Post on 20-Jul-2016
“The Roleof SoftFactorsin ImplementingaService-OrientedStrategyin
IndustrialMarketingCompanies.”
byChristianHomburg,Martin Fassnacht,ChristofGuenther,
UniversityofMannheim
ISBM Report18-2000
Institutefor theStudyof BusinessMarketsThePennsylvaniaStateUniversity
402 BusinessAdministrationBuildingUniversityPark,PA 16802-3004
(814)863-2782or(814)863-0413Fax
“THE ROLEOF SOFTFACTORS
IN IMPLEMENTiNG A SERVICE-ORIENTEDSTRATEGY
IN INDUSTRIAL MARKETING COMPANIES”
ChristianHomburgProfessorof BusinessAdministrationandMarketing
ChairoftheMarketingDepartmentDirectoroftheInstitutefor Market-OrientedManagement(1MM)
UniversityofMannheimD-68161Mannheim,Germany
Phone: +49-621-181-1555Fax: ±49-621-181-1556
E-Mail: prof.homburg@bwl.uni-mannheim.de
Martin FassnachtAssistantProfessor
Institutefor Market-OrientedManagement(1MM)UniversityofMannheim
D-68161Mannheim,GermanyPhone: +49-621-181-1557
Fax: ±49-621-181-1556E-Mail: fassnacht@bwl.uni-mannheim.de
Christof GuentherConsultant
Prof. Homburg & Partner GmbHD-68161 Mannheim
Phone: +49-621-1582-0Fax: +49-621-1582-102
E-Mail: cguenth@Homburg-und-Partner.de
The authors gratefully acknowledge the financial support of the Institute for the Study ofBusinessMarkets(ISBM) atThePennsylvaniaStateUniversity.
The Role of Soft Factors in Implementing a
Service-OrientedStrategy in Industrial Marketing Companies
It hasbeenrecognizedthat in today’shighly competitive industrial markets, one of the few
ways left to gaindifferentiationfrom competitorsis by offeringvalue-addedservices. To do so,
however, requires a service-orientedstrategyand the active implementationof this strategy
which includes significant internal changes in managementphilosophy and approach.
Unfortunately,no studyhasexaminedtheimplementationaspectsof a service-orientedstrategy.
In this context, our researchfocuseson two important “soft factors”, corporateculture and
humanresourcemanagement,that are necessaryfor a successfulimplementationof a service-
orientedstrategyin industrial marketingcompanies.We analyzethemediatingroleof thesetwo
soft factors in the causal chain leading from a service-orientedstrategy to organizational
performance. We find that that the soft factorsplay an importantmediating role in the link
betweena service-orientedstrategyandorganizationalperformance.
The Role of Soft Factors in Implementing a
Service-OrientedStrategy in Industrial Marketing Companies
In today’shighly competitivemarkets,industrial marketingcompanieswhosecore offering is a
productor a setofproductsoften find thestrongneedto augmentthis coreofferingwith services
in order to competeeffectively (e.g., Andersonand Narus, 1995; Cooperand Jackson,1988;
Donaldson,1995; MatthyssensandVandenbempt,1998). Thecoreofferings of manyindustrial
companieslook very similar to customersin termsof importantareassuchasproductrangesand
prices(AndersonandNarus,1995; McMurrian andWilson, 1996;Quinn, Doorley,and Paquette,
1990). Dueto thesesimilarities, it is very importantfor industrialmarketingcompaniesto give
theircustomersrealreasonsfor consistentlychoosingtheir companyover theircompetition. One
ofthekeywaysleft to accomplishthis is to offer value-addedservices.Customersarenot solely
interestedin the pure productbut in bundleswhich comprisesproductsand services. These
“benefitsbundles”canfulfill theneedsfor customersbetterthanthepureproductandtherefore
are very attractivefor customers. Theinitiative to augmenttheproductswith servicescan be
tracedbackto theclassicstatementby Levitt (1972,p. 4 1/2) who highlights that “there areno
such things as service industries. There are only industrieswhose servicecomponentsare
greateror lessthanthoseofotherindustries. Everybodyis in service.”
However, the successful implementation of a service-orientedstrategy for industrial
marketingcompaniesrequiressignificant internal changesin termsof managementphilosophy
and approach. Becoming more service-orientedespecially requires changesin the firm’s
corporateculture and humanresourcemanagement. The relevanceof thesetwo factors are
stressedin the literaturewhich conceptuallydiscussesthe issue of implementinga service-
orientedstrategyin industrial marketingcompanies.Bowen,Siehl, and Schneider(1989,p. 82)
highlight that ,,manufacturingfirms ... havenothistorically includedservice-relatedgoals ... as
objectivesmayrequireclimate andcultural changesto supportthesegoals”. In a similar vein,
Mathe and Shapiro (1993,p. 28/29) commentthat humanresourcemanagementis critical in
implementinga service-orientedstrategy. To the bestof our knowledge,thereis no research
which empirically addressedthe topic of how to successfullyimplement a service-oriented
strategyinternally.
Against this background,our researchfocuseson internal changesthat are necessaryfor a
successfulimplementationof a service-orientedstrategy in industrial marketing companies.
