eThesis - School of Business electronic theses

Objectives of the Study:

The purpose of this study is to explore the transition from product-oriented manufacturing to a service-orientation one. Thus research has following objectives (1) identify the reasons in a mid-sized Finnish manufacturer mowing towards servitization, and (2) identify the challenges facing the Finnish mid-sized machinery manufacturing company in transitioning from product-orientation to service-orientation.

Academic background and methodology:

In Finland, high labor costs and remote geographical locations pose a challenge to achieve competitive advantage in manufacturing. Competition from countries with low labor cost economies makes this even more difficult. This has increased the importance of servitization, which has been proven to provide both better margins and increase competitive advantage in many large enterprises. However, many small and medium sized-enterprises (SMEs) lack the resources and knowledge to transform their business into a service driven business. In the export driven economy of Finland, these smaller product-oriented manufacturers are struggling with high cost and pricing while competing in globalized markets.

A qualitative research method was employed to collect a rich vein of data trough semi-structured in-depth interviews. The case study company selected was a medium-Sized machinery manufacturer, which exported 95% of its production. Interviews were conducted with personnel ranging from the Board of Directors to Senior Management, to Management to Technical staff.

Findings and conclusions:

Findings support that the reasons and challenges to servitization in SMEs are mostly aligned with previous research. Key challenges are lack of communication by senior management to the staff of the meaning of servitization and lack of information on the implications of servitization. Failure of top management to commit fully to servitization is due to risk aversion. Additionally, traditional manufacturing organization structure does not support the needed flexibility of service orientation. On the other hand, services are seen as a must due to increased competition and difficulties to get higher margins from high quality products.