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The Role of Soft Factors inImplementing

a Service-Oriented Strategy in
Industrial Marketing Companies.
by
Christian Homburg,
Martin Fassnacht,
Christof Guenther,
University ofMannheim
ISBM Report 18-2000
Institute for the Study of Business Markets
The Pennsylvania State University
402 Business Administration Building
University Park, PA 16802-3004
(814) 863-2782 or (814) 863-0413 Fax
THE ROLE OF SOFT FACTORS
INIMPLEMENTiNG A SERVICE-ORIENTED STRATEGY
ININDUSTRIALMARKETING COMPANIES
Christian Homburg
Professor of Business Administration and Marketing
Chair ofthe Marketing Department
Director ofthe Institute for Market-Oriented Management (1MM)
University ofMannheim
D-68161 Mannheim, Germany
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Martin Fassnacht
Assistant Professor
Institute for Market-Oriented Management (1MM)
University ofMannheim
D-68161 Mannheim, Germany
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C h ri s t o f G ue n t h e r
C o n s ul t a n t
P ro f. Ho mburg & P a rt n e r G mbH
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Th e a ut h o rs gra t e ful l y a c kn o wl e dge t h e fi n a n c i a l s uppo rt o f t h e I n s t i t ut e fo r t h e S t udy o f
Business Markets (ISBM) at The Pennsylvania State University.
The Role of Soft Factors in Implementing a
Service-Oriented Strategy in Industrial Marketing Companies
It has been recognized that in todays h i gh l y c o mpe t i t i v e i n dus t ri a l ma rke t s , o n e o f t h e fe w
ways left to gain differentiation from competitors is by offering value-added services. To do so,
however, requires a service-oriented strategy and the active implementation of this strategy
which includes significant internal changes in management philosophy and approach.
Unfortunately, no study has examined the implementation aspects of a service-oriented strategy.
In this context, our research focuses on two important soft factors, corporate culture and
human resource management, that are necessary for a successful implementation of a service-
oriented strategy in industrial marketing companies. We analyze the mediating role of these two
soft factors in the causal chain leading from a service-oriented strategy to organizational
performance. We find that that the soft factors play an important mediating role in the link
between a service-oriented strategy and organizational performance.
The Role of Soft Factors in Implementing a
Service-Oriented Strategy in Industrial Marketing Companies
In todays highly competitive markets, industrial marketing companies whose core offering is a
product or a set ofproducts often find the strong need to augment this core offering with services
in order to compete effectively (e.g., Anderson and Narus, 1995; Cooper and Jackson, 1988;
Donaldson, 1995; Matthyssens and Vandenbempt, 1998). The core offerings of many industrial
companies look very similar to customers in terms of important areas such as product ranges and
prices (Andersonand Narus, 1995; McMurrian and Wilson, 1996; Quinn, Doorley, and Paquette,
1990). Due to these similarities, it is very important for industrial marketing companies to give
their customers real reasons for consistently choosing their companyover their competition. One
ofthe key ways left to accomplish this is to offer value-added services. Customers are not solely
interested in the pure product but in bundles which comprises products and services. These
benefits bundles can fulfill the needs for customers better thanthe pure product and therefore
are very attractive for customers. The initiative to augment the products with services can be
traced back to the classic statement by Levitt (1972, p. 4 1/2) who highlights that there are no
such things as service industries. There are only industries whose service components are
greater or less thanthose ofother industries. Everybody is in service.
However, the successful implementation of a service-oriented strategy for industrial
marketing companies requires significant internal changes in terms of management philosophy
and approach. Becoming more service-oriented especially requires changes in the firms
corporate culture and human resource management. The relevance of these two factors are
stressed in the literature which conceptually discusses the issue of implementing a service-
oriented strategy in industrial marketing companies. Bowen, Siehl, and Schneider (1989, p. 82)
highlight that ,,manufacturing firms ... have not historically included service-related goals ... as
objectives may require climate and cultural changes to support these goals. In a similar vein,
Mathe and Shapiro (1993, p. 28/29) comment that human resource management is critical in
implementing a service-oriented strategy. To the best of our knowledge, there is no research
which empirically addressed the topic of how to successfully implement a service-oriented
strategy internally.
Against this background, our research focuses on internal changes that are necessary for a
successful implementation of a service-oriented strategy in industrial marketing companies.
With respect to these internal organizational characteristics, an important distinctioncanbe made
between hard and soft factors. Hard factors such as the organizational structure (e.g., the
degree of formalization) describe structural organizational characteristics. In contrast to that,
soft factors refer to non-structural organizational characteristics such as shared values and
employees behavior . This paper focuses on two important soft factors: corporate culture and
human resource management. We analyze the mediating role of these two factors in the causal
chain leading from a service-oriented strategy to organizational performance. If these factors
really play an important role in the implementation of a service-oriented strategy, they should
strongly mediate the link between the presence of a service-oriented strategy and organizational
performance (Ginsberg and Venkatraman, 1985, p. 428).