With respectto theseinternalorganizationalcharacteristics,animportantdistinctioncanbemade
between“hard” and “soft” factors. Hard factorssuchasthe organizationalstructure(e.g., the
degreeof formalization) describestructural organizationalcharacteristics. In contrastto that,
soft factors refer to non-structuralorganizational characteristicssuchas sharedvalues and
employees’behavior. This paperfocuseson two important soft factors: corporateculture and
humanresourcemanagement.We analyzethemediatingrole of thesetwo factorsin thecausal
chain leading from a service-orientedstrategyto organizationalperformance. If thesefactors
really play an importantrole in the implementationof a service-orientedstrategy,theyshould
strongly mediatethe link betweenthepresenceof a service-orientedstrategyand organizational
performance(GinsbergandVenkatraman,1985,p. 428).
The paper is organizedas follows: In the next section,we outline a frameworkwhich
describesthe key constructsof interest,followed by a developmentof formal hypotheses.We
thendescribean empirical study which teststhesehypotheses.This is followed by adiscussion
of academicandpracticalimplications.
Framework and HypothesesDevelopment
StrategyImplementationResearch
In developinga frameworkandhypotheses,this studydrawson researchin theneglectedareaof
strategyimplementation. As notedby NobleandMokwa (1999,p. 57) “little attentionhasbeen
given to implementation... of strategy.”Whatlittle researchdoesexistaddresseshow strategy
influencesinternal organizationalarrangementparameters.Typically, therelationshipbetween
thestrategyandorganizationalarrangementparametershasbeenexplainedin a sequentialmodel
wherecompaniesdecideon a strategyandthenput in placeappropriateorganizationalchoices
2
(GinsbergandVenkatraman,1985; Piercy, 1998). Traditionally,researchershavelookedathow
strategyhas affected structural organizationalchoicessuch as organizationalstructure(e.g.,
Chandler,1962;GalbraithandNathanson,1978;HabibandVictor, 1991; Roth,Schweiger,and
Morrison, 1991; White, 1986) and design of information systems(e.g., Cravens, 1998; Das,
Zahra,and Warkentin, 1991; Karimi, Gupta,and Somers,1996; Teo and King, 1997). These
organizationalarrangementparameterscanbe classifiedashardfactors.
Since the 1 980s, soft (intangible) factors that may play a role in strategyimplementationhave
gainedinterest. Two importantofthesesoft variablesarecorporatecultureand humanresource
management. Davis (1983) highlights the role of humanresourcemanagementand corporate
culture in implementingstrategies. Similarly, Porter(1985,p. 24) stressestherelevanceof the
fit betweena generic strategyand corporateculture: “Culture ... hascometo be viewed asan
importantelementof a successfulfirm. However,different culturesare implied by different
generic strategies. ... Culture can powerfully reinforce the competitiveadvantagea generic
strategyseeksto achieve,if thecultureis an appropriateone. Thereis no suchthingasa goodor
badcultureper se. Culture is a meansofachievingcompetitiveadvantage,not an endin itself.”
Also Noble (1999, p. 132) highlights the key role of corporateculture: “. . .it seemsclear that
aspectsof thefirm suchasculture ... may have a profoundeffect on implementationprocesses.
More research is needed on the influence of these firm factors on strategyimplementation
success.
Although there is some research which investigates how strategy in general influences
corporateculture (e.g., Allaire and Firsirotu, 1985; Davis, 1983; Joyce and Slocum, 1990;
Schwartz and Davis, 1981) and human resource management (e.g., Davis, 1983; Govindarajan
andGupta,1985;Guptaand Govindarajan,1984aandb; Govindarajan,1989; Leontiades, 1982),
thespecificquestionofhow a service-orientedstrategyin an industrialmarketingcontextaffects
thesesoft factorshasnotyetbeenstudied. Thus,theorientationofthis paperallowsto fill a gap
in theliterature.
3
In conductingthis investigation, it is importantto note that the strategyimplementation
researchdescribedabove is rooted in the classicalassumptionthat structurefollows strategy
(Chandler,1962). In contrast,thereis somedebateconcerningthedirectionof causalityofthe
relationshipbetweenstrategyand organizationalarrangementparameters.To shedlight on this
issue, however, a systematiclongitudinal empirical studywhich was designedto examinethe
nature of the relationship between strategy and organizational arrangementparameters
(Amburgey and Dacin, 1994) found that strategyhasa strongerinfluence on organizational
arrangementparametersthanvice versa. In addition, Mintzberg(1990)notesthat oneimportant
schoolof thoughton strategy—thedesignschool tendsto promotethis directionof causality.
Thus, there seems to be some support for the causalpropositionthat strategydetermines
organizational arrangement parameters.
It is our view that this direction of causality is especiallytrue for industrial marketing
companieswhichaugmenttheir coreofferingswith value-addedservices. In theseorganizations,
soft organizationalarrangementparametershavetraditionally beenvery product-oriented. In
other words, a strategic focus on productshas led to a humanresourcemanagementand a
corporateculturewhich is centeredaroundproductsorbrands. Thus,adoptinga service-oriented
strategywould requireamajorchangein eachofthetwo soft organizationalfactors. This notion
of strategydetermining organizationalarrangementparameters forms the foundation for our
conceptualframeworkwhich wenow discuss.
