Keywords

These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

1 Introduction and Research Question

During the last decade, many manufacturing industries have shifted from business models that are product-oriented towards those that are service-oriented. Rather than merely selling physical products, i.e., machinery and equipment, to their customers and offering product-related services, manufacturers increasingly sell their products’ functionality. In this fashion, the business model of manufacturing companies has changed—at least partially—from transaction- to relationship-based.

This shift implies several challenges and risks. For equipment manufacturers, one way to address these risks can be to adapt their physical goods to these newly emerging requirements (Weissenberger-Eibl and Biege 2010). However, neither design principles for physical goods nor service products are appropriate for products used in product-service concepts. Until now, design research on services has been minimal compared to design research on products (Kim et al. 2010), service requirements are rarely considered in the development of new products and existing products are usually not adapted for product-service systems (Müller and Blessing 2007).

In conclusion, the research question tackled in this chapter is this: In what way do the physical assets used in product-service systems need to be adapted to the requirements of servitization to facilitate the delivery of product-service systems? The first aim of the research described in this chapter is to determine the extent to which manufacturing companies already adapt their physical products to the product-service systems that they deliver to their customers. This was accomplished by testing a set of four hypotheses via survey data from 518 producers of capital goods. The second aim of this research is to derive managerial implications by analysing the data.

2 A Theoretical Perspective on the Need to Adapt Physical Products for Servitization

Tukker compiled a widely used categorisation scheme (e.g., Baines et al. 2007; Weissenberger-Eibl and Biege 2010) for product-service systems. Following this approach, product-service systems are divided into three categories that are sorted by decreasing product content and increasing service content. Product-oriented product-service systems are based on a traditional transaction, i.e., ownership of a good is transferred to a customer and the offer is enhanced by a set of services such as repair and maintenance, etc. In use-oriented product-service systems, ownership of the product remains with the equipment producer, who sells the use of the equipment via concepts such as leasing, pooling and sharing. In result-oriented product-service systems, the service component is predominant. The ownership of the equipment used is well retained by the providing company, which sells the results of the equipment’s operation to the customer. Thus, the provider of the results is free to decide how they are produced (Tukker 2004).

As in use-oriented and result-oriented product-service systems, ownership of the equipment used is not transferred to the customer but remains with the equipment manufacturer. Thus, a novel way of doing business emerges. Consequently, these two business concepts are subsumed into service-based business models (Lay et al. 2009).

Product-service systems pose new challenges for product design because new and complex dimensions need to be considered during the product development process (Brad 2009). However, “design research on service has been minimal compared to design research relevant to manufacturing” (Kim et al. 2010). Product-service system development has been explored only from a management perspective, although developing product-service systems entails primarily technical innovations (Morelli 2003). Physical and service components, however, need to be developed in an integrated manner to ensure the proper functionality of the product-service system (Kindström and Kowalkowski 2009; Martin and Horne 1992; Morelli 2003). Considering service requirements throughout the development of a physical component contributes to increasing the efficiency of service delivery. Furthermore, the costs of service activities can be decreased so that the overall competitiveness of an offer rises (Goffin 2000).

The New Institutional Economy (NIE) is one of the main pillars of modern economic research. It dismisses assumptions that economic actors behave with perfect rationality. Instead, a more realistic view is provided and information asymmetries, bounded rationality and opportunistic behaviour are accepted as basic assumptions. In the NIE, a central question is the influence of the complexity of cooperation and its costs on how institutions and organisations are shaped. It is assumed that ownership of material and immaterial goods always goes along with so-called property rights. Following Furubotn and Pejovich (1972), Hockerts (2008) distinguished five types of property rights:

  • the right to retain profits and the obligation to cover losses,

  • the right and obligation to maintain and operate a product,

  • the right and obligation to dispose of a product,

  • the right to exclude others, and

  • the right to use a product.

