driving the servitization transformation through change management: lessons learnt from industrial...
TRANSCRIPT
Driving the servitization transformation through change management: lessons learnt from industrial cases
Aston Spring Servitization Conference, May 2016
Dr Shaun West and Paolo Gaiardelli
West & Gaiardelli, 2016
IntroductionThe problem and the purpose of this paper
To describe a series of challenges leaders in the service business faced during their servitization journey
Servitization as a transformational process has major effects on the cultures, business models and processes of a firm. Yet the change management is poorly understood.
To identify the impacts of organisational barriers on different types of companies
Purpose of this paper
Preliminary review on how six firms in Europe navigated the servitization journey successful without tripping over barriers
Problem
West & Gaiardelli, 2016
IntroductionWhat does the literature say?
”…is generally agreed that such a transformation calls for organisations to radically innovate all components of their business model…” Gebauer
”…there is no unique, ideal servitization transition, as a successful transition to services depends upon context…” Neely
” …there are no specific models for servitization as a change process…” Pawar
Servitization is a change process that impacts on the operation and the culture of the business
West & Gaiardelli, 2016
MethodologyA three step methodology was applied in this study
An initial review to gather a wide range of inputs and categorize them systematically
Literature study Interviews Cross case analysis
West & Gaiardelli, 2016
Results and analysis of the literature reviewThe servitization barriers were categorised according to those defined by Hou and Neely
These categories will be used to help analyse the findings
Competitors, suppliers and partners Complex and competitive environment, involving different actors
Society and environment Lack of policy, infrastructure support and incentives
Customers Heterogeneous demand
Economic and finance Unexpected costs and difficulties in pricing services
Knowledge and information Difficulties in knowledge and information management
Products and activities Lack of competences and infrastructuresDifficulties in designing service packages
Organisational structure and culturePreconceived thoughts and resistance to change conflicts among different departments and different hierarchies in organisationsLack of service-‐based organisational structure and service-‐oriented culture
West & Gaiardelli, 2016
Results and analysis cross case analysisOverview of the six firms selected for interviews
Firm Segment HQ OEM tier Service emplyees
1 Equipment for trains GER 2nd 540
2 Marine and power CHE 2nd 1,300
3 Textiles CHE 1st, 2nd 400
4 Logistics equipment NLD 1st 1,200
5 Video surveillance ITL 1st, 2nd 540
6 Energy CHE 1st, 2nd 3,200
-‐ The objective to get insights from manufacturers-‐ Diversity measured by
-‐ Segment-‐ Geography-‐ Position of OEM business in supply chain-‐ Size
-‐ Interviewees requirements-‐ Long-‐term experience of the firm-‐ Senior management
-‐ Detailed feedback provided to the firms
A wide range of manufacturing firms were targeted for interviews
West & Gaiardelli, 2016
Results and analysis of the interviewsInterviewing process
The interviews provided an insight into the reasons, problems and benefits of servitization
West%&%Gaiardelli%
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ANNEXE'–'DETAIL'OF'THE'FIRMS'%
Firm%1%
The%firm%begin%its%service%transformation%in%2002%and%has%gown%in%service%employees%from%100%to%450FTEs,%
during% that% time% the% sales% from% services% have% increased% from% 15%% of% total% sales% to% over% 35%% with% the%
expectation%of%50%%in%the%future.%%The%business%objectives%have%been%achieved%but%the%start%was%tough%and%
continued%management%focus%and%attention%was%required%to%guide%the%firm.%%The%positioning%on%the%service%
matrix%is%given%in%Figure%2.%
Prior%to%2002%there%were%limited%management%change%programmes.%%Between%2002%and%2016%four%changes%
programmes%were%implemented:%
•! organisational% structures% –% the% creation%of% a% service%division%with% P&L% responsibility,% prior% to% 2002%
service%fell%under%the%responsibility%of%sales%as%basic%‘after%sales%support’;%
•! project% management% development% –% the% delivery% of% complex% service% project% required% a% different%
