Aligning industrial services with strategies and sources of market differentiation

Chris Raddats
Lancashire Business School, University of Central Lancashire, Preston, UK
Abstract Purpose The purpose of the paper is to investigate how product-centric businesses (PCBs), operating in a business-to-business environment, develop industrial services to align with their services strategies and sources of market differentiation. PCBs are companies whose businesses were historically based on the products, rather than the services, that they sold. Design/methodology/approach This was a UK-based study that included interviews with 40 managers in 25 industrial companies for whom services are a market differentiator. Findings The empirical results show that PCBs industrial services are aligned with their services strategies and sources of market differentiation and can be categorised, i.e. discrete services, closely linked to PCB-supplied products, either their own or those of other suppliers; product lifecycle services, concerned with product-related activities throughout the lifecycle of a PCBs products; output-based solutions, providing solutions to customers operational issues. Modularity in design means that service categories are often backward compatible, meaning that PCBs supplying outputbased solutions can also supply product lifecycle and discrete services. Research limitations/implications The main limitation is the focus on the perspective of suppliers, with customers likely to impact which service offerings PCBs provide. Practical implications PCBs should align industrial services with their resources that provide market differentiation, for example related to their products or relationships with other parties. Whilst it can be valuable to increase the range and depth of services provided to customers, creating modular offerings will ensure that customers are able to nd an appropriate level of services engagement with their product suppliers. Originality/value The study provides a new typology of PCB service categories that are related to services strategies and sources of market differentiation. Keywords Industrial services, Product differentiation, Management strategy, Modularity, Service offering, Market differentiation, Product-centric businesses Paper type Research paper

An executive summary for managers and executive readers can be found at the end of this article.

1. Introduction
Services are an important source of market differentiation for business-to-business (B2B) companies that were traditionally based on their products (product-centric businesses or PCBs; Brechbuhl, 2004). Services offered by PCBs are often described as industrial services (Auramo and Ala-risku, 2005; Johansson and Olhager, 2004; Homburg et al., 2003; Matthyssens and Vandenbempt, 1998), with some companies categorising them in relation to the sale or installation of associated equipment, for example before, during and after the sale of equipment (Homburg and Garbe, 1999). Industrial services that are product-attached (Raddats and Easingwood, 2010) often have a modular design with service levels to match customer requirements, for example different times to respond to a customers equipment fault as part of a
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maintenance service, with a faster response charged at a higher price. As PCBs undergo services-led growth or servitisation (Vandermerwe and Rada, 1988) they seek to increase revenue from the services side of the business (Gebauer et al., 2010). In these circumstances modularity moves beyond service levels and becomes central to the process of developing strategy. Raddats and Easingwood (2010) set out the strategic choices for PCBs as part of servitisation, with it necessary to ascertain which strategy is most appropriate given the resources which enable a PCB to develop comparative advantage (Hunt et al., 2006). Service offerings can then be developed which capitalise on these resources and align to the chosen strategy. Pekkarinen and Ulkuniemi (2008) nd that the concept of modularity can be applied to PCBs which explore new service relationships with their customers (the customer interface) and develop service offerings comprised of internal and external resources delivered through the modular organisation. These offerings might include a range of product-related operational activities that allow customers to deploy their own capabilities, co-creating value with their product suppliers (Spring and Araujo, 2009). The two objectives of this article are to understand the relationships between PCBs sources of differentiation, their services strategies and service offerings; and secondly to explore the part that modularity plays in the design of their service offerings. Whilst the development of a services portfolio 332

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would appear to be a fairly straight-forward task based on Homburg and Garbes (1999) taxonomy, without a close alignment of service offerings to strategies, PCBs risk creating inappropriate offerings which might limit the benets from servitisation, i.e. services are restricted to those closely linked to their own products. Alternatively, they might undertake service activities beyond their capabilities (Gebauer et al., 2005). Previous research in this area has categorised industrial services but has not generally made the explicit link to PCBs sources of differentiation and strategies, which should guide the services development process. This article is based on the results of an empirical investigation, which were used to develop a new typology through which PCBs services can be categorised and better understood, i.e. discrete services, product-lifecycle services and output-based solutions. The article starts with a literature review, which includes a discussion about the researchs theoretical background and an introduction to modularity, which provides a framework for considering PCBs service offerings. The method is briey discussed and the results from the empirical research are presented. The paper concludes with a discussion on the theoretical contribution of the research, implications for practitioners and limitations/areas for future research.

organizational (for example having service employees embedded with product-based teams to maximise the operational performance of own brand products).

