The objective of this paper is to compare the level of servitization and cultural topologies with the observed business performance of 24 industrial firms based in the DACH region. The majority of the firms evolved from product businesses serving a range of industrial market segments. The results identified that the best performing business had a service content in the range of 25-50%; those with more standardised tools/processes tended to outperform those with a more ad-hoc approach. This is important to know as the successful transition to services depends upon context (Neely 2011); including history, leadership, culture and tools/process.

1. A comparative assessment of the
service cultures of industrial businesses
in the DACH region and their impact on
business performance
21st EurOMA 2014, Palermo
Dr Shaun West

2. INTRODUCTION)
EUROMA'2014'|'Dr'Shaun'West'

3. Problem)statement)based)on)the)survey)of)Angehrn)and)findings)of)
others)
The$present$study$was$undertaken$to$assess$the$degree$of$servi5za5on$and$
cultural$intensity$and$iden5fy$their$contribu5on$to$the$businesses’$
performance$for$24$businesses$in$the$DACH$region.$Business$performance$was$
based$on$ROS$with$the$aim$of$iden5fying$a$rela5onship$between$the$degree$of$
servi5za5on$and$cultural$intensity.$$
'
EUROMA'2014'|'Dr'Shaun'West'
120131118_2330_RB Service study 30_Final document_E_PUBLIC VERSION.pptx
Zurich, November 2013
Service 3.0
Unraveling Value Pockets in the Service Business
INDUSTRY STUDY
A$desire$to$understand$the$reasons$
for$the$differences$seen$in$the$
performance$of$the$businesses'

4. Introduc@on)to)the)situa@on)described)in)Angehrn’s)study)of)24)
industrial)companies)and)others)
EUROMA'2014'|'Dr'Shaun'West'
Angehrn,'P.,'Siepen,'S.,'Schmi@,'P.,'&'Kern,'C.'(2013)'Service'3.0'H'Unraveling'Value'Pockets'in'the'Service'Business.'Roland'Berger.'Zurich.'Switzerland.''
720131118_2330_RB Service study 30_Final document_E_PUBLIC VERSION.pptx
16%
Transportation
& mobility21%
Manufactruing
systems & robotics
21%
42%
< 30
14%
21 - 30 21%
10 - 20
29%
< 1036%
50%
< 1’000
12%
>5'000
2’000 - 5’000
19%
1’000 - 2’000
19%
Companies in major EPHT segments took part in the
international study – All company size categories represented
Participating companies1)
1) Participating in quantitative interview survey N = 20
INDUSTRY
SEGMENTS
Machinery, tools
& equipment
Energy equipment
Source: Service study Roland Berger 2013
OVERALL
HEADCOUNT
OVERALL
REVENUE
[EUR]
SERVICE
HEADCOUNT
[% of overall]> 1 bn
62%
20% 500 m -
1 bn
5%
200 m -
500 m
13%
< 200 m
A. KEY RESULTS AND STUDY FOCUS I BACKUP
• >50%'of'the'businesses'had'20H40%'service'sales'
• 65%'of'the'service'business'had'profits'above'the'company'average'

5. The)framing)of)this)study)came)out)of)Gebauer’s)findings)of)the)
impact)of)cultural)aspects)on)the)performance)of)service)delivery)
Gebauer’s'study'into'service'orientaon'used'the'criteria:''
H management'values'and'behaviours'
H employee'values'and'behaviours'
To'model'overall'performance.'
EUROMA'2014'|'Dr'Shaun'West'
Gebauer,'H.,'Edvardsson,'B.,'&'Bjurko,'M.'(2010).'The'impact'of'service'orientaon'in'corporate'culture'on'business'
performance'in'manufacturing'companies.'Journal$of$Service$Management.'doi:10.1108/09564231011039303.'
hypothesized effects of the relationship between elements of the service orientation of
corporate values and the service orientation of corporate behavior are supported.
H6 is stronger for the separated (s – separated) service organizations than for the
integrated (i – integrated) service organizations ( y1i ¼ 0.22, p , 0.05; y1s ¼ 0.51,
p , 0.01). In an integrated service organization, the service orientation of management
values has a low impact on the service orientation of management behavior. In terms of
a separated service organization, however, the service orientation of management
values has a significantly stronger impact on the service orientation of management
behavior. Similarly, it strongly enhances H8 (y2i ¼ 0.19, p , 0.05; y2s ¼ 0.33, p , 0.05)
and H7 is only significant as companies separate the service organization ( y3s ¼ 0.51,
p , 0.01). In the case of integrated service organization, the association is not
significant ( y3i ¼ 0.09, p . 0.1). According to the x 2
differences for hypotheses H6-H8,
2 2 2
Service
orientation of
management
values
Service
orientation of
management
behavior
Service
orientation
of employee
values
Service
orientation of
employee
behavior
Overall
performance
Service orientation of
management values 1
Service orientation of
management behavior 0.24 1
Service orientation of
employee values 0.58 0.46 1
Service orientation of
employee behavior 0.50 0.26 0.44 1
Overall performance 0.29 0.29 0.41 0.20 1
Note: All correlations are significant at the p , 0.001
Table III.
Correlations among latent
constructs
Figure 2.
Results of the path
analysis
Service orientation of
management values
Service orientation of
management behavior
Service orientation of
employee values
Service orientation of
employee behavior
Overall performance
H3: y3
= 0.47,
p < 0.01
H2: y2 = 0.30,
p < 0.01
H5: y5 = 0.29,
p < 0.01
H4: y4 = 0.10,
p < 0.01
H1: y1 = 0.48,
p < 0.01
Part 1: Hypothesized main effects among different cultural
elements in order to increase the service orientation of corporate
culture in manufacturing companies
Part 2: Hypothesized main effects of service
orientation in the corporate culture
on overall performance
Performance in
manufacturing
companies
251
“service$orienta5on$in$the$corporate$culture$is$posi5vely$associated$with$
overall$performance”,'Gebauer'(2010).''