approach% to% project% management,% basic% project% management% was% embedded% within% product%
development%and%production%however%missing%were%the%commercial%aspects;%
•! sales%development%–%the%selling%of%services%was%found%to%be%different%from%product%selling%and%a%wider%
base%of%sales%skills%were%required,%more%on%a%consulting%selling%bases’%
•! services%R&D%–%this%was%required%to%address%specific%issues%that%were%identified%during%the%operational%
life%of%the%equipment.%
%
Over%the%transformation%the%business%has%moved%from%a%reactive%service%business%into%one%where%service%
is%now%integrated%into%the%culture%(Figure%2).%%The%firm%has%a%desire%to%move%to%‘service%as%a%product’%but%has%
yet%to%reach%this%position,%there%remains%a%focus%on%productKservice%systems.%The%service%maturity%for%the%firm%
has%increased%in%the%six%dimensions%measured%over%the%transition%with%the%major%focus%being%on%getting%closer%
to%the%customer.%%
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%Figure%2%Service%matrix%and%service%maturity%for%firm%1%
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Key%direct%comments:%
•! ‘[service]%culture%is%everything%as%it%is%drives%the%attitudes%and%behaviours%of%our%employees’;%%
•! ‘[we]%are%starting%to%offer%service%‘as%a%product’%on%its%own%to%better%create%customer%value;%
•! ‘we%look%today%for%customers%problems’;%
•! ‘we%must%have%an%ecosystem%view%as%it%helps%us%to%work%together%but%this%is%a%change%in%mindset’;%
•! ‘we% need% to%work% during% the% life% of% the% equipment% to% overcome% design% problems% and% changes% to%
operations’;%
•! ‘our%success%has%in%a%large%part%been%borough%about%because%we%have%a%P&L%responsibility%and%a%seat%
on%the%leadership%of%the%business’.%
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-‐ A detailed interview form was designed-‐ Questions based on findings from the literature and prior studies (published and unpublished)
-‐ Company details and information-‐ Questions to support basic benchmarking-‐ Open interview question
-‐ Interviewees were from leadership positions-‐ All interviewees had long-‐term connection to the firms
-‐ A detailed report from the interview was given to the firms
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Firm%2%The%firm%started%its%transformation%into%services%in%1999%and%over%that%time%has%grown%into%a%full%business%unit%with%around%1300%FTEs%from%a%base%of%around%100K500.%%Over%this%time%the%aftermarket%service%business%has%grown%from%being%simply%spares%to%one%that%constitutes%over%30%%of%their%business%and%a%higher%figure%for%the%margin%generation.%%The%longerKterm%aim%is%to%grow%the%service%business%further%without%growing%the%head%count%so%that%it%is%over%50%%of%the%business.%The%business%objectives%have%always%been%met,%however%the%leader%of%the%business%pointed%out%that%it%takes%three%years%to%make%a%visible%change.%The%position%on%the%service%matrix%is%given%in%Figure%3.%
Prior%to%1999%there%had%been%a%six%sigma%operational% improvement%programme.%%Since%then%there%have%been%two%major%change%programmes%and%one%additional%planned%programme:%
•! single%service%origination%–%service%business%unit%with%its%own%P&L%and%this%is%seen%in%Figure%3%with%the%increase%in%service%offering%and%greater%focus%on%customers;%
•! Sales%focus%K%the%firm%had%put%in%place%a%sales%focus%programme%which%had%the%effect%of%positive%impact%on%the%service%behaviours%and%put%the%business%closer%to%the%customer;%
•! customer% value% and% process% integration% –% this% programme% is% planned% for% the% next% phase% and% that%address%customer%value%and%process%integration%as%this%will%help%them%to%move%from%product%services%to%thinking%as%service%as%a%product%and%assist%the%final%push%to%a%cultural%intensity.%%%
Over% this% time%the%business,%according% to% the% interviewee,%has%generally%moved% from%being% reactive% to%more%proKactive%a%key%to%this%was%having%a%service%business%unit%with%its%own%P&L%and%this%is%seen%in%Figure%3%with%the%increase%in%service%offering%and%greater%focus%on%customers.%%
%Figure%3%Service%matrix%and%service%maturity%for%firm%2%
Key%direct%comments:%•! ‘we%need%to%work%more%efficiently%together%over%the%coming%years%to%get%the%growth%without%additional%
white%collar%staff’;%•! ‘our%productKservice%system%offing%is%quite%complete,%we%need%to%push%more%into%pure%services’;%•! ‘we%got%closer%to%our%customers,%now%we%need%to%invest%in%the%IOT%and%integrate%into%our%customers%