The paper is organized as follows: In the next section, we outline a framework which
describes the key constructs of interest, followed by a development of formal hypotheses. We
then describe an empirical study which tests these hypotheses. This is followed by a discussion
of academic and practical implications.
Framework and Hypotheses Development
Strategy Implementation Research
In developing a framework and hypotheses, this study draws on researchin the neglected area of
strategy implementation. As noted by Noble and Mokwa (1999, p. 57) little attention has been
given to implementation ... of strategy. What little researchdoes exist addresses how strategy
influences internal organizational arrangement parameters. Typically, the relationship between
the strategy and organizational arrangement parameters has been explained in a sequential model
where companies decide on a strategy and then put in place appropriate organizational choices
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(Ginsberg and Venkatraman, 1985; Piercy, 1998). Traditionally, researchers have looked at how
strategy has affected structural organizational choices such as organizational structure (e.g.,
Chandler, 1962; Galbraith and Nathanson, 1978; Habib and Victor, 1991; Roth, Schweiger, and
Morrison, 1991; White, 1986) and de s i gn of information systems (e.g., Cravens, 1998; Das,
Zahra, and Warkentin, 1991; Karimi, Gupta, and Somers, 1996; Teo and King, 1997). Th e s e
organizational arrangement parameters can be classified as hard factors.
S i n c e t h e 1 9 8 0 s , s o ft ( i n t a n gi bl e ) fa c t o rs t h a t ma y pl a y a ro l e in strategy implementation have
gained interest. Two important ofthese soft variables are corporate culture and human resource
ma n a ge me n t . Da v i s ( 1 9 8 3 ) h i gh l i gh t s t h e ro l e of human resource management and corporate
culture in implementing strategies. Similarly, Porter (1985, p. 24) stresses the relevance of the
fit between a generic strategy and corporate culture: Culture ... has come to be viewed as an
important element of a successful firm. However, different cultures are implied by different
generic strategies. ... Culture can powerfully reinforce the competitive advantage a generic
strategy seeks to achieve, if the culture is an appropriate one. There is no such thing as a good or
bad culture per se. Culture is a means ofachieving competitive advantage, not an end in itself.
Also Noble (1999, p. 132) highlights the key role of corporate culture: . . .it seems clear that
aspects of the firm such as culture ... ma y h a v e a profound effect on implementation processes.
M o re re s e a rc h i s n e e de d on the influence of these firm factors on strategy implementation
s uc c e s s .
Al t h o ugh t h e re i s s o me re s e a rc h wh i c h i n v e s t i ga t e s h o w s t ra t e gy i n ge n e ra l i n fl ue n c e s
corporate culture (e.g., Allaire and Firsirotu, 1985; Davis, 1983; Joyce and Slocum, 1990;
S c h wa rt z a n d Da v i s , 1 9 8 1 ) a n d h uma n re s o urc e ma n a ge me n t (e.g., Davis, 1983; Govindarajan
and Gupta, 1985; Gupta and Govindarajan, 1984a and b; Govindarajan, 1989; L e o n t i a de s , 1982),
the specific question ofhow a service-oriented strategy in an industrial marketing context affects
these soft factors has not yet been studied. Thus, the orientation ofthis paper allows to fill a gap
in the literature.
3
In conducting this investigation, it is important to note that the strategy implementation
research described above is rooted in the classical assumption that structure follows strategy
(Chandler, 1962). In contrast, there is some debate concerning the direction of causality ofthe
relationship between strategy and organizational arrangement parameters. To shed light on this
issue, however, a systematic longitudinal empirical study which was designed to examine the
nature of the relationship between strategy and organizational arrangement parameters
(Amburgey and Dacin, 1994) found that strategy has a stronger influence on organizational
arrangement parameters than vice versa. In addition, Mintzberg (1990) notes that one important
school of thought on strategythe design school tends to promote this direction of causality.
Th us , t h e re s e e ms t o be s o me s uppo rt fo r t h e causal proposition that strategy determines
o rga n i z a t i o n a l a rra n ge me n t pa ra me t e rs .
It is our view that this direction of causality is especially true for industrial marketing
companies which augment their core offerings with value-added services. Inthese organizations,
soft organizational arrangement parameters have traditionally been very product-oriented. In
other words, a strategic focus on products has led to a human resource management and a
corporate culture which is centered around products or brands. Thus, adopting a service-oriented
strategy would require a major change in each ofthe two soft organizational factors. This notion
of strategy determining organizational arrangement pa ra me t e rs fo rms t h e fo un da t i o n fo r o ur
conceptual framework which we now discuss.
Framework and Constructs
Figure 1 presents the conceptual framework which guides our research effort. This framework
focuses on changes of soft factors that are needed for a successful implementation of a service-
oriented strategy.