Transferring these rights to another individual or institution is called a transaction. The costs that are involved in determining and enforcing these rights are called transaction costs. Ex ante transaction costs are the costs of “drafting, negotiating and safeguarding an agreement” (Williamson 1985), whilst ex post transaction costs include the costs of maladaption, correction, set-up and running costs, along with the bonding costs of securing the agreement (Williamson 1985). The third object of the NIE’s investigation is economic contract theory. One major element of this theory is the relation between a principal and an agent, whose actions are determined by the above-mentioned information asymmetries and opportunistic behaviour. Thus, the aim of principal-agent theory is to explain the actions of actors and to find suggestions for drawing up a contract or an agreement.

The altered distribution of property rights in service-based business models, particularly compared to the sale of goods, presents manufacturers with an incentive to consider modifying the designs of their products (Hockerts 2008). Whereas a capital goods manufacturer in a product-centred transaction will lay great store on optimising the good at the moment of sale, e.g., the price, the situation is entirely different in relation-based business relationships in which the manufacturer retains a portion of its property rights, including any related obligations.

With reference to the right to retain profits and the obligation to cover losses, respectively, it can be argued that a capital good’s sales characteristics retreat into the background, whereas its operating characteristics gain relevance, over the entire product life cycle. In particular, when a capital goods manufacturer partially or completely retains the right to earn revenues from a good, it is in the manufacturer’s interest to minimise the costs occurring during the life cycle of that good, with the profitability of the business model as his goal (Hockerts 2008). Thus, a long product lifetime can be sought, which delays re-investment in new machinery and equipment or even makes it unnecessary. A capital goods manufacturer tries to influence other types of costs in the design and construction phases. Similarly, one can argue in favour of the right of change along with the right to sell or dispose of a good and the obligations associated therewith. In that case, following the sale the customer transfers the right and obligation to preserve the good back to the capital goods manufacturer, who assumes this obligation in exchange for a fee. In such a case, in which rights and responsibilities are transferred, capital goods producers will be interested—independent of the form of payment—in ensuring that costs incurred for maintenance and repairs are as low as possible, again in the interest of profitability. The same applies to the obligation to pay for disposal, should this become necessary. If the customer has the right of disposal, the manufacturer has no incentive to design the capital good in such a way that it can be easily disassembled and materials, parts or whole assemblies or modules can be re-used or recycled. Whether due to statutory regulations or in exchange for a fee, the manufacturer of a good can re-assume this obligation. In such a case, it is important that the product design already anticipates disposal costs (Hockerts 2008). The following hypothesis is derived from these observations:

Hypothesis 1 (H1)

Applying service-oriented design depends on the property rights remaining with the capital goods producer and thus, on the service concept offered.

Due to specific investments that a capital goods producer must effect in the context of service-based business models, a certain degree of dependency on the customer results. The rule here is that the (mutual) interdependency of supplier and customer is more pronounced when the affected investments are higher because a termination of the supply relationship is accompanied by the loss of these financial investments.

In service-based business models, in which property rights to an employed capital good remain partially or completely with the producer of that good, the incentive for a service offer consists of the yields and profits that can be generated. In use-oriented business models, in which clients pay to utilise capital goods, it is possible that several customers involved in so-called pooling concepts, either in the same utilisation period or in temporary leasing models, successively have access to the same capital good. In result-oriented business models, the manufacturer processes his clients’ products on his own, i.e., the manufacturer’s, equipment. This is possible on a temporary basis. Thus, for example in the case of a boom, peak orders can be outsourced to a capital goods manufacturer. In result-oriented business models, capital goods manufacturers are integrated into customers’ production processes for a longer time. The objective of a capital goods producer must be to minimise lifecycle and transaction costs. Accordingly, it is expedient to re-use machinery and equipment in adapted forms for individual customer orders, whether use- or result-oriented, and not have to construct a new capital good for each utilisation phase. Thus in all cases, whether use- or result-oriented business models are involved, the adaptability of a capital good with regard to the needs of an individual client is a significant factor that contributes to the economic success of these business models. On one hand, it is important to reduce the transaction costs of altering capital goods, i.e., to minimise internal and external search, information and negotiation, exchange, guarantee and adaptation costs. On the other hand, products should be designed so that it is possible to re-use them in various utilisation phases for different customers. In order to level the risks that accompany offering these service concepts, a manufacturer is interested in keeping the specificity of its capital goods to a minimum.