Other commentators focus on relational resources as the key driver for success, i.e. a rms collaborative capability (Lusch et al., 2006). Relational resources are also pre-eminent for scholars focusing on network theory for example Hakansson and Snehota (2006) and Gadde et al. (2003) and those addressing relationship marketing for example Parvatiyar and Sheth (2000), who emphasise relationships with customers in particular. 2.2 Services strategies Auguste et al. (2006) assert that services should either be used to defend sales of own products or grow into new markets. Building on this approach, Raddats and Easingwood (2010) propose a services strategy typology (Figure 1) based on two dimensions: 1 whether services are focused on products or customers operational activities; and 2 whether the focus is own or own and third-party products. The typology leads to four services strategies (i.e. services engagement, services extension, services penetration, services transformation), which provide a framework to investigate PCBs service offerings. A services engagement strategy is when PCBs offer services aligned to their own products, for example installation, training, technical support (Raddats and Easingwood, 2010), often to achieve product differentiation (Kotler and Keller, 2006). A services extension strategy is when these services are also provided on other companies products (Raddats and Easingwood, 2010). A services penetration strategy is when PCBs provide services that are concerned with the operation of their own products, with these activities perhaps previously performed by customers themselves before being outsourced (Raddats and Easingwood, 2010). Gebauer et al. (2006) see a transition from services designed to ensure the proper functioning of the suppliers products (services engagement) Figure 1 Services strategy typology

2. Literature review
2.1 Theoretical background The theoretical background is provided by Hunt et al. (2006) and resource-advantage (R-A) theory, whereby rival rms in an industry compete using resources for which they have a comparative advantage. A number of resource categories are proposed by Hunt et al. (2006): . nancial; . human; . informational; . legal; . physical; . organisational; and . relational. R-A theory enables a comparison of services strategies that are based on a PCBs own products (physical resources) or that involve operational activities in the customer environment concerning these products or those of other companies (relational resources). While Hunt et al. (2006) do not signify which of these resources are most important, other commentators do. According to the resource-based view (Fahy, 1996), service rms are bundles of resources and capabilities that are capable of providing competitive advantage. This is synonymous with PCBs aligning services to their products, with the signicant resources likely to be not only physical but also: . nancial (for example the ability to invest in research to develop new products); . legal (for example the ability to protect products through patents); . human (for example employees trained on servicing own brand products); . informational (for example knowledge of how common equipment faults on own brand products can be xed); and 333

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to services that support a clients core activities (services penetration). Araujo and Spring (2006) nd this to be a growth strategy as rms become better at costing internal activities to enable benchmarking against potential external suppliers. It might be expected that customers would focus on outsourcing activities that are not core to their business (Pekkarinen and Ulkuniemi, 2008); although Gebauer et al. (2006) believe that they might also outsource core activities. Finally, Raddats and Easingwood (2010) note that a services transformation strategy is when a range of vendor-agnostic services are provided to customers as part of a solution, with Sawhney (2006) and Miller et al. (2002) dening a solution as a combination of products and services tailored to individual customers. Davies et al. (2007) argue that it is becoming more important for a company to move from being a system seller on its own products to one that embraces complex integrated solutions, made up of multi-vendor products. 2.3 Service offerings It is important to explore the concept of modularity from a product perspective and how this relates to service offerings. Sanchez and Collins (2001) state that a products architecture is dened by two fundamental properties: 1 the decomposition of the products functionalities into specic functional components (or modules) that make up its structure; and 2 the interface specications that dene how the components interact. A products architecture becomes modular when interfaces between functional components allow variations of components to be substituted (with interface specications standardised) enabling a mix and match approach to achieve the desired functions, features and performance levels. Sanchez and Collins (2001) and Duray et al. (2000) identify the benets of modularity as being able to congure new product variations quickly and at low cost, with product distinctiveness achieved by combining or modifying the modules. Sanchez and Collins (2001) assert that the concept of modularity can also be applied to service products, which can be architecturally decomposed into activity components. Pekkarinen and Ulkuniemi (2008) hypothesise four dimensions of service modularity (italics): modular service offerings, which are created using modular processes and modular organisations and align to the customer interface, which allows service co-creation (Spring and Araujo, 2009). This model provides a useful basis for categorising industrial services, with one category related to the products PCBs supply (i.e. less focus on the customer interface), the other to activities in the customers operational environment (i.e. more focus on the customer interface). 2.3.1 Related to products Some academics have segmented industrial services according to where they t in relation to the product sale (e.g. Kumar and Kumar, 2004; Michel et al., 2003; Homburg and Garbe, 1999), i.e. before, during or after the equipment sale. Kumar and Kumar (2004) mention the limitations of this approach, namely that what customers expect (from services) may be different from what suppliers have dened, since services have 334