6. REVIEW)METHODOLOGIES)APPLIED))
EUROMA'2014'|'Dr'Shaun'West'

7. Companies)included)in)the)study)were)all)based)in)the)DACH)region)
of)Europe))
EUROMA'2014'|'Dr'Shaun'West'

8. Publicly'available'data'' Interviews'
Raonale'H''
To'obtain'data'and'assess'consistency'
of'messages'and'used'in'detailed'
analysis'
'
Raonale'H''
To'obtain'more'details'from'the'
leadership'
Data)collec@on)was)based)on)publicly)available)data)and)interviews)
for)the)benchmarking))
EUROMA'2014'|'Dr'Shaun'West'
Annual Report
2013
CMD 2013–Sulzer Pumps
Capital Market Day 2013 | Sulzer Pumps | slide 7
Sulzer Pumps
End market assessment
Continued growth of
crude oil consumption
Capital spending
remains on a high
level
Number of projects is
growing in ASP
Pipelines and FPSOs
are main growth
drivers
Oil and Gas
Pulp and Paper
investments still weak;
only demand for
rebuilds and services
is driving the market
Growth of pulp and
paper demand is
expected mainly in
South America and
ASP
General industry
business suffering
from lower activities in
mining and biofuels
General industry
Overall capacity has
increased
New planed and new
approved capacity
was added, driven by
Asia-Pacific
Coal fired and nuclear
plants are investment
drivers in Asia-Pacific
Power
Municipal Water and
Wastewater market
slow but showing
signs of recovery
Industrial Wastewater
stable
Dewatering slow due
to low mineral prices
and low construction
activity
Desalination and
water transportation
market low but stable
Water
45% 17% 23% 15%
Note: Sales share by end markets on 2012 figures
Divisional near-term outlook
Flowserve, Clyde/SPX,
Ruhrpumpen, ITT, KSB, Ebara
Addressable market size1 for centrifugal pumps by key markets
millions of CHF
Sulzer Pumps
Large opportunities in key markets
KSB, Flowserve, Ebara,
Clyde/SPX, ITT, Torishima
Xylem, Wilo, KSB, Ebara,
Grundfos, Pentair
Key competitors:
Ebara, KSB, Andritz
Strategic focus on selling our full product portfolio into all markets and regions
2'500
3'000
3'500
18'000Water
Oil and Gas
Power
General Industry
Theme) Ques@on)
Business'understanding' Market'intelligence'
Targets'and''
Full'market'demand'
Service'porgolio'' Service'lifeHcycle'
3rd'party'services'
Coverage'of'market'demand'
Organizaon'and'processes' Clearly'defined'organizaon'
StateHofHtheHart'lean'processes'
Effecve'incenve'systems'
Service'pricing' Package'offers'
Differenang'service'pricing'
Markups'
Unique'selling'proposion' R&D'
Propriety'design'and'supply'chain'
Selling'services'and'new'equipment'
Service'markeng' Customer'segmentaon'
Sales'channels'
Knowledge'of'installed'base'

9. Business'types'were'based'on'
Backhaus'
'
Customer'based'market'
segmentaon'
'
'
'
'
'
The'assessments'were'based'on'the'
markets'the'customers'were'acve'
Raonale'H''
Different'business'types'can'a@ract'
different'margins'
Raonale'H''
Different'customer'segments'a@ract'
different'margins'
'
The)data)was)analyzed)using)a)range)of)methods)to)aQempt)to)
remove)other)factors)))
EUROMA'2014'|'Dr'Shaun'West'
Product(
business(
OEM(
business(
Systems(
business(
Project((
business(
Supplier(insecurity(
No(supplier(insecurity(
Buyer(insecurity(
No(buyer(insecurity(
Market(segment(
Individual(buyer(
Individualiza?on(
Single(transac?on(
ReAbuy(
Customer(
rela?onship(