Hypothesis 2 (H2)

Applying service-oriented design depends on the specificity of the capital good.

In service-based business models, in which property rights to the employed capital goods are diluted, the roles of principal and agent are reversed. Thus, in service-based business models, a capital goods manufacturer transfers a portion of his property rights in the utilised machinery or plant to his customer whilst retaining the remaining property rights. For instance, a capital good and the right to change it remains the property of the manufacturer, who transfers the right to use the machinery or plant to his customer. This capital goods manufacturer conversely becomes the principal, who instructs the customer as his agent to produce using the capital good. Due to information asymmetries, however, the manufacturer does not know how the customer’s employees treat the capital good during its operation. This close integration into the customer’s production process results in additional, high interdependencies. These interdependencies can—in the event that no specific investments are made, as is the case with client companies in service-based business models—favour opportunistic behaviour. A capital goods manufacturer will also have an interest in designing the employed product in such a way that information asymmetries can be counteracted and thus avoid the risk of opportunistic behaviour on the part of a transaction partner. This, however, is only possible if the capital goods manufacturer has developed an awareness of such risks. This results in the following hypothesis:

Hypothesis 3 (H3)

Applying service-oriented design depends on the level of risk awareness maintained by a provider of advanced service concepts.

Because a capital goods manufacturer has a knowledge lead over his customers with respect to his specific product, it may be appropriate to offer repair and maintenance contracts to avoid inefficiencies in the operation and maintenance of that product (Hockerts 2008). Gebauer et al. found that it was more complex to develop services in firms in the manufacturing sector than in enterprises that mainly provided services because traditionally it was the manufactured products that were the value carriers, and accordingly, they were deeply rooted in the corporate culture. Consequently, capital goods producers who want to establish themselves successfully as service providers should create and maintain a symbiotic relationship between product values and service values (Gebauer et al. 2005). They must manage two business concepts in parallel: the service-oriented concept and the product-oriented production concept (Kindström and Kowalkowski 2009). More specifically, this means that suppliers of product-service systems must not only cultivate existing competences in the fields of product development and manufacturing but also develop new competences in the fields of service development and provision (Burr 2003).

Although product and service innovations have different requirements, they must be linked to enable product-service systems, and a balanced relationship between them should be created (Gebauer et al. 2008a). Despite the debate among scientists as to whether product and service innovations differ so radically that different research approaches should be developed for empirical analyses, an overview of the literature on product and service innovations shows that these development processes differ considerably in some aspects (Kindström and Kowalkowski 2009). Although many of the traditionally quoted differences between product and service innovation have been removed (Bascavusoglu-Moreau and Tether 2010; Drejer 2004; Sirilli and Evangelista 1998), significant contradictions still exist on some points. Whereas in product development, R&D and the staff employed in this sector are the main drivers of innovation, it is mainly customer service employees who provide impulses for innovation in the service sector. Manufacturing companies that offer and develop innovative service concepts are a special case and, as part of their innovative activities, must compatibly combine the characteristics of both product and service innovations. Thus, Baines et al. argued that product-centred enterprises required employees who had a high level of understanding of physical products together with the ability to maintain and further develop relationships with customers (Baines et al. 2009). This view was shared by Gebauer et al., who noted that it was insufficient to transfer the framework conditions for developing services stemming from the service sector to firms in the manufacturing industry because service innovations in manufacturing firms proceeded differently from those in the service sector (Gebauer et al. 2008b). Success factors for the integrated development of goods and services have been mentioned as involving customer service staff in innovation activities, information sharing, putting multi-functional teams in place, IT, internal organisation, application of statistical marketing methods for client segmentation and training and education (Gebauer et al. 2008b).

