Servitisation

Journal of Manufacturing Technology Management
The servitization of manufacturing: A review of literature and reflection on future

challenges
T.S. Baines H.W. Lightfoot O. Benedettini J.M. Kay
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The servitization
of manufacturing
A review of literature and reflection
on future challenges
T.S. Baines, H.W. Lightfoot, O. Benedettini and J.M. Kay
Cranfield University, Cranfield, UK
The servitization
of manufacturing
547
Received 25 April 2008
Revised 8 December 2008
Accepted 29 December 2008
Abstract
Purpose The purpose of this paper is to report the state-of-the-art of servitization by presenting a
clinical review of literature currently available on the topic. The paper aims to define the servitization
concept, report on its origin, features and drivers and give examples of its adoption along with future
research challenges.
Design/methodology/approach In determining the scope of this study, the focus is on articles
that are central and relevant to servitization within a wider manufacturing context. The methodology
consists of identifying relevant publication databases, searching these using a wide range of key
words and phrases associated with servitization, and then fully reviewing each article in turn. The key
findings and their implications for research are all described.
Findings Servitization is the innovation of an organisations capabilities and processes to shift
from selling products to selling integrated products and services that deliver value in use. There are a
diverse range of servitization examples in the literature. These tend to emphasize the potential to
maintain revenue streams and improve profitability.
Practical implications Servitization does not represent a panacea for manufactures. However, it
is a concept of significant potential value, providing routes for companies to move up the value chain
and exploit higher value business activities. There is little work to date that can be used to help
practitioners.
Originality/value This paper provides a useful review of servitization and a platform on which to
base more in-depth research into the broader topic of service-led competitive strategy by drawing on
the work from other related research communities.
Keywords Services, Product innovation, Manufacturing industries
Paper type Research paper
1. Introduction
Servitization, the term coined by Vandermerwe and Rada (1988), is now widely
recognised as the process of creating value by adding services to products. Since the
late 1980s, its adoption as a competitive manufacturing strategy has been studied
by a range of authors (Wise and Baumgartner, 1999; Oliva and Kallenberg, 2003;
Slack, 2005) who have specifically sought to understand the development and
implications of this concept. This literature indicates a growing interest in this topic
by academia, business and government (Hewitt, 2002), much of which is based on a
belief that a move towards servitization is a means to create additional value adding
capabilities for traditional manufacturers. These integrated product-service offerings
are distinctive, long-lived, and easier to defend from competition based in lower cost
economies.
Journal of Manufacturing Technology

Management
Vol. 20 No. 5, 2009
pp. 547-567
q Emerald Group Publishing Limited
1741-038X
DOI 10.1108/17410380910960984
JMTM
20,5
548
Since the term servitization was first captured in the work of Vandermerwe and
Rada (1988), there has been a steady flow of research papers. For example, our study
shows that currently there are approximately 60 papers published directly on this
concept, with an additional 90 or more being quite closely related. The collective
contribution of these papers has not yet been summarised and so, as a platform for
furthering research, a review of the servitization literature is appropriate. Hence, this
has been the motivation behind our study described in this paper.
This review of literature is explicitly concerned with servitization. We should note,
however, that there are a number of other closely related research communities. The
work on product-service systems (PSS) (Baines et al., 2007; Goedkoop et al., 1999; Mont,
2000; Meijkamp, 2000; Manzini and Vezolli, 2003) is particularly closely related.
Many of the principles are identical (Tukker and Tischner, 2006). The difference arises
in the motivation and geographical origin of the research communities. PSS is a
Scandinavian concept which is closely coupled to the debates on sustainability and the
reduction of environmental impact. Other research communities deal with similar
concepts (e.g. integrated vehicle health management (Fox and Glass, 2000; Baroth et al.,
2001) and services sciences (Chesborough and Spohrer, 2006). To date, these
communities have largely developed in isolation with few researchers forming links.
The study described in this paper has taken the form of a clinical review of
literature that has been published, explicitly, to contribute to the servitization debate.
Our methodology has consisted of identifying relevant publication databases,
searching these using a wide range of key words and phrases associated with
servitization, and then fully reviewing each article in turn. From these reviews, it was
possible to compile a set of key findings. These findings and their implications for
research are all described. The structure of this paper reflects this approach. First, the
research methods are described and the initial results of the search for relevant
literature are presented. Key findings are then presented through analysis of the
literature. Finally, the results of this analysis are summarised and discussed, and
conclusions are drawn.
2. Research programme
2.1 Aim, scope, and questions to guide research
The aim of the research presented in this paper has been to identify, interpret, and
summarise the literature currently available on the topic of servitization. In
determining the scope of this study, the focus has been on articles that are central and
relevant to servitization within a wider manufacturing context. For instance, papers
that deal with the application of service concepts to manufacturing, the management of
the transition from products to services, the provision of integrated solutions and value
creation through service offers, have all been considered relevant. Examples of
publications that are clearly within the scope of this review are those such as
Vandermerwe and Rada (1988) in which the authors define the concept of servitization
and, Wise and Baumgartner (1999) who discuss manufacturers moving downstream
into more lucrative product-related services. Outside the scope of our study at this time
are articles that deal exclusively with pure services provision.
To guide this review of the literature, a series of questions have been posed. Our
intention is that these should help to ensure a thorough and comprehensive review, but
that they will not necessarily lead directly to research findings. These questions are:
.
.
.
.
What is meant by servitization and how is it commonly defined?