processes’;%•! ‘you%need%HR%to%help%drive%business%thinking%in%a%knowledge%rich%environment’;%•! ‘we%need%to%move%to%appreciate%our%customers%even%more%than%the%technology’.%%%
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Firm%4%
The%firm%started%it%service%transformation%in%2010%and%has%grown%services%from%less%than%5%%of%the%business%
to%over%20%%today%with%the%longerKterm%objective%of%reaching%25%%of%the%total%sales.%During%this%time%the%
business% objectives% of% increased% customer% intimacy,% new% revenues% and% improved% customer%
relationships/experiences%have%been%archived.%%The%positioning%within%the%service%matric%is%given%in%Figure%5.%
Prior% to% 2010% there%were% no%major% change% programmes,% however% the% new%CEO% had% a% desire% to% drive%
services% and% he% had% a% major% impact% on% pushing% through% the% changes% necessary% to% develop% the% service%
business.%Since%2010%the%service%focused%changes%have%included:%
•! cultures%and%structures%–%these%have%been%flattened%and%cooperation%between%teams%has%improved,%
the%CEO%has%fostered%commitment%and%initiative%taking%within%the%service%business;%
•! offerings%–%there%is%a%move%to%bring%products%and%services%closer%to%focus%on%customer%value;%
•! coKcreation%–%with%key%customers%this%is%a%key%learning%process%to%test/pilot%new%offering%before%selling%
them%more%widely;%
•! sharing%knowhow%–%there%is%an%active%training%plan%with%‘internships’%and%job%rotations%for%the%service%
leaders%within% the%business% to%help% them% learn%more%about% the%business%and% to% instil% standardised%
working%methods.%
%
Over%the%past%six%years%the%improvements%to%performance%have%been%generally%what%was%expected%with%
some%regions%being%easier%than%expected%although%other%reasons%have%been%harder.%There%were%no%major%
external%barriers%other%than%providing%service%business%in%some%countries,%notably%Brazil%and%Russia,%can%be%
very%complex.%Today%there%is%now%a%more%balanced%view%between%technology%and%customer%focus,%this%is%now%
starting%to%support%new%product%development%in%terms%of%customer%feedback.%%%%
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Figure%5%Service%matrix%and%service%maturity%for%firm%4%
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Key%direct%comments:%
•! ‘when%your%customer%is%asking%for%services%the%management%has%to%follow’;%
•! ‘services%are%maturing%and%are%becoming%a%commodity’;%
•! ‘you%have%to%create%productKservice%systems%as%these%are%more%customer%value%focused’%
•! ‘CEO%sponsorship%and%separate%service%business%unit%was%critical%[to%success]’.%
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Firm%5%The%firm%started%its%service%transformation%in%2000,%at%that%time%virtually%zero%sales%came%from%services%even%though%there%were%280%staff%delivering%‘after%sales%services’,%today%2%%of%the%sales%are%related%to%services,%there%is%an%ambition%to%grow%this%to%5%%in%the%longerKterm.%%The%initial%objectives%were%to%grow%services%above%10M%EUR%of%sales%and%to%enter%both%B2B%and%B2C%markets%with%systems,%today%the%objective%has%changed%so%that%they%are%looking%at%productKservice%solutions%based%on%intergrade%packages.%The%longerKterm%objective%is%then%to%create%payKper%solutions.%The%positioning%within%the%service%matrix%is%given%in%Figure%6.%
Prior% to% 2000% the% firm% was% highly% product% focused% and% providing% services% mostly% associated% with%installation%service.%Since%then%the%following%changes%have%been%implemented:%
•! the%installer%as%a%customer%–%this%created%a%new%layer%of%customer%within%the%firm%with%different%drivers%and%expectations;%
•! charging%for%service%–%this%%was%a%major%change%in%mindset%with%employees%having%to%understand%the%customer%value%to%allow%them%to%charge%for%services%that%prior%were%provided%for%free,%this%showed%internally%and%externally%that%service%was%a%differentiator%in%the%market;%%
•! service%solutions%–%this%is%the%next%step%in%terms%of%service%provision%for%the%firm%where%a%fee%will%be%charged%based%on%use%where%the%product%becomes%a%platform%to%base%the%services%upon;%
•! new%customer%relationship%channels%–%investment%in%faceKtoKface%and%phone%communication%with%the%customer% with% the% aim% to% address% customer% problems% (prior% the% phone% was% use% to% support% only%warranty%issues);%
•! service% hires% and% training% –% new% approach% to% hires% based% on% behaviours% rather% than% technical%competencies,%training%to%ensure%that%the%new%hires%are%able%to%deliver%the%service;%
