Service infusion in practice

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Malin Ducloux

Viktor Valkeapää

Service infusion in practice

A Case study of the development and practice

of service sales at Rolls-Royce Marine AB

Business Administration

Master’s thesis

15 ECTS

Termin: Spring 2014

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Service infusion in practice – A case study of the development and practice of service sales at Rolls-Royce Marine AB

© Malin Ducloux, Viktor Valkeapää, Rolls-Royce Marine AB

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Abstract

Manufacturing companies are experiencing changing customer needs, eroding profit margins and are therefore undergoing changes to secure their position on the highly competitive markets by shifting their focus from goods to services. Manufacturing companies are faced with considerable risks and challenges in this transition, and many firms fail launching successful services and are unsuccessful in their attempts to differentiate themselves on the market. Selling services requires the sales personnel to develop different skills and to have a high level of customer-orientation.

The purpose of this study is to create a better understanding of the service infusion efforts in Rolls-Royce Marine AB and whether their sales force are adequately prepared to sell services. The execution of the research was conducted using a qualitative method by collecting data through interviews with managers and sales representatives at the case company. The findings were analyzed with a thematic model created by the authors using selected previous research in the areas of service infusion and service sales.

The results of the study indicate that the organization is aware of the ongoing service infusion, but a lack of resources, defined service strategies and service orientation have created barriers in the service infusion process. This study concludes that the organization is in need of a well-defined service strategy and that the sales personnel could benefit from participating in service sales training in order to overcome their uncertainty when selling service offerings and conveying the value of services.

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1. Introduction

The chapter includes an introduction to the area of research based on previous research which leads to a problematizing discussion of the subject and results in the research questions of the thesis, its purpose and a list of definitions.

1.1. Background

Higher market- and customer complexity, eroding profit margins and increasing competitive intensity are increasing the strategic importance of services (Oliva & Kallenberg 2003; Kowalkowski 2010), and as a result force traditional product manufacturing companies to change the way they view services by continuously extending their service business (Gebauer et al. 2005; Gebauer 2008; Edvardsson et al. 2010). Therefore, companies are undergoing changes to secure their position on highly competitive markets by differentiating themselves through shifting their focus from goods to services (Ulaga & Loveland 2013). The manufacturing industry represents a mature industry with slow market growth (Ulaga & Reinartz 2011), and previous research has indicated that even though services represent a relatively low part of the firm’s customer value creation, they are a less volatile source of income than only selling manufactured goods (Gebauer et al. 2005). Firms which adopt this service orientation are in the process of changing their entire business to not only accommodate services as an addition to the physical products they deliver, but offer service as the basis of their business models (Edvardsson et al. 2007). Previous research has also indicated that industrial manufacturers who infuse services into their value offerings can even boost their physical product sales by doing so (Fang et al. 2008; Visjnic et al. 2013). Studies have shown that over 85% of European manufacturing firms offer at least one service offering (Lay et al. 2010). Consequently, instead of services being complements to the product, they become the center of the total offering, where products are used as a means to convey the service (Kowalkowski 2010; Gebaueret al. 2011) Therefore, as stated by Kowalkowski (2010:230) “the function of goods is to deliver service”.

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Despite the possibilities and potential opportunities of service development, managers remain largely hesitant to its implementation, and are experiencing difficulties to complement their product offering by introducing services. Manufacturing companies face considerable challenges and risks when transitioning from a focus on goods to services (Edvardsson et al. 2013; Ulaga & Loveland 2014), which have resulted in the relatively low success rate of 43% for newly developed services on the market (Edvardsson et al. 2013). Some firms have tried to infuse services into their product offerings through large investments of both capital and resources and then failed in launching the services (Oliva & Kallenberg 2003; Gebauer et al. 2005), and the ongoing struggle in the industry shows a need for further research on the process of successfully selling service-based products in a largely product-based field.

1.2. Problematization

When selling service-based offerings, the sales process in structured around different steps than when selling traditional goods (Moncreif & Marshall 2005), and demand interaction with a more complex network of actors (Ulaga & Loveland 2014). One major barrier in the process of achieving successful service provision of service-based products is defining customer’s needs, which are inherently difficult to define, and developing a satisfying solution for customers (Kindström 2010; Ulaga & Reinartz 2011; Ulaga & Loveland 2014). Firms also struggle when it comes to the pricing of services, both for existing service-based product components and for newly developed services, creating another barrier according to Witell & Löfgren (2013). According to Brown et al. (2010), this resistance to pay stems from customers being unwilling to start paying for services that have not been associated with costs previously.

It is a managerial challenge to create a service culture when balancing the trade-off between efficiency (manufacturing values) and flexibility (service oriented values) (Gebauer et al. 2005; Edvardsson et al. 2010; Gebauer et al. 2010). Another complication of a service infusion is that selling service offerings requires the personnel to undergo extensive training and develop different skills than when selling goods (Ulaga & Loveland 2014), which can be illustrated by the quote: “product sales people are from Mars, while service sales

people are from Venus” (Ulaga & Reinartz 2011:13). The process of service

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Researchers have expressed a continuous need for further empirical research in manufacturing companies (Oliva & Kallenberg 2003; Åkesson & Skålén 2010; Edvardsson et al. 2010), and particularly in a business-to-business setting (Ulaga & Loveland 2014). Previous research has found several potential knowledge gaps between the customer and service provider, where the sales force is an essential strategic resource, and has a pivotal role in the success of the service infusion (Oliva & Kallenberg 2003; Åkesson & Skålén 2010; Edvardsson et al. 2010).

Previous research demonstrates that it are substantial benefits to introducing services, but manufacturing companies have difficulties in creating and implementing a service strategy, while also changing the organizational behavior and culture as needed when introducing these new offerings (Oliva & Kallenberg 2003; Åkesson & Skålén 2010; Edvardsson et al. 2010; Kindström 2010; Ulaga & Reinartz 2011; Ulaga & Loveland 2014).