How does a servitized organisation differ from a conventional manufacturer?
Where are the leading examples of servitization?
What guidance is there in the literature for a manufacturer seeking to adopt
servitization?
Overall, what are the characteristics of the current body of literature on
servitization?
These questions highlight that this study has focused exclusively, and somewhat
pedantically, on the literature that is directly associated with servitization. Outside the
scope of our work have been contributions on topics such as PSS. As we have noted,
there are many similarities and cross overs between these two communities of
researches, however to date there have been few explicit links. This is demonstrated by
the lack of cross-referencing between the two communities. This situation will
undoubtedly change; indeed this paper itself contributes to this homogenisation
through the reworking of definitions in Section 3. Yet, in this paper, we sought to
capture how the servitization community has independently evolved to this point in
time. Hence, we treat the servitization topic similarly to our review on PSS published in
Baines et al. (2007).
2.2 Search strategy, results and analysis
The search strategy was developed by first identifying the relevant data sources, time
frame, and keywords. Initially, a very broad selection of databases was identified to
cover a diverse range of publications (e.g. journal articles, conference proceedings,
theses, books and trade journals). These databases included Compendex, Inspect, and
Emerald, along with the more traditional library cataloguing systems. For
completeness, an internet search was also conducted using a similar process to that
used with the library databases. Collectively, these provided access to a wide variety of
sources (e.g. Harvard Business Review, Industrial Marketing Management,
International Journal of Service Industry Management, and European Management
Journal ). Keywords were identified that were directly associated with servitization
(e.g. service-centred, service-oriented, service integration, product support, integrated
solutions, post-sales, product-related services and after-sales). Many of these key
words were combined with manufacturing in order to ensure their relevance to this
study. This set was then expanded and refined as appropriate articles were discovered.
Initially, this study focused on literature published between 1988 and 2008, with their
citations being cross-checked to ensure that any earlier publications were also
captured.
By searching the chosen databases, using the keyword over the selected time period,
a large number of article titles were uncovered. These lists were then edited to remove
any duplicate records, and the titles were checked to ensure relevance to the review.
The abstracts of all the remaining articles were then considered and, unless thought
inappropriate, the full paper was then read. Initially, the search terms identified about
150 articles, reports, and books. These were then carefully filtered to establish
49 documents that were directly relevant to our research enquiry. Subsequent
cross-checking of references increased the list to 58. The analysis itself was aided by
The servitization
of manufacturing
549
JMTM
20,5
applying mind-mapping techniques to capture and cluster the main themes and
contributions. It is the analysis of these articles that forms the basis of the findings in
this paper.
550
3. Analysis of the literature

There has been a steady output of research papers on servitization since 1988
(Figure 1). The papers reviewed originate in the USA (40 per cent), UK (20 per cent),
Number of key papers by period
Author(s)
Levitt T
1976
Origin
USA
Levitt T
Vandermerwe S., Rada J.F.
Chase R.B., Garvin D.A.
1981
1988
1989
USA
Switzerland
USA
Vandermerwe S., Matthews W.H., Rada J.F.

Coyne K.
Quinn J.B., Doorley T.L., Paquette P.C.
Roscitt R., Parket R.
Voss C.
Samli A.C., Jacobs L.W., Wills J.
Martin Jr C.R., Horne D.A.
Anderson J.C., Narus J.A.
1989
1989
1990
1990
1992
1992
1992
1995
Switzerland
USA
USA
USA
UK
USA
USA
USA
Kellog D & Winter N

Frambach R.T., Wels-lips I., Gndlach A.
Cook D et al
Verstrepen et al.
Wise R., Baumgartner P.
Howells J
Foote N.W., Galbraith J., Hope Q.
Mathieu V.
Mathieu V.
Roegner E.V., Seifert T., Swinford D.D.
Galbraith J.R.
Miller D., Hope Q., Eisenstat R., Foote N., Galbraith J.
Robinson T., Clarke-hill C.M., Clarkson R.
Oliva R., Kallenberg R.
Dennis M., Kambil A.
Stille F.
Alonso-Rasgado T., Thompson G., Elfstrm B.
Davies A.
1995
1997
1999
1999
1999
2000
2001
2001
2001
2001
2002
2002
2002
2003
2003
2003
2004
2004
USA
Netherlands
USA
Netherlands
USA
UK
USA
France
France
USA
USA
USA
USA
USA
USA
Germany
UK
UK
Johansson P., Olhager J.

Windal C., Andersson P., Berggren C., Nehler C.
Sawhney M., Balasubramanian S., Krishnan V.V.
Mathe H., Portioli Staudacher A.
Lewis M., Portioli Staudacher A., Slack N.
Brax S.
Gebauer H., Fleisch E., Friedli T.
Gebauer H., Friedli T.
Neu W., Brown S.
Ward Y., Graves A.
Auramo J., Ala-Risku T.
Slack N
Davies A., Brady T., Hobday M.
Gebauer H., Friedli T., Fleisch E.
Cohen et al
Malleret V.
Windahl C & Lakemond N
Araujo L & Spring M:
Byeron A et al:
Glueck J., Koudal P., Vaessen W.
2004
2004
2004
2004
2004
2005
2005
2005
2005
2005
2005
2005
2006
2006
2006
2006
2006
2006
2006
2006
Sweden
Sweden
USA
France
UK
Finland
Switzerland
Switzerland
USA
UK
Finland
UK
UK
Switzerland
USA
France
Sweden
UK
USA
Germany
Johansson P., Olhager J.

Block B.
Davies A., Brady T., Hobday M.
Gebauer H., Fleisch E.
Ojasalo K.
Correa H et al
Cohen
Gebauer H., Bravo-Sanchez C., Fleisch E.
2006
2007
2007
2007
2007
2007
2007
2008
Sweden
UK
UK
Switzerland
Finland
USA
USA
Switzerland
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
Figure 1.
Time-line for the evolution
of relevant papers
YEAR
54
55
56
57
58
1970's
1980's
1990's
2000 - 05
2005 - on
11
25
16
Switzerland (15 per cent) and the rest of Western Europe (25 per cent). The literature
studied covers a range of topics. These have been grouped into themes and the
analysis of their coverage by authors is shown in Table I. In Table II,
codings * * *, * * and * have been used to indicate a focus on, detailed discussion
of or refers to the particular theme. The majority of authors cover the classification
of servitization (Chase and Garvin, 1989; Voss, 1992; Mathieu, 2001a). drivers of
servitization (Wise and Baumgartner, 1999; Lewis et al., 2004; Malleret, 2006) and the
guidelines and methods for the implementation of servitization strategies (Foote et al.,
2001; Oliva and Kallenberg, 2003; Gebauer and Friedli, 2005). Interestingly, few
authors directly address the definition servitization (Vandermerwe and Rada, 1988;
Howells, 2000) or its evolution in manufacturing (Brax, 2005; Davies et al., 2006a, b).
Over 30 per cent of authors cover the topics of the challenges facing manufacturers
who are moving into services (Martin and Horne, 1992; Miller et al., 2002; Slack, 2005),
the structure of servitized organisations (Quinn et al., 1990; Galbraith, 2002;
Gebauer et al., 2006). There is variety of papers based on case studies. These we
separate into inductive (studies used to develop theory) and deductive (studies
demonstrating the adoption of theory). Examples of inductive studies are Voss (1992)
and Cohen et al. (2006) and for deductive studies, Cook et al. (1999); Robinson et al.,
2002. Other authors have covered a variety of topics including, for instance, service
design and industrialisation (Levitt, 1976; Alonso-Rasgado et al., 2004; Johanasson and
Olhager, 2004), blueprint development (Vandermerwe and Rada, 1989; Stille, 2003;
Shostack, 1982).
Servitization literature key themes (based

on 58 papers reviewed in detail)
Number of papers covering the

theme
Percentage of total
papers
1 General concept and definition

2 Evolution of the service orientation in
manufacturing
3 Classification of services
4 Classification of corporate approaches to
sevitization
5 Drivers of servitization
6 Factors that undermine the adoption of
service strategies and methods for
go/no-go decisions
7 Challenges in moving into services
8 Guidelines and methods for successful
implementation of service strategies
9 Case studies
(a) Deductive
(b) Inductive
10 Customer value
11 Service marketing
12 Service design
13 Organisational structure
14 Human factors
15 Technology support
14
7
32
12
55
7
35
12
60
16
21
28
36
39
67
27
23
18
14
13
27
11
12
47
40
31
24
22
47
19
21
The servitization
of manufacturing
551
Table I.
Table II.
Thematic analysis
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
Alonso-Rasgado T., Thompson G. and Elfstrom B.

Anderson J.C. and Narus J.A.
Araujo L. and Spring M.
Auramo J. and Ala-Risku T.
Block B.
Brax S.
Byeron A. et al.
Chase R.B. and Garvin D.A.
Christensen et al.
Cohen
Cohen et al.
Cook D. et al.
Correa H. et al.
Coyne K.
Davies A.
Davies A., Brady T. and Hobday M.
Davies A., Brady T. and Hobday M.
Dennis M. and Kambil A.
Foote N.W., Galbraith J. and Hope Q.
Frambach R.T., Wels-lips I. and Gundlach A.
Galbraith J.R.
Gebauer H., Bravo-Sanchez C. and Fleisch E.
Gebauer H. and Fleisch E.
Gebauer H., Fleisch E. and Friedli T.
Gebauer H. and Friedli T.
Gebauer H., Friedli T. and Fleisch E.
Glueck J., Koudal P. and Vaessen W.
Howells J.
Johansson P. and Olhager J.
Kellog D. and Winter N.
Levitt T.
**
***
***
**
**
**
**
***
**
**
**
***
*
**
*
**
**
**
**
**
**
**
**
*
*
*
***
*
**
**
*
*
*
*
*
*
**
*
**
***
**
**
**
**
**
**
*
*
*
*
**
**
**
**
**
**
**
**
*
**
*
*
**
**
**
**
**
*
**
*
*
**
*
*
*
*
*
**
*
*
*
*
*
**
**
**
**
*
**
**
*
*
**
Key themes
7
8
9-a 9-b
**
*
**
**
*
**
10
**
**
11
***
*
*
**
*
12
552
Author(s)
**
*
**
**
**
*
*
**
**
13
*
*
*
*
*
*
15
(continued)
*
*
*
14
JMTM
20,5
Levitt T.
Lewis M., Portioli Staudacher A. and Slack N.
Malleret V.
Martin Jr C.R. and Horne D.A.
Mathe H. and Portioli Staudacher A.
Mathieu V.
Mathieu V.
Miller D., Hope Q., Eisenstat R., Foote N. and
Galbraith J.
Neu W. and Brown S.
Ojasalo K.
Oliva R. and Kallenberg R.
Quinn J.B., Doorley T.L. and Paquette P.C.
Robinson T., Clarke-hill C.M. and Clarkson R.
Roegner E.V., Seifert T. and Swinford D.D.
Roscitt R. and Parket R.
Samli A.C., Jacobs L.W. and Wills J.
Sawhney M., Balasubramanian S. and Krishnan V.V.
Slack N.
Vandermerwe S., Matthews W.H. and Rada J.F.
Vandermerwe S. and Rada J.F.
Vargo S. and Lusch R.
Verstrepen et al.
Voss C.
Ward Y. and Graves A.
Windahl C. and Lakemond N.
Windal C., Andersson P., Berggren C. and Nehler C.
Wise R. and Baumgartner P.
**
***
**
**
**
**
**
***
*
*
**
***
**
*
*
*
*
*
*
**
**
*
*
*
**
*
*
***
***
*
*
***
*
*
*
*
*
*
**
*
*
*
*
**
**
*
*
**
*
**
**
*
*
**
**
**
***
**
*
*
*
*
*
**
*
*
*
*
***
*
**
**
*
**
**
*
**
**
**
**
*
**
**
**
**
*
**
**
**
Key themes
7
8
9-a 9-b
Notes: Coding of key themes: * * * focus on; * * detailed discussion of; * refers to
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
32
33
34
35
36
37
38
39
Author(s)
*
*
*
*
10
*
*
*
**
**
11
**
**
*
*
*
**
*
***
*
*
***
**
*
**
*
*
*
**
*
15
***
***
14
*
**
13
**
12
The servitization
of manufacturing
553
Table II.
JMTM
20,5
554
4. Generation of key findings

4.1 Defining servitization
Clear definitions are the starting point for all research. Here, the terms service and
product are intrinsically linked to discussions on servitization. Product terminology is
generally well understood by manufacturers. In the world of manufacture, a product is
typified by a material artefact (e.g. car, boat and plane). The term services is more
contentious, often used loosely and defined based on what they are not (i.e. a product)).
Here, the word services usually refer to an offering (e.g. maintenance, repair and
insurance). For the purpose of this paper, we will consider that services are an
economic activity that does not result in ownership of a tangible asset. The first use
of the term servitization was by Vandermerwe and Rada (1988). They defined
servitization as the increased offering of fuller market packages or bundles of
customer focussed combinations of goods, services, support, self-service and
knowledge in order to add value to core product offerings. Here, they took the view
that services are performed and not produced and are essentially intangible.
There are other definitions of servitization in the wider literature (Table III).
Throughout these the delivery of product-based services is central, and generally they
are all broadly in agreement with the definition provided by Vandermerwe and Rada
(1988). One slight deviation is Lewis et al. (2004) who refers to the idea of a functional
product. In the PSS literature, this is considered as a specific type of product-service
offering (Tukker, 2004). This highlights the many similarities between the servitization
and PSS research communities. Although these have emerged from differing
perspectives on the world, they are converging towards a common conclusion that
manufacturing companies should be focusing on selling integrated solutions or PSS
(Tukker and Tischner, 2006). A link with servitization is also identified by Baines et al.
(2007) who define a PSS as an integrated combination of products and services that
deliver value in use. Although these two bodies of research have developed separately,
it now seems appropriate to refine the servitization definition to encompass the PSS
theme. This leads us to provide the following definition for servitization:
Author
Vandermerwe and Rada (1988)
Table III.
Definitions of
servitization
Definition of servitization
Market packages or bundles of customer-focussed

combinations of goods, services, support, self-service and
knowledge
Desmet et al. (2003)
A trend in which manufacturing firms adopt more and more
service components in their offerings
Tellus Institute (1999)
The emergence of product-based services which blur the
distinction between manufacturing and traditional service
sector activities
Verstrepen and van Den Berg (1999) Adding extra service components to core products
Robinson et al. (2002)
An integrated bundle of both goods and services
Lewis et al. (2004)
Any strategy that seeks to change the way in which a product
functionality is delivered to its markets
Ward and Graves (2005)
Increasing the range of services offered by a manufacturer
Ren and Gregory (2007)
A change process wherein manufacturing companies embrace
service orientation and/or develop more and better services,
with the aim to satisfy customers needs, achieve competitive
advantages and enhance firm performance
Finding 1. Servitization is the innovation of an organisations capabilities and

