Servitization and Deservitization: Overview, Concepts, and Definitions

The topic of servitization has generated a considerable body of research and many conferences, as well as industry engagement. Yet, despite the extensive literature associated with this now-mature discipline, there is no broad-based consensus on the core concepts and definitions deployed by servitization scholars, and both terminology and usage often seem ambiguous. This paper examines challenges related to service growth strategies, as well as strategies involving deservitization or a retreat from service offers. Showing that these strategies have been pursued for more than fifty years, clarification is sought here by framing the corresponding processes and proposing definitions for four core terms: servitization, service infusion, deservitization and service dilution. It becomes clear that in focusing on the organizational change entailed by these processes, future research must elucidate “softer” issues such as leadership and business logic.


Introduction
There is increasing interest in servitization as a theoretical construct, empirical phenomenon, and research domain. Early phenomenological studies such as Vandermerwe and Rada (1988) reported that firms were adding service to their offering as a means of increasing competitiveness, turnover, and market power. They discussed the evolving process of servitization, from a point where firms considered their offering in terms of "goods or services," through "goods and services," to the marketing of bundles of "goods + services + support + knowledge + self-service." Yet, despite rapidly growing research interest and output from both academia and business, several research questions remain unanswered (Eloranta & Turunen, 2015;Kamp & Parry, 2017;Kowalkowski, Gebauer, & Oliva, 2017). Across industries, there is evidence that firms may have overextended themselves in moving toward service, and some are withdrawing from certain service initiatives-a process we refer to as deservitization. A case in point is Xerox, often cited as an example of a product firm that has successfully pursued a service growth strategy. In 2013, chairman and CEO Ursula Burns told investors that the "shift to a services-led growth portfolio is paying off" (Raval, 2014). Less than three years later, the company decided to separate its service business, creating the independent firm Conduent as a vehicle for their service-centric business process outsourcing offerings while retaining hardware-centric operations such as high-end color and customized printing under the Xerox brand. To date, theory has not addressed the question of why such changes occur.
Against this background, the two sections of this special issue of Industrial Marketing Management explore topics of interest in contemporary servitization research. To begin, this article characterizes servitization as a mature field of research with a growing community of followers, referencing the dedicated publications, conference tracks, and conferences devoted to the subject. Following a brief review of servitization and deservitization initiatives among the paradigmatic practices of product-based firms, we examine the dynamics of strategies and processes of service extension and service reduction and go on to define and explain the interrelationship between four key process concepts: servitization; service infusion; deservitization; and service dilution. The final section discusses how we can advance our understanding of this domain by investigating "soft" aspects of servitization-the people management aspects of service growth that prior research has tended to neglect.
From a theoretical perspective, the process of servitization can be framed in multiple ways. This special issue is divided into two sections, each corresponding to a specific call for papers. In both cases, we invited manuscripts that would offer an original perspective, advanced thinking, and scientific rigor. In total, 31 authors from a range of business and management disciplines have contributed; many are leading scholars in the field. Additionally, in the final contribution here, IBM Director Jim Spohrer offers a personal reflection on the history of IBM from the perspective of service.
The goal of the first section-Servitization and advanced business services as levers for competitiveness-is to capture the current state of the field before looking ahead to such future concerns as "smart servitization" in the context of business-to-business relationships and industrial networks. The second section-Critical perspectives on service growth-aims to promote and integrate critical research that challenges prevailing assumptions and strengthens the field's theoretical foundations.

Toward an established research domain
Along with acceptance and uptake of servitization as a topic in leading journals, congress cycles, dedicated conferences and special sessions, we examine a number of case examples of firms that have pursued servitization and deservitization initiatives. While the innovative and evolving nature of such initiatives has led to mixed outcomes, the examples and timeline below confirm that servitization (and subsequent deservitization) has been a feature of many sectors and markets for more than 50 years.

