Organisational structures for the service business in product-oriented companies

Confronted with stagnating growth rates and decreasing margins in the product business, product manufacturing companies are increasingly extending the service business. The present paper explores differences in how organisational structures trigger the service business. The study is based on the survey among manufacturing companies (product-oriented companies) that have implemented different organisational arrangements: (1) integrating the service organisation into the product division and (2) separating the service business from the product division. The investigated companies are still in the early stages of extending their service business. The total offering of the participating companies includes both services and products, but products still dominate the total offering. According to the results, separating the service business from the product division significantly enhances the extension of the service business. More specifically, the companies separating the service business achieve a higher share of service revenue, service orientation in the business strategy, corporate culture, human resource management and total offering than companies integrating the service organisation into product business. Both types of organisational arrangements achieve a similar degree of direct service profitability and quality of customer relationship. For managers, these finding indicate that setting-up a separate service division triggers the extension of the service business.