10. Service'cultures'typologies'' Degree'of'servizaon'was'based'on'
Vandermerwe''
Raonale'H''
To'idenfy'the'organisaonal'
intensity'and'the'service'specificity'of'
the'businesses'
'
Raonale'H''
To'idenfy'the'maturity'of'the'
servizaon'
The)degree)of)servi@za@on)and)the)service)cultures)typologies)were)
es@mated)from)the)publicly)available)data)and)the)interview)data))
EUROMA'2014'|'Dr'Shaun'West'
Tac$c% Strategic% Cultural%
Customer%
services%
A"Toll&free"
numbers"
Dell"on&
line"
Toyota/
Lexus"
Product%
services%
Basic"
extended"
warran;es"
GE"
Medical"
systems"
Caterpillar"
Service%as%
a%product%
Non&OEM"
repairs"
Fiat"in"IT"
IBM"Global"
Services"
Organiza;onal"intensity""
Service"specificity""

11. RESULTS)AND)ANALYSIS)OF)THE)
STUDY))
EUROMA'2014'|'Dr'Shaun'West'

12. H Alstom'used'to'publish'financials'for'service'and'equipment'
H Sulzer'may'do'doing'so'in'the'future'
Basic)financial)results)and)customer)segmenta@on)showed)some)
problems)with)the)data)
H Data'allowed'overall'firm'service'sales'%'
verses'business'ROS'to'be'plo@ed'
H Data'provided'remained'at'a'high'level''
H Mixing'of'service'spare'parts'with'new'
H Impact'of'customer'market'segmentaon'
was'inconclusive'
H Starng'point'was'narrow'
H Business'idenfied'several'segments'
'
EUROMA'2014'|'Dr'Shaun'West'
Notes

13. ! Count! Proportion!of!services!
(Service(sales/Total(sales)!
ROS!!
(Total(EBIT/(Total(sales)!
Business!types!based!on!Backhaus!(2005)!
OEM(business( 7( 24.6%( 7.8%(
Product( 6( 32.8%( 9.7%(
Project( 2( 25.5%( 8.3%(
Systems( 9( 24.8%( 10.3%(
Degree!of!servitization!based!on!Vandermerwe!(1988)!
Product(+(minor(service( 12( 20.0%( 7.4%(
Service(+(minor(product( 12( 33.6%( 11.1%(
Service!specificity!based!on!Mathieu!(2001)!
Customer(services( 3( 28.7%( 8.0%(
Product(services( 17( 27.4%( 10.1%(
Service((as(a(product)( 4( 23.0%( 6.5%(
Organisational!intensity!based!on!Mathieu!(2001)!
Tactic( 4( 19.5%( 5.0%(
Strategic( 15( 24.0%( 9.7%(
Cultural( 5( 41.0%( 11.4%(
Total!study! 24( 26.8%( 9.0%(
Overview)of)the)services)analyzed)using)different)approaches))
H Business'Type'–'generally'inconclusive'
H Degree'of'servizaon'–'the'businesses'were'very'similar'
H Service'specificity'–'most'of'the'services'supported'products'
H Organisaonal'intensity'–'%'sales'and'ROS'increase'with'intensity'
EUROMA'2014'|'Dr'Shaun'West'
Analysis

14. Business)performance)based)on)organisa@onal)intensity)(Mathieu,)
2001))provided)some)interes@ng)results)
H There'was'significant'sca@er'with'the'‘strategic’'business'
H Separaon'seen'between'the'‘taccal’'and'the'‘cultural’'
Q'–'what'could'be'the'cause'of'this?'
EUROMA'2014'|'Dr'Shaun'West'
the business cycle a longer time frame would have to be used and for the service
paradox the impact of equipment densities/installed equipment bases.
It has to be noted that one business provided only services to owners and operators of
other manufacturers’ equipment; the business reported both services and products in
their sales figures. More investigation is required to confirm if these were ‘spare parts’
or ‘products’ and therefore reported on a similar basis as the other 23 businesses.
Figure 2 – Plot of service proportion versus ROS for all companies in the study
Analysis and discussion of the results
Using data from the interviews, an initial assessment was made of each organisation’s
position on the servitization continuum (Vandermerwe, 1988). Due to the narrow range
of companies studied all businesses fell within a narrow range on the servitization
continuum making it difficult to use the data only with this dimension. Additional
information was gathered from the organisations’ websites enabling each organisation
to be plotted on Mathieu’s matrix of service specificity versus intensity (Mathieu,
Analysis

