Another Performance Paradox? Working Paper
This is a Working Paper, released May 2012, which looks at the different aspects of servitization strategies and their impact on the financial performance of manufacturing firms. Results suggest that service investments represent a prerequisite for growth. When it comes to characteristics of service offering, we identify the negative effect of increasing service “breadth”, measured in number of services offered, while increasing service “depth”, measured in completeness / sophistication of service offering, results in higher profit margins and an increase in market value.
Besides the implications for the service business per se, we find that the finetuning of the service portfolio has the effect on the product strategy as well. More specifically, we find that the interplay between service depth (sophisticated services) and investments in product innovation, measured in R&D, is positive only to certain extent; highest levels of service sophistication and focus coupled with high level of product innovation may result in the negative impact on performance as manufacturers spread themselves too thin to achieve excellence on both ends.