Dedicated journal publications and conferences
This special issue of Industrial Marketing Management follows a number of earlier publications dedicated specifically to the analysis of servitization or to broader themes related to services in product companies (e.g., B2B service innovation). Table 1 provides an overview of these special issues, including two forthcoming publications. The growing interest in servitization as a research topic is also reflected in the increasing number of conference presentations and discussions centering on servitization, service innovation, and product-service system thinking. For example, a first version of Oliva and Kallenberg's (2003) seminal article on the transition from products to services was presented at the International Quality in Service Symposium (QUIS), a conference series that has since seen continued growth in servitization-related presentations. Many conferences now offer special tracks and sessions dedicated to deepening the discussion of topics, methods, and the theoretical implications of servitization. EUROMA, QUIS, ServSIG, and Frontiers in Services are among the general conferences currently shaping the domain. This high level of interest has led to the emergence of a number of special conferences focused primarily on servitization and product-service systems. In the UK, for example, the Aston Business School runs an annual Spring Servitization Conference that brings together practitioners and researchers, and the Cambridge Service Alliance holds an annual event to facilitate discussion between researchers and large multinational companies. The Spanish research community organizes an annual International Conference on Business Servitization, which is academic-led but is also attended by practitioners. Similarly, a number of Germany's Fraunhofer Institutes organize industry platforms to facilitate service knowledge exchange among companies, and in Italy, a number of universities have come together to organize meetings with industry partners on service management issues (ASAP SMF). Table 2 provides an overview of key conferences.
Despite numerous examples of successful servitization in many sectors, most companies have found it far from straightforward to achieve the expected revenues, profits, and customer satisfaction. Although there is little research on failed cases of servitization or on deliberate deservitization strategies, anecdotal evidence points to a "service (servitization) paradox," where investment in service growth fails to generate corresponding returns or shareholder value Neely, 2008). For example, the development of ThyssenKrupp Industrial Services as a strategic business within the company was promoted to reduce the German industrial conglomerate's exposure to the cyclic nature of steel production and sales and a tendency toward commoditization. However, this new service division did not fully meet financial expectations-or, more specifically, the expected synergies with the company's other core businesses-and ThyssenKrupp decided to terminate its involvement in the service business by selling it off. Similarly, Dürr, a leading German manufacturer of paint finishing systems, introduced one of the first pay-per-use services, enabling car manufacturers to pay for each car painted rather than investing in equipment and services. However, Dürr found it difficult to predict the level of equipment usage (based on customer production volume) or to calculate an appropriate pay-per-use fee. The service did not meet financial targets, and this eventually forced the company to sell its service division (Premier) to Voith Industrial Services. In a final example, Xerox split into two companies in response to issues that included shareholder concerns about insufficient market capitalization, with its service business now operating as the separate Conduent brand.

Clarifying the dynamics of (de)servitization
Despite more than five decades of (de)servitization and a growing body of related literature, little progress has been made toward agreeing on the core paradigm (see also Kowalkowski, Gebauer, & Oliva, 2017;Brax & Visentini, 2017). Among a plethora of terms, even the central concept of servitization has been variously interpreted and defined by different researchers and audiences.
To this extent, the servitization community seems to lack a common lexicon and analytical tools that might structure scholarly or practice-led debate.
Offerings that combine supplier and customer resources to create value in use are frequently referred to as "solutions" in the management and marketing literature (e.g., Macdonald, Kleinaltenkamp, & Wilson, 2016). In many cases, solutions are based on high-technology and high-value goods or complex product systems (CoPS) (Davies & Brady, 2000); the practices of "systems selling" (Mattsson, 1973) and "solutions selling" (Doster & Roegner, 2000) are examples of using such offerings to drive change.
The next section introduces a conceptual framework for the description and interpretation of service growth and reduction processes along two interrelated continua, illustrating the relative importance of service(s) for a company's business and its relationship and posture toward the market.
1 Given the range and variety of concepts, we focus on some of those most commonly found in the contemporary academic literature, excluding such adjacent concepts as servicizing and servicification. While both of these are frequently used as synonyms for servitization (e.g., Reiskin et al., 1999), servicizing has more recently been applied specifically in the context of sustainability to denote "green" business models (Agrawal & Bellos, 2016), where a company sells a product's functionality or use rather than the product itself (e.g., Plepys, Heiskanen, & Mont, 2015;Toffel, 2008).

