A Simulation-based approach to understanding the dynamics of the transition from product manufacturer into service provider

Despite the demonstrated benefits of an extended service business in driving competitive advantage, most product manufacturers found it extremely difficult to manage the transition from a product manufacturer to a service provider successfully. In this context, we observed different phenomena. One phenomenon we term the “service jungle”. The “service jungle” describes the phenomenon that the transition has often led to declining business because of increasing costs, which could not be recovered with corresponding returns. Unfortunately, existing theory does not explain sufficiently the challenges inherent in this transition process. Transitioning from a product manufacturer to a services provider involves interactions among service management theories, basic concepts for improvement programs and human decision making processes in the firm while existing frameworks tend to address one at the expense of the other. To resolve the „service jungle“, we develop an integrative framework combining existing service management theories, the basic concepts for improvement programs with established theories on human cognition, learning, and organizational behavior. We then translate that framework into a formal model and analyze it using computer simulation. The analysis suggests a new construct the degree of integration among structural adoption, activityoriented adoption, behavioral adoption characterizing the dynamics of the transition. The construct provides an internally consistent theory about the dynamics of the transition. It shows how a low degree of integration can create the “service jungle” phenomenon.