been designed from the product perspective rather than customer perspective. Kumar et al. (2004) present another split, that of planned (e.g. spare parts logistics) and unplanned (e.g. corrective maintenance) services. The importance of modularity in service portfolios has been noted in the literature, with some companies having a core set of standard services and options around this. For example, Anderson and Narus (1995) believe that there is no alternative to providing customers with a degree of services customisation, even though this will increase a suppliers costs. They propose naked solutions that provide the bare minimum to customers in each segment, which are priced at the lowest possible level to make a prot. Naked solutions are wrapped with options, valued by individual customers. According to Anderson and Narus (1995), this approach gives suppliers greater economies of scale and lower costs and provides them with a powerful means of retaining and expanding their business with their most valuable customers. Baumgartner et al. (2005) advocate a similar proposition with the concept of a lean backbone for the delivery of more basic services and a series of high touch overlays for more valuable service activities. Davies (2004) concurs that companies will offer services ranging from individual packages to full solutions, depending upon the customers requirements. Davies et al. (2006) note that these should be developed as modular units that are consistent, easy to understand and assemble. Neu and Brown (2005) also nd that companies should not offer too limited a range of services that do not allow sufcient exibility to accommodate individual customer needs. The issue of how customised a companys services should be is interesting in the context of a product manufacturer, since as Bowen et al. (1989) note, manufacturing values centre on standardised output, efciency, economies of scale and the belief that variety and exibility are costly. Service orientated values centre on customisation and the belief that exibility and variety create prots. This can cause a misalignment when a manufacturer creates services as it would products, i.e. in compartmentalised units as part of a portfolio, when customers requirements generally do not fall neatly into well-dened packages. Kowalkowski et al. (2009) present this issue in terms of the need to develop standard service packages centrally but deploy them exibly to address individual customers needs, with a clear service development process to enable this. 2.3.2 Related to customer activities Boyt and Harvey (1997) believe it is important to classify industrial services in order to meet the service demands of different customer segments. They nd that services can be classied as elementary (simple, frequently purchased services), intermediate (more complicated service procedures requiring the direct involvement of the service provider) and intricate (requiring the most intimate level of customer attention because of the high cost associated with service failure). Most services that PCBs provide would be intermediate (e.g. equipment repair) or intricate (e.g. technical consultancy). A fundamental question for PCBs is what services should be offered to customers. Anderson and Narus (1995) state that this process should start with an inventory of what

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services are currently offered to customers. Sawhney (2006), Allmendinger and Lombreglia (2005), Bundschuh and Dezvane (2003) and Wise and Baumgartner (1999) address this issue by suggesting that manufacturers should consider their products lifecycles to look for service opportunities, but do this from the perspective of the customer. Sawhney et al. (2004) suggest that companies seeking services-led growth should redene their markets in terms of customer activities and outcomes, with opportunities arising across areas related to a suppliers primary activity and those in adjacent areas. Miller et al. (2002) suggest a supplier could take over activities in the clients value chain, if it can do them more effectively or at lower cost. Cova et al. (2000) also believe that suppliers could address the market for services beyond those to do with their own products, when they help a customers activity and market position. For example, Davies et al. (2007) illustrate how the trend towards modularity and open systems means that companies can specialise in component supply and/or systems integration with some manufacturers becoming integrators of other companies products. 2.4 Theoretical framework The theoretical framework for this research is based on Raddats and Easingwoods (2010) typology within which four services strategies are proposed, with the relative importance of relational resources versus others being central to determining which strategy enables a PCB to have comparative advantage (Hunt et al., 2006). A PCBs service offerings should align to its strategy, so as part of an engagement strategy services are supplementary to own products (i.e. physical resources are important to create comparative advantage). Service offerings related to a PCBs own products often conform to a modular design in order to efciently address customer requirements (Anderson and Narus, 1995). As PCBs servitise (extension, penetration and transformation strategies) their service offerings encompass products from other OEMs and/or involve activities in the customers operational environment (i.e. relational resources are important to create comparative advantage). Within this framework service modularity plays an important role, although this has not been fully recognised in the literature. Pekkarinen and Ulkuniemis (2008) concept of the modular organisation is applicable when service offerings include both internal and external resources (extension and transformation strategies), whilst the concept of the customer interface is central when service offerings are related to activities in the customers operational environment (penetration and transformation strategies) and are to an extent co-created by the PCB and customer. It is the evolving role of modularity in industrial services that this article seeks to address.

(2003). Through desk research, suitable companies that appeared to be using services as a differentiator were identied from ten sectors (four companies in each). A senior manager who had responsibility for services was identied in each company and was contacted initially by post and if necessary by e-mail and telephone. Of the 40 companies initially selected, 22 agreed to take part in the research, although for three of these the interviewees worked for separate divisions, so were treated as quasi-companies (25 in total). At each initial interview the opportunity was sought to identify another suitable interviewee within the company, with this approach enabling 40 managers to be interviewed in total. The list of anonymised companies that took part in the research is shown in the Appendix together with their primary service offerings, which were specied from the interviews and also by reference to company websites. Data was collected through interviews with senior managers working in sales, marketing or service operations. The interviews took place over a 12-month period in 2006/2007, with each lasting on average just under an hour, and the majority being conducted face-to-face or in some instances by telephone. Each interview was recorded and a transcript returned to the interviewee for validation, with about half taking the opportunity to make minor changes to their transcript. Interpretation of the data was facilitated using NVivo 7 (QSR International) by analysing interview transcripts following a technique known as template analysis (King, 2004). King (2004) notes that template analysis is suitable when researchers are trying to understand the perspective of different groups, for example PCB servitisation approaches. The template was made up of a series of codes that represent the main themes from the data. An initial template, created after three pilot interviews and a literature search, was modied as new ideas and relationships were introduced after analysing each transcript. The nal template was reached after an analysis of further transcripts brought forward neither new codes nor relationships, i.e. theoretical saturation was reached, with the relevant codes from the nal template centred on the services PCBs offer and which ones are most important. The extensive and rigorous approach to data collection provides strong support for the internal validity of the research method, whilst the reliability of the method was enhanced through having interview transcripts, thematic coding in NVivo 7 and the template, which together would allow replication of the research method by others.