Insert Figure 1 about here
4
In this study we conceptualize the service orientation ofa strategy of an industrial marketing
company in terms of two dimensions: (1) the number of services offered, and (2) how strongly
these services are emphasized to customers. The number of services itself is clearly one
important facet of a service-oriented strategy. The more services an industrial marketing
company offers, the greater the ability to augment the core product offering. This variable is
similar to the breadth of product range which is considered to be a key strategic decision in the
field of product management (e.g., Lehmann and Winer, 1997; Wind, 1982). However, simply
studying the number of services is not enough. For a given number of services offered, industrial
marketing companies have a choice of offering them very actively to customers versus offering
them only when customers explicitly ask for them. Thus, in addition to the number of services
offered, it is also important to examine the emphasis placed on these services. The emphasis
placed on services relates t o t h e de gre e t o wh i c h a company actively offers services to its
customers. The importance of this variable has been highlighted in the industrial marketing area
(Morris and Davis, 1992; Wright, Pearce, and Busbin, 1997).
It is important to note that while these two constructs may be interrelated, they are
conceptually distinct. A company could offer only a few services but emphasize them heavily or
another could offer a lot of services but not emphasize any single service to any great degree.
Our framework next considers the service orientation of two soft organizational parameters,
the first being service orientation ofcorporate culture. Two important dimensions of a corporate
culture are values and behaviors in the organization (Calori and Sarnin, 1991; Deshpand~ and
Webster, 1989; Hofstede et al., 1990; Homburg and Pflesser, 2000). Since we address the
implementation of a service-oriented strategy, we draw our attention to the extent to which these
two dimensions of a corporate culture are service-oriented. Thus, the first dimension refers to
the (abstract) value of services within the organization. By stressing the value of providing
services, companies can help employees to realize the relevance of this value (Webster, 1990).
The second dimension captures the degree to which employees behave in a service-oriented way.
This behaviorreflects how muchthe (abstract) value of services is lived out in the organization.
S
In terms of human resource management, we distinguish between the three dimensions
personnel recruitment, personnel training, and personnel assessment/compensation. This
conceptualization is adapted from Schneider and Bowen (1992) and Schuler (1996). We draw
our attention to the extent to which these three dimensions of human resource management are
service-oriented. M o re s pe c i fi c a l l y , ( a ) service orientation of personnel recruitment refers to the
e x t e n t t o wh i c h the selection of personnel focuses on service-related aspects, (b) service
o ri e n t a t i o n o f the personnel training captures the degree to which the employees are trained for
interactions with customers, and (c) service orientation of personnel assessment/compensation
refers to the e x t e n t t o wh i c h s e rv i c e - re l a t e d pe rfo rma n c e i s e v a l ua t e d a n d re wa rde d wi t h i n t h e
o rga n i z a t i o n . Th e s e a s pe c t s a re h i gh l y i mpo rt a n t due t o t h e fa c t t h a t t h e pro duc t i o n a n d
consumption of services are inseparable (Zeithaml, Parasuraman, and Berry, 1985) which
implies that the companys employees and customers interact directly on a regular basis. The
high importance of personal interaction in delivering services is also visible from the research
stream on service encounters (Fisk, Brown, and Bitner, 1995; Bitner, Booms, and Tetreault,
1990).
Moving to the next stage of the framework, we consider performance outcomes. We make a
distinctionbetween service-relatedperformance and overall profitability.
Service-related performance outcomes include quality of customer relationships (a non-
financial outcome) and direct service profitability (a financial outcome). The first construct
comprises such aspects as intensity of interaction with customers, intensity of personal
relationships with customers, and customer satisfaction and loyalty. We will later argue that a
service orientation contributes to establishing high quality customer relationships. The direct
service profitability relates to the degree to which industrial marketing companies directly earn
money through offering and charging services to their customers.
Overallprofitability relates to the profitability achieved by the firm (or a business unit within
the firm) through marketing the whole range of products and services. Typical profitability
6
measures include return on sales, return on investment, and return on assets (Chakravarthy,
1986).
Hypotheses Development
As described and justified before, we argue that organizational arrangement parameters follow
strategy. Thus, for the first two hypotheses, our general logic is that strategic choice determines
the two soft factors. This means that the two dimensions ofa service-oriented strategynumber
of services and emphasis on serviceshave a positive impact on the service orientation of each
ofthe two organizational factors.
Companies which decide on a certain strategy, will adequately (consistently) adapt their
corporate culture (Allaire and Firsirotu, 1985; Davis, 1983; Joyce and Slocum, 1990; Noble
1999; Porter, 1985; Schwartz and Davis, 1981). Because we address a service-oriented strategy,
adequateness (consistency) implies a service-orientation of corporate culture. Industrial
marketing companies which move from a strategy ofproduct orientation to a service orientation
in terms of offering and emphasizing services, will stress the value of services in the corporate
culture (Bowen, Siehl, Schneider, 1989). Furthermore, suchcompanies will strongly encourