Manufacturing is often seen as selling a product but the
competitive market indicates they must be more. As global competition
increases, product innovation cycles become faster, and imitators copy products
companies should seek to create beyond the product. Research by Ivanka
Kastalli, Bart Van Looy and Andy Neely from the University of California Berkeley
discussed how the concepts of service adoption and service coverage add value
and competitiveness. They analyzed a
large international company with growing sales and significant revenue from
manufacturing and service functions.
Manufacturing is not simply the building of products but
also the raising of value and public interest. A service mentality helps
executives understand where their value lays and what customers need in both
current and future products to continue sales. The market must continue to
drive the options, design, and utility of products.
To create greater service oriented manufacturing paradigms
requires the ability to develop stronger service measures that help influence
the product design and development. Even though different metrics are used for
manufacturing and service enhancement they have not been well integrated
together. This creates two different mindsets when it comes to production and
follow up that can damage long-term business.
The concept of service adoption and service coverage can be
seen as breadth and depth. Service adoption entails a quantitative
understanding of the amount of customers buy services. Service coverage can be
seen as qualitatively understanding the perceived benefits of the service to
their customers.
When customers purchase services they naturally raise value
beyond the production of the unit. When that customer buys more services and is
satisfied with that service they are engaging in a qualitative assessment with
real financial consequences. If companies can encourage more customers to
purchase services and higher levels of these services the organization has
increased their earning potential beyond the product.
Open innovation can encourage service development and
effectiveness. It affords an opportunity for the customer to provide input on
the product and service as well as be a co-creator. When this occurs, business
has a better perspective on the overall needs of the customer in a way that is
tangible and revenue producing.
The researchers used Atlas Copco as their case study. The
company is in 100 countries, has over 14,000 employees, annual revenues over $4
billion, 40% of revenue from service with rising sales. The first shift in
thinking must entail the movement from thinking about service as a support
function to an actual revenue generating investment. The second is that
conflicting performance measures between product and service need to be bridged
to give a better perspective of total organizational development. The customer
and their needs should be the driver of the business and understanding what
makes them motivated to purchase and willing to return is half the business
battle.
Kastalli, I. et. al. (2013). Steering Manufacturing Firms
Towards Service Business Model Innovation. University
of California, Berkeley, 56 (1).