15. What)contributed)to)the)scaQer)with)the)‘strategic’)businesses?)
H Service'paradox'issues'
(Gebauer,'2005)'
H Different'stages'of'service'
development'
H Different'customer'markets;'
business'type/business'models;'
and,'business'cycles'
EUROMA'2014'|'Dr'Shaun'West'
t segmentation, business cycle and any service paradox issues.
segmentation were considered in this study. In order to consider
ger time frame would have to be used and for the service
quipment densities/installed equipment bases.
one business provided only services to owners and operators of
uipment; the business reported both services and products in
e investigation is required to confirm if these were ‘spare parts’
ore reported on a similar basis as the other 23 businesses.
ervice proportion versus ROS for all companies in the study
n of the results
rviews, an initial assessment was made of each organisation’s
ion continuum (Vandermerwe, 1988). Due to the narrow range
businesses fell within a narrow range on the servitization
ficult to use the data only with this dimension. Additional
d from the organisations’ websites enabling each organisation
’s matrix of service specificity versus intensity (Mathieu,
Interviews'provided'some'evidence'that'the'beQer)performers)
approached'service'as'a'process'and'had'a'range'of'strategic'tools'
and'KPIs'(strategic'and'operaonal)'
Analysis

16. What)were)some)of)differeances)between)the)businesses)with)
‘cultural’)and)‘ta@cal’)orgnisa@onal)intensi@es?)
EUROMA'2014'|'Dr'Shaun'West'
Tac@cal) Cultural)
Sales/markeng'leads'service' Leadership'
Immature'services' Mature'service'business'
Technology''first' Customer'first'
Inconsistent'messages' Consistent'messages'
General'manufacturing'metrics' KPIs'to'measure'service'performance'
Your$chance$of$success$is$higher$if$you$have:$clear$leadership,$a$
larger$service$fleet,$put$your$customer$first,$stay$on$message$and$
measure$service$performance$$
Analysis

17. Main
findings
Summary)of)main)findings)from)the)analyses)
EUROMA'2014'|'Dr'Shaun'West'
Issue) Implica@on)
Transparency'of'published'data' Lack'of'clear'service'financials'and'KPIs'
Contradicons'in'presentaon'of'services' Leads'to'confused'messages'
Service'leadership'remains'important' Shows'value'placed'on'services'
Mathieu’s'model'more'relevant'than'
Vandermerwe'for'this'study'
Mathieu’s'model'helps'understand'the'
service'journey'
Use'of'systemac'tools/process'help…' Need'for'service'tools'and'KPIs'to'help'
Segmentaon'analysis'was'inconclusive' Study'size'was'too'small'

18. CONCLUSIONS)AND)
RECOMMENDATIONS)
EUROMA'2014'|'Dr'Shaun'West'

19. Main
conclusions
Conclusions)based)on)the)findings)
H Financial'reporng'alone'does'not'provide'a'reliable'assessment'
H Ambiguity'in'‘product'sales’'was'seen''
H Mathieu’s'matrix'can'described'a'‘servizaon'journey’'
H Organizaons'with'a'‘cultural’'service'specificity'
H Generally'the'be@er'performers'
H Tended'to'have'more'formal'processHbased'tools'to'support'service'
operaons''
EUROMA'2014'|'Dr'Shaun'West'
It$is$postulated$that$the$use$of$a$number$of$tools$can$help$to$bridge$the$gap$
between$manufacturing$and$service$provision$whilst,$helping$the$whole$
business$to$understand$the$issues$faced$by$increasing$servi5za5on$

20. 3)recommenda@ons)for)further)work)
1. Undertake'a'wider'study'to'improve'data'
H Collect'financial'data'for'product/spares'
H Improve'segmentaon'to'isolate'secondary'factors'
2. Development'of'assessment'tools'for'benchmarking'service'cultures'
from'the'customers'perspecve'
H This'will'help'businesses'to'assess'their'status'
3. Idenfy'serviceHfocused'processes,'tools'and'KPIs'
H This'will'help'support'an'industrial'product'business'develop'a'service'
capability''
EUROMA'2014'|'Dr'Shaun'West'
To do