processes to better create mutual value through a shift from selling
product to selling PSS.
4.2 The evolution of servitization
There is little literature evidence recording the evolution of servitization within
manufacturing industry. Vandermerwe and Rada (1988) describe how companies
initially considered themselves to be in goods or services (e.g. product manufacture or
insurance), and then moved to offering goods combined with closely related services
(e.g. products offered with maintenance, support and finance), and finally to a position
where firms offer bundles consisting of customer focussed combinations of goods,
services, support, self-service and knowledge. They termed this movement the
servitization of manufacturing. In management-related literature, servitization
development is commonly traced back to the early 1990s. However, Davies et al.
point out that the industrial marketing literature suggests that pioneering applications
originated in the 1960s with the introduction of systems selling strategies. In the
evolution of servitization, many manufacturing companies have moved dramatically
into services and so caused the boundaries between products and services to become
blurred.
The most highly cited papers have come from the USA followed by contributions
from the UK and Western Europe. These papers are general found in managerial and
business practitioner literature (e.g. Harvard Business Review, International Journal of
Operations & Production Management, Industrial Marketing Management,
International Journal of Service Industry Management and European Management
Journal ). The authors of these papers tend to be from the operations, production,
services, business management and marketing fields. Interestingly, the use of the term
servitization only appears in those papers that offer a definition (Table III). The
concept of servitization is covered implicitly in a range of topics related to the
integration of products and services. These include, for example, service business
expansion (Vandermerwe and Rada, 1989; Wise and Baumgartner, 1999; Martin and
Horne, 1992; Oliva and Kallenberg, 2003; Brax, 2005; Gebauer et al., 2004; Gebauer and
Friedli, 2005), solutions provision (Foote et al., 2001; Galbraith, 2002; Miller et al., 2002;
Davies, 2004; Windahl et al., 2004; Davies et al., 2006a, b; Windahl and Lakemond,
2006), after-sale marketing (Cohen et al., 2006; Cohen, 2007), and service profitability
(Coyne, 1989; Samli et al., 1992; Anderson and Narus, 1995; Gebauer et al., 2006;
Gebauer and Fleisch, 2007):
Finding 2. Since servitization was first coined in 1988, there has been a growing
output of papers from the USA and Western Europe that appear mainly
in managerial and business practitioner literature, with authors tending
to be from operations, services and business fields.
4.3 Features of servitization
Manufacturing companies have been selling services for some time. Traditionally,
however, the tendency has been for managers to view services as a necessary evil in
the context of marketing strategies (Wise and Baumgartner, 1999; Gebauer and Friedli,
2005; Gebauer et al., 2006). Here, the main part of total value creation was considered to
stem from physical goods, and services were assumed purely as an add-on to products
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(Gebauer and Friedli, 2005). From this beginning, there has now been a dramatic
change in the way services are produced and marketed by manufacturing companies.
The provision of services has now turned into a conscious and explicit strategy with
services becoming a main differentiating factor in a totally integrated products and
service offering. Recently, the value proposition often includes services as fundamental
value-added activities (Vandermerwe and Rada, 1988; Quinn et al., 1990; Gebauer et al.,
2006) and reduces the product to be just a part of the offering (Oliva and Kallenberg,
2003; Gebauer et al., 2006). Indeed, some companies have found this to be a most
effective way to open the door to future business (Wise and Baumgartner, 1999).
A key feature of servitization strategies is a strong customer centricity. Customers
are not just provided with products but broader more tailored solutions. These
deliver desired outcomes for specific customers, or types of customer, even if this
requires the incorporation of products from other vendors (Miller et al., 2002;
Davies, 2004). This use of multi-vendor products to deliver customer centric solutions
is exemplified by Alstoms maintenance, upgrade and operation of trains and
signalling systems, and similarly Rockwells on-site asset management for
maintenance and repair of automation products. Oliva and Kallenberg (2003)
consider this customer orientation to consist of two separate elements. First, a shift of
the service offering from product-oriented services to users processes oriented
services (i.e. a shift from a focus on ensuring the proper functioning and/or customers
use of the product, to pursuing efficiency and effectiveness of end-users processes
related to the product). Second, a shift of the nature of customer interaction from
transaction-based to relationship-based (i.e. a shift from selling products, to
establishing and maintaining a relationship with the customer).
There are a variety of forms of servitization with the features differing for each. The
literature identifies potential applications along the so-called product-service
continuum (Oliva and Kallenberg, 2003; Gebauer and Friedli, 2005; Neu and Brown,
2005; Gebauer et al., 2008). This is a continuum from traditional manufacturer where
companies merely offer services as add-on to their products, through to service
providers where companies have services as the main part of their value creation
process (Figure 2). As observed by Gebauer et al. (2008), companies have to look at
their unique opportunities and challenges at different levels of service infusion and
deliberately define their position. This is envisioned to be a dynamic process, with
companies redefining their position over time and moving towards increasing service
dominance:
Finding 3. There are various forms of servitization. They can be positioned on a
product-service continuum ranging from products with services as an
add-on, to services with tangible goods as an add-on and provided
through a customer centric strategy to deliver desired outcomes for the
customer.
4.4 Drivers of servitization
Commonly, the literature suggests three sets of factors that drive companies to pursue
a setvitization strategy; namely, financial, strategic (competitive advantage) and
marketing (Mathe and Shapiro, 1993; Mathieu, 2001b; Oliva and Kallenberg, 2003;
Gebauer and Friedli, 2005; Gebauer et al., 2006; Gebauer and Fleisch, 2007).
Services
as "add-on"
Relative
importance
tangible goods
What do you offer

today?
The servitization
of manufacturing
Target
position
Relative
importance
of services
Why do you want to expand

your service offering?
Why dont you want

to go even further?
Tangible goods
as "add-on"
Current
position
557
Current
plans
Changes
realised
What position should the organization occupy on the change line?

How should change take place (gradually or in leaps)?
What are the most challenging aspects of change?
Source: Oliva & Kallenberg (2003)
The main financial drivers often mentioned in the literature are higher profit margin
and stability of income (Wise and Baumgartner, 1999; Gebauer and Friedli, 2005). For
manufacturers with high-installed product bases (e.g. aerospace, locomotives and
automotives) Wise and Baumgartner (1999) estimate that, in some sectors, service
revenues can be one or two orders of magnitude greater that new product sale. Slack
(2005) agrees, and points out that in these sectors higher revenue potential often exists.
Likewise, Sawhney et al. (2004) identifies companies that have enjoyed success with
this approach (e.g. GE, IBM and Siemens and Hewlett Packard) and achieved stable
revenues from services despite significant drops in sales. Ward and Graves (2005)
emphasise that the increased life-cycle of many modern complex products, such as
aircrafts, is pushing the most significant revenues downstream towards in-service
support. These product-service combinations tend to be less sensitive to price-based
competition (Malleret, 2006), and so tends to provide higher levels of profitability in
comparison to offering the physical product alone (Frambach et al., 1997). Finally,
product-service sales tends to be counter-cyclical or more resistant to the economic
cycles that affect investment and goods purchase (Oliva and Kallenberg, 2003; Gebauer
and Fleisch, 2007). This can help secure a regular income and balance the effects of
mature markets and unfavourable economic cycles (Brax, 2005; Malleret, 2006).
The literature frequently refers to strategic drivers that are largely concerned with
gaining competitive advantage. These use service elements to differentiate
manufacturing offerings and so provide important competitive opportunities
(Frambach et al., 1997; Mathieu, 2001b; Gebauer and Fleisch, 2007). Competitive
advantages achieved through services are often more sustainable since, being less
visible and more labour dependent, services are more difficult to imitate (Oliva and
Kallenberg, 2003; Gebauer and Friedli, 2005; Gebauer et al., 2006). While discussing
these aspects, many authors (Coyne, 1989; Frambach et al., 1997; Mathieu, 2001b;
Gebauer and Fleisch, 2007) reflect on the increased commoditisation of the markets,
Figure 2.
The product-service
continuum
JMTM
20,5
558
where differentiating strategies based on product innovation, technological superiority