%The% impact%of%the%changes%was%generally%considered%positive%for%both%the%customers%and%the%firm.%The%
mind%set%has%changed%from%thinking%of%services%as%a%cost%to%one%of%value%creation%for%both%the%customer%and%the%firm.%%Services%have%created%an%improved%customer%experience%and%depth%to%the%relationship%with%the%customer%preferring%to%purchase%a%productKservice%system.%This%has%been%the%case%where%the%technology%has%become%a%commodity%and%service%(eg,%installation,%warranty,%operation%support)%becomes%more%important.%This%change%had%made%the%employees%move%from%product%thinking%to%appreciating%a%customer%who%modifies%their%behaviour%due%to%technology%innovation%and%the%service%solution%offered%by%the%firm.%%
%Figure%6%Service%matrix%and%service%maturity%for%firm%5%
Key%direct%comments:%•! ‘the%market%was%ready%to%accept%new%service%offer’;%•! ‘some%managers%failed%to%accept%the%transition%to%services;%•! ‘the%need%to%move%to%data%from%technology%supported%our%transition’;%•! ‘the%low%investment%cost%in%services%was%supportive%of%the%transition’;%•! ‘the%demonstration%of%the%increase%in%customer%retention%and%margins%support%the%transition’.%%
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Firm%3%The%firm%began%its%service%transformation%in%2010%and%during%that%time%they%have%grown%service%sales%from%10%%of%total%sales%to%14%%today.%%To%achieve%this%the%service%employees%(internal%and%external)%have%increased%from%350%to%around%400.%The%longerKterm%aim%is%to%grow%services%to%15%%of%the%business%with%around%500K550%FTEs.%Over%the%past%six%years%services%have%moved%from%being%reactive%to%a%point%where%more%effort%is%placed%on%customer%experience%and%how%to%continually%improve%the%experience.% %Future%plans%include%the%integration%of%IOT%into%the%service%offering%and%a%continual%improvement%in%customer%satisfaction.%The%mix%of%direct%and%inKdirect%service%teams%creates%support%issues%and%all%service%partners%need%to%be%treated%fairly.%The%service%matrix%position%is%shown%in%Figure%4.%
Prior%to%2010%there%had%been%a%standardisation%programme%(part%of%operational%excellence)%to%understand%and%limit%the%local%differences.%%Since%2010%the%following%change%programmes%been%implemented:%
•! customer%pull%–%allowing%the%customer%to%demand%and%support%development%of%services;%•! service%quality%–%zero%defect%approach%to%quality;%•! team%structures%–%providing%a%focus,%although%not%a%service%organisation%for%service%activities.%%
%Figure%4%Service%matrix%and%service%maturity%for%firm%3%
Key%direct%comments%•! ‘service%culture%is%not%measured%but%we%do%have%an%HR%survey’;%•! ‘learning%about%services%is%hard,%we%need%to%use%cases%to%help%change%the%mindsets’;%•! ‘moving%now%to%look%at%service%pricing%–%how%do%we%price%pure%services%rather%than%the%pricing%of%basic%
services’;%•! ‘key% aspect% was% the%master% data% for% the% installed% fleet,% without% this%moving% to% services% is% almost%
impossible%particularly%with%where%to%locate%spares’;%•! ‘we%cannot%not%always%charge%for%services’;%•! ‘we%need%more%serviceKminded%technicians,%must%hire%by%mind%set%then%train%them’;%•! ‘to%sell%service%as%a%concept%to%management,%use%the%growth%story’.%%
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West%&%Gaiardelli%%
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Firm%6%The%firm%started%its%service%transformation%in%the%midKlate%1980s,%at%that%time%virtually%zero%sales%came%from%services%even%with%only%65%staff%delivering% ‘after%sales%services’,% today%almost%25%%of% its% sales%come%from%service%and%almost%30%%of%the%EBIT.%%The%initial%objectives%were%to%support%the%sales%of%new%equipment%in%a%single% regain,% today% this%has%grown%to%many%different%services%over% the%world.% %The%services%are%normally%associated%with% the% large% complex%mechanical% equipment% in% the% B2B%market.% The% positioning%within% the%service%matrix%is%given%in%Figure%7.%
Prior% to% 1990% the% firm%was% highly% product% focused% and% providing% virtually% no% services.% Since% then% the%following%changes%have%been%implemented:%
•! acquisition%of%adjacent%service%businesses%–%this%created%the%critical%mass%with%all%business%being%closely%associated%with%the%technical%services%provided%and%supportive%of%the%service%network%concept;%
•! integration%of%the%low%service%intensity/customer%services%of%an%OEM%business%into%the%service%business%of%the%firm;%