21. ACKNOWLEDGEMENTS))
EUROMA'2014'|'Dr'Shaun'West'

22. Acknowledgements)
The'authors'would'like'to'acknowledge'the'24'businesses'that'took'part'in'
the'study,'the'support'from'the'Roland'Berger'with'undertaking'the'survey'
and'the'financial'support'from'Lucerne'University'of'Applied'Sciences'and'
Arts.''
'
EUROMA'2014'|'Dr'Shaun'West'
Please approach us for further questions – We would be happy to
discuss your agenda
Engineered Products/
High Tech
Office Zurich
Engineered Products/
High Tech &
Office Zurich
Engineered Products/
High Tech
Office Zurich
Engineered Products/
High Tech &
Office Zurich
Study authors
H. ROLAND BERGER AND CONTACTS
Partner
Philipp
Angehrn
Partner
Sven
Siepen
Consultant
Christian
Kern
Senior
Consultant
Dr. Philipp
Schmitt
Please approach us for further questions – We would be happy to
discuss your agenda
Engineered Products/
High Tech
Office Zurich
Engineered Products
High Tech &
Office Zurich
Engineered Products/
High Tech
Office Zurich
Engineered Products/
High Tech &
Office Zurich
Study authors
H. ROLAND BERGER AND CONTACTS
Partner
Philipp
Angehrn
Partner
Sven
Siepen
Consulta
Christia
Kern
Senior
Consultant
Dr. Philipp
Schmitt
Dr)Shaun)West)
Lecturer'for'Industrial'
Service'Innovaon'
Lucerne'University'of'
Applied'Sciences'and'
Arts''
Sven)Siepen)
Partner'
Roland'Berger,'Zurich'
'
Dr)Philipp)SchmiQ)
Senior'Consultant'
Roland'Berger,'Zurich'
'

23. Any)ques@ons?)
EUROMA'2014'|'Dr'Shaun'West'

24. 1
A comparative assessment of the service cultures of
industrial businesses in the DACH1
region of Europe
and their impact on business performance
Dr Shaun West (shaun.west@hslu.ch)
Lecture for Service Innovation
Lucerne University of Applied Science and Art
Technology and Architecture, Technikumstrasse 21, 6048 Horw
Dr Philipp Schmitt
Consultant
Roland Berger, Holbeinstrasse 22, 8008 Zürich
Sven Siepen
Partner
Roland Berger, Holbeinstrasse 22, 8008 Zürich
Abstract
The objective of this paper is to compare the level of servitization and cultural
topologies with the observed business performance of 24 industrial firms based in the
DACH region. The majority of the firms evolved from product businesses serving a
range of industrial market segments. The results identified that the best performing
business had a service content in the range of 25-50%; those with more standardised
tools/processes tended to outperform those with a more ad-hoc approach. This is
important to know as the successful transition to services depends upon context (Neely
2011); including history, leadership, culture and tools/process.
Keywords: Cultures; servitization; engineered-products.
Introduction
This preliminary study is based on the primary data collected by Angehrn (2013) from a
servitization survey of 24-industrial/manufacturing businesses in the DACH (Germany,
Austria and Switzerland) region of Europe. The results of that study showed that the
businesses with around 25-50% of services tended to have better financial results when
measured using the Return on Sales (ROS=Earnings before interest and taxation
(EBIT)/Sales) basis. Angehrn’s (2013) results identified an underlying need to analyse
the data further to identify the underlying reasons for these differences in financial
performance with respect to the degree of servitization.
1
DACH region – Germany, Austria and Switzerland

25. 2
Angehrn’s (2013) study is in general agreement with that of Neely (2013), who
showed that servitization had taken hold within the German manufacturing sector.
Neely (2013) highlighted the importance that servitization plays in the business
strategies of the industrial businesses and that this was often seen in terms of: lock-in/
lock-out, increasing differentiation, customer demand. He also discussed some risks for
industrial businesses based around their engineering heritage which causes them to be
slow or reduces the uptake of servitization. However Neely (2013) did not provide
details on the sales values that come from the service and the manufacturing activities.
Brax (2005) and Angehrn (2013) both agreed that some industrial businesses are able to
create a service business of sufficient scale to overcome the operational costs.
Gebauer’s (2010) paper described the cultural aspects of performance and service
delivery in the DACH region. For the study a series of questionnaires were sent to the
businesses that allowed an service performance to be quantified, the criteria chosen
were the service orientation of:
• management values and behaviours;
• employee values and behaviours.
The results of the Gebauer (2010) study showed that in the businesses where service
and manufacturing operations were separated from each other there was a stronger
cultural affinity for services; it also highlighted that businesses with the highest cultural
affinity for services had the better overall performance. The key finding of the study
was that the “service orientation in the corporate culture is positively associated with
overall performance”, Gebauer (2010).
The present study was undertaken to assess the degree of servitization and cultural
intensity and identify their contribution to the businesses’ performance for 24
businesses in the DACH region. Business performance was based on the ROS with the
aim of identifying a relationship between the degree of servitization and cultural
intensity.
Review of the theories applied
The service theories used in this study to review the 24 businesses were:
• servitization model based on Vandermerwe (1988);
• service cultures typologies based on Mathieu (2001).!
The business benchmarking was based on Anderson (2009) for customer
segmentation analysis and Backhaus (2005) for the analysis of business types.
The servitization models
Vandermerwe’s (1988) servitization model was used with the following definitions:
• product;
• product + minor service;
• service + minor product;
• service;
• product-service system.