4. Results
The results of this research are based on the nal template and are presented under headings that correspond to the four services strategies previously dened by Raddats and Easingwood (2010). It is possible to link PCB service offerings with these strategies, with this approach forming a sound basis from which to analyse services modularity. 4.1 Services engagement For some companies the delivery of their products was the most important service; for example, a manager in Company 4 explained his companys approach to maximising customer 335

3. Methodology
In order to answer the research questions, relevant companies were selected through a non-probability stratied purposive sampling approach based on their sector. All companies were based in the UK, had a turnover of at least 200m per annum and were manufacturing companies as dened by the UK Standard Industrial Classication of Economic Activities,

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value was to ensure that customers receive the right products at the right time in the right place. These sentiments were supported by a manager from Company 14, who stressed that getting the fundamentals right was most important, namely product deliveries in full, on time, all the time. In this situation, the service (the delivery of products) is not charged for separately but is an integral part of the product offer. For other companies a focus on services to help maintain the reliability and availability of their own products was most important; for example, the interviewees in Companies 12 and 13 stressed the importance of maintaining and repairing their own vehicles. When services are closely linked to a companys own products it may be problematic creating a separate services revenue stream since customers can view these services as a suppliers cost of sale and not chargeable offerings in their own right. For example, Company 6 has a range of technical services that are used to help customers test their new products and ensure they are easy to use, with these services notionally free but with the cost recouped through the sale of products. Company 5 has tried to overcome this problem by designing service offerings comprised of modules appropriate to different industries, with each offering having a base level and chargeable options. Even when service activities are not charged for as part of these offerings the company ensures that customers recognise the value of such activities (e.g. equipment safety checks) in order to build goodwill for the future. 4.2 Services extension Some companies have extended their services so that they are not only closely linked to their products but also those of other original equipment manufacturers (OEMs). One company (Company 10), which manufactures equipment to print and store bank notes, has differing levels of revenue from servicing other OEMs equipment in each country, depending on whether customers requirements are for Company 10s own products or those of other suppliers. Company 11a offers services for industry automation products, primarily its own but also for other OEMs if required by customers. These services include pre-sales planning and design, installation and commissioning, operation and maintenance and upgrades/modernisation. A variation of this strategy is when services are provided for other OEMs that may not wish to provide these services themselves. Company 22 illustrates this point and provides these services in order to enhance its services revenue. The manager from this company that was interviewed stressed that their aim was to offer a full service wrap with each product it sold, i.e. network design, installation, commissioning and maintenance. The company has developed expertise in managing the technical interfaces with other OEMs to enable the full service wrap to be offered on equipment from a number of vendors. 4.3 Services penetration A characteristic of companies following this strategy is their propensity to develop service offerings that address the lifecycles of their products. For example, Company 3, which manufactures engines, has three broad service offerings and within each there is a range of different modules. For 336

example, it has an information management service offering, within which are modules such as engine health monitoring and engine management. Through these services its in-service engines are monitored in real-time, with performance data either supplied to customers or used as part of operational support or repair and overhaul service offerings. Company 8b, which manufactures trains, also has a modular service design, with its premier service offering comprising the most modules and the one it sells to its major rail customer. The offer includes train cleaning and routine maintenance, with the customer thus able to focus on manning its trains and selling tickets. Company 1 uses what it calls a staircase model, whereby discrete services are at the bottom of the staircase, integrated support services for a range of products above them, through-life capability (i.e. upgrading the equipment as required throughout its life to match operational requirements) above them and output solutions at the top of the staircase, i.e. availability-based contracting. Company 1 has started to develop this model for other OEMs products too. The goal of companies adopting this strategy is often to use services to help develop strong customer relationships. Company 8a aims to secure long-term service agreements with each of its clients and to be as high up the value chain as possible, although it is open to contracting with customers using a business model that is most appropriate for them; for example, this might be linked to power plant availability or involve a package of discrete services. Company 9b offers what it describes as maintenance on its medical equipment, although this broad service offering covers a range of modules from simple repairs to full outsourcing of the equipments operation. Company 21, from the telecommunications sector, has a service offering which it describes as managed services, and is similar to Company 9bs maintenance service, with the companys aim to provide fully outsourced equipment operations and maintenance for its mobile network customers. 4.4 Services transformation A services transformation strategy leads to the widest range of service offerings, with the services offered on own products under a services penetration strategy being provided on other OEMs equipment as well. The interviewee from Company 20, which adopts this strategy, categorises its services as planning, building, running and enhancing its customers networks. At a certain point discrete service offerings become harder to conceptualise as what a supplier offers is ever closer matched to customers operational processes. For this reason Company 2 prefers not to discuss individual services with customers but relate its offerings to the availability of military vehicles, although underlying these offerings are engineering and maintenance services, together with logistics support and other ancillary services such as training. Services transformation was found to be an important strategy in the information technology (IT) sector. Company 17 provides maintenance for its customers multi-vendor printers and copiers, although its goal is to relate its services more closely to customers document processing activities, for example sending out invoices to its customers endcustomers. Company 15 also aims to deliver IT outsourcing

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solutions, such as the management of a companys entire desk-top infrastructure, rather than product-related services such as desktop maintenance. The interviewee from Company 15 described the company as a service integrator, bringing together services which can help a customer to transform its business.