With this in mind the purpose of the paper is to create a better understanding of the service infusion efforts in a typical industrial manufacturing firm, and determine whether the sales force is adequately prepared to sell services. The study will be based on information gathered from within the organization to create an understanding of the development and practice of service sales within a typical manufacturing company undergoing service infusion, where the following research questions will be answered:

 Does the company have a service infusion strategy?

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1.3. Definitions

The following are author’s interpretations of terms used in the thesis, mainly based on existing definitions by Ulaga & Reinartz (2011) and Vargo & Lusch (2004).

Service Intangible commodity which cannot be stored or owned, and is consumed at the point of sale.

Goods Physical and tangible commodity

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2. Theory

The chapter begins with an introduction of the concept of service dominant logic to provide readers with a general understanding on the concept of service, which is followed by the theory selected as the basis for analysis. The chapter is concluded with a model of the theoretical framework based on the theory.

2.1. Service Dominant Logic in Industrial Markets

The marketing, selling and development of services have recently undergone a dramatic change where a new and largely customer-centric dominant logic has been developed among researchers and practitioners (Vargo & Lusch 2004). The perspective distinguishes goods, services and service as separate value offering concepts, where the first two are goods-dominant terms that imply that the firm offers value to customer, while the concept of service encompasses all value creation practices of the operant as well as the operand (Vargo & Lusch 2004; Vargo & Lusch 2011). Where firms and customers collaborate in the co-creation of value through mutual resource integration in networks where both customers and firms are actors (Vargo & Lusch 2004). These resources are less focused on economic value and productivity, and instead encompass softer resources such as the expertise of the service provider, the defined needs of the recipient, and their combined skills and know-how. The focus is thereby shifted from the economic exchange benefitting the firm, to creating a valuable outcome of the service encounter for both parties (Vargo & Lusch 2011).

This new logic contradicts the traditional goods-dominant logic, which views producing things that can be sold as the sole purpose of economic activity, where productivity and profitability are the value drivers for the firm, and that customer value is imbedded into the goods and services by the firm (Vargo & Lusch 2004).

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goods (Oliva & Kallenberg 2003; Gebauer et al. 2008, Kowalkowski et al. 2012).

2.2. Transitioning from goods to services

According to Oliva & Kallenberg (2003) there are several reasons for goods-centered manufacturing firms to also expand their business and take advantage of the service market. There are economic benefits (services usually have higher profit margins and more stable revenues than goods), and competitive advantages (the demand for service is growing due to the emergence of lean management and the optimization of the B2B market, and the nature of services being labor intensive and less visible than goods which make them difficult to imitate). However, there are also barriers firms must overcome when transitioning from selling goods to also offering services. Many managers have not realized the true revenue potential of services, they might not think that they have the resources or competencies necessary for introducing a successful service, or they might have drawn the conclusion that the success rate of introducing services is relatively low (Oliva & Kallenberg 2003; Edvardsson et al. 2013).

2.2.1.Service Strategies

Service strategies have proven to be another factor of vital importance for manufacturing firms that are attempting a shift from a manufacturing- to a service provider’s role (Neu & Brown 2005; Gebauer et al. 2010a; Edvardsson et al. 2013). Gebauer et al. (2010a) propose that the success of service strategy implementation depends upon the congruence of the strategy itself, and the organizational factors of the firm such as its degree of service orientation and its human resource management. According to research the relatively low success rate of services can be attributed to managers underestimating the complexity of newly developed services, their markets, and not having an outspoken and defined strategy for their service offerings (Neu & Brown 2005; Gebauer et al. 2010a; Edvardsson et al. 2013).

2.2.2.Incremental service infusion

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successfully implementing services and service-based products into the value propositions of manufacturing firms is through agile incrementalism. In this strategical approach the firm adapts a service infusion strategy which promotes long-term service development where the steps towards the developed service are less clear-cut and deterministic, and more adaptive and explorative. (Kowalkowski et al. 2012)

2.2.3.Internal factors

In accordance with the previous study by Oliva & Kallenberg (2003), Gebauer et al. (2005) further explore the effects of service infusion in manufacturing firms, and state that services often outperform other sources of income such as technical innovation and product quality since their operating margins are generally higher. However, they also describe the service paradox that many firms come across when attempting to infuse services into their value offerings. This paradox occurs when manufacturing firms invest heavily into the service market in order to increase their service-based revenues and operating margins, but fail to create return on their investment because of internal and external barriers inhibiting the process, including employee- and customer resistance, service organization inefficiency and inadequate service quality, among others. (Gebauer et al. 2005) Several researchers have suggested that in order to overcome as many of these barriers, or “internal factors”, as possible, managers have to align the organizations structure, culture and sales force mentality to reflect their service strategy (Homburg et al 2003; Gebauer et al. 2005; Antioco et al. 2008).

2.2.4.External factors

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staying competitive in service development and innovation (Witell & Löfgren 2013).

2.3. Service pricing

The pricing of services is a current issue for many manufacturing firms since there is uncertainty when transitioning from offering a customer services for free to imposing them with a price (Witell & Löfgren 2013). Although price is often a major driving force behind any purchase decision, it can also be an indicator of service quality since business-to-business customers are generally less price sensitive than consumers (Zeng et al. 2011). While some firms choose to offer costly services for free as a way to create loyalty, studies show that (a) free services do not necessarily have a loyalty-increasing effect and (b) free services that are not valuable to customers have no function and are needlessly draining resources which could be used for developing revenue-generating services (Witell & Löfgren 2013).

2.3.1.Price perceptions and reduction of costs

Customers value a fair market price and a supplier’s continuous attempts to reduce prices. During the sourcing process the customer appreciates the suppliers willingness to reduce cost by taking the cost out of the process and therefore adding value. However, many companies are hesitant to mainly emphasizing price to its customers since it can have negative effects on the relationship between the buyer and seller. (Cannon & Homburg 2001; Ulaga & Eggert 2006) According to Cannon & Homburg (2001) one of the most important and practical factor is to lower the total cost in the value chain. By maintaining an effective cost management the supplier gains competitive advantage and enhances the buyer-seller relationship (Cannon & Homburg 2001; Kapil et al 2007).