26. 3
These were used to provide greater granularity into the segmentation to allow a fuller
understanding of the business.
Service culture typologies
The framework provided by Mathieu (2001) provided a typology for measuring both
service specificity and organisational intensity (for services). The typology provided a
powerful framework for benchmarking the businesses based on their affinity towards
services. This approach has been used by others (Bikfalvi 2012; Brax, 2005; and
others) to help benchmark businesses in terms of service. Mathieu’s (2001) model
augments Vandermerwe’s model by analysing the data in 2 dimensions: one relating to
the organisation and the other relating to the service(s) provided.
To assist with quantification of servitization and cultures, Neely (2008) used an
automated approach to measure the classification of the business based on a process in
Excel, based on the formula “=IF(ISNUMBER(SEARCH("consult*",$D4)),1,0)”, in
addition to a manual search. Although using this approach is relatively simple it was
shown to provide some level of quantification in addition to manual oversight. In
Neely’s study the Excel-based approach was used with businesses that provided
services for engineered products and so was relevant as it focused on provision of
services for engineered products. A key conclusion of the study was that servitization
was shown to becomes a route to obtained access to customer value pockets down-
stream from the normal manufacturers’ business.
Schmidt (2003) described the importance of service culture. His study showed how
leaders can move their organisations from one where services are viewed as a
‘necessarily’ evil to one where the service becomes ingrained in a business to the point
where service is viewed as importantly as the product. This view of the importance of
organisation intensity and hence the ability to move from tactical to cultural levels of
organisational intensity have been confirmed by Turunen (2012) and Gebauer (2010).
Schmidt (2003) also reviewed the importance of processes/tools to drive service
improvements whilst ensuring that the rulebook does not become too cumbersome to
remain useful and when it should be used to augment the culture and behaviours
exhibited by the leadership.
Business benchmarking
Customer segmentation is a commonly used tool and is required to understand the
market expectations in terms of margins (Anderson, 2009). The approach Anderson
(2009) recommends is to use industrial groupings of firms with similar needs or
requirements rather than using simple geographic segmentation. Backhaus (2005)
provides a model that identifies 4 main business types (OEM, systems, project and
product businesses) based on market behaviours and expectations in an industrial
environment. Backhaus (2005) showed that different business types have different
margin expectations, as is also the case with conventional customer segmentation. The
business type classification was undertaken as it was considered to be an important
differentiator when considering margins. This is a proxy for the main business model
that is being followed by the company.

27. 4
Methodology
This study uses data collected by interviews with senior management during 2013
(Angehrn, 2013) from 24 industrial companies in the DACH region of Europe. All of
the businesses were engaged in the provision of either engineered-products or services
for engineered-products. The interviews provides information on the business models,
types of services as well as financial data. The businesses requested that their data
should be non-attributable.
Degree of servitization
The degree of servitization was another important factor that was used. The general
categorization was based on that developed by Vandermerwe (1988). This allowed the
position of each business to be identified. The assessment was based on the proportion
of services as total sales and customer-focused materials.
Service benchmarking
Mathieu’s service model based on the organisational intensity and the service specificity
was used to allow the business to be compared. The assessments were all based on
externally available materials published by the businesses. The materials used were
both customer-focused materials and investor-focused materials. This approach
allowed the identification of conflicting messages within the business that highlighted
ambiguities. The assessments for the organisational intensity and service specificity
were based on the following examples:
• organisational intensity – tactical “because the competition does it”;
• organisational intensity – strategic “because the management says so”;
• organisational intensity – cultural “because it is the way we do it”;
• service specificity – customer services “freephone number provided”;
• service specificity – product services “warranties, installation services for my
products only”;
• service specificity – service (as a product) “we service all (our products and
others)”.
To support and qualify the measure of the service culture a word count per page for
service (and other service related words) was undertaken. The word count used on
recently published materials was based the application of the formula:
“% service words” = count of “servic*” / (count of “servic*” + count of “produc*”).
Business benchmark
The businesses were benchmarked based on publicly available data and where possible
using the respective annual reports. For business that were either not publicly listed or
business where there was no publicly available data the data were gathered from
interviews with senior management, the following financial data were collected:
• total firm sales and EBIT;
• proportion of sales categorized as ‘services’;
• service growth.
The data were then plotted as ROS versus service content. The reporting period
2012-13 was chosen to limit variability of data in particular due to market changes.

28. 5
This however creates a very narrow snap-shot of the benchmark data and may not give a
full representation of the medium term benchmark.
The Backhaus’ (2005) business types classification and customer market
segmentation was undertaken using publicly available materials (eg, website, investor
relations materials and brochures).
Findings and results of the study
There were a total of 24 businesses in the study, all of which were from the industrial
product segment located in the DACH region. The breakdown of customer segments
served by the businesses is given in Figure 1. A number of the businesses reviewed
targeted very specific market segments, whereas others were less targeted. No
assessment was undertaken to identify if those who were more targeted had better
business performance that those who worked in many segments.
Figure 1 – Customer segmentation of the businesses
Table 1 provides an overview of the key results from the study. Based on the
analysis of the businesses all were based around ‘product + minor service’ or ‘service +
minor product’, the proportion of services sales identified agrees with the degree of
servitization. The margins also moved in the expected direction (increased) with higher
service contents (service + minor product). In all cases the businesses were providing
services to support some sort of industrial product and as such were part of a “Product
Service-System” as described by Baines (2007).
Service specificity has the majority of the businesses based on ‘product services’
with this group enjoying the highest margins (Lay, 2010). Organisational intensity has
a reduced spread of data between the three categories. The lowest levels of service
content and ROS are both in the tactical category with the highest in cultural. The
proportion of “service” words to “product” words was found to increase from 27%
(tactical) to 37% (cultural) in line with the increasing organisational intensity for
services. Table 2 provides a breakdown of the percentage of service sales and the
average margins using Mathieu’s service model. In the most bottom right quadrant
Medtech/
pharma,-18%-
Automo4ve,-15%-
Energy/
resources/O&G,-
15%-Manufacturing,-
12%-
Aero,-7%-
Food,-5%-
Chemical,-3%-
Packaging,-3%-
Transport,-3%-
Construc4on,-3%-
Others,-16%-

29. 6
(cultural/service as a product) there appears to be a drop in the margins, additional
investigation, including review of additional businesses are needed to better understand
this result. The most popular quadrant for the businesses in the study was the
strategic/product service box (13 of 24).
Table 1– Overview of the services segmented using different approaches
Count Proportion of services
(Service sales/Total sales)
ROS
(Total EBIT/ Total sales)
Business types based on Backhaus (2005)
OEM business 7 24.6% 7.8%
Product 6 32.8% 9.7%
Project 2 25.5% 8.3%
Systems 9 24.8% 10.3%
Degree of servitization based on Vandermerwe (1988)
Product + minor service 12 20.0% 7.4%
Service + minor product 12 33.6% 11.1%
Service specificity based on Mathieu (2001)
Customer services 3 28.7% 8.0%
Product services 17 27.4% 10.1%
Service (as a product) 4 23.0% 6.5%
Organisational intensity based on Mathieu (2001)
Tactic 4 19.5% 5.0%
Strategic 15 24.0% 9.7%
Cultural 5 41.0% 11.4%
Total study 24 26.8% 9.0%
The results of the Backhaus business type assessment are shown in Table 1. The
overall ROS for all businesses in the study was 9.0%, however the volume of data in the
study did not allow for useful segmentation using this dimension.
Table 2– Details results of business financial performance based on Mathieu (2001)
Tactic Strategic Cultural
Average of Service content
Customer services 18% 50%
Product services 21% 25% 48%
Service (as a product) 16% 30%
Average ROS
Customer services 5% 15%
Product services 6% 10% 13%
Service (as a product) 5% 8%
The benchmark data plot for ROS versus services content, shown in Figure 2, shows
a general increase as the service content increases. There is significant scatter in the
data with the R2
correlation being 0.30 for the data from all of the businesses studied.
This shows that there are other aspects that are not being taken into consideration and is
therefore in agreement with the findings of Brax (2005) who described the “service
paradox”. When the data is broken down and categorised by organisational intensity
(Mathiue, 2001) the businesses with a more tactical approach have the lowest ROS and
services content, whereas the businesses with a cultural intensity to service have
significantly higher ROS and services content. There is a greater scatter for businesses
with strategic intensity, data from the interviews provided some evidence that those
with the best performance here approached service as a process and use a number of
tools and key performance indicators (KPIs) to support and measure service
performance:

