in developing counties, coupled with
constraints on demand in developed countries caused by an over-saturated product
base in many sectors. There is a need to increase product differentiation in such sectors,
and a desire to retain customers by locking-out competitors (Neely, 2014).
Thus servitisation and the concomitant opportunities, through value co-creation, to
lock-in customers and build barriers to entry by rivals, is very close to the notion of
 how organisations create and sustain competitive advantage through the Eight
co-specialisation of complementary assets to create value in new and innovative challenges of
ways (Milgrom and Roberts,1990; Teece, 1986).
There are two overriding strategic issues that need to be addressed by business
servitisation
organisations seeking to develop servitisation that utilise the co-creation of value to
lock-in customers for the whole life of a value proposition. The first issue concerns the
building and coordination of integrated services with their product to serve extremely 757
narrow market segments (of perhaps just one customer). It is a challenge exacerbated
by the fact that for servitisation to succeed in its mission, the process of value
co-creation must be managed not only by the end-customer and product-service
provider jointly, but also across multiple dyads throughout a value chain configured to
facilitate servitisation. Success depends on the willingness of both downstream value
co-creation partners (customers) and upstream value co-creation partners (suppliers of
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goods and services) to be locked into servitisation for the duration of the value
proposition life cycle. This requires customers, product-service providers and other
value co-creation partners to embrace a cultural change in the way that a co-specialised
value chain is managed, how asset development and ownership is perceived, and the
way rewards and risks are distributed. The second issue is the need to manage context
variety within the business organisation. In other words, the challenge of equipping
organisations with the capability to create and manage multiple or flexible servitisation
for narrow market segments with significantly differing value requirements and
operational contexts. This may conceivably involve transitioning the organisation from
a traditional focus on product-based business units (concerned with the management of
product life cycles) to one of servitisation portfolio stewardship concerned with the
evolution of value co-creation positions.
The eight challenges framework discussed in this paper poses a series of questions
about which practitioners would be advised to consider before embarking on their
journey towards servitisation. The framework may potentially be developed into an
audit or assessment tool to check organisation’s maturity in dealing with these
strategic issues.

6. Conclusion
In conclusion, it is not the authors’ intention in this paper to criticise the extant
literature on servitisation, but the comments serve more to remind the reader of the
complex nature of the task ahead of us as researchers. It is, therefore, imperative to pull
the various research streams together in a holistic approach with wider participation
from industry, i.e. engineering and non-engineering sectors. Furthermore, the frame of
reference needs to be widened to focus on the value perceptions and operational
interactions throughout servitisation, and lengthened to capture the dynamics of the
system across sectors and multiple time periods – longitudinal studies have much to
offer here. The themes themselves suggest operational implications for the practice of
management in terms of the configuration, management and measurement of
organisations. If the academic research community is to develop a more complete
picture and understanding of servitisation it needs to move from a disciplinary
(silo-based) focus to a more holistic mindset incorporating layers of complementary
research outputs. The limitation of this research is that we have clustered our analysis
into eight research challenges. Though this is our core contribution, there is a
possibility that some richness of previous work is lost. This is based on our
interpretation of our analysis of previous research and remains to be tested across
 JSTP wider audience. Hence, the classification and the holistic framework should be carefully
26,6 interpreted in the contextual needs of organisations in which it is applied. Our analysis
provides a robust framework for future multi- and inter-disciplinary research which in
itself, would test the themes in practice leading to application in the practice of
management as well as the validation of the conceptual framework.

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Further reading
Barquet, A.P.B., Oliveira, M.G., de Amigo, C.R., Cunha, V.P. and Rozenfeld, H. (2013), “Employing
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About the authors

Sai S. Nudurupati is currently working as a Reader at the Manchester Metropolitan University
Business School (MMUBS). Sai gained his PhD from the University of Strathclyde in 2004 after
researching the implementation of performance measurement and its impact on business.
The following year he received an Outstanding Doctoral Award from Emerald and European
Foundation for Management Development. Prior to joining MMUBS, Sai worked as a Research
Fellow at the Exeter University on an EPSRC project in association with the Ministry of Defence
(MoD) and BAE Systems examining the factors influencing the value co-creation and
co-production in the service delivery. Having published over 40 articles in various journals,
magazines and conference proceedings, Sai received two best papers awards from Emerald and
Institute of Engineering Technology, respectively. Prior to taking up his academic roles, Sai spent
six years in the construction industry implementing continuous improvement projects. This
experience led him to gain Lean Six Sigma Transactional Black Belt certification with the British
Standards Institute. Sai S. Nudurupati is the corresponding author and can be contacted at:
s.nudurupati@mmu.ac.uk
David Lascelles is a Senior Lecturer at the Manchester Metropolitan University Business
School (MMUBS). He is a Programme Leader for the MSc in Logistics and Supply Chain
Management, a Convenor of the Supply Chain Knowledge Cluster within MMBUS, and the
Chairman of the Greater Manchester Group of the Chartered Institute of Logistics and Transport.
Prior to joining MMUBS, David spent many years as a Management Practitioner in Operations
and Marketing, and as a Management Consultant. His research interests include value co-creation
and supply chain risk.
Gillian Wright is a Chair of Strategic Marketing and the Director of Doctoral Programmes at
the Manchester Met University Faculty of Business and Law, UK. Her research is concerned with
the development of stakeholder-responsive service. Gillian is a Founder Member of the European
Doctoral Association and, she served for many years as an Editor of Marketing Intelligence and
Planning. Her professional background is in decision-support information – as a Clinical Trials
Scientist in Pharmaceuticals and a Market Analyst for a Multinational Electronics Company.
 Nick Yip is a Lecturer in Marketing at the University of East Anglia’s Norwich Business Eight
School. Prior to joining the University of East Anglia, he spent 18 years in industry holding
various management and marketing positions within the service industry including Malaysia
challenges of
Airlines, KLIA Express and Unilever. Nick’s research interests are in the areas of value servitisation
co-creation and the pricing of services and value. He has published in the Service Industries
Journal, European Management Journal, Industrial Marketing Management and Journal of
Revenue and Pricing Management. In the UK, his projects include working with BAE Systems,
NHS and most recently with the Shakespeare Birthplace Trust. 763
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