When companies expand their business models and offer services in addition to their manufactured products, they must ensure that they have the necessary infrastructure and the required competencies to provide these services (Kindström and Kowalkowski 2009). These consist, on one hand, of a thorough understanding of their physical core products and, on the other hand, of having the skills to foster and further develop customer relationships.

The following hypotheses related to a provider’s specialisation are derived from these considerations:

Hypothesis 4 (H4)

Applying service-oriented design depends on the specialisation of the provider.

H4a

Applying service-oriented design depends on the supplier’s specialisation in developing innovative services.

H4b

Applying service-oriented design depends on the provider’s specialisation in developing innovative products.

The next section of this chapter describes how the four hypotheses derived above were tested using a logistic regression model.

3 The Database and Methodology Testing the Theoretical Assumptions Governing Product Adaptation Necessities

3.1 Database and Operationalisation of the Hypotheses

The quantitative analyses in the following sections were based on the German Manufacturing Survey database. The 2009 database, which is a representative database for all of the manufacturing sectors in Germany, covers 1,484 German companies, among them 518 capital goods producers. The survey, which was conducted in 2009, targeted sectors 15–37, as set forth in the “Nomenclature statistique des activités économiques dans la Communauté européenne” (NACE) of firms with more than 20 employees.

To test the hypotheses derived in the previous chapter regarding the design of products in accordance with the principles of service-oriented design and with the help of the quantitative data set described above, it was first necessary to conceptualise and operationalise the derived constructs. In the hypotheses, based on an analysis of the literature and of the NIE, different influencing factors were identified, which were assumed to have an impact on the propensity of companies to constructively adapt their products to the requirements of the service concepts that they offered. Several of these influencing factors were directly addressed in the survey; others had to be illustrated using one or more indicators. The literature suggests an approach to determine the indicators used to measure constructs that consisted first of developing an understanding of the subject based on the existing literature and second of developing an initial set of indicators. Building on this recommendation, the sections below describe how the hypotheses were conceptualised for testing, using data from the German Manufacturing Survey 2009, to measure their influence on the likelihood that companies constructively adapt their product design to demands that result from the service concepts that they offer.

Section 18.2 of this chapter establishes that the constructive design of capital goods with respect to the requirements they must fulfil based on the services provided takes place within the framework of a so-called adaptation design. Accordingly, the companies participating in the survey were asked to indicate whether they had already made such a product adaptation, i.e., whether they had adapted one of their products to one of their services. The companies answered this question by ticking yes or no. To illustrate the question more clearly, service concepts and product adaptations were given as examples that could be selected if the responding company had already made one of the constructive adjustments.

The distribution of property rights between provider and customer was operationalised by analysing the services the companies had agreed to offer. The surveyed companies were asked to select the services that they offered from a list of eight services ranging from product-oriented (e.g., planning services) to results-oriented (i.e., operating equipment for the customer). Both companies that offered to operate equipment for their customers and companies that offered maintenance and repair services in combination with financial and leasing services were identified as those who engaged in business models in which a shift in property rights took place.

The specificity of the goods involved in business models and those business models’ consequent adaption to service components was operationalised by building a construct of three indicators. The first indicator for specificity was complexity because a high degree of complexity entails a high potential for changes to customer needs and conditions (von der Osten 1989). However, because complexity and specificity are not linked, following Hill (2000), batch sizes and product development processes were used as the second and third indicators. These two variables were used to describe the customisation of goods. Complexity, batch size and product development processes were measured by using categorical variables.

Companies’ risk awareness was surveyed by using a list of eight potential risks, which respondents ticked if they considered these risks as part of their risk management.