Framework and Constructs
Figure 1 presentstheconceptualframeworkwhich guides our researcheffort. This framework
focuseson changesof soft factorsthat areneededfor a successfulimplementationof a service-
orientedstrategy.
InsertFigure 1 abouthere
4
In this studywe conceptualizetheserviceorientationofa strategyof an industrialmarketing
companyin termsof two dimensions:(1) the numberof servicesoffered,and (2) how strongly
these servicesare emphasizedto customers. The numberof services itself is clearly one
important facet of a service-orientedstrategy. The more servicesan industrial marketing
companyoffers, the greaterthe ability to augmentthe core product offering. This variable is
similar to thebreadthof productrangewhich is consideredto be a key strategicdecisionin the
field of productmanagement(e.g., Lehmannand Winer, 1997; Wind, 1982). However,simply
studyingthenumberof servicesis not enough.Fora givennumberof servicesoffered, industrial
marketingcompanieshavea choiceof offering themvery activelyto customersversusoffering
them only whencustomersexplicitly askfor them. Thus, in additionto thenumberof services
offered, it is also importantto examinethe emphasisplacedon theseservices. The emphasis
placed on servicesrelates to the degree to which a companyactively offers servicesto its
customers.The importanceof this variablehasbeenhighlightedin theindustrialmarketingarea
(Morris andDavis, 1992; Wright,Pearce,andBusbin, 1997).
It is important to note that while these two constructsmay be interrelated, they are
conceptuallydistinct. A companycouldoffer only afew servicesbutemphasizethemheavilyor
anothercouldoffer a lot of servicesbutnot emphasizeany singleserviceto anygreatdegree.
Our frameworknextconsidersthe serviceorientationof two soft organizationalparameters,
thefirst beingserviceorientationofcorporateculture. Two importantdimensionsof acorporate
culture arevaluesandbehaviorsin the organization(Calori and Sarnin, 1991; Deshpand~and
Webster,1989; Hofstedeet al., 1990; Homburg and Pflesser,2000). Since we addressthe
implementationof aservice-orientedstrategy,wedrawour attentionto theextentto which these
two dimensionsof a corporatecultureare service-oriented. Thus, the first dimensionrefers to
the (abstract)value of serviceswithin the organization. By stressingthe valueof providing
services,companiescanhelpemployeesto realizethe relevanceof this value(Webster,1990).
Theseconddimensioncapturesthedegreeto which employeesbehavein a service-orientedway.
This behaviorreflectshowmuchthe(abstract)valueof servicesis lived out in theorganization.
S
In terms of human resource management,we distinguishbetweenthe three dimensions
personnel recruitment, personnel training, and personnel assessment/compensation.This
conceptualizationis adaptedfrom Schneiderand Bowen(1992)and Schuler(1996). We draw
our attentionto the extentto which thesethreedimensionsof humanresourcemanagementare
service-oriented.More specifically, (a) serviceorientationof personnelrecruitmentrefersto the
extent to which the selectionof personnelfocuses on service-relatedaspects,(b) service
orientation of thepersonneltraining capturesthe degreeto which the employeesaretrainedfor
interactionswith customers,and (c) serviceorientationof personnelassessment/compensation
refers to the extent to which service-related performance is evaluated and rewarded within the
organization. These aspects are highly important due to the fact that the production and
consumptionof servicesare inseparable(Zeithaml, Parasuraman,and Berry, 1985) which
implies that the company’semployeesand customersinteractdirectly on a regularbasis. The
high importanceof personalinteractionin delivering servicesis also visible from the research
streamon serviceencounters(Fisk, Brown, and Bitner, 1995; Bitner, Booms, and Tetreault,
1990).
Moving to thenextstageof theframework,we considerperformanceoutcomes. We makea
distinctionbetweenservice-relatedperformanceandoverallprofitability.
Service-relatedperformanceoutcomesinclude quality of customerrelationships (a non-
financial outcome) and direct serviceprofitability (a financial outcome). The first construct
comprises such aspectsas intensity of interaction with customers, intensity of personal
relationshipswith customers,and customersatisfactionandloyalty. We will later arguethat a
serviceorientationcontributesto establishinghigh quality customerrelationships. The direct
serviceprofitability relatesto the degreeto which industrial marketingcompaniesdirectly earn
moneythroughofferingandchargingservicesto their customers.
Overallprofitability relatesto theprofitability achievedby thefirm (orabusinessunit within
the firm) through marketingthe whole rangeof productsand services. Typical profitability
6
measuresinclude return on sales,return on investment,and return on assets(Chakravarthy,
1986).
HypothesesDevelopment
As describedandjustified before, we arguethat organizationalarrangementparametersfollow
strategy. Thus, for thefirst two hypotheses,ourgenerallogic is that strategicchoicedetermines
thetwo soft factors. This meansthat thetwo dimensionsofa service-orientedstrategy—number
of servicesandemphasison services—havea positive impacton theserviceorientationof each
ofthetwo organizationalfactors.