5.2 Categorisation of service offerings Three service categories are proposed after this empirical study: 1 discrete services; 2 product lifecycle services; and 3 output-based solutions. Within these categories PCBs dene a range of service offerings (see the Appendix). Each service category can be compared to the model proposed by Pekkarinen and Ulkuniemi (2008) to help understand the impact of modularity. Discrete services can be supplied individually or in combinations and conform to the typology suggested by Michel et al. (2003) and Homburg and Garbe (1999), for example pre-installation design, equipment implementation, training, maintenance, technical support and equipment removal. Each service offering is likely to have a modular design made up of modular processes (Pekkarinen and Ulkuniemi, 2008) or activity components (Sanchez and Collins, 2001). For example, an equipment implementation service from a telecommunication equipment manufacturer (Company 21) might include site engineering (planning where the equipment is to be physically located), equipment installation (putting the equipment in a rack, connecting it to the power supply and performing tests to ensure it is operational) and nally commissioning (connecting it to the existing network and ensuring that it is functioning as expected). Customers could undertake elements of the implementation service (perhaps site engineering and installation), co-creating the nal service offering (in line with Spring and Araujo, 2009), although the most critical stage (commissioning) is still likely to be undertaken by the PCB. This approach is similar to that suggested by Anderson and Narus (1995) (naked solutions) and Baumgartner et al. (2005) (a lean backbone), whereby a core service is provided by the supplier with the customer able to chose options to complete the offering.

5. Theoretical contribution
This research has provided an assessment of PCBs service offerings and has found a strong relationship between these and their services strategies and source of differentiation. As such it makes a contribution to R-A theory (Hunt et al., 2006) in terms of the importance of relational resources for PCBs undergoing servitisation. The relationships in the research are modelled in Figure 2. 5.1 Relationships between sources of differentiation and primary services strategies This element of the model uses R-A theory (Hunt et al., 2006) and Raddats and Easingwoods (2010) services strategy typology. PCBs have three main sources of differentiation: 1 linked to their own products (e.g. physical resources); 2 relationships with other OEMs (relational resources); and 3 relationships with customers (relational resources). When a PCBs source of differentiation is its own products then a services engagement strategy is initially likely. When a PCBs source of differentiation is its relationships with other OEMs this could lead to a services extension strategy. When a PCBs sources of differentiation are its own products and its relationships with customers, this could lead to a services penetration strategy. When a PCBs sources of differentiation are its relationships with customers and other OEMs, this could lead to a services transformation strategy.

Figure 2 Relationships between sources of differentiation, services strategies and service categories

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Product lifecycle services are delivered by PCBs seeking greater services revenue from customers across the lifecycles of their products (Sawhney, 2006; Allmendinger and Lombreglia, 2005); for example, Company 10 offers business case modelling to help banks balance their cash cycles in their branch networks. These services may involve customers outsourcing a productbased activity, with a supplier that has already provided the product potentially well placed to win this business since it already has an established relationship with the customer and perceived expertise concerning its use (Wise and Baumgartner, 1999); for example, Company 9b provides outsourced maintenance services on its more complex medical equipment. Product lifecycle services are aligned to processorientated services (Kowalkowski et al., 2009), which could be carried out in-house by the customer. Some customers however have chosen not to do this, with Araujo and Springs (2006) assertion about rms costing internal activities to enable benchmarking against potential external suppliers pertinent in this regard. The customer interface in Pekkarinen and Ulkuniemis (2008) model becomes an important element within this category since the service offerings may be central to the operation of the customers products. However, the manager in Company 17 noted that in the telecommunications industry there would probably be a limit to what customers would outsource, with most operators viewing their core network as a differentiator and not therefore wishing to relinquish responsibility for it (supporting Pekkarinen and Ulkuniemi, 2008, although not Gebauer et al., 2006). These operators may, however, outsource specic areas that might no longer be core, for example planning and implementing mobile phone base station coverage (Company 21). Product lifecycle services are potentially more valuable to the PCB than discrete services since they align the PCBs service offerings with a customers operational activity (in line with Sawhney et al., 2004), potentially making the PCB a more valued supplier. Output-based solutions are arguably the most valuable category of service offerings for PCBs. They can be distinguished from product lifecycle services by the fact that outsourcing is more holistic and will often include multivendor products (Miller et al., 2002). In this respect the modular organisation (Pekkarinen and Ulkuniemi, 2008) becomes important as service offerings are likely to be delivered in partnership with other suppliers. This type of service is commonly found in availability-type contracts (Davies, 2004) with examples provided by Companies 1 and 2 (military vehicles). PCBs in the IT sector are also delivering these service offerings though the provision of large-scale outsourcing contracts, involving equipment estates from different vendors, for example Companies 15 and 18. PCBs are increasingly providing output-based solutions linked to customer processes rather than products (as suggested by Cova et al., 2000), with the interviewee in Company 17 setting out his companys vision of supplying integrated document-management solutions to address customer relationship management processes for specic industries. The customer interface for this category is perhaps most important as PCBs output-based solutions align more closely with customers goals and concerns (Pekkarinen and Ulkuniemi, 2008). 338