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2.4. Sales personnel

Described by Moncreif & Marshall (2005) the sales process has undergone a major change, from a focus on transactions and repeats sales to a framework of interaction and relationship building between buyer and seller. Also Sharma (2007) and Sheth & Sharma (2008) express the change in the sales process from sales personnel being valued based on their ability to sell goods and services by persuading the customer through charisma and aggressiveness, to a customer-oriented selling which requires traits such as problem solving abilities, satisfying customer needs and delivering customer service.

The shift towards selling services and solutions has also changed the role of the sales personnel from a spokesperson of the product to the consultant for the customer by building long-term relationships (Sheth & Sharma 2008). The role of the customer has also changed in the service creation process, making the customer a co-creator of the service rather than just the buyer, increasing the importance of the service providers having the skills and abilities to incorporate the customer in the service creation process (Ulaga & Loveland 2014). Neu & Brown (2005) describe the role of a sales person as a trusted advisor that provides a complex service in collaboration with customers to create the service and continually work towards developing customer relationships.

According to Sharma (2007) and Ulaga & Loveland (2014) sales personnel who adapt the customer-oriented service approach make more of an effort in meeting customer needs and learn the customer’s process and culture have higher customer satisfaction, and higher levels of performance. Neu & Brown (2005) state that the sales personnel is the key organizational resource for a service provider, and therefore the process of hiring is crucial.

2.4.1.Training of salespeople

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Salespeople in manufacturing companies typically have training in cost analysis and are taught to emphasize the practical and technical features of goods (Neu & Brown 2005; Bjurklo et al. 2009). Argued by Ulaga & Loveland (2014) it is required to have different skills when selling services, as compared with selling goods. It is crucial to have a sales force which is prepared to understand and meet customer needs and there is a need for the sales personnel to have training in communication, problem solving skills, flexibility and adaptiveness (Kapil et al. 2007; Sharma 2007; Ulaga & Loveland 2014). Furthermore, Antioco et al. (2006) and Ulaga & Loveland (2014) state the importance of training the sales personnel in order for them to possess sufficient listening skills and the ability to customize solutions depending of customer needs. If given the right tools and training, the sales force can acquire the tools to effectively create service solutions (Gebauer et al. 2005).

2.4.2.Individual sales staff compensation

The traditional compensation model for sales personnel may not be adequate since it is based on the amount of sales, instead research suggest that the compensation should be based on customer satisfaction, profit- and sales growth. (Sharma 2007; Sheth & Sharma 2008). The financial compensation is an incentive (Sharma 2007; Kapil et al. 2007) and an important driver in the development of a service-oriented business (Antioco et al. 2006). Kaplan (2005) expresses the importance of the integration of a ‘total service reward system’ involving a service related work environment in that is rewarding sales personnel with benefits and compensations.

2.5. Customer interaction and meeting customer needs

It is important to have sales personnel who possess a high level of knowledge and experience in order to get a full understanding of the customer’s operating process in order to create an optimized solution (Cannon & Homburg 2001; Ulaga & Eggert 2006) The supplier’s know-how is an important value-adding feature in the long-term buyer-seller relationship (Cannon & Homburg 2001; Kapil et al 2007), and close interaction in a long-term relationship can also reduce the customer price sensitivity (Kapil et al. 2007). The supplier’s technical “know-how” is based on expertise and experience in the field (Cannon & Homburg 2001; Ulaga & Eggert 2006; Philipsen et al 2008).

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(Kapil et al. 2007). By developing interpersonal ties between customer and supplier through frequent communication the specific customer needs can be comprehended, and problem solving is improved (Cannon & Homburg 2001; Ulaga & Eggert 2006; Kapil et al. 2007). Also Haas et al. (2012) argue that close contact between customer and supplier can improve the co-development of solutions and reduce uncertainty. To reduce uncertainty for customers, service suppliers also need to be able to define the evolving needs of their clients (Kapil 2007).

Other than creating sufficient product quality, the supplier needs to make continuous improvements in the service operation delivery and deliver according to schedule (Cannon & Homburg 2001; Ulaga & Eggert 2006). Customers might require time and support to adapt their internal routines and processes, therefore it is necessary for the supplier to be flexible, responsive and committed to the customer (Homburg et al. 2005; Kapil et al. 2007) It is equally important to have a optimized accuracy of delivery. As a result of changing markets and complex customer needs the company need to be responsive and able to adjust the deliveries within a short amount of time if needed (Cannon & Homburg 2001; Ulaga & Eggert 2006).

2.6. Customer relations

Cater & Cater (2010) and Raddats & Easingwood (2010) suggest that when the supplier and customer have a relationship based on cooperation, the customer becomes more committed and the perceived trust is enhanced. This open dialogue between customer and supplier is referred to as a ‘joint-learning process’ by Philipsen et al. (2008), evolving into a partnership based on conjoint knowledge from both parties. Research also indicates that customers value supplier responsiveness, ability to listen and adapt to customer needs are components needed when developing a long-term relationship. (Cannon & Homburg 2001; Ulaga & Eggert 2006)

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possible conflicts, raises the level of cooperation and increases the customer satisfaction by focusing on the long-term benefits of the relationship (Homburg et al. 2005; Ulaga & Eggert 2006).

It has been a growing recognition from research over the past decades that competitive advantage is developed through buyer-seller relationships (Ulaga & Eggert 2006), and is a necessity for a company’s long-term success and survival (Woodruff 1997; Penttinen & Palmer 2007). Customer relations are also the key to profitability and sustainability on the market (Johnson & Selnes 2004), enhancing the need for suppliers to differentiate themselves in competitive markets of qualified suppliers in order to obtain the key supplier status (Ulaga & Eggert 2006; Vandenbosch & Dawar 2006; Cater & Cater 2010). In order for business-to-business markets to develop long-lasting relationship with its customers it is important for suppliers to maintain a high level of customer interaction (Mathieu 2001), and make the customer committed to the company (Homburg et al. 2005).

2.6.1.Maintaining the customer relationship

Customers consider post deployment support as a critical part of the service solution and the maintenance of the relationship. The post deployment is more than a provision of operating information, maintenance and spare parts. A successful and superior after sales support consists of quality controls, follow ups, technical training and optimization of the equipment and ongoing new product and service improvements. (Kapil et al. 2007)

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2.7. Theoretical frame of reference

The model was designed based on the presented theory in order create a structure when presenting and analyzing the empirical data. Chapter 2.1 about Service Dominant Logic (SDL) was excluded from the model since its purpose mainly was to give the reader a broadened knowledge into the background of service-dominant logic and the field of research. The first part of the theoretical framework is the practice of transitioning the firm from goods to services, and involves the managerial view of the issue, while the subsequent section involve the operational practices of service sales.

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3. Method

The chapter describes the method used for conducting the study, the procedures for data collection, the validity, reliability and generalizability of the results, and is concluded by a methodological reflection.

3.1. Research Method

When choosing a type of study, there are several factors to take into account in order to ensure validity and reliability of the empirical results. The formulation of the research questions and the data collection environment are some of the main defining factors, and case studies in particular are a suitable method to answer questions which aim to describe processes or practices using contemporary findings rather than historical data (Yin 2009). Since the research questions of this thesis are descriptive and focus on contemporary sequences of events, a case study approach has been deemed most appropriate.

Through a qualitative study of the sales staff and its management, this study intended to further develop an understanding of this by studying service sales process within the organization.

The study was performed through a case study of the manufacturing firm at hand, which according to Yin (2009) is a suitable empirical method to investigate a contemporary phenomenon in depth and within its real-life context (Yin 2009), which is beneficial for the current study since the studied phenomenon of service infusion is ongoing, and cannot be documented through any tangible performance indicators. The empirical results will be analyzed using theory from current research, which signifies a deductive approach.

3.2. Selection of the Case Company

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3.2.1.Implications of having Rolls-Royce Marine AB as our Case

Company

Conducting research in collaboration with a company could create both moral hazards and interfere with the goals of the researchers and the interests of the case company. The researchers have had two roles during the study; where the authors have had to be both independent researchers and act as consultants for the case company. (Bryman & Bell 2005) The authors have been mindful of this dilemma from the start of the study, and have been able to balance these conflicting roles.

3.3. Data Collection

3.3.1.Primary Data

The primary data of the study was collected through conducting seven semi-structured interviews with the employees at Rolls-Royce Marine AB based on an interview guide (see appendix I). Both managers and salesmen participated in order to document the service sales processes as extensively as possible. Using semi-structured interviews as a main source of primary data facilitates the collection of the respondents’ opinions and values in subjects by broadening the scope of the data collection in order to describe the different subjects in detail. Since this thesis focuses on exploring multi-faceted research questions which involve the opinions, reflections and values of the respondents, a structured interview could hinder this goal.

A semi-structured interview is preferable to use when the aim of the research is to enhance the understanding of events and behaviors since it enables the respondent to elaborate the answers based on previous experience and knowledge (Bryman & Bell 2005).

3.3.2.Secondary Data

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sources in order to obtain research in the field that is up to date (Booth et al. 2008).

The bibliographical trails have been followed from various articles with useful theory and citation, therefore many of the articles used in this thesis have been found when reading other articles (Booth et al. 2008). The methodological literature used for the thesis has been selected in order to gain an understanding of the case study approach and qualitative data analysis. Other than specialized literature, a range of more general literature has been used to ensure the use of appropriate research methods.

3.4. Conducting the interviews

All interviews were carried out in the office of Rolls-Royce Marine in Kristinehamn, Sweden, and were conducted in Swedish, the native tongue of the respondents, in order to avoid language barriers.

3.4.1.Preparation before the interviews

In order to prepare the respondent for the interviews, they were provided with an interview guide in order to make them more comfortable during the interview by having an idea of the main research areas (Bryman & Bell 2005). The respondent was further informed that the participation would not reveal the name of the employee but illustrate their organizational position as a further attempt of making the respondent feel at ease.

Before conducting the interview the authors explained its purpose, and any questions from the respondent were answered before starting the interview. In accordance with Bryman & Bell (2005) the interviewers asked for permission to record the interview for transliteration purposes in order to have as little influence as possible on the not influence the respondent into feeling insecure and therefore affect the provided answers.

3.4.2.Conducting the interviews

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the respondents to fully elaborate their responses (Bryman & Bell 2005). This allowed the respondents to interpret the themes themselves, and the possibility for them to answer the questions freely without structural limitations.

3.4.3.Documentation of the interviews

All the conducted interviews were recorded and transliterated into Swedish before translated into English. The recording of the interview minimizes unconscious interpretations made by the interviewers and the gathered data could be transliterated, processed and finally analyzed thoroughly in the research. After the interviews each of the interviewees were asked to approve the transliteration of the interview in order to ensure the correctitude of the data collected (Bryman & Bell 2005).

3.4.4.Guidelines for the interviews

The authors adapted a framework when conducting interviews from Kvale (1996) with twelve criteria for a well performed interview: respectful, sensitive, informed, structured, determined, critical, interpreting, clear, open, recollected, balanced and ethical.

The questions were formulated in order to avoid leading questions and the language was chosen to suit the respondents. It was also crucial to keep the questions general and open in order for the respondent to devise the answers freely. (Bryman & Bell 2005) According to Bryman & Bell (2005) it is important to have in consideration that the role of the respondent should be respected when composing the questions. Therefore, attempts were made to prevent the respondent to feel omitted when asked questions by articulating the questions with sensitivity.