Specialisation in developing innovative products was expressed through three variables because competence is a phenomenon that is empirically indeterminate and cannot be measured quantitatively (Burr 2003), i.e., by determining the proportion of staff employed in research and development and the proportion of staff employed in construction and design. Furthermore, the question of whether the companies surveyed had developed products during the previous three years that either were completely new to the company or were a significant advancement of their product portfolios was used as the third indicator of specialisation in developing innovative products.

Accordingly, specialisation in developing innovative services was conceptualised by using the number of services selected from the list that described above, the proportion of staff in customer service and turnover directly generated by services (Lay et al. 2010). Furthermore, in accordance with the development of new products, the companies surveyed were asked to indicate whether they had developed new services in the past three years that either were new to them or represented significant advancements in their service portfolios.

Table 18.1 gives an overview of the indicators investigated as part of the German Manufacturing Survey 2009 in correlation to the constructs explained above.

Table 18.1 Operationalisation of the constructs and description of the analysis data set
Full size table

3.2 Logistic Regression Model

Because the variable “product adaptation” was a dichotomous variable in the company survey, a binary logistic regression was used to describe correlations between the hypotheses variables and the dependent variables. The relationships between the dependent variable and several independent variables were analysed using a regression analysis. A logistic regression is one method that is well suited to describing and testing hypotheses about relationships between a dichotomous dependent variable and several dichotomous or constant factors of influence. This statistical method is superior to discriminant analysis because of its wide field of application and its robustness, which can also be used to examine categorical dependent variables.

3.2.1 Description of the Analysis Data Set

The first step in any data analysis is to construct the model. In the case of logistic regression, this is when the potential factors of influence, i.e., the exogenous variables, are determined for the probability of occurrence of the dependent model variables. This formulation of the model was accomplished based both on the hypotheses derived in the section above from the conceptual and theoretical reference frameworks and on the five constructs operationalised above.

The dependent variable product adaptation could have two attributes—yes and no. This represented the dichotomous endogenous variable in the logistic regression model, whose probability of occurrence was predicted using the model. The logistic regression model estimated the probability of occurrence of the event “product adaptation implemented” p(y = 1).

Table 18.1 gives an overview of the operationalisation of the constructs, the attributes of the selected variable, the means or percentage shares and, where applicable, the standard deviation in the analysis data set. To estimate the regression equation, metrically distinct variables were z-transformed.

Of the survey’s 518 original data sets from capital-goods producers, 104 were missing values for at least one variable. The highest non-response item concerned data on the share of turnover achieved directly by services UADL. The dichotomous auxiliary variable kA-UADL was introduced to avoid a possible non-response bias and to keep to a minimum the share of companies that had to be excluded because of missing data. In cases in which no data were available for this turnover share, the turnover was set to 0 and dispensed with for estimating the regression coefficients; the auxiliary variable kAUADL captured possible group-specific effects. This approach enabled the data on UADL to be used in the logistic regression model and simultaneously kept the number of cases as high as possible.

One main condition of using logistic regression was the independence of the regressors: they could not be multi-collinear. The correlation matrix of the x-variables was examined for a first estimation of whether multi-collinearity existed. This revealed a relatively high, positive bivariate correlation between the independent variables ANZDL, i.e., the number of services offered, and AVDL, the existence of service-based business models in the firm. In addition, the correlation matrix of the estimated coefficients was also examined. This examination also showed a high correlation of >0.5 between these two predicators, which is why the variable ANZDL was not included in the regression model. After excluding that variable, there was no other indication of multi-collinearity between the predictors. Excluding the number of services offered did not increase the number of cases.

3.2.2 Assessing the Model

Table 18.2 lists the logistic regression coefficients, standard errors, results of the Wald-test and the odds ratio, i.e., the ratio of occurrence and non-occurrence together with the explanatory significance of the influencing factors. This table also shows the respective difference for the odds ratio that corresponded to the unit by which the factor of influence had to change so that the odds ratio shifted by the given value.