Key concepts and dimensions
Using terms that are employed and elaborated throughout this special issue, the processes of service growth and reduction can be described on two continua that reflect firms' corresponding attitudes, practices, and modus operandi. In relation to service growth dynamics, we refer here to servitization and service infusion; in relation to service reduction, we refer to deservitization and service dilution. These concepts are integrated in the framework shown in Figure 2. To begin, we discuss the two concepts related to service growth. While the concepts of operations-led servitization and marketing-led service infusion are often used interchangeably to denote service transition strategies and processes, it is constructive for analytical purposes to distinguish between the two (cf. Ostrom et al., 2015). Service infusion can be defined as the process whereby the relative importance of service offerings to a company or business unit increases, so augmenting its service business orientation (SBO). 2 In line with Homburg et al. (2002), SBO can be operationalized in terms of three dimensions, all of which are positively associated with service infusion: number of services offered, number of customers to whom services are offered, and relative emphasis on services.
SBO also relates to Shostack's (1977) product-to-service continuum, in which a company's service orientation increases when more (intangible) service elements become central to its offerings.
2 While this discussion focuses on firm-level processes, we recognize that changes may also occur at business unit level, as well as at an aggregated industry or market level.

Relative importance of services
The general assumption is that companies move in either an evolutionary or a discontinuous manner from basic, product-oriented services toward offerings that include more advanced process-oriented services and product-service systems, leading ultimately to the provision of solutions. While such processes are more common, companies can also increase their SBO by shifting the emphasis from more complex to more standardized service offerings (Finne et al., 2013;Kowalkowski et al., 2015). In addition, service infusion may form part of a deliberate strategy or may occur in more emergent fashion (Brax & Visintin, 2017).
We regard servitization as an overarching concept that includes but goes beyond service infusion, where servitization is defined as the transformational process of shifting from a product-centric business model and logic to a service-centric approach. To varying degrees, servitization involves a redeployment and reconfiguration of a company's resource base 3 and organizational capabilities and structures (Baines et al., 2009); a redefinition of the mission of the firm; and a revamping of routines and shared norms and values (Kindström & Kowalkowski, 2014). A service business model means that the supplier commits to improving customers' value in use, so assuming greater responsibility for the overall value-creating process as compared to product-centric, transaction-based business models. The service model's revenue mechanism depends on the outputs of customer value-creating processes, such as guaranteeing a level of availability of products or achieving an expected level of performance, rather than inputs such as numbers of service hours sold. 4 As well as a redesigned business model, servitization also entails a revision of business logic, encompassing the firm's raison d'être and managers' mental models. While the concepts of business logic and business model may be seen as interrelated, business model conceptualizations typically omit these "softer" aspects (cf. Wirtz et al., 2015).
As noted by Vandermerwe and Rada (1988), servitization is not confined to manufacturers or other product firms (although this is a common perception). In fact, service sector companies can also servitize, just as firms may go in the opposite direction-that is, away from constructs associated with service provision. For instance, because service firms such as banks often retain a product logic (maximizing the sale of prepackaged "financial products" while distancing themselves from their customers through automation and digitalization), they may adhere to a product-centric mindset and business logic (Shah et al., 2006). Similarly, as Grönroos (2006) observed, a supplier of consumer durables or industrial products may follow a service logic that focuses not on products but on the processes in which those products are integrated and where customer value emerges. In short, a predominantly service-based company with high SBO may pursue a product-centric logic (and vice versa). The four key concepts of service growth and service reduction illustrated in Figure 2 are defined in Table 3. Table 3. Key concepts and definitions underpinning service growth and reduction processes

Servitization
The transformational processes whereby a company shifts from a product-centric to a service-centric business model and logic.

Service infusion
The process whereby the relative importance of service offerings to a company or business unit increases, amplifying its service portfolio and augmenting its service business orientation.

Deservitization
The transformational process whereby a company shifts from a service-centric to a product-centric business model and logic.

Service dilution
The process whereby the relative importance of service offerings to a company decreases, reducing its service portfolio and augmenting its product business orientation.

