Overcoming the Service Paradox – A Configurational Analysis : Working Paper
The service paradox describes that manufacturing businesses make significant investments to enhance their service business, in order to achieve higher returns, but fail to achieve positive profitability effects and sometimes even face bankruptcy. While a commonly recognized phenomenon in research and industry, it is still unclear why some manufacturers are successful with their services offerings, while others fail. Current research mostly focuses on successful cases of servitization, with the results often being inconclusive or interconnected, while research on servitization failure is sparse. In order to understand the service paradox, however, it is not enough to study success and failure in isolation. Therefore, the purpose of this study is to examine the causal factors responsible for the service paradox, by analyzing and comparing both the occurrence of service profitability and overall profit growth, as well as their absence. Conceptualizing the service paradox as a causally complex phenomenon, characterized by asymmetry, equifinality, and conjuncturality, a configurational approach is chosen. Elements of service strategy (focus of the offering on product – or process-oriented services, existence of a clearly formulated service strategy) and structure (existence of a separate service organization, service orientation of corporate culture) are included in the configurational model. Fuzzy set qualitative comparative analysis is employed to a sample of 143 German manufacturing companies. The existence of a clearly formulated service strategy and a strong service orientation of corporate culture are identified as necessary conditions for service profitability. Five configurations sufficient for service profitability and overall profit growth are identified, as well as three configurations sufficient for the absence of the outcomes. The discussion results in the formulation of four proposition and three ideal-type configurations for overcoming the service paradox, focusing on a match between the kind of ser-vice offering and structure of the service organization. This study therefore adds to the sparse literature on servitization failure and the service paradox. It offers a theoretically sound, fine-grained and realistic understanding of the causes of the service paradox, as well as on ways to overcome it, which ultimately aids managers of servitizing companies in better decision making.
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