or low prices, are becoming incredibly difficult to maintain. Frambach et al. (1997)
point out that the value-add of services can enhance the customer value to the point,
where, homogeneous physical products are perceived as customised. These increase
barriers to competitors (Mathieu, 2001b).
Marketing opportunities are generally understood as the use of services for selling
more products (Mathe and Shapiro, 1993; Gebauer et al., 2006; Gebauer and
Fleisch, 2007). The service component is well known to influence the purchasing
decision and assessing its importance has been a lasting tradition in marketing
literature (Mathieu, 2001b; Gebauer and Fleisch, 2007). This is especially true in B2B or
industrial markets where customers are described as increasingly demanding for
services (Vandermerwe and Rada, 1988; Oliva and Kallenberg, 2003; Auramo and
Ala-Risku, 2005; Slack, 2005). Reasons for these are pressures to create more flexible
firms, narrower definitions of core competences and higher technological complexity,
and these often lead to increasing pressures to outsource services (Lewis et al., 2004;
Auramo and Ala-Risku, 2005; Slack, 2005). Services are also claimed to create customer
loyalty (Vandermerwe and Rada, 1988; Correa et al., 2007) to the point where the
customer can become dependent on the supplier. Services tend to induce repeat-sale
and, by intensifying contact opportunities with the customer, can put the supplier in
the right position to offer other products or services (Mathieu, 2001b; Malleret, 2006).
Finally, by offering services, companies gain insight into their customers needs and
are enable to develop more tailored offerings:
Finding 4. Servitization frequently occurs because of financial drivers (e.g. revenue
stream and profit margin), strategic drivers (e.g. competitive
opportunities and advantage) and by marketing drivers (e.g. customer
relationships and product differentiation).
4.5 Challenges in the adoption of servitization
The adoption of a servitization strategy brings with it significant cultural and
corporate challenges (Vandermerwe and Rada, 1988; Wise and Baumgartner, 1999;
Oliva and Kallenberg, 2003; Brax, 2005; Slack, 2005). These can be broadly categories
into integrated product service design, organisational strategy and organisational
transformation.
The design of services is significantly different to the design products since, by their
nature, services are fuzzy and difficult to define (Slack, 2005). This may discourage
companies from expanding the service dimension, particularly because they need to
take account of competition outside the usual domain from unexpected rivals including
their own suppliers, distributors, and customers (Vandermerwe and Rada, 1988;
Mathieu, 2001b; Oliva and Kallenberg, 2003). Risk also needs to be considered in the
design process as undertaking activities previously performed by customers can
present new challenges (Slack, 2005). Here, marginal risk incurred might outweigh the
benefits of increased profit potential. Finally, a focus on communication strategies that
clearly describe the value proposition to the customer need to be considered in the
design of service provision (Mathieu, 2001a).
Manufacturing companies that decide on a service-oriented strategy have to adapt
the necessary organisational structures and processes (Mathieu, 2001b; Gebauer and
Friedli, 2005; Oliva and Kallenberg, 2003; Gebauer and Fleisch, 2007). Here, there are
challenges in defining the organisation strategy necessary to support the customer

allegiance required to deliver a combination of product and services (Wise and
Baumgartner, 1999). Adopting a downstream position, such as the provision of
installed base services, organisations have to be service oriented and value services
(Oliva and Kallenberg, 2003). These organisations provide solutions through
product-service combinations and tend to be client-centric and providing
customised, desirable client outcomes organised around particular capabilities
competences and client requirements (Miller et al., 2002). Case studies reported by
Windahl et al. (2004) support this view, highlighting the importance of client
partnering and expanded competences in providing integrated solutions. However,
Mathieu (2001b) points out that service management principles are often at odds with
traditional manufacturing practices.
Attempting to transform a traditional manufacturer to the required organisational
strategy for effective servitization sets-up particular challenges. The service culture is
specific and different from the traditional manufacturing culture (Mathieu, 2001a, b)
and a shift of corporate mindset is necessary to take on services and prioritise their
development with respect to more traditional sources of competitive advantage (Coyne,
1989; Oliva and Kallenberg, 2003; Slack, 2005). This will require significant changes to
long-standing practices and attitudes (Vandermerwe and Rada, 1989; Foote et al., 2001).
For example, abandoning their product-centric structure in order to become more
customer-centric (Foote et al., 2001; Galbraith, 2002; Windahl and Lakemond, 2006).
Implementing these changes, companies are likely to meet resistance from areas within
the organisation where the service strategy is not understood or because of a fear of
infra-structural change (Mathieu, 2001b). Creating a service-oriented environment and
finding the right people for the service dimension is key to success. In providing
services, managers must be convinced that people are their main asset (the major shift
required in moving from a manufacturing to service culture) (Mathieu, 2001b).
However, there are many cases in the literature of companies that, despite making the
transition into services, did not get the expected correspondingly high returns (Coyne,
1989; Neely, 2007). Gebauer and Friedli (2005) termed this the service paradox in
manufacturing companies and related it to both organisational and cultural hurdles:
Finding 5. The adoption of servitization by a conventional manufacturer
principally presents challenges for service design, organisation
strategy and organisation transformation.
4.6 Industrial examples of servitization adoption
A number of authors have studied the adoption of servitization by companies based on
case study work (Wise and Baumgartner, 1999; Mont, 2001; Miller et al., 2002; Oliva
and Kallenberg, 2003; Mathe and Stuadacher, 2004; Davies, 2004; Davies et al.,
2006a, b). Key examples of this work are presented in Table IV. All these are cases of
companies moving to exploit downstream opportunities from services. Typically, they
fall into four categories (Wise and Baumgartner, 1999): embedded services which allow
traditional downstream services to be built into the product (e.g. Honeywells AIMS for
in-flight monitoring of engine systems); comprehensive services such as those offered
by GE around its product markets (e.g. GE capitals financing activities); integrated
solutions where companies look beyond their traditional product base to asses the
overall needs of customers (e.g. Nokias move to network-infrastructure solutions);
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559
JMTM
20,5
Organisation
Description
Source
Alstom
Maintenance, upgrade and operation of trains and