3.4.5.Selection of the respondents

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Figure 2: Organizational links between respondents

For this thesis a total of four managers and three staff members from the sales force were interviewed to gain insight into both levels of the organization in the study. The selection of respondents at the managerial level was relatively broad in order to capture the service strategies in several parts of the organization, while those at the operational level were selected from within the designated service sales organization. The sales personnel within the organization are not sales representatives on the field, they work at the headquarters at Kristinehamn with more of a support function to the regional salesmen on the field. The respondents representing the operational staff were chosen within the department of Marine Services in order to capture the opinions of the sales personnel with the most customer contact.

3.5. Method of analysis

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Figure 3: Analytical framework

3.6. Validity, reliability and possibilities to generalize

The internal validity is based on the credibility of the research process, and that the researcher is describing the case study in accordance with the reality. This has been maintained throughout the data collection by asking the interviewees to verify the accuracies of the transliterations. (Bryman & Bell 2005)

External validity in a case study is defined as analytical transferability, where the results of the study are placed in a context constructed through a broader set of theory. Other case studies based on the same research should then be able to anchor their validity in the same theoretical context (Yin 2009). In this thesis the external validity has been ensured through selective theoretical research in order to extensively describe the studied concepts in the study. During the data collection a replication logic approach has been used, where the research has been designed and described in a way that enables researchers to replicate the study in other context and case studies.

The research maintained a high level of reliability by thoroughly describing the research steps throughout the methodology (2005) and through extensive and thorough methodological descriptions.

This thesis has strived to achieve what is referred to by Yin (2009) as analytical generalizability through its case study, where “previously developed theory is used as

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Case studies can only claim replicability when the same theoretical framework is used in multiple studies of the same subject. Since this thesis focused on a descriptive single-case study, the aim was not to proclaim generalizability of the results.

3.7. Methodological reflections

When gathering data from respondents within the same work environment it is possible that the answers could be restricted due to personal relations and hierarchy. This was attempted to prevent by making the respondents anonymous with the participation as well as explaining the respondent’s part in the interview, and the purpose of the thesis.

The interview guide was used with all the respondents and its open questions made the respondents interpret and answer the questions differently. As a result, the depth of the empirical data collected from the different interviewees varied greatly. Asking more direct and specific questions could possibly have prevented it, but it could also have limited the depth of the responses to the questions.

The responses of the interview questions from certain parts of the organization were lacking in depth, which was an unforeseen consequence of applying the same questions and interview guide for all parts of the organization. A different approach could have been to adapt and specify the interview questions depending on which department the interviewee belonged to. Another consequence of the chosen respondents was their different customer involvement. The respondents all have customer interactions but to very different extents, this was realized during the process of collecting data and could have been foreseen if a more thorough organizational research were conducted before choosing the respondents.

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4. Findings

The chapter includes a brief background of the researched company which is followed by a thematically summarized version of the research findings, based on the empirical data found in appendix I.

4.1. Background

Rolls-Royce Marine AB has a long history of producing water turbines and propellers. It all started in 1849 when Christinehamns Jernvägs Mekaniska Werkstad was established with a production of locomotives and railway carriages. In 1902 the manufacturing of water turbines was placed in Kristinehamn. The company later started manufacturing marine propellers with a revolutionized propeller blade with hydraulic adjustable angles, also referred to as the KaMeWa propeller. In 1999 Rolls-Royce bought the company. Today the company offers high quality goods and services. Rolls-Royce Marine’s market sectors are offshore, merchant, naval surface ships, fishing and submarines.

Rolls-Royce Marine has a designated marine service sales manager with salesmen specializing in selling and providing solutions, are currently in the process of developing their service offering using components both from their current service-based services and newly developed ones. Other than individual value-adding activities, the company strives to provide their customers with customized solutions such as long-term service agreements, turn-key solutions for upgrades and maintenance. They have recently also started developing more holistic offerings such as Marine Care, which encompasses the entirety of the firm’s service offering to optimize the customer value of the services provided.

When asked about the firms transitioning from goods to services the Business Manager, the Manager in Marine Services (Manager 1) and the Manager in Technical Support (Manager 2) expressed a mutual “opinion” that Rolls-Royce Marine AB is undergoing a service infusion process. The Manager in Spare Parts (Manager 3) however was under the impression that his department had not undergone any major changes.

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services, they are also requesting it. One example is the 24/7 service center at the firm which was a new service for the market when it was launched, and has now become indispensable for the customers. He further expresses that the industry as a whole has started to incorporate value based offerings rather than selling goods.

4.3. To get paid

The managers and sales representatives state that they do not have consistency concerning its billing of customers for the services. There are several services which are not being charged for at Rolls-Royce, even though they have noticed that customers are, in many cases, willing to pay for themselves. Some respondents believe that the hesitation is an effect of certain parts of the sales organization being over-cautious in their pricing strategies. One of the respondents expressed an uncertainty to define what is included within the firms offering and what can be considered a paid service. The sales force indicated a complexity when defining a value and setting a price for a service due to the technical competence needed, the conjoint nature of services and goods, and the uncertainty of the performance of the service. One salesman expressed that the main purpose of the company is to sell propellers, services are a complementary offer to the physical product.

4.4. Sales staff and sales practices

The majority of the managers believe that being a sales representative requires a strong sense of business, and extensive knowledge of their customers. They further stated that it is important to be perceptive and responsive to the customer needs.

Rolls-Royce AB has previously attempted training their personnel in value-based sales, but according to the business manager it had little effect, since the sales force was not able to put the learning into practice without any developed service offerings at the time. All managers acknowledged the

possible benefits with further training in service sales.