Companieswhich decide on a certain strategy,will adequately(consistently)adapttheir
corporateculture (Allaire and Firsirotu, 1985; Davis, 1983; Joyce and Slocum, 1990; Noble
1999;Porter, 1985; SchwartzandDavis, 1981). Becausewe addressa service-orientedstrategy,
adequateness(consistency) implies a service-orientationof corporate culture. Industrial
marketingcompanieswhich movefrom a strategyofproductorientationto a serviceorientation
in termsof offering andemphasizingservices,will stressthevalueof servicesin thecorporate
culture(Bowen,Siehl, Schneider,1989). Furthermore,suchcompanieswill stronglyencourage
service-relatedbehaviorof theiremployees(MatheandShapiro,1993). By doing this, industrial
marketingcompaniesassurethat the (abstract)value of serviceis lived out in the company.
Thus,wederivethefollowing hypothesis:
Hi: Thehigher the serviceorientationof the businessstrategy(in terms of a: numberof
servicesandb: emphasison services),thehigherthe serviceorientationof corporate
culture.
Companieswhich have chosen a certain strategywill not only adequatelyadapt their
corporateculture but also their humanresourcemanagement(Davis, 1983; Govindarajanand
Gupta, 1985; Gupta and Govindarajan,1984aand b; Govindarajan,1989; Leontiades,1982).
Industrial marketingcompanieswhich have beentraditionally strongly product-oriented,but
want to becomehighly service-oriented,will select,train,andrewardemployeeswho arecapable
of dealingwith thenewchallengesthatservicesimply. In particular,theyneedto beableto deal
7
with themanypersonalinteractionswith customerswhich arerequiredby the implementationof
a service-orientedstrategy(Bowen, Siehl and Schneider,1989). The higher the numberof
servicesandtheemphasison services,the greaterthenumberof personalinteractionswhich will
occurwith customers.Thus, industrialcompanieswhicha adopta service-orientedstrategywill
assurethat employeesare selected, trained, and rewardedon a permanentbasis for these
encounters.Thus, wehypothesize:
H2: The higher the serviceorientationof thebusinessstrategy(in terms of a: numberof
servicesand b: emphasison services),the higher the serviceorientationof human
resourcemanagement.
Thenextset ofhypothesesexaminestherelationshipsbetweenthesoft organizationalfactors
and service-relatedperformance. First, industrial marketingcompanieswith a high service
orientationof corporateculturenot only stressthevalueof servicesbut alsolive out this value.
The employeesbehavein a service-orientedway and are characterizedby a high service
mentality. Industrial marketing companieswith employeeswho are selected,trained, and
rewardedin a service-orientedway will be more likely to deliver servicesduring the service
encounterwhich will fulfill customerneeds. Customerslike to interactwith suchkind of well-
educatedandwell-motivatedemployeeswhobehavein a service-orientedway. Also, customers
satisfactionand loyalty will be enhanced.Takingall this together,this leadsto a strengthening
of customerrelationships. This reasoningis consistentwith empirical findings that corporate
culture can affect and strengthencustomer relationships (Appiah-Adu and Singh, 1999;
HomburgandPflesser,2000). Against thisbackground,we derivethefollowing hypothesis:
H3: The higher the serviceorientationof the two soft organizationalfactors(a: corporate
culture and b: humanresourcemanagement),the higher the quality of customer
relationships.
For industrial marketing companiesthe measurementand the inspection of quality are
generally much more difficult for servicesas comparedwith products. The many personal
interactionsbetweenemployeesand customerscausedby servicesoffered leadto an increased
8
risk of failures. Correcting thesefailuresmay involve high costsfor an industrial marketing
company(Jacksonand Schuler,1992). Therisk of failurescan be reducedby employeeswho
arewell-trained,well-motivated,andbehavein a service-orientedway. This replacesextensive
and expensiveinspectionand correctionmechanisms. In additionto that, suchemployeesnot
only lower service-relatedcostsbut alsoincreaseservice-relatedsales. Customerswho interact
which this kind of employeesget more value out of this interaction. This increasesthe
willingness-to-payof customersfor services.Thus,wehypothesize:
H4: The higherthe serviceorientationof the two soft organizationalfactors(a: corporate
cultureandb: humanresourcemanagement),thehigherthedirect serviceprofitability.
The next hypothesis examines the link in the framework between service-related
performanceand overall profitability. We arguethat the quality of customerrelationshipswill
havea positive impact on overall profitability. In general,previousstudieshavefoundthat there
is apositivelink betweencustomersatisfaction(a facetof quality of customerrelationships)and
overall profitability (Anderson,Fornell,and Lehmann,1994;Anderson,Fornell, andRust, 1997;
Hallowell, 1996). A positivelink betweencustomerloyalty (anotherfacetofquality of customer
relationships)andprofitability hasalso beenin evidence(Hallowell, 1996;Loveman,1998). It
canbe arguedthat loyal customerscanincreaseorganizationalprofitability throughthe absence
of acquisitioncosts, lower operatingcosts, higherprice tolerance,and referrals (Kalwani and
Narayandas,1995; ReichheldandSasser,1990;Reichheld,1996). Thus,it appearsthat thereis a
generallink betweenqualityof customerrelationshipsandoverall profitability.
Clearly, thedirect serviceprofitability increasestheoverallprofitability, Therefore,whenthe
direct serviceprofitability is high, all otherthings beingheldequal,theoverall profitability will
be higher. Thus,wederivethehypothesis:
H5a: Thehigherthequalityofcustomerrelationships,thehighertheoverall profitability.
H5b: Thehigherthedirect serviceprofitability, thehighertheoverall profitability.
9
Method
Data CollectionandSample
Our unit of analysiswasa StrategicBusinessUnit (SBU) in an industrial marketingcompany.
This level was selectedbecausedifferent SBU’s within one industrial marketingcompanycan
pursuedifferent strategiesconcerningindustrial services. We defineda SBU asa relatively
autonomousunit with the SBU managementhaving control of at leastthreeof the following
functions: marketing, sales, manufacturing,R&D, accounting/finance,and human resources
(Homburg,Workman,andKrohmer, 1999).
Precedingthe survey, we conducted10 face-to-faceinterviewswith experts. Thegoal of
theseinterviewswasto pretestapreliminaryversionof thequestionnaire.
A random sample of senior sales managernames in SBU’s were acquired from a
commercialdatabaseprovider. We verified the namesof thesemanagersthrough telephone
calls to the SBU. We included three industrial sectors: electrical engineeringindustry,
mechanicalengineeringindustry, andmetaiwareindustry. By including theseindustrial sectors,
we intendedto assurea broad range of productsconcerningtheir complexity ranging from
productionmaterial/componentsvia finishedproductsto engineeringprojects. As an incentive
to participate,managerswerepromisedtwo managerially-orientedworking papers(immediately
afterresponse)andamanagerialsummaryofresults(aftercompletionofthestudy).
In total, 1.270surveyquestionnaireswere sentout. 271 questionnaireswere returnedfor a
responserateof 21.3%. Table 1 providesinformationon samplecharacteristics.Approximately,
eachindustrial sectoris representedto onethird in thesample. In general,small, medium-size,
and largeSBU’s arerepresentedwith a significantsharein thesample. This holds alsotruefor
thethreeproducttypes.
InsertTable1 abouthere
10
Nonresponsebias was testedby comparingearly and late responderson all variables(as
suggestedby ArmstrongandOverton,1977). No significantdifferenceswerefoundbetweenthe
two groups. Therefore,thereis someevidencethat nonresponsebias wasnot a problemwith
thesedata.
MeasureDevelopmentandValidation
As mentionedearlier,theservice-orientedstrategyis conceptualizedin termsoftwo aspects:(1)
the numberof industrial servicesoffered, and (2) the emphasisplaced on industrial services.
Basedon a reviewof the limited literatureon industrialservices(e.g., Banting, 1984; Homburg
and Garbe, 1999) and the face-to-face-interviews,we identified five major categoriesof
industrial services(seeTable2). Within eachof theseservicecategorieswe identifiedbetween4
and 8 specificindustrial services(seeTable2). In sum, this leadsto a comprehensivelist of 31
serviceswhich coversthe rangeof servicestypically offered by industrial marketing firms to
their customers.
Foreachof the31 industrialservices,we askedon adichotomousscale(with ‘O=not offered’
and ‘1=offered’) whether this servicewas offered. The numberof servicesoffered is then
directly calculated as the total of the services for which the respondentchecked a ‘1’.
Furthermore,for eachof the five categoriesof industrial services,we askedon a Likert-type
scale(with theanchors‘1=totally disagree’and ‘5=totally agree’)to which extenttheseservices
were offered actively to customers. The constructemphasison serviceswill be measuredby
thesefive items.
Consistentwith our conceptualizationof service orientation of corporate culture and of
humanresourcemanagement,we usedtwo scalesfocusingon valuesand behaviorand three
scales referring to personnel recruitment, personnel training, and personnel
assessment/compensation(seeTable2). Dueto thefact that,to thebestofourknowledge,there
is no researchwhich empiricallyaddressedthetopic ofhowto successfullyimplementa service-
orientedstrategyinternallywe couldnot useestablishedscales.Thus, we developednewscales.
11
To someextent, scaledevelopmentwas guided by the work of Bowen, Siehl, and Schneider
(1989)andMatheandShapiro(1993).
In terms of performancemeasures,the constructquality of customerrelationships was
operationalizedusing items which refer to aspectsof the interaction with customers(e.g.,
frequency, intensity), to customer-relatedknowledge, and to customer satisfaction/customer
loyalty. The constructdirect serviceprofitability was assessedusing two items which concern
the degree to which SBU’s earn money with services. The overall profitability was
operationalizedusing two itemswhich referto return on sales(seeTable2). Returnon salesis a
widely acceptedperformancemeasurein the industrialmarketingarea.
