Combining and Prioritising Dynamic Capabilities for Servitization in Small and Medium-sized Enterprises

Abstract

UK manufacturers are facing unprecedented challenges, so must find new ways of developing competitive advantage, enhancing productivity, and building resilience. One option is to transition from selling products and basic services towards advanced services, where value is captured not only from making and moving products, but also during use. This requires a fundamental transformation of capabilities, known as servitization. Manufacturers find this transformation difficult, sometimes launching new services without first developing appropriate capabilities for effective and efficient delivery. This can lead to failure, which can have severe consequences for SMEs. Challenges are exacerbated for SMEs by limited resources, meaning they cannot develop all the required capabilities simultaneously and need to prioritise. The cause of servitization failure has been attributed to low levels of dynamic capabilities, however, these are usually analysed in isolation, with no explanation regarding their measurement, combination, or sequencing. This research identifies four key dynamic capabilities required for servitization, which form the theoretical framework, namely: vision innovation; service innovation; product innovation and organisational innovation. Two separate, but related multiple case studies reveal that SMEs do not require high intensities in all these dynamic capabilities to begin servitization. Companies can take one of two pathways, requiring different combinations of high and low intensities of the four dynamic capabilities depending on context. However, as servitization progresses all four will be required, which should be developed and applied in a particular sequence. To enable the findings to be applied in practice, two practical application tools are developed. Firstly, a framework for SME practitioners to assess their organisational readiness to begin servitization. Secondly, a framework for alignment of activities and resources during servitization, with deployment sequence. These new tools will accelerate the adoption of advanced services within SMEs and help them navigate economic, societal and environmental challenges.