signalling systems
Turnkey solutions in power generation
Turnkey solutions to design, build and operate
mobile phone networks
Nokias network-infrastructure solutions, providing
network equipment and service to carriers
Pilot training and simulator-building management
Power by the Hour guaranteed flying hours for
aero engines
Document management services. Guaranteed fixed
price per copy
System integration services and outsourcing
solutions
Davies (2004)
ABB
Ericsson
560
Nokia
Thales
Rolls-Royce
Table IV.
Industrial examples of
servitization
Xerox
International
WS Atkins
Miller et al. (2002)

Davies (2004)
Wise and Baumgartner (1999)
Davies et al. (2006a, b)
Davies (2004)
Howells (2000)
Mont (2001)
Davies (2004)
and finally distribution control as used by Coca-Cola to grab shelf space in its
high-volume low-margin supermarket segment. The adoption of servitization to
provide customers with functional results is discussed by Howells (2000) in the case of
Rolls-Royces offering of guaranteed flight hours from their aero engines (Power by the
Hour) and by Mont (2001), who describes Xeroxs move from the provision of
photocopiers to offering document management. Miller et al. (2002) and Davies (2004)
describe examples of the provision of integrated solutions and view these as
integrated combinations of product and/or services that are tailored to create desired
outcomes for the customer. Davies (2004) concludes that suppliers of capital goods are
moving into integrated solutions provision form different position up and down the
value stream; he notes Alstoms transport solutions, Ericssons mobile networks and
Thaless training solutions as exemplifying this move. In addition, companies such as
W. S. Atkins and Cable & Wireless with strong systems integration capabilities,
exemplify the move into providing services previously carried out by their customers.
While the examples in Table IV typify cases of leading practice, they also indicate
the limited nature of exemplars in this field. The majority of these are large
multinationals supporting high-value capital equipment. This leads the authors to
summarise:
Finding 6. Examples of leading practice in the adoption of servitization are focused on
larger companies supplying high-value capital equipment such as Alston,
ABB, Tales and Rolls-Royce. These demonstrate how traditionally based
manufacturing companies have moved their position in the value-chain
from product manufacturers to providing customers with integrated
solutions that can include multi-vendor products.
4.7 Previous research aiding in the adoption of servitization
Section 4.5 has highlighted that the principal challenges in the adoption of servitization
are in the areas of the design of the service, organisational design and organisational
transformation. This section summarises the work done to date, in the existing
literature, to overcome each of these challenges. This work takes such forms as case
studies, guidelines, methodologies and techniques.
There is little previous work offering guidelines, tools or techniques, for the design
of integrated products and services. The existing work is typified by Coyne (1989) who
advocates that services design should be approached using a set of hard business
decisions that employ the same rigorous attitude used to develop products rather than
simply consider this as a variation of the marketing mix. Effective customised and
flexible service offerings can be achieved by combining a base package of standard
services with particular service options that are valued by individual customers
(Anderson and Narus, 1995; Neu and Brown, 2005). Similarly, other authors
(Miller et al., 2002; Davies, 2004; Davies et al., 2006a, b) observe that in providing
integrated solutions, there is a need to design services as modular units that can be
mixed and matched in different combinations to meet specific customer and
market requirements. Such product-service combinations are considered by
Alonso-Rasgado et al. (2004) as functional products and therefore suggest that
general service design processes are inappropriate.
Guidance in the literature on how to approach organisational strategy is largely
limited to anecdotal evidence from case studies that suggest good practices and
processes for implementation. For example, Davies et al. (2006a, b) draws lessons from
five cases to surmise that, for success, companies need a clear understanding of what
they do well and what new capabilities they need to develop. Likewise, Davies (2004),
Oliva and Kallenberg (2003) and Gebauer and Friedli (2005) identify the value of a
phased introduction of added services in order to achieve successful implementation of
service strategy in manufacturing companies. This is seen to provide a safer journey
for companies along the road to servitization. However, Brax (2005) observes a paradox
here, in that services introduced in this way can be perceived as secondary to the
tangible product and hence may lack cross-functional support, leading to failures in
service operations. Davies (2004), Oliva and Kallenberg (2003), Gebauer and Friedli
(2005) and Brax (2005) all identify the establishment of de-centralised customer facing
service units with profit and loss responsibility within the organisation as a key factor
in a successful service strategy. These should be run as a separate business units and
operated with the metrics, control systems, and incentives of a professional service
organisation (Oliva and Kallenberg, 2003; Gebauer and Friedli, 2005; Gebauer et al.,
2006). According to Sawhney et al. (2004), running the product-service business
separately mitigates the risk of moving outside existing organisational capabilities.
Other approaches to servitization described in the literature include collaborative
arrangements with partnership and/or outsourcing agreements with third parties
(Mathieu, 2001b; Sawhney et al., 2004; Windahl and Lakemond, 2006). In this type of
approach, Gebauer et al. (2008) observes the involvement of customers as development
partners.
The state of previous research on organisational transformation is similar to that of
organisational design. There are a small set of case studies which draw lessons from
the practices of successful companies (Davies, 2004; Miller et al., 2002). Examples
include Gebauer and Fleisch (2007) who investigate typical behavioural processes in
these companies which, in some respect, can discourage executives from service
investments. Gebauer and Friedli (2005) also note the importance of training and
empowering people delivering service so that they can be effective and efficient. They
observe that empowerment of this kind is only possible if employees have the mindset
to establish a service culture. A number of authors (Oliva and Kallenberg, 2003;
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562
Gebauer et al., 2006; Gebauer and Fleisch, 2007) identify the separate service
organisation as the way to create a service culture, with the associated underlying
norms and values, without replacing the manufacturing value set. This can help to
avoid a clash between a dominant manufacturing culture and the service-related
counterculture. Similarly (Windahl and Lakemond, 2006) consider that isolating the
service organisation from product development and manufacturing operations may be
a critical success factor for managing the transition.
Overall, we have found that the existing guidance in the literature on how to
servitize an organisation is limited and this leads to our finding of:
Finding 7. There is a paucity of previous work that provides guidance, tools or

