Graduate Schools of Business Administration, University of California
California Management Review vol:56 issue:1 pages:100-123
Increasingly, manufacturing firms are turning to services as a new way of creating and capturing value. Despite the potential benefits, evidence suggests that many new product-service providers struggle to deploy service activities effectively, not least because they fail to reflect the presence of service activities in their performance management systems (PMS). This paper reports the results of an in-depth case study, which examines how manufacturers can steer the transition towards services. Our findings suggest that manufacturing firms need to emphasize two separate but related dimensions of the market performance of service activities: 'service adoption', reflecting the proportion of customers who purchase the manufacturer’s services, and 'service coverage’, signaling the range of service elements or the comprehensiveness of the service contract that customers opt for. These two indicators, reflecting service market performance, should be supplemented with a 'complementarity index’ designed to disclose whether the relationship between products and services is reinforcing or substitutive. This is particularly important, since a common concern expressed by manufacturers is that increasing their service activities may cannibalize their product activities. Combined, these indicators allow manufacturing firms to deploy a service-based business model in an integrated and sustainable manner.