Table 18.2 Logistic regression model analysing the explanatory significance of the influencing factors on adaptation of physical products to services offered
Full size table

The constructs were tested to assess the significance of individual effects or bundles of effects to the model. A step-wise logistic regression was calculated, which in the first step, constructed the logistic regression model without the construct to be tested as a reduced model and calculated its likelihood. In the second step, the remaining factors of the full model were entered and the difference between the likelihoods of the reduced full models was calculated. In this way, any change in the goodness of fit due to the lack of a single variable or bundle of variables could be determined. Table 18.3 contains the χ2-difference values for the constructs considered, their degrees of freedom and the resulting significances.

Table 18.3 Construct tests
Full size table

4 Empirical Findings on Adapting Products for Servitization and Managerial Implications

4.1 Dissemination of Product Adaptation in the Capital Goods Industry

One goal of the empirical analysis is to describe the dissemination of constructive adaptations of products to service concepts offered by capital goods manufacturers. In the company survey, this phenomenon was a priority; its results draw the same picture. Among the questioned capital goods manufacturers, 27.7 % stated that they had already constructively altered goods to bring them into alignment with the service concepts that they offered.

The dissemination of service-compatible design by enterprises in the capital goods industry is not yet comprehensive. The share of product-adapting firms is 30 %—far below the percentage of firms (more than 97 %) that offer their customers at least one service concept. Only one-third of the enterprises that offer services recognise the necessity of designing physical products according to the requirements that result from providing services.

For the remaining two-thirds of firms, it can be concluded that either their combinations of products and services do not require adaptations or the adaptation of their products to their service concepts would be appropriate. However, this has not yet occurred because either the need for structural changes is not recognised or there are internal or external barriers impeding this adaptation. Companies that truly adapt a service-oriented mind-set must recognise the close linkage between their products and their services. In the future, an increase in the proportion of product-adapting firms will be desirable. Service research can support these companies by identifying barriers and recommending clear strategies for linking physical products to services via product design changes.

4.2 Product Adaptation and Ownership

Hypothesis 1 states that applying service-oriented design depends on the property rights that remain with the capital goods producer and thus, on the service concept offered. The construct analysis shows that the implementation of service-based business models is significant as an explanatory variable for the probability that companies adapt their products to their service concepts. The difference of χ2 = 11.51 (one degree of freedom) was calculated between the full model and the sub-model, reduced by the factor AVDL at a <0.01 level of significance. The positive regression coefficient indicates the postulated correlation. Consequently, this hypothesis should not be rejected. When including the other factors of influence in the regression model, the application of service-oriented design is also positively dependent on an offer of a service-based business model. When a company’s service portfolio lacks advanced service concepts but then implements at least one service-based business model, it has a 2.6 times higher probability of adapting its products to service concepts than do companies that lack any service-based business models.

The transition from a traditional product-centric business model to a service-based business model entails a redistribution of property rights of the physical good employed; the change in the incentive structure can be observed in the quantitative survey. One positive result that can be derived from the analysis above is that companies with service-based business models that effect a change in their distributions of property rights can be seen as forerunners in adapting their products to their service offers. Their probability of inducing design changes to support their provision of services is nearly three times higher than in companies that offer exclusively traditional services without any change in the property rights structure. However, as described in Sect. 18.4.1 of this chapter, even in companies with service-based business models, only one-third stated that they had adapted their products to service needs.

To learn from already-adapting firms, companies that are transitioning from traditional product-centric business models to service-based business concepts should understand and draw conclusions from their changed business conditions. More precisely, providers should clearly define the objectives that they are pursuing in implementing new business concepts and communicate those objectives to the departments involved, with the aim of creating a common understanding of new targets and giving joint responsibility to all parties involved. By doing so, internal barriers might be reduced and the creativity of employees, e.g., in design departments, can be channelled into considering service needs when developing their concepts.