In termsof measurementvalidation, all reflective multi-item constructstogetherwere then
subjectedto a confirmatoryfactor analysis. The overall measuresindicatea goodfit with the
hypothesizedmeasurementmodel(x2/ d.f= 1.03,GFI = .95; AGFI .94; CFI = 1.00;RMSEA =
.015). Compositereliabilities ofthe individual scalesrangefrom .75 to .94 (seeTable2) which
provides further evidenceof the measures’soundpsychometricproperties(Bagozzi and Yi,
1988). Discriminantvalidity was demonstratedthroughthe test recommendedby Fornelland
Larcker (1981). Together the results provide evidencethat the measureshave the sound
psychometricpropertiesnecessaryfor hypothesistesting.
InsertTable2 abouthere
Results
The hypothesizedmodel was estimatedby structuralequationmodelingtechniques,using the
LISREL 8 program(J&eskogand S&bom, 1996aandb). The resultsof theLISREL analysis
arereportedin Figure 2. Theoverall fit measuressuggestthat thehypothesizedmodel provides
a goodfit for thedata. Thechi-square-degreesof freedomratio showedstrongresults(x2/ d.f. =
12
1.26). Theotheroverall measures(GEl = .94; AGFI = .92; CFI = .98; RMSEA .043)alsomeet
therequirementssuggestedin therelevantliterature(e.g., BagozziandYi, 1988).
InsertFigure2 abouthere
The first two hypothesesdealwith the effectsof the two dimensionsof a service-oriented
strategy—numberof services and emphasis on services—onthe two soft organizational
factors service orientation of corporateculture and service orientationof human resource
management.As seenin Figure 2, both hypothesesconcerningthe link betweenemphasison
servicesand the two soft factors (712 = .68, p =.01—Hlb; 722 = .64, p =.01 H2b) are very
strongly supportedin termsof significanceand sizeof effects. Theotherhypothesesrelatedto
numberof servicesarenot supportedsincetheparameterestimatesarepositive (ashypothesized)
butnot significant (711 = .05, n.s.—Hla;721 .05,n.s.—H2a).
Thenext setof hypothesesexaminedtheextent to which thetwo soft organizationalfactors
influence the two dimensions of service-relatedperformance. As shown in Figure 2, all
hypothesesare supported. Specifically, the quality of customerrelationshipsis positively
influencedby the serviceorientationof corporateculture (f331 .26, p =.01—H3a) and the
serviceorientationofhumanresourcemanagement(1332 = .33,p =.05—H3b).
Furthermore,the direct serviceprofitability is positivelyaffectedby theserviceorientationof
corporateculture (134v .17, p =.05—H4a) and the service orientation of human resource
management(1342 .17,p =.01—H4b).
As shownin Figure 2, hypothesesH5a andHSbarealsosupported.Theoverallprofitability
is stronglyandpositivelyinfluencedby thequalityof customerrelationships(1353 .36,p S .01—
HSa)andmoderatelyaffectedby thedirect serviceprofitability (f3s~r .08, p =.10—HSb).
In summary,our empirical analysesprovidessupport for our theoretical reasoning. We
essentiallyfind supportfor our hypotheseswith the exceptionof the effectsof the numberof
serviceson organizationalarrangementparameters.
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Discussion
As mentioned previously, there has been a paucity of empirical researchon strategy
implementation. What little researchexists has focusedon how strategyinfluencesinternal
organizationalarrangementparametersin termsof a causalsequenceof eventswherecompanies
decide on a strategyand thenput in place appropriateorganizationalchoices(Ginsbergand
Venkatraman1985; Piercy 1998). Our studycontributesto this importantareaby analyzingthe
mediatingrole of soft organizationalfactorsaskey variables for the successfulimplementation
of a specific strategyin an industrialmarketingsetting—aservice-orientedstrategy. To thebest
of our knowledge, there is no researchwhich empirically addressedthe topic of how to
successfullyimplementa service-orientedstrategy. Therefore,our studyattemptsto addressan
importantresearchgapin ourknowledge.
Our study showsthat, oncean industrial marketingcompanyhas formally decidedupona
service-orientedstrategyin termsofhow many serviceswill be offeredwith what emphasis,the
two soft organizationalfactors—corporateculture and humanresourcemanagement must be
brought in line to implementthis strategy. Thus, from a theoreticalperspective,the service
orientationofthesoft factorsis averycritical stepin implementingaservice-orientedstrategy.
An interestingobservationis that the effectsof the two soft factors on the non-financial
performancemeasure(i.e., quality of customerrelationships)are strongerthantheeffectson the
financial performancemeasure(i.e., direct serviceprofitability). Additionally, the quality of
customerrelationshipsinfluencesoverall profitability to a muchhigher degreethandoesdirect
serviceprofitability. Thus, the direct impactof a service-orientedstrategyanda corresponding
orientation of organizationalarrangementparametersis essentiallymediatedby quality of
customerrelationshipsandnot so muchby direct serviceprofitability. In otherwords,industrial
marketing companiesthat focus on servicesand design their culture and human resource
managementin a service-orientedmannerperform betternot so much becauseof the direct
profitsgeneratedby servicesbut ratherbecauseofimprovedcustomerrelationships.
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Our results show that one dimensionof a service-orientedstrategy—emphasison services
and not numberof services—hasthebiggestimpactin termsof changingtheserviceorientation
of corporatecultureand humanresourcemanagement.Onepossibleexplanationfor this canbe
that the emphasison servicesmuchmore stronglyreflectsascomparedwith numberof services
the switch from a product-orientedfirm to a serviceprovider. In businesspractice,it could be
observedhistorically that industrial marketingcompaniesoffered servicesnot systematically;
somecustomersaskedfor servicesand thesedesireswere often fulfilled. Thus, the rangeof
offered servicesreflecteda rather reactiveactivity and not a consciousactivity of industrial
marketingcompanies. Following this thought,offeringmany servicesmustnot imply a switch
from aproduct-orientedfirm to aserviceprovider.
Another contribution of the presentstudy is the introduction and developmentof new
measures.This holds truefor theserviceorientationof thetwo soft organizationalarrangement
parameters especiallyfor the serviceorientationof humanresourcemanagement.We define
theseconstructsandprovidevalidatedscalesformeasuringthem.
It is importantto notethat our studyonly examinesservice-orientedstrategyimplementation
issuesin an industrial marketingcontext. It would be interestingto examinewhethersimilar
relationshipshold in otherareaswhereservicesaugmentthe coreoffering. Onekey areawould
be that ofretailing. It is possiblethat thefindingsof this studymaysomewhatgeneralizeto this
areaas well. At the very least, the sameframework could be applied in future researchto
examinewhetherorganizationalsoft factorsmediatetherelationshipbetweena service-oriented
strategyandorganizationalperformanceaswell.
We addressedthe mediating role of soft organizationalfactors as key variables for the
successfulimplementationof a service-orientedstrategy. It would be interestingto analyzethe
role of hardorganizationalfactorssuchasorganizationalstructureandinformationsystem. This
would answerthequestionif theyarealsoplaying a key rolein implementinga service-oriented
strategy. By doing this, one could alsocomparetherole of soft andhardorganizationalfactors.
15
Are soft factorsmoreimportantthanhardfactorsin implementinga service-orientedstrategyor
viceversa?
There are severalkey managerial implications which follow from our findings. First,
industrial marketingcompanieswhich want to switch from being a totally product-focusedfirm
to being a serviceprovidermust faceand masterthe challengeto adapttheirsoft factorsin a
service-orientedmanner. This challengeis highlighted by Bonoma (1984, p. 69/70): “It is
invariably easierto think up clever marketingstrategiesthan it is to makethem work under
company,competitor, and customerconstraints. ... How to accomplishthe strategy— the
marketingimplementation— is problematic.” If industrial marketingcompaniesdo not master
this task,theyhavedifficulties to geta successfulturnarounddonefrom being aproduct-focused
firm to beinga serviceprovider.
Clearly a major change in soft organizational factors will often require a significant
investmentin terms of resourceand time on thepart of industrial marketingcompanies. Our
results do indicate,however, that theseinvestmentscan pay positive dividends in terms of
service-relatedperformanceandoverallprofitability.
Our study identified a high effect of one dimensionof a servicestrategy emphasison
services—onchangingthe two soft organizationalfactorswhich in turn positively influence
service-relatedperformance. This implies that industrial marketingcompaniesshouldstrongly
stresstheir servicesto their customers. This shouldbe doneindependentlyfrom thenumberof
servicesoffered.
In termsof aspectswhichpositively affect organizationalprofitability we identifiedthehigh
importanceof quality of customerrelationships(a non-financialoutcome)and not of direct
serviceprofitability (a financial outcome). This can interpretedas an indicator that many
industrial companiesdo not adequatelyprice their services. In the past, many industrial
marketingcompanieshavegiven awaytheir servicesfreeof charge(AndersonandNarus, 1995).
Comingfrom this startingpoint, industrial marketingcompaniesshouldchargeservicesto their
customers.
16
Finally, our results suggestthat industrial marketingcompaniesshould not emphasizethe
formulation of a strategyover implementation. The implementationof a strategyis critical.
Thus, while managersshouldbe careful to developan appropriateand effectivestrategy,they
should assignthe largeportion of their attentionand resourceto activities and taskswhich are
relatedto implementation. In particular,our study suggestthat thetwo soft factors—corporate
cultureandhumanresourcemanagement areareaswhichmerit significantattention.
17
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20
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Table 1. SampleCharacteristics
Industrialsector
Mechanicalengineeringindustry 35.4 %
Electricalengineeringindustry 29.2 %
Metalwareindustry 35.4 %
Numberofemployeescategory(size)
Lessthen 50 employees 18.3 %
50 to 99 employees 14.0%
100 to 249 employees 18.3 %
250 to 499 employees 16.0%
500 to 999 employees 8.6%
1,000to 2,499employees 8.9%
2,500to 5,000employees 2.7 %
Morethan 5,000employees 13.2 %
Distributionof producttype which thehighestsales
Productionmaterial/components 30.6%
Finishedproducts 41.8%
Engineeringprojects 27.6%
Table 2. Items,ScaleMeans,StandardDeviations,andCompositeReliabilitiesfor
Measures
Construct Meanl Composite Items*StandardDeviation
Reliability
Serviceorientationof 4.44/ .65corporatevaluesofthecompany
Serviceorientationof 3.86 / .69employees’behavior
Serviceorientationof 3.82 / .71personnelrecruitment
Serviceorientationof 3.64 / .94personneltraining
Serviceorientationof 3.14 / .92personnelassessment!compensation
.89
.94
.75
.82
.81
Customerserviceis oneof thecore valuesof ourcorporateculture.