5.3 Relationships between primary services strategies and service categories A services engagement strategy is likely to lead to discrete services as PCBs attempt to differentiate their products (Kotler and Keller, 2006). Service offerings may not be charged for separately or may be structured so that a base level is free whilst options are chargeable separately, similar to Baumgartner et al.s (2005) concept of a lean backbone and high touch overlays. A services extension strategy is also likely to lead to discrete services as PCBs aim to provide a similar set of services for other OEMs products as their own. A services penetration strategy is likely to lead to product lifecycle services as suppliers seek to develop deeper relationships with their customers through aligning their product-based services with customers operational activities (Gebauer et al., 2006). A services transformation strategy is likely to lead to output-based solutions as PCBs start to behave similarly to professional services companies (Gebauer et al., 2005), providing solutions that address customers business needs. An important issue is that service categories are backward compatible, i.e. while PCBs will aim to move their customers up the services staircase they will also supply services that involve less commitment from customers if required (Davies, 2004), for example Company 8a. So a company mainly providing output-based solutions might also contract with customers for product lifecycle and discrete services. Backward compatibility in industrial services can thus be seen as a type of modularity with output-based solutions (e.g. systems integration) comprised of modular product lifecycle services (e.g. equipment implementation) which in turn are comprised of discrete services, for example site engineering, installation and commissioning. This process is not, however, forward compatible, so a supplier of discrete services is unlikely to be able to switch to output-based solutions without a signicant change in its resources and services strategy, for example a PCB that can install its own products is not necessarily able to integrate these into a working system with products from other vendors.

6. Management implications
The issue of which services are most appropriate for a company to offer cannot be taken without consideration of both the companys strategy and sources of market differentiation. A company whose primary source of differentiation is its own products might attempt to develop discrete chargeable services linked to these products, perhaps using a menu-based approach whereby some services such as technical support come with a standard service level (e.g. a four-hour response to x a fault) which is notionally free, while higher levels of service (e.g. a two-hour response) are chargeable. Additional services could also be added to the free services package. When services are less directly focused on a companys own products, then relationships with customers and other OEMs become paramount. In terms of relationships with customers, companies that understand how their products are used in the operational environment should be able to develop service offerings that are required throughout the lifecycles of their

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products. If customers seek to outsource signicant parts of their product-based activities then they might require suppliers to provide output-based solutions. These may include product/service combinations that are supplied to help maximise an assets availability. In terms of relationships with other OEMs, these might be limited to developing interfaces between respective support centres so that a company can provide a technical support service on other OEMs products. However, the relationships might be deeper so that availability-style offerings can be provided on other OEMs products or an estate of multi-vendor products can be included in a managed service contract. If a company can develop output-based solutions based on multi-vendor products then it can position itself as key supplier to a customer and possibly eliminate or at least minimise the product/service offerings that competitors are able to provide to that customer. However, it is important to stress that the creation and delivery of output-based solutions should not be the goal for every company and each must focus on its primary source of differentiation and develop its services strategy and associated offerings accordingly. A company that provides output-based solutions may nd that some customers still require discrete services, so modularity in service design is important so that customers can take discrete elements of a more holistic service offering if required.

management of the customer interface, while outputbased solutions are delivered through a modular organisation using elements from other product suppliers. The three proposed service categories are not mutually exclusive, i.e. companies that aim to deliver output-based solutions are also likely to deliver the other categories if required by customers. PCBs are therefore designing modularity into their services (in line with Davies et al., 2006), ranging from discrete services through to output-based solutions, which allow customers to join the services staircase at a suitable level, thus enabling them to cocreate part of the service offering if so desired (Spring and Araujo, 2009). This idea of modularity extends the concept set out by Pekkarinen and Ulkuniemi (2008), with PCBs providing modular services to address the range of productbased activities that customers must undertake either inhouse or by using other parties. PCBs which have compelling service offerings that encourage customers to climb the services staircase are likely to be those that gain most when customers decide not to undertake these activities in-house.

References
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7. Limitations and further research

This study has been conducted from a suppliers perspective. A longitudinal investigation of a supplier/customer dyad would now be benecial to ascertain how service offerings develop within a long-term relationship. Although a large number of companies were interviewed for this research, an industry-specic approach covering just companies from particular sectors might provide richer insight, although it was noted by Lovelock (1994) that even though products can differ widely across different sectors, supplementary services are often very similar, suggesting that a pan-sector study has legitimacy in its own right.