Deservitization and service dilution
To date, research has focused almost entirely on servitization, presenting this as a beneficial process. However, in such cases as a price-competitive market, a company may decide to reduce or curtail service provision if uneconomical. Rangan and Bowman (1992) referred to this kind of deliberate service dilution as a service compression strategy. As demonstrated by the history of IBM (Spohrer, 2017) as well as by the evolution of the computer industry in general (Cusumano, Kahl, & Suarez, 2015), many large firms continuously pursue both service infusion and service dilution initiatives. These dynamics are not confined to service flows from one actor to another (upstream or downstream) but also depend on such factors as innovation, maturity, and competence. For example, Valtakoski (2017) views deservitization as a special case of industry evolution. In the computer industry in the 1980s, as technological uncertainty decreased, technology diffusion increased and standards were established, prompting firms to deservitize. As products and services may both complement and replace each other (Araujo & Spring, 2006) standardized, lower-cost products eventually replaced customization and other services. At company level, service reduction can be achieved through sale, liquidation, or divestment. Cases such as Xerox challenge the notion that adding more services represents a viable strategy for product firms in general, and Benedettini, Swink, and Neely (2017) demonstrate empirically that such a strategy does not increase the chances of survival.
In parallel with service growth, companies face a related technological change that Spohrer (2017) refers to as the "cognitive" phase of the current digital transformation of industry and the global economy, informed by advances in artificial intelligence. Also referred to as the Industrial Internet, the Internet of Things, or Industry 4.0, 5 these technologies facilitate the decoupling of machine software from hardware across the socio-technical industrial system and enable fuller utilization of product data in combination with other data. These increasingly autonomous systems and self-aware, predictive, and reactive machines communicate seamlessly with each other and with human actors, offering immense opportunities for service growth and driving new service innovation, such as cognition-as-a-service, as well as enabling more viable service systems. As discussed by Spring and Araujo (2017), these advances are coevolving with new opportunities to move from linear industrial processes to "circular economy" principles. At the same time, as in the past, many established services are likely to be negatively affected and even replaced. The servitization-deservitization dynamics of such technological shifts at company and industry level are still not well understood and represent fruitful directions for further research.

Conclusions
For over 50 years, the alternating dynamics of service extension and service reduction strategies and processes have been observed and studied in many different sectors and markets, yielding a significant body of academic literature. In demonstrating the growth and maturation of this field of study and presenting examples of both processes over time, we have sought to bring greater clarity to the core concepts of servitization, deservitization, service infusion, and service dilution.
Beyond increased service business orientation and the addition of services to a firm's portfolio, servitization also encompasses the transformation to a service-centric business model and logic (cf. Grönroos, 2006;Normann, 2001). This includes cultural and attitudinal changes that may have profound implications for both the company and its business network. Prior research confirms that an established product-centric organizational culture and business logic may impede service growth (Bowen et al., 1989;Homburg et al., 2003;Sawhney et al., 2004). According to Johnstone et al. (2014), "While such suggestions are intuitive, the empirical evidence and theoretical explanations regarding people management issues in organizations pursuing a servitization journey remains surprisingly thin" (p. 277). Johnstone et al. (2014) argue that even where a firm overcomes the "service paradox"-growing their service business and generating a healthy financial return-it may still encounter seemingly intractable cultural and attitudinal challenges. In fact, inculcating a service culture-which involves changing the mindsets of hundreds or thousands of employees habituated to a productcentric vision and mental model-may be the primary barrier for product firms looking to gain from service offerings (Davies et al., 2006). For example, a key element in the servitization journey of SKF (a global leader in the bearings business) was a cultural shift from firefighting and reactive maintenance by "overtime heroes" to a service culture of promoting and innovating.
Rather than breakdowns and failure avoidance, the key drivers of service operations are uptime and growth.
What, then, are the people management implications of service growth? While there is anecdotal evidence from cases like SKF, and prior exploratory and descriptive research provides some insights, further empirical research is needed to investigate how the tension between product logic and service (dominant) logic can best be managed-a friction that is particularly in evidence in firms that integrate products and services into solutions and other hybrid offerings Oliva et al., 2012). Fostering a service culture also requires the involvement of customers and key partners in co-creation throughout the service process (cf. Aarikka-Stenroos & Jaakkola, 2012). Without alignment of business logics among these parties, no service initiative is likely to succeed (Kowalkowski, 2011). Given the reliance of many product firms on dealers and other channel partners, cultural change may also have to encompass firms in the broader business network.
From the perspective of service business logic, the litmus test of whether a firm is truly servitized is not the extent of its services and PSS portfolio but whether the primary purpose of these offerings is to defend its product business or to enable customer value creation. In practice, the latter entails a willingness to cannibalize the product business where necessary to craft a better overall value proposition (Kindström & Kowalkowski, 2014). This requires leadership skills beyond those needed to develop a separate service business within a product firm or to nurture a service culture within a service-specific unit. For industry incumbents in particular, this