California Management Review

Abstract

Increasingly, manufacturing firms are turning to services as a new way of creating and capturing value. Despite its potential benefits, many new product-service providers struggle to deploy service activities effectively, not least because they fail to reflect the presence of service activities in their performance management systems. This article reports the results of an in-depth case study, which examines how manufacturers can steer the transition towards services. It shows that manufacturing firms need to emphasize two separate but related dimensions of the market performance of service activities: "service adoption," reflecting the proportion of customers who purchase the manufacturer’s services; and "service coverage," signaling the range of service elements or the comprehensiveness of the service contract that customers opt for. These two indicators, reflecting service market performance, should be supplemented with a "complementary index" designed to disclose whether the relationship between products and services is reinforcing or substitutive. When combined, these indicators allow manufacturing firms to deploy a service-based business model in an integrated and sustainable manner.

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