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4.5. Customer interaction and meeting customer needs

The departments at the firm have different frequency of customer interaction where some are highly involved in customer communication and others work with them indirectly through regional branches of the company. According to the majority of the respondents how to interact with individual customers varies greatly and it depends on the customer’s needs.

According to one manager, customers appreciate proactive communication based on continuous deliveries of maintenance analysis in order to plan their operations and future need of upgrades and improvements. The majority of the salesmen stated that being customer oriented, open and honest with the customer could increase the trust and enhance the relationship. The majority of the respondents have ongoing interaction with some of their customers. All respondents stated that communication is one of the most important factors when working with customers. It is also important for the managers that the salesmen are responsive when customers contact the company and deliver quotations quickly. By having an effective communication between the company and the customer both parties can create an understanding and agreement on what is included in the offer in order to prevent misunderstandings. The salesmen expressed that the customer’s needs are unique and therefore the solutions are customized to maximize value. In order to create the solutions it was further stated that there is a need to have technical knowledge and pedagogical skills. According to the manager in Technical Support their work has evolved to being more proactive by evaluating the customer needs and introduces the need for improvements at an early stage. The managers also emphasize the need to deliver the correct product (e.g. spare parts) at the scheduled time in order for the customer to be satisfied.

4.6. Customer relations

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5. Analysis

The chapter consists of a thematic analysis of the empirical data, where the findings are analyzed based on the theory presented in the theoretical framework.

The interviews with the managers indicated that the firm is undergoing a shift from product- to service orientation. In response to whether the entire organization has implemented a service culture, the business manager expressed that the organization has not yet evolved as a result of the service infusion. The statement is further supported by a manager;

“I do not think we have come so far in that process. The organization did not change remarkably either.” (Manager 3)

The results imply a lack of a defined and outspoken service strategy, which previous researchers have established as a factor of vital importance (Neu & Brown 2005, Gebauer et al. 2010a, Edvardsson et al. 2013). As described by Edvardsson et al. (2013), the low success rate in service launches of industrial services demonstrates the need of a clear-cut strategy. A service strategy that is well defined, implemented and generally accepted in the organization could therefore improve the success rate in the development of service sales.

“[...] we should work a little bit more within the organization about the whole concept, which we have not had time to do but we definitely need to do it.”

(Manager 3)

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As concluded by research, the respondents have expressed an enhanced market demand on services and services as a new source of income (Oliva & Kallenberg 2003; Gebauer et al. 2005). However, the respondents have provided different insights to the organizational service infusion, which was further evidenced in the interviews with the salesmen, as exemplified by two of the salesmen in particular, who stated;

“Technical support and price calculations, although, necessary functions, are not vital. It is rather the performance of a technical solution that adds customer value.” (Salesman 2)

“But our business idea is to sell propellers, if we can then sell services with the

product it is good but we are not a service provider by definition.” (Salesman 3)

The results indicate that the organization has not yet evolved sufficiently into the role of a service provider, which could suggest an organizational resistance to the shift towards services. Theory suggests that the organizational structure, sales force and culture should reflect the service strategy in order to be successful (Homburg et al. 2003; Gebauer et al. 2005; Antioco et al. 2008), the quotes from the salesmen evidence a need for a unified understanding of the service concept. Therefore, the prevalence of a service paradox could be a possible obstacle in the company’s future implementation of service strategies if not the internal and external barriers have been overcome. In order to create a cohesive service approach it could be beneficial to develop an organizational framework for services, which can be used to convey the firm’s service orientation to the employees.

5.1.2.External factors

The respondents have indicated that the customers within their industry are not only ready for the introduction of service offerings, but also seek them actively, which according to previous research is a sign of a mature market where service launches are possible (Neu & Brown 2005).

“[...] the market’s view on services is that it is an expanding request for services and everything to make their daily processes more productive.” (Manager 1)

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positive attitude towards services. The respondents described the process of creating services as tailored for the specific customer needs, as supported by the statement from research indicating a complexity within industrial markets making it difficult to match the firm's value proposition with the market’s obscure needs (Neu & Brown 2005; Song et al. 2013). The fact that there is a lack of competitors with high product quality and service offers on the market could potentially have a positive effect on the success of the service infusion, as stated by Neu & Brown (2005) and Fang et al. (2008). According to research by Bjurklo et al. (2008) and Witell & Löfgren (2013), keeping this position requires the firm to maintain a high level of competitive advantage by being innovative and recruiting and retaining the employees with the necessary competence. Based on the results, the competitive advantage can possibly be maintained on the market as a result of the firm’s long experience in the field, long-lasting relations with customers and the broad expertise of the employees. However, this could further be enhanced by further developing their service offers in order to firmly establish them on the market.

5.2. Service pricing

The empirical data shows that there is a consensus among all respondents that some services that the firm performs are not currently being charged for, while the opinions of why they are not being charged for vary. In accordance with the study by Zeng et al. (2011), some respondents believe it stems from over-cautiousness and uncertainty in the sales organization. The uncertainty expressed is related to the difficulty in creating a service, measuring its outcome and maintaining the relationship developed between the employee and the customer. As stated by a salesman;

“It has proven to be rather difficult in some cases since the customer can’t be

sure that the offer will result in something, so it is difficult to charge a fee for it from the beginning.” (Salesman 3)

Although, not charging the customer with a fee for a service does not necessarily have a loyalty-increasing effect or being beneficial to the customer according to Witell & Löfgren (2013).

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“Customers today are probably not used to getting anything for free in most cases, so I definitely think we could do it.” (Salesman 2)

The results could indicate a possibility and willingness within the organization to develop a strategy where more services are being charged for (Witell & Löfgren 2013). Each of the respondents expressed the importance of understanding and conveying the value of the offering to the customer. By emphasizing the value rather than the price of a service during sales the process becomes easier according to research by Kapil et al (2007) and Witell & Löfgren (2013).