8. Conclusion
The two objectives of this paper were to understand the relationships between PCBs sources of differentiation, their services strategies and service offerings, and secondly to explore the part that modularity plays in the design of PCBs service offerings. In terms of the rst objective, this article has set out a model through which PCBs service offerings can be correlated to their services strategies and sources of differentiation. Whilst Raddats and Easingwood (2010) link PCBs sources of differentiation with services strategies, the analysis in this paper has been extended to encompass PCBs service offerings, with this approach yielding a new categorisation thus making a potentially valuable contribution to research in this eld. In terms of the second objective, the elements of service modularity set out by Pekkarinen and Ulkuniemi (2008) have strong resonance with the proposed service categories: discrete services are comprised of different service modules, product lifecycle services require careful

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Kumar, R., Markeset, T. and Kumar, U. (2004), Maintenance of machinery: negotiating service contracts in business-to-business marketing, International Journal of Service Industry Management, Vol. 15 No. 4, pp. 400-13. Lovelock, C. (1994), Product Plus: How ProductServiceCompetitive Advantage, McGraw-Hill, New York, NY. Lusch, R., Vargo, S. and Malter, A. (2006), Marketing as a service exchange: taking a leadership role in global marketing management, Organizational Dynamics, Vol. 35 No. 3, pp. 264-78. Matthyssens, P. and Vandenbempt, K. (1998), Creating competitive advantage in industrial services, Journal of Business & Industrial Marketing, Vol. 13 Nos 4/5, pp. 339-55. Michel, M., Naude, P., Salle, R. and Valla, J. (2003), Businessto-Business Marketing, 3rd ed., Palgrave Macmillan, Basingstoke. Miller, D., Hope, Q., Eisenstat, R., Foote, N. and Galbraith, J. (2002), The problem of solutions: balancing clients and capabilities, Business Horizons, March/April, pp. 3-12. Neu, W. and Brown, S. (2005), Forming successful business-to-business services in product-dominated rms, Journal of Service Research, Vol. 8 No. 1, pp. 3-17. Parvatiyar, A. and Sheth, J. (2000), The domain and conceptual foundations of relationship marketing, in Sheth, J. and Parvatiyar, A. (Eds), Handbook of Relationship Marketing, chapter 1, Sage Publications, Thousand Oaks, CA. Pekkarinen, S. and Ulkuniemi, P. (2008), Modularity in developing business services by platform approach, The International Journal of Logistics Management, Vol. 19 No. 1, pp. 84-103. Raddats, C. and Easingwood, C. (2010), Services growth options for B2B product-centric businesses, Industrial Marketing Management, Vol. 39 No. 8, pp. 1334-45. Sanchez, R. and Collins, R. (2001), Competing and learning in modular markets, Long Range Planning, Vol. 34, pp. 645-67. Sawhney, M. (2006), Going beyond the product, dening, designing, and delivering customer solutions, in Lusch, R. and Vargo, S. (Eds), The Service-dominant Logic of Marketing: Dialog, Debate, and Directions, M.E. Sharpe, New York, NY, pp. 365-80. Sawhney, M., Balasubramanium, S. and Krishnan, V. (2004), Creating growth with services, MIT Sloan Management Review, Vol. 45 No. 2, pp. 34-43. Spring, M. and Araujo, L. (2009), Service, services and products: rethinking operations strategy, International Journal of Operations and Production Management, Vol. 29 No. 5, pp. 444-67. UK Standard Industrial Classication of Economic Activities (2003), available at: www.statistics.gov.uk/methods_quality/ sic/downloads/UK_SIC_Vol1(2003).pdf (accessed 16 April 2010). Vandermerwe, S. and Rada, J. (1988), Servitization of business: adding value by adding services, European Management Journal, Vol. 6 No. 4. Wise, R. and Baumgartner, P. (1999), Go downstream: the new prot imperative in manufacturing, Harvard Business Review, Vol. 77 No. 5, pp. 133-41.

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Appendix

Table AI Participating companies in the research and their main service offerings
Company 1 Sector (primary services strategy) Aerospace and defence (3) Service category and main service offerings Product lifecycle services: Maintenance Repair and overhaul Systems integration Logistics support Supply chain management Training Output-based solutions: Complex projects Availability contracting Product lifecycle services: Repair and overhaul Information management Operational support Discrete services: E-trading Logistics Discrete services: Quality and safety Transaction management Discrete services: Technical services Expert services Product lifecycle services: Design and engineering Plant upgrade and life extension Technical support and consultancy Asset lifecycle services Repair and maintenance Testing and design validationj Product lifecycle services: Maintenance services Product retro-tting Refurbishment of existing plants Turnkey solutions Product lifecycle services: Infrastructure maintenance Turnkey systems Rolling stock services (maintenance, renovation, parts) Product lifecycle services: Plant design Training Field engineering Consulting Installation and commissioning Repairs Product lifecycle services: Maintenance Education Asset management Performance solutions Financial services Integrated IT services Discrete services: Consultancy Call management and helpdesk Installation management Removal and disposal Depot repair Maintenance Training and technical support

2 3

Aerospace and defence (4) Aerospace and defence (3)

4 5 6 7

Quarrying (1) Chemicals (1) Chemicals (1) Energy (3)

8a

Energy (3)

8b

Transport (3)

9a

Energy (3)

9b

Medical equipment (3)

10

Electrical machinery (2)

(continued)

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Table AI Company 11a

Sector (primary services strategy) Electrical machinery (2)

Service category and main service offerings Discrete services: Technical support Planned maintenance Spares and repairs Field services Product lifecycle services: Rolling stock lifetime maintenance Infrastructure services (design, installation and commissioning, systems integration, maintenance) Discrete services: Maintenance and support Financing Discrete services: Customer support Technical assistance Discrete services: Engineering and consulting services Transport and shipping Output-based solutions: Application services Business services Infrastructure services Discrete services: Technical support Education and training Installation Professional services Output-based solutions: Product support Managed print services Document transaction processing Output-based solutions: Application services Business process outsourcing Support services Infrastructure technology outsourcing Education and training Product lifecycle services: Consult Integrate Manage Output-based solutions: Consulting Network rollout Systems integration Managed services Learning services Customer support\ Product lifecycle services: Care services Energy solutions Training Managed services Network implementation Discrete services: Design and consultancy Implementation and integration Logistics Operations and maintenance Managed services