30. 7
• strategic tools, (eg, installed base database, customer relationship management
systems, competitor database, etc);
• strategic KPIs, (eg, installed base coverage, capture rate of own equipment,
percent of customer spend, etc);
• operational KPIs, (eg, net promoter score, delivery metrics, safety metrics, etc).
The additional factors that could also have an impact on business performance are
the business type, market segmentation, business cycle and any service paradox issues.
Only business type and segmentation were considered in this study. In order to consider
the business cycle a longer time frame would have to be used and for the service
paradox the impact of equipment densities/installed equipment bases.
It has to be noted that one business provided only services to owners and operators of
other manufacturers’ equipment; the business reported both services and products in
their sales figures. More investigation is required to confirm if these were ‘spare parts’
or ‘products’ and therefore reported on a similar basis as the other 23 businesses.
Figure 2 – Plot of service proportion versus ROS for all companies in the study
Analysis and discussion of the results
Using data from the interviews, an initial assessment was made of each organisation’s
position on the servitization continuum (Vandermerwe, 1988). Due to the narrow range
of companies studied all businesses fell within a narrow range on the servitization
continuum making it difficult to use the data only with this dimension. Additional
information was gathered from the organisations’ websites enabling each organisation
to be plotted on Mathieu’s matrix of service specificity versus intensity (Mathieu,
2001).
The study shows the possibility of using externally published data to assess an
organisation’s degree of servitization and is therefore in line with the findings of Neely
(2008). This can provide the organisation’s leadership with an understanding of
possible improvements in its service provision. Interview data confirmed that the level
of servitization allowed the organisation’s service typology to be compared using

31. 8
Mathieu’s (2001) service matrix. Use of more automated tools could be combined to
create an effective system for assessing the service organisational intensity and degree
of servitization within a business. It was considered important to use external facing
‘customer’ materials because this is the likely view of the customer, it also highlighted
some ambiguities and contradictions within the firms studied. It is possible that a more
comprehensive assessment tool could be built up that reviews the servitization and its
service typology: from the new customer view; from the existing customer view; and,
from the employees view.
Where the product/service mix of the business was in the range 25-50% it was found
that organisations with highest service specificity were amongst the best performers (on
a return of sales basis) allowing for major market segment differences. In the case of a
business without a link to a manufacturing part, the lack of any integration between
manufacturing and services appeared to agree with the hypothesis of Baines (2009) in
that it had a lower financial performance on a ROS basis. The business’ split of service
to ‘product’ type sales was due to the reporting of replacement parts required for the
service (services + minor product). The degree of scatter in the study data is the impact
of limited numbers in the study (24) and different market segments having different
margin expectations and different phases in the economic cycle (Anderson, 2009). It
would be valuable to extend the number of businesses studied to at least 200 to improve
the results and identify the detailed reasons for the scatter. Gebauer (2011) undertook a
successful study with over 300 manufacturing companies where the business
performance was measured within the context of servitization although here his study
was considering service differentiation.
Of the businesses reviewed, those with a more formal process-based tools tended to
outperform the businesses that took a more ad hoc approach. Schmidt (2003) highlights
the important role tools can have in supporting culture change and embedding processes
in the context of service leadership. The scatter seen in the business performance for
the businesses within the ‘strategic’ organisational intensity shows a relationship with
process-based tools (eg a database of installed base) supported by strategic (eg installed
base coverage) and operational (eg net promoter score) performance indicators.
Conclusions
This work is relevant to manufacturing companies transforming their business from a
traditional manufacturing-based business into operations-based with a greater emphasis
on providing services. The benchmarking against Mathieu’s service matrix can be a
useful tool for mapping an organisation’s ‘servitization journey’.
The degree of servitization and the cultural differences were compared for industrial
services business in the DACH region. The degree of servitization and cultural
topologies were then compared with operational performance (based on a ROS
measure). From the results, it was identified that organisations with higher service
specificity were amongst the best performers. The same organisations tended to have
more formal process-based tools to support service operations. A more comprehensive
survey to review theses topics over a longer-time frame would further improve the
quality of the data and hence the results.

32. 9
One business was only active in services; the business noted some ‘product’ sales,
mostly in the form of spare parts. The breakdown of the definition of ‘service’ content
is an important detail that needs to be better understood so that highly servitized
businesses can be correctly compared with others. Further investigation with business
models and service reporting (both financial and non-financial/KPI-based) should be
undertaken to better understand this issue to ensure accuracy of results.
It is postulated that the use of a number of tools can help to bridge the gap between
manufacturing and service provision whilst, helping the whole business to understand
the issues faced by increasing servitization. The use of a common assessment tool for
benchmarking the degree of servitization was helpful in this study. From this, it is also
postulated that the servitization journey could be plotted in more detail. This is
important as the servitization journey (Neely, 2011) for each organisation varies
depending upon the context (eg, history, leadership, culture, tools/process) and these
factors could be seen to have an impact within an organisation.
Recommendations for further work
From the study, it is recommend that a more in depth study into service culture and the
necessary tools require to support it is carried out, in particular:
• Undertake a wider study with more firms so that the segmentation, business
cycles and business type/business models issues can be isolated from the
servitization issues.
• Development of assessment tools for benchmarking servitization and service
cultures from a customer perspective.
• Identify the key tools/processes and KPIs required to support an industrial
product business successfully develop a service capability.
Acknowledgements
The authors would like to acknowledge the 24 businesses that took part in the study, the
support from the Roland Berger with undertaking the survey and the financial support
from Lucerne University of Applied Sciences and Arts.
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