It is also common among the sales personnel to be willing to reduce costs for the customer by performing certain tasks without charging them, which is exemplified in the following quote;

“Sometimes I perform preparatory work for free to see whether the result of a larger operation can increase the customer’s performance. That kind of work creates happy customers who will hopefully return in the future.” (Salesman 2)

By doing so, they are able to add value to an offering for the customer, but also strengthen the buyer-seller relationship (Cannon & Homburg 2001; Ulaga & Eggert 2006; Kapil et al. 2007). Previous research suggests that cutting down on operational costs, warranties and manufacturing for the customer, which in this case is done by providing certain services for free, can also create value (Cannon & Homburg 2001; Ulaga & Eggert 2006). The results indicate a need to create a strategy for pricing and to develop tools for the employees to charge the customer for the services performed. By doing so the emphasis can be put on the value provided from the offer rather than its price.

5.3. Sales staff and sales practices

The results from the interviews with the managers portrayed differentiated perceptions of what is needed as a sales representative, where they have stressed the importance of both technical and professional expertise, sales staff proactivity and customer knowledge combined with a strong sense of business, which is illustrated in the quotes;

“It is more than a handshake and a transaction, it also requires a deep relation with the customers and an understanding of their organization” (Business

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“A good salesman can tell a customer what is needed before the customer have realized it.” (Manager 1)

The respondents have a mutual opinion that the salesman should have a customer orientation and broad knowledge of the customer’s present and future needs. The results are consistent with theory from Sheth & Sharma (2008), describing a change of sales process from product oriented to customer oriented sales, with a focus on problem solving and satisfying customer needs. In order to co-create the service with the customer the sales personnel is required to have the technical skills and abilities to incorporate the knowledge into the solution (Neu & Brown 2005; Ulaga & Loveland 2014). In accordance with the respondents opinion of a need to have an extensive knowledge of their customers, studies by Sharma (2007) and Ulaga & Loveland (2014) have shown that a customer-oriented service salesmen make more of an effort in meeting customer needs and learning the customer’s processes, which in turns generates a higher degree of service performance and customer satisfaction. Sheth & Sharma (2008) argue that the shift toward selling services and solution creates opportunities to create a long-term supplier-buyer relationship. The results indicate that the sales force is highly aware of the importance of a customer orientation by striving to obtain a high level of customer satisfaction, which could imply a shift toward services. A positive outcome of the focus on customer satisfaction is the facilitation of long-term relationships between customers and the firm.

5.3.1.Training of sales personnel

The results demonstrate an absence of sales training among the sales staff, where one attempt has previously been made, but with a low rate of success. As a result of this, several of the current salesmen are self-taught.

“No, the only thing we have done is that we have had a [...] training session in value-based sales, which I think was held too early, and before there were any substantial value-based offerings behind it.” (Business Manager)

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the previous lack of success in training activities, the respondents believe that future efforts in sales training could be beneficial for the firm now that the service offering is more developed.

“I think there is a great need for training of the sales force when it comes to services and it would be very beneficial for some to do, without a doubt.“

(Manager 1)

The results suggest that the employees in the organization are receptive to training in service-oriented sales. By implementing sales training for the entire sales force a uniform approach to service sales could be attained where the sales force can develop the skills needed to convey the value of the offering to the customers.

5.3.2.Compensation

The managers agree that having an incentive to sell more can be beneficial, but also note the problems that could arise from having individual bonuses related to service sales since more than one person is involved in the service provision;

“If you for example set a turnover-based bonus goal the operating margin sinks, and you don't want to incite a risk-seeking behavior among the salesmen where they undertake orders to secure their bonuses rather than having the customer in mind too.” (Business Manager)

The quote illustrates the complexity of using a traditional compensation model for sales personnel, which is not aligned with the case company’s business strategy. Previous studies have shown that service sales require a way of determining sales force efficiency based on other factors than turnover, such as customer satisfaction, profit and sales growth (Sharma 2007; Sheth & Sharma 2008). The results of the study propose a possibility to implement a bonus system based on the firm’s customer-oriented values, without enabling risk-seeking behavior and where turnover is not the determinant.

5.4.Customer interaction and meeting customer needs

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“It is about unique solutions and the variation of the customer base is big, which makes it important to have technical knowledge, pedagogical skills and to be responsive.” (Salesman 3)

“When you work with this kind of project you’re very technical, result oriented and solution oriented. It is important to get the technical solution on scene. If you’re talking about the sales orientation and the technical orientation it’s 30/70.” (Salesman 3)

“We are often more expensive than our competitors but with our price the thought is that they get a quality product that meets the customer’s needs.”

(Manager 1)

According to theory the technical knowledge is essential to understand a customer’s organization and processes (Cannon & Homburg 2001; Ulaga & Eggert 2006). The responses suggest that technical expertise and high quality products that meets the customer needs could reduce price sensitivity, as supported by theory from Kapil et al. (2007). Therefore, it could be suggested to use a sales strategy among the sales force to emphasize the value in the offer in order to reduce focus on the price during the sales processes.

The results illustrate that the salesmen at the case company have a very strong product orientation in their sales processes, and that there is a difficulty amongst the sales personnel to define what is the value in an offer other than the technical knowledge of the employees and the value-adding features of the products, suggesting a need for sales training for services in order to broaden their perspective of customer value.

During the sales process the result from the interviewees reveal a joint belief that communication is important in order to fully understand the customer needs and to prevent any misunderstandings, as illustrated in the quote;

“Relevant communication is important; some firms are very technologically skilled while others don’t have any tech resources at all. You need to get a feel for what the customer values and can handle on his own after the sales process in order not to step on anyone’s toes. However, if you see something missing in the customers activities which we provide, you can always try to sell it through saying that we can help them with that too.” (Salesman 2)

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define their needs and improve the problem solving. By defining the customers current and future needs as expressed in the quote potential uncertainty can be reduced for the customer. Another benefit from close contact and co-creation of solutions according to Kapil et al. (2007) is the possibility to reduce price sensitivity. Having that in mind, a firm like the case company with a high level of quality and a high market price could use this close contact with its customers to increase the focus on the value of the offer.