11b

Transport (3)

12 13 14 15

Construction (1) Construction (1) Metals (1) IT (4)

16

IT (2)

17

IT (4)

18

IT (4)

19

Telecommunications (3)

20

Telecommunications (4)

21

Telecommunications (3)

22

Telecommunications (2)

Notes: Primary services strategies (Raddats and Easingwood, 2010): 1, services engagement; 2, services extension; 3, services penetration; 4, services transformation

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About the author

Chris Raddats is a Lecturer in Marketing at Lancashire Business School (part of the University of Central Lancashire) and has recently completed a PhD at Manchester Business School concerned with investigating how traditionally goodscentric businesses can build a chargeable service capability to enhance market differentiation and competitive advantage. Before moving into academia, Chris had an extensive career as a marketing practitioner, with positions in four major telecommunications companies, latterly Marconi plc (now part of LM Ericsson). At Marconi, Chris held senior marketing positions in the companys services business. Chris Raddats can be contacted at: c.raddats@liv.ac.uk

Executive summary and implications for managers and executives

This summary has been provided to allow managers and executives a rapid appreciation of the content of the article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benet of the material present. As product-centric businesses companies that were traditionally based on products undergo services-led growth or servitisation they seek to increase revenue from the services side of the business. In these circumstances modularity moves beyond service levels and becomes central to the process of developing strategy. Strategic choices need to be made and the product-centric businesses (PCBs) must ascertain which strategy is most appropriate given the resources that enable them to develop comparative advantage. Service offerings can then be developed which capitalise on these resources and align to the chosen strategy. The issue of which services are most appropriate for a company to offer cannot be taken without consideration of both the companys strategy and sources of market differentiation. A company whose primary source of differentiation is its own products might attempt to develop discrete chargeable services linked to these products, perhaps using a menu-based approach whereby some services such as technical support come with a standard service level (e.g. a four-hour response to x a fault) which is notionally free, while higher levels of service (e.g. a two-hour response) are chargeable. Additional services could also be added to the free services package. When services are less directly focused on a companys own products then relationships with customers and other original equipment manufacturers (OEMs) become paramount. In terms of relationships with customers, companies that understand how their products are used in the operational environment should be able to develop service offerings that are required throughout their products lifecycles. If customers seek to outsource signicant parts of their product-based activities then they might require suppliers to provide output-based solutions. These may include product/ service combinations that are supplied to help maximise an assets availability. In terms of relationships with other OEMs, these might be limited to developing interfaces between

respective support centres so that a company can provide a technical support service on other OEMs products. However, the relationships might be deeper so that availability-style offerings can be provided on other OEMs products or an estate of multi-vendor products can be included in a managed service contract. While the development of a services portfolio would appear to be a fairly straightforward task, without a close alignment of service offerings to strategies, PCBs risk creating inappropriate offerings which might limit the benets from servitisation, i.e. services are restricted to those closely linked to their own products. Alternatively, they might undertake service activities beyond their capabilities. In Aligning industrial services with strategies and sources of market differentiation, Chris Raddats offers guidance towards an understanding of the relationships between PCBs sources of differentiation, their services strategies and service offerings; and explores the part that modularity plays in the design of their service offerings. A fundamental question for PCBs is what services should be offered to customers. This process should start with an inventory of what services are currently offered to customers; that manufacturers should consider their products lifecycles to look for service opportunities, but do this from the perspective of the customer; that companies seeking servicesled growth should redene their markets in terms of customer activities and outcomes, with opportunities arising across areas related to a suppliers primary activity and those in adjacent areas; that a supplier could take over activities in the clients value chain, if it can do them more effectively or at lower cost; and that suppliers could address the market for services beyond those to do with their own products, when they help a customers activity and market position. For example, the trend towards modularity and open systems means that companies can specialise in component supply and/or systems integration with some manufacturers becoming integrators of other companies products. If a company can develop output-based solutions based on multi-vendor products then it can position itself as key supplier to a customer and possibly eliminate or at least minimise the product/service offerings that competitors are able to provide to that customer. However, it is important to stress that the creation and delivery of output-based solutions should not be the goal for every company and each must focus on its primary source of differentiation and develop its services strategy and associated offerings accordingly. A company that provides output-based solutions may nd that some customers still require discrete services, so modularity in service design is important so that customers can take discrete elements of a more holistic service offering if required. Companies that aim to deliver output-based solutions are also likely to deliver the other categories if required by customers. PCBs are therefore designing modularity into their services ranging from discrete services through to outputbased solutions, which allow customers to join the services staircase at a suitable level, thus enabling them to co-create part of the service offering if so desired. (A precis of the article Aligning industrial services with strategies and sources of market differentiation. Supplied by Marketing Consultants for Emerald.)

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