4.3 Product Adaptation and Specificity

The second hypothesis argues that applying service-oriented design depends on the specificity of the capital good. The more specific the goods are, the more likely it is that firms will attempt to reduce that specificity by means of constructive adaptations.

The analysis indicates that this second hypothesis also proves to be a significant explanatory factor. The hypothesis does not need to be rejected when considering the other factors in the logistic regression model. The difference between the likelihood of the full model and the likelihood of the sub-model, reduced by the five factors covering the block of specificity, proves to be significant with χ2 = 22.973 at five degrees of freedom (level of significance at <0.01).

When looking at the individual factors and their influence in the full model, it is clear that the complexity of goods is highly significant to explaining the probability that companies will adapt their products to the services that they offer. The odds that a product will be adapted increase by 2.98 times if it shifts from simple or averagely complex to complex. The error probability of this estimate amounts to <0.01 %. The positive regression coefficient indicates the postulated correlation.

No other sub-factors of the block of specificity prove to be significant factors of influence. If a larger error probability is tolerated, there is an explanatory factor of made-to-order product development. The odds of making product adaptations increase by 5.6 times when shifting from in-stock prefabricated products to developing and manufacturing products to order. However, this estimation must be treated with reservations because the error probability is 5.6 %.

The specificity of the employed capital goods is a factor influencing a company’s decision to effect a constructive change in the physical goods that it utilises in service-based business models. In the hypothetical model, it was assumed that in light of the re-usability and the widest possible application of machines and equipment, which are not sold in service concepts but whose use or results are the object of transactions with customers, companies would strive to minimise the specificity of their material goods. At the same time, however, client-specific requirements must be addressed. On one hand, this consideration applies to the individual composition of product and service components. On the other hand, business models have several features that must be addressed according to each individual client. Properties such as the geometry, material, quality or production volumes of the end products or components manufactured under service-based business models comprise only one factor of influence. It is up to firms, taking into account various factors against the background of the targets of their business models, to find the right balance between re-usability and customised configurations.

4.4 Product Adaptation and Risk Awareness

The third hypothesis claims that applying service-oriented design depends on the risk awareness of the provider of advanced service concepts. However, the data indicate that the number of risks considered does not have a significant influence on the probability that products are adjusted to the service concepts offered. This hypothesis is therefore rejected.

In this hypothesis, a link is made between the risk awareness of the selling companies and the probability that they will make structural changes to the physical goods that they utilise in service concepts. As a result of their changed responsibilities and the new distribution of property rights in service-based business models, a number of risks emerge for vendors and clients, which they would not have had in the traditional business model. Accordingly, the hypothesis model assumes that an increased sensitivity to risks on the part of providers of service concepts leads to adaptation of the employed goods in order to minimise those risks. The above-discussed reduction in the specificity of capital goods to make them more widely deployable and re-usable after completion of their first life cycle is one example of a measure undertaken to reduce the risks inherent to service-based business models.

One possible explanation of the rejection of the hypothesis is the method that was used to measure risk awareness. The number of risks considered in risk management activities was used to operationalise the construct. However, companies that implement service-based business models might not use a structured risk management approach to consider the risks that accompany these concepts; instead, they might choose a more “hands-on” method of managing those risks and adapt their goods to service needs whilst eschewing the label of “risk reduction”. Another possible explanation for the rejection of the hypothesis might be the existence of a pragmatic approach to service-based business models. When a company reacts to short-notice inquiries from its customers it might not sufficiently consider the inherent risks of those inquiries. However, the importance of considering all chances and risks when entering into new ways of doing business must not be underestimated, particularly in cases involving business concepts in which the well-known distribution of property rights between providers and customers changes.

4.5 Product Adaptation and Specialisation in the Development of Innovative Services and Goods

Hypothesis 4 refers to the relationship between the specialisation of a provider of service concepts and the probability that the company will modify its physical goods to meet the requirements arising from its services.

The block-of-service orientation proves to be a significant explanatory factor for the probability that companies adapt their products to their service concepts. The difference between the likelihood of the full model and the likelihood of the sub-model reduced by the block-of-service orientation equals χ2 = 14.195, which is significant at four degrees of freedom and an error probability of <0.01 %. An examination of the full model shows that the individual factor of service innovativeness is a significant explanatory factor for the probability of product adaptation. Companies that have introduced innovative service concepts to the market during the past 3 years are 2.8 times more likely to have adapted their products to their service concepts compared to situations in which no service innovations have been introduced during the past 3 years.

Based on the construct analysis of the likelihood that products are adapted to services, orientation towards developing innovative products also proves to be a significant explanatory factor. The difference between the likelihood of the full model and the likelihood of the sub-model reduced by the three factors of the block of product orientation is χ2 = 10.372 (three degrees of freedom). When looking at the full model, two of the single factors of this block show significant influence on the probability that companies adapt their products to their service concepts. Both the proportion of personnel employed in construction and the proportion employed in design and product innovativeness are significant factors: both estimates have error probabilities smaller than 5 %. If the proportion of staff employed in construction and design increases by 9.8 % points, the odds that product adaptations will be made increase by 1.4 times. If a company is considered to be a product innovator, i.e., if it has introduced product innovations to the market during the last three years, the odds of product adaptations increase by 2.1 times compared to companies that are not product innovators.

The fact that both the product innovativeness and the service innovativeness of the companies surveyed have significant explanatory power for product adaptations is in accord with the findings of Gebauer et al. Those researchers concluded that it was unnecessary, or perhaps even counterproductive, for an industrial company to successfully provide product-related services by replacing its existing focus on products with a service culture. As a real in-house challenge, they identified the introduction of a parallel service orientation in a firm that had a symbiotic relationship with typical production-technical values. In particular, the efficiency idea stemming from product orientation and the quest for flexibility that arises from a service orientation must be harmonised (Gebauer et al. 2005). Both product and service innovativeness are relevant factors for product adaptations. At least two departments of a company—customer service and construction—are touched by adapting products to service concepts. Data collected while providing customer service are an input factor for developing new products and improving existing products. Furthermore, products must be designed in such a way that they are service-friendly, i.e., that service provision can easily take place. For service-providing companies and, more specifically, for companies with service-based business models, it is therefore important to create a strong link between these divisions of a company and the values for which they stand.

5 Summary

To address a gap in the available research on servitization, the present chapter of this book reports the results of an analysis based on data from the German Manufacturing Survey 2009. The results illustrate that, whilst the majority of manufacturers offer services that accompany the physical products they sell, fewer than one-third of these service providers adapt their products to their services. Although such an adaptation could provide advantages for servitized manufacturers, they obviously hesitate to make their products “fit for services”.

Research analysing the factors stimulating servitized manufacturers’ propensity to adapt their products to servitized business concepts clearly indicates that the distribution between customer and provider of the property rights of physical goods has explanatory power. If the property rights of a product remain with its manufacturer in the phase of use instead of being transferred to the customers, the probability of manufacturers to adapt their products to services increases.

The same could be shown for the specificity of the equipment employed. However, the number of risks considered in risk management does not influence the probability of product adaptation. That said, against the background of theory, risk awareness seems to drive companies to adapt their goods to their service needs in business models in which property rights are only partially transferred to customers. In future research, this discrepancy should receive more attention.

Finally, companies’ specialisation in developing both innovative products and innovative services influences the probability that manufacturers will adapt their goods to the services that they offer.

These findings apparently demonstrate that if innovative manufacturers of goods that conform to customers’ needs engage in the phase of use instead of transferring ownership to customers, they will be in the lead in adapting their products to servitized business concepts. To avoid failures in servitising manufacturers without such frame conditions should attempt to intensify their internal links between servitization and product engineering.