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August 14, 2012

Successful Hybridity of Good and Services for Manufactures

12:29 PM

Successful Hybridism of Good and Services for Manufactures
Traditional manufacturers have moved into service and customer solution fields to solidify their positions in increasingly competitive markets and grow their revenues and margins, leading to the well-documented shift from a goods-dominant to a service-dominant logic in business markets (e.g., Antioco et al. 2008; Neu and Brown 2008; Sawhney, Balasubramanian, and Krishnan 2004; Vargo and Lusch 2004; Wise and Baumgartner 1999). Froma scholarly perspective, we know a great deal about the processes, antecedents, and consequences of designing and delivering successful service offerings, as most famously exemplified by the Gaps service quality model (Zeithaml, Parasuraman, and Berry 1990), the three-component model  (Rust and Oliver 1994), and SERVQUAL dimensions  (Parasuraman, Zeithaml, and Berry 1988). However, extant literature predominantly refers to pure services in consumer marketing settings, such as the airline industry, financial services, hospitality, and retailing.  This focus ignores a domain that may be critical: hybrid offerings. Shankar, Berry, and Dotzel (2007, p. 2) define a hybrid offering as a combination of “one or more goods and one or more services, creating more customer benefits than if the good and service were available separately.”
The same authors provide a much simpler definition in amanagerial article: “hybrid solutions are products and services combined into innovative offerings” (Shankar, Berry, and Dotzel 2009, p. 95). We adopt the latter conceptualization, particularly with regard to hybrid offerings in business markets that combine industrial goods and services.
Moreover, we note increasing research interest in the successful deployment of goods–service combinations (Antioco et al. 2008). For example, Fang, Palmatier, and Steenkamp (2008) derive empirical evidence from longitudinal, aggregate, firm-level data about when and how goods-based companies generate shareholder value when they begin to offer ancillary services. The authors find that “the effects [of service transition strategies] on firm value become pronounced only after the level of service sales reaches a critical mass, which averages approximately 20%–30% of total firm sales” (Fang, Palmatier, and Steenkamp 2008, p. 11).
In a recent study, Tuli, Kohli, and Bharadwaj (2007) provide a new approach for understanding customer solutions: a particular type of hybrid offerings in business markets. The authors show that customers and suppliers approach solution offerings from very different angles. Whereas vendors typically view solution offerings as customized and integrated combinations of goods and services for meeting a customer’s business needs, customers perceive solutions as relational processes.
Despite this emerging body of research, we know little about what drives the success or failure of an effort to increase the service component (Bolton, Grewal, and Levy 2007; Neu and Brown 2008). In general, managers agree that they must move into services, but anecdotal evidence indicates mixed outcomes at best.
According to a Bain &Co. study, only 21% of companies succeed with their service strategies (Baveja, Gilbert, and Ledingham 2004), and few firms that enter service markets outperform their pure goods-centric counterparts in terms of revenue growth, margins, or returns on equity. Stanley and Wojcik (2005) find that approximately half of all solution providers realize only modest benefits, and 25% actually lose money.
We contend that this evidence exemplifies our poor understanding of hybrid offerings compared with pure goods and pure services offerings. Which particular strengths in operations, product development, and marketing can a goods manufacturer leverage particularly well for hybrid offerings? What unique opportunities exist that pure service players cannot access? Rather than just a general agreement about why manufacturers move toward services, we need a better understanding of how they can ensure that their service activities succeed. To address this fundamental issue, we investigate three main research questions:
1. What distinctive capabilities must goods-focused manufacturers (compared with pure-service players) develop to generate successful hybrid offerings?
2. Which unique resources must manufacturers leverage to build these distinctive capabilities?
3. How can goods manufacturers translate unique resources and distinctive service capabilities into positional advantages, and how do these effects vary across different types of services?
By answering these questions, we make several contributions. First, using the resource-based view as a theoretical base, we identify resources and capabilities that are key for a successful hybrid offering deployment. We do not aim to generate an exhaustive list of generic capabilities; rather, we focus on specific resources and distinctive capabilities that goods-focused manufacturing companies deem most important for developing successful hybrid offerings.
Then, we integrate those resources and capabilities into an overall conceptual frame. Second, considering the many types of hybrid offerings, we develop a fine-grained typology that reveals how different types of hybrid offerings moderate the link between service capabilities and positional advantage.

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