Another important factor expressed by the respondents is the delivery of products and services on time. The results also portrait an awareness amongst the respondents to be flexible and adaptive to the customer’s needs since every customer is unique as expressed;

“All customers are different, and their needs are different.” (Salesman 1) “Communication is also important when you do something wrong. It is important to at an early stage inform the customer if we have delay in the deliveries or problems with a sub-supplier to us. I think it is very important with communication, because you will sit down after if something has gone wrong, you already have an established relationship. They value if you are open and honest.” (Salesman 1)

As claimed by Cannon & Homburg (2001) and Ulaga & Eggert (2006) the delivery needs to be performed according to schedule in order to obtain a high level of product and service delivery. It is further argued in theory that it is necessary to be flexible, responsive and committed to the customer, which is strongly evident in the results of the study. The Spare Part department expressed a low degree of customer interaction and could therefore benefit from having the same perception on customer needs as the other departments from the interviews. The department of Spare Part is also the only department that expressed difficulties to deliver on time and being flexible to the customer’s needs due to the complexity of quickly duplicating customized parts for the customers.

5.5. Relations

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level of quality and performance over time the customer can develop a trust for the firm.

“You have to make sure that you are creating trust and that you are pedagogical in the way of presenting the solutions and to be responsive to what the customer is actually saying [...]” (Salesman 3)

“[…] That you are showing interest in them, quick in the responses of answers to the customers, and show that you are there, have listened and are responding to the questions. This creates a relationship with the customer. The customer wants a reliable supplier, someone that they know have a secure and reliable delivery, assured quality, that’s what all customers want to know, that they are receiving what they want.” (Salesman 1)

In accordance with previous studies by Cater & Cater (2010) and Rattats & Easingwood (2010), the respondents also develop a trust through cooperation with the customer using what the researchers refer to as a joint learning process. This is also achieved by the firm through adaptability and responsiveness when identifying and satisfying customer needs, as described by Cannon & Homburg (2001). The customer’s perceived trust is further strengthened through close communication and interaction, which several interviewees expressed as an important quality when establishing relationships with customers, which can in turn generate a stronger sense of commitment and trust toward the company (Mouzas et al. 2005). This trust also tends to generate a sense of loyalty towards the firm (Cater & Cater 2010). The results also demonstrate that the firm relies on maintaining a high level of performance and quality as a selling point, which according to Ulaga & Eggert (2006) can be used as a source of competitive advantage by the firm, and can even create a moral obligation for the customer to maintain future business with the supplier according to Cater & Cater (2010).

Despite the official communication responsibilities being passed to other parts of the organization after the sales process is concluded, a majority of the respondents considered it common practice for the staff to maintain a certain degree of communication and interaction with the customer.

“Salesmen usually leave the contact to the project manager in charge after a successful sale, but I often remain in contact with the customer after the sale.”

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“[...] I am curious as a salesman so I continuously get information about the progress of the project. After the installation the results are verified, so it is a lot of interaction with the customer even after the sale.” (Salesman 3)

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6. Conclusions

The chapter highlights the research findings from the analysis through answering the research questions of the study, their practical implications, and is concluded by the author’s suggestions for future research in the area.

After concluding the analysis it is evident that the company is undergoing a service infusion without a clear strategy. According to the results insufficient resources have been allocated to the service infusion.

The results indicate organization of Rolls-Royce Marine AB is not coherent in their service orientation, emphasizing a need for the development of a framework for service orientation to be implemented throughout the whole organization.

Based on the results the industry has shown an increased demand for services, enhancing the need for the company to provide the demanded offerings. The company has few competitors in their market segment who offer a high level of quality combined with extensive expertise, which could potentially have a positive effect on the success of the service infusion.

The sales force has expressed an uncertainty and cautiousness, which could be considered a barrier in the service infusion. The organization has extensive knowledge of the value in the product offering but is unsure of how to convey the value of services. This demonstrates that salesmen are in need of knowledge about how to communicate the value of the offer in order to justify its price.

The organization has a long tradition of manufacturing and selling goods and the employees have more confidence when selling products rather than services. This implies a need for the sales force to further develop their service-oriented sales by undergoing training in the concepts of value and service.

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The results indicate an organization with a high level of customer orientation and adaptation to customer needs. However, the customer orientation is not equally prevalent in all the departments. It is important to uphold a consistent service delivery thought the organization in order to maintain a uniform level of service and a competitive advantage.

The salesmen generally maintain relationships with their customers, but with varying degrees of depth depending on how much the firm and customers benefit from it. The salesmen also engage in post deployment efforts in strengthening relations, which can be both beneficial to customers, and used as a competitive advantage by the firm.

Based on the research questions it is concluded that Rolls-Royce Marine AB does not have a defined service infusion strategy, therefore the company is in need of a well-defined service strategy in order to facilitate a successful service infusion within the organization. The strategy could help define how the service infusion should be carried out and how services are defined and managed within the company. The sales force have a high level of customer orientation which is needed when selling services, but their focus is mainly put on technical functions rather than efforts to convey the value of services. It is therefore concluded that the sales force are not adequately prepared to sell service offerings, and are in need for further service sales training for the sales representatives in order to reduce their uncertainty when selling services and learn how to covey the value of the service to customers.

6.1. Practical implications

The case study demonstrates a problem many other manufacturing firms are currently experiencing, and managers are aware of the fact that there are substantial benefits to introducing services but are still unwilling or unable to do so.

The employees are open to the notion of service provision, but still see themselves as a goods manufacturing organization, where the services are only seen as value-adding complements to the manufactured equipment. Previous studies have shown that firms which are able to launch services successfully generally have a strong service culture and an orientation towards services, which is not prevalent in the firm at hand.

Service infusion in practice

Malin Ducloux

Viktor Valkeapää