techniques, that can be used by companies to servitize.
4.8 Future research challenges for servitization
The principal challenges in the adoption of servitization are in the areas of categories
into service design, organisational strategy and organisational transformation (Section
4.5). Within the literature, there are only a few guidelines on how to overcome these
challenges, with almost no tools or techniques available (Section 4.6). This leads us to
identify that the major gaps in the existing literature are in these areas, and that the
following research questions can be posed:
RQ1. How can/should competitive integrated product-service offerings be
designed within the context of an industrial organisation?
RQ2. What is/should be the organisational strategy to deliver competitive
integrated product-service offerings?
RQ3. How can/should traditional manufacturing firms make the transition to a
servitized organizational strategy that delivers competitive integrated
product-service offerings?
In terms of research methods, most papers in this field are based on case study
research. They are largely descriptive, focusing and giving an illustration of the
adoption of servitization by traditional manufacturing companies. There are no
examples of more prescriptive approaches using techniques such as action research.
We believe that this highlights that the research community is principally taking a
reporting role. While valuable in itself, there is clearly an opportunity for researchers to
be more active in forming actions rather than simply providing a commentary on the
successes or failures of others. We suggest therefore that a third, and significant
challenge for future work, is for the research community to engage in more
prescriptively in the change process by more actively engineering the tools and
techniques that are needed by practitioners:
Finding 8. The principal research need is to engineer tools or techniques that
practitioners can apply to help in service design, organisational design
and organisational transformation.
5. Concluding remarks
Our review has identified 58 papers that are directly related to the topic of servitization.
These have been analysed, interpreted and summarised. From this, eight key findings
have been established. In summary, servitization is the innovation of an organisations

capabilities and processes to shift from selling products to selling integrated products
and services that deliver value in use. This concept originated the USA in the late
1980s and, to date, most contributors have been academics and practitioners from the
operations, production, services, business management and marketing fields. There is
also a striking overlap between servitization and product-service system concepts.
Servitization is being driven by ever more complex customer needs and demands and a
need to defend against product competition particularly from lower cost economies.
There are a diverse range of servitization examples in the literature from aerospace,
transportation, automation, machine tools, printing machinery and other capital
equipment. These tend to emphasize the potential to maintain revenue streams and
improve profitability particularly in industry sectors where there is a high-installed
base of products. Companies recognise that delivering services is more complex than
manufacturing products and requires different approaches to product service design,
organisational strategy and organisational transformation. There is little work
however that can be used to help practitioners, and so this forms the basis of research
challenges in this field.
Servitization does not however represent a panacea for UK manufactures. It is a
concept of significant potential value, providing routes for companies to move up the
value chain and exploit higher value business activities. This message is reinforced
through the successes of companies such as Rolls-Royce with TotalCare. These
concepts must not be considered as universally applicable. While it is difficult to
imagine that any manufacturer can succeed without offering some services (e.g.
after-sales support, training and finance), these need not form the basis of a competitive
strategy. Success is also possible through excelling at either product leadership or
operational excellence. For those manufacturers that do see the provision of services as
key to their future, there are still significant challenges to be faced. To be both effective
and efficient, manufacturers need, for example, to be able to understand how their
customers will value their services. Similarly, they will need to be able to configure
their products, technologies, operations, and supply chain to support this value
offering.
The findings presented in this paper provide a useful review of servitization and a
platform on which to base more in-depth research. As we mentioned earlier though,
this is only one community of researchers contributing to the broader topic of
service-led competitive strategy. Others exist, particularly in the area of PSS
(Baines et al., 2007). To complete the formation of a truly inclusive literature review, the
contributions in these themes need to be drawn together. This therefore will be the
topic of our future research.
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567
Corresponding author
T.S. Baines can be contacted at: t.s.baines@cranfield.ac.uk
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Servitisation

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Journal of Manufacturing Technology Management

The servitization of manufacturing: A review of literature and reflection on future

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Journal of Manufacturing Technology

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What is meant by servitization and how is it commonly defined?

3. Analysis of the literature

Vandermerwe S., Matthews W.H., Rada J.F.

Kellog D & Winter N

Johansson P., Olhager J.

Johansson P., Olhager J.

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Servitization literature key themes (based

Number of papers covering the

1 General concept and definition

Alonso-Rasgado T., Thompson G. and Elfstrom B.

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4. Generation of key findings

Market packages or bundles of customer-focussed

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Finding 1. Servitization is the innovation of an organisations capabilities and

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What do you offer

Why do you want to expand

Why dont you want

What position should the organization occupy on the change line?

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where differentiating strategies based on product innovation, technological superiority

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challenges in defining the organisation strategy necessary to support the customer

Maintenance, upgrade and operation of trains and

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Miller et al. (2002)

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Finding 7. There is a paucity of previous work that provides guidance, tools or

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have been established. In summary, servitization is the innovation of an organisations

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Brax, S. (2005), A manufacturer becoming service provider challenges and a paradox,

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Gebauer, H. and Fleisch, E. (2007), An investigation of the relationship between behavioural

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