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What is the most effective approach to service capability development for product firms?
Many product-centric firms opt to develop service capabilities internally. What is the most effecting approach?
In order to shift from basic to intermediate and advanced services, many product-centric firms opt to develop the service capabilities internally. However, such approach comes with challeges. Why? First, due to limited resources firms often can’t invest in both front-office (customer-centric) and back-office service capabilities at the same time. Second, there is a classic chicken-and-egg problem: are firms supposed to first develop the service capabilities at the back-office or approach customers with the front-office service capabilities? Finally, different service capabilities at the front-office and at the back-office can have enhancing but also suppressing effects what adds a layer of complexity to prioritising service capability development.
Study by Jovanovic et al. (2019) examined ten subsidiaries of a large multinational capital equipment manufacturer to analyse how front- and back-office capability development progresses across the subsidiaries.
Study points to the following findings:
- sequential approach to capability development with the initial focus on front-office service capabilities (that sells basic services) was identified as being the most conducive path for transitioning to advanced service provision;
- difficulties of simultaneously attempting to develop front- and back-office capabilities;
- limited interactions (as well as experimentation) between the front- and back-office prevent reaching the capability maturity stage for effective provision of advanced services;
- while the initial flexibility and customization of intermediate and advanced services were associated with high customer acquisition, it affected operational efficiency in the long-run;
- standardisation of offerings, processes, and performance measures are most effective at the maturity capability stage.
Jovanovic, M., Raja, J. Z., Visnjic, I., & Wiengarten, F. (2019). Paths to service capability development for servitization: Examining an internal service ecosystem. Journal of Business Research, 104, 472–485.