High-qualitycustomerserviceis of similarlyhighimportanceto usasthe qualityof ourproducts.
Weunderstandourselvesnotonly asa supplierofproductsbutas aproviderof comprehensiveperformancebundlesfor thesolutionof ourcustomers’problems.
Theemployeesare awareof the importanceof acomprehensiveanda high-qualitycustomerserviceandtheyactaccordingly.Theemployeesactivelytaketheroleofproblem-solversfor thecustomers.
Theconcemsof thecustomersareofhigh importancefor theemployees.
Theemployeeshavea distinctiveservicementality.
Theemployeesengagestronglyin the solutionofcustomers’problems.
Weareableto find talentedjunior stafffor service-relatedactivities.
Socialcompetenceandtheabilitiesin face-to-face-contactswith customersaredecisivecriteria forrecruitment.
Thereadinessfor customerserviceof newly recruitedemployeesis required.
We examinethereadinessfor customerserviceofnewlyrecruitedemployees.
Newly recruitedemployeesare trainedcarefullyfortheinteractionswith customers.
Qualificationmeasuresnotonly takethetrainingoftechnicalcompetenceinto considerationbut alsothetrainingof social competence.
Theperformanceof employeesis recordedandevaluatedsystematically.Outstandingperformancein customerserviceishighlyappreciated.
Employeeswith a distinctiveserviceorientationhaveverygoodopportunitiesfor careerdevelopment.
Outstandingperformancein customerserviceisrewardedin thecontextof compensationfor examplethroughbonuses.
Table 2. Continued(1)
Construct Mean! Composite Items*StandardDeviation
Reliability
Quality of customerrelationships
Direct serviceprofitability
Overallprofitability
Numberofservices
3.67/.54
3.10/1.14
3.61 /1.08
13.10/4.08
.89
.86
.90
**
Frequencyof interactionwith customers.
Intensityof interactionwith customers.Intensityofpersonalrelationshipswith customers.
Understandingof the customers’business.
Knowledgeof customerneeds.
Exploitationoftheexistingsalespotential.Developmentof newsalespotential (crossselling).Realizationof customersatisfaction.
Retentionof existingcustomers.
Theservicesweofferareprofitable.Throughtheofferingof serviceswe generateasubstantialamountofprofit.Averagereturnon sales(operatingresultbefore tax /sales)of thebusinessunitoverthe lastthreeyears.
Averageretumon salesin comparisonto industryaverage.
Servicesfor technicalsecurityand optimization:
• Assembly/installation/implementing
• Technicalsupportfor similarproductsof othermanufacturers
• Dismantling/recycling/disposal
• Rearmament/retrofit/upgrading,adaptationof theproductto specific customerneeds
• Inspection/maintenanceServicessupportingtheprocessesof cooperation:
• Consignmentstorage
• Just-in-time-delivery0
0
0
Projectmanagement/primecontractorship
Customersupportfor adjustmentof EDP-systemsElectronicordering/orderprocessing(EDI)
Table 2. Continued(2)
Construct Meanl Composite Items*StandardDeviation
Reliability
Numberof services 13.10 / - ** Informationandconsultingservices:
• Personalconsulting/salesforcevisits
• Productdemonstration/sampledelivery
• Cost-benefit-calculation/visualizationofbenefits
• Customermagazine
• Customerconsultingandsupportby phone
• Written informationmaterial/documentation
• Technicalusertraining
• Websitewith productinformation.
Servicesfor trainingandfurtherconsulting:
• Businesstraining
• Seminars/lectures/eventsfor customers
• Feasibilitystudies/problemanalyses
• Cooperation/supportin researchanddevelopmentServicesin thebusiness-relatedfield:
• Procurementaid
• Salesaid/advertising/marketingsupport
• Insuranceservices
• Rent/mediationofmachinery/tools
• Businessconsulting
• Financialaid (e.g., leasing,mediationof loans)
• Dealingwith secondhandproducts
• Rent/mediationofpersonnel
Emphasison services 3.67/ .83 .77 Extentto which theservicesfor technicalsecurityandoptimizationareofferedactivelyto customers.
Extentto which theservicessupportingtheprocessofcooperationare offeredactivelyto customers.
Extentto which theinformationand consultingservicesareofferedactivelyto customers.
Extentto which theservicesfor trainingandfurtherconsultingare offeredactivelyto customers.
Extentto which theservicesin thebusiness-relatedfield are offeredactivelyto customers.
* All items,excepttheitemsfor numberof services,weremeasuredon a 5-pointscale( 1 lowestscore,5 =
highestscore). Theitemsfornumberof servicesweremeasuredon a dichotomousscale(with ‘0 = notoffered’and‘1 = offered’).
** Compositereliabilityisnotapplicablefor theformativemeasurenumberof services.
4.08