Transition from products to services within the manufacturing business

Goods are distribution mechanisms for service provision. In a new emerging paradigm, tangible products, embodied with knowledge, are seen as "appliances" for the performance of services (Vargo & Lusch 2004a). In this dissertation, we look at the transition from products to services within the manufacturing business. Increasingly, manufacturing companies rely on services for both growth and increased profitability. The objectives of this study are (1) to describe, conceptualize, and illustrate the transition from focusing on products to focusing on services through a number of case examples in manufacturing companies, (2) to examine the requirements for the transition, (3) to explore the motives for the transition, and (4) to analyze the implications of the transition. To tackle these questions, we use both qualitative methods (case studies) and quantitative methods (survey-based regression analysis). The main contribution of this study is the identification of information technology innovations as an important requirement and an enabling factor for this transition. Companies need new information systems, for example, in the form of condition monitoring from a distance and knowledge sharing through information systems. We argue that it would not be possible for manufacturing companies to move towards the service focus without these systems. Another contribution of the study is the observation that this transition requires manufacturing firms to move closer to the customer companies and to adopt a more relational form of interaction with their customers. Compared to the transactional type of interaction, the relational type exhibits stronger operational linkages, more extensive information exchange, and more adaptations by the seller. The results also indicate that coercive and economic pressures act as the main motives for this transition. Customer companies are demanding more complete offerings including a greater degree of services (coercive pressures). There are also important economic incentives for manufacturing companies to move towards services. Services generate steadier revenue streams than product sales, and hence, manufacturing companies can protect themselves against market fluctuations by focusing on service contracts. In addition, service contracts can be seen as a good way to ensure the MRO (maintenance, repair, and operations) product business.