Shifting Gears

The key to migrating—effectively—from manufacturing to service.

In an era of increased product commoditization and global competition, academics and industry experts have promoted the benefits of shifting from a product-centric to a service-centric business model as a strategy for generating shareholder value. The success of companies such as IBM and General Electric highlights the attractiveness of this strategy.

But when does shifting to a service strategy really work to increase firm value? Robert Palmatier, assistant professor of marketing at the Foster School, and two colleagues evaluated data from 477 publicly traded manufacturing firms during the period from 1990 to 2005 to shed light on the conditions that lead to a successful shift to service. Key points, according to the study, include achieving a critical mass of overall company sales from service—between 20-30 percent is the tipping point for a positive effect on a firm’s value—and “sticking to what you know,” creating synergy between product line and service offering.

The study was published in the Journal of Marketing.