•! ERP% system% has% provided% the% opportunity% to% professionalise% the% business% and% allow% activities% like%benchmarking%to%take%place%to%check%performance%of%different%sites;%
•! integration%of%basic%lean%process%into%the%service%business%leading%to%cost%improvements;%•! sales%training%programme%to%get%closer%to%the%customers%and%to%better%understand%their%requirements.%%The%business% is%now%a%major%portion%of% the% firm%and%on%a%ROS%basis% the%most%profitable.% %Business%has%
struggled%at%times%with%customer%cycles.%Not%as%tough%as%the%new%equipment%cycles%but%has%forced%down%performance%at%time.%CRM%system%for%service%business%that%provide%technical%services%to%customers%has%been%hard%to%set%up%and%share%meaning%that%opportunities%have%been%missed%or%not%shared%as%they%should%have%been.%The%business%is%now%looking%at%how%to%use%IOT%technology%to%provide%improved%support%to%the%field%service%teams.%%
%Figure%7%Service%matrix%and%service%maturity%for%firm%5%
Key%direct%comments:%•! ‘every%change%was%harder%than%expected’%•! ’being%the%service%division%in%an%OEM%is%hard’%•! ‘you%cannot%just%turn%services%on’%•! ‘service%is%a%different%culture’%•! ‘staff%rotations%are%very%tough%to%arrange%today%due%to%duel%careers’%
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West & Gaiardelli, 2016
Results and analysis of the interviewsMathieu’s index provided a useful framework
-‐ The businesses were delivering services -‐ There was a strategic move to grow services-‐ Overtime the transition becomes cultural
-‐ Firms 1-‐5 were initially doing service ’because they had to…’
-‐ Firm 6 was acquired as a service base to allow access to a new markes
Having started the journey there is a drift to cultural organizational intensity
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Results and analysis of the cross case analysisCompetitors, suppliers and partners
Lessons learnt-‐ Partners as a key service resource was important -‐ Ecosystem view helps, but this needs a mind-‐set shift
The move to ecosystem innovation was important for the servitization journey
“…we prefer to encourage our partners to do it directly! Actually, such a strategy involves losing part of our service profits, but it’s the best way…” Firm 5
“…we must use an ecosystem view to help us work together better, but this is a mind-‐set
change!” Firm 1
Implications-‐ Cooperation with partners critical -‐ Trading value in the ecosystem for relationships
West & Gaiardelli, 2016
Results and analysis of the cross case analysisSociety and environment
Local rules and ’norms’ can make create barriers to service delivery
Lessons learnt-‐ Cannot always charge for services -‐ Local legal and tax issues
Implications-‐ Smaller firms encounter larger investment barriers-‐ Different solutions needed for different firms-‐ Impact on firm’s organisation and processes
“…tax is becoming a major problem for transfer of pricing...” Firm 1
“…we have to offer free of charge solutions to support the loyalty of final customers and help to strengthen our relationship with the front-‐end partners…” Firm 5
“…some regions were harder, because some managers don’t think of service as the real business. However,
some other regions were easier, because management support came…” Firm 4
West & Gaiardelli, 2016
Results and analysis of the cross case analysisCustomers
Important to learn to work and use customer pull to support servitization
Lessons learnt-‐ Training to help to improve customer understanding-‐ Customer pull to move into services-‐ Co-‐creation creates opportunities -‐ Customer is more or as important as technology
Implications-‐ Northern firms transforming relationships with customers (culture)
-‐ Southern firms identify services and a business opportunity (strategy)
“…we look for our customers problems… we moved our target to offer service as a product, to what is
customer value…” Firm 1
“…we are well aligned with key customers. We do co-‐creation … to enter the unknown and test/pilot new offers before selling them more widely…” Firm 4
“…transition is hard, especially when the market is very cost focused rather than reliability focused…we
will need more customer integration...” Firm 2
West & Gaiardelli, 2016
Results and analysis of the cross case analysisEconomic and finance
Service pricing, sale growth, margins and retention are critical success factors
Lessons learnt-‐ Pricing is important in services-‐ Revenue growth and margin growth important for senior management
-‐ Measure impact on customer retention and customer margins
Implications-‐ Firm’s efforts are focussed on creating awareness on strategic relevance (profitability)
-‐ Southern firms could have a size-‐related issue
“…we need to work more to be efficient and that is the plan over the coming years: growth in sales with
no growth in white collar FTEs...” Firm 2
“…giving the top management the growth story of service business was the best argument to convince them to get on-‐board… “ Firm 2
“…analyses carried out by the commercial department demonstrated that service increases
customer retention and margins…” Firm 5
West & Gaiardelli, 2016
Results and analysis of the cross case analysisKnowledge and information
Internal sharing of know how and customer process can reduce servitization barriers
Lessons learnt-‐ Project management skills needed for delivery -‐ Understanding of customer processes/value creation-‐ Understanding the product-‐service system-‐ Sharing knowledge important
Implications-‐ Product-‐focused firms need to focus on understanding their customer processes
-‐ More servitized firms need to address problems of knowledge management
“…move to cross learning from the “ad hoc” knowledge management systems of today.” Firm 3
“…How do we move to ’service as a product' rather than just customer services? Through a PSS
based on Knowledge Management…” Firm 3
“…technology and service skills are the main areas we are likely to invest in the
next 18 months…” Firm 1
West & Gaiardelli, 2016
Results and analysis of the cross case analysisProducts and activities
Basic data and understanding is required before moving to more advanced product-‐service systems
Implications-‐ Basic building blocks not always in place-‐ Understand the technology around the product-‐ Smaller firms focus internally rather than on relationships
Lessons learnt-‐ Installed base critical data for supplying services-‐ Standardisation supported professionalisation -‐ Focus on services only once PSS is understood-‐ Services supports new equipment sales “…keepworking on the installed base and improving
market data, this is key...” Firm 3
“…add service to create a PSS that has positive feedback loop to NPD has been our biggest challenge
in our service transformation journey...” Firm 4
“…new products drive our world and we need to overcome design problems and provide service/upgrades
that are of value to our customers.” Firm 1
West & Gaiardelli, 2016
Results and analysis of the cross case analysisOrganisational structure and culture
The businesses must have their own P&L and support of HR to deliver the change
Lessons learnt-‐ Need top management as a sponsor-‐ Separate service business unit/P&L needed-‐ Service R&D to address the equipment lifecycle -‐ HR is needed to help change behaviours
Implications-‐ Efforts should focus on creating management buy-‐in-‐ Product-‐based firms need to overcome a goods-‐centric culture
-‐ Learn to work with and educate HR
“… support from HR is needed to drive business thinking in a knowledge management rich
environment...” Firm 2
“… by being separate we are able to be effective for the customer…” Firm 1
“Culture is everything, attitude and behaviour…” Firm 1
“…local empowerment is a hard to achieve but it means effective and efficient service provision...” Firm 3
West & Gaiardelli, 2016
ConclusionsServitization transformation through change management is an important theme
Servitization transformation is a complicated change process
Hou/Neely’s model allowed the change barriers to be categorised
All of the firms had contextual differences: there were similarities
Every firm starts from a different starting point and therefore experiences their own journey. There cannot be a single recipe for change management.
Not all servitization journeys require the same change management
West & Gaiardelli, 2016
RecommendationsMore research servitization transformation change management is needed
More research is needed on ”servitization change management”
The aim to identify servitization change management best practice
Practical tools are needed to identify service opportunities
There is a need to undertake specific research into servitization change management to help firms to navigate this complex transformation.
Understanding of a journey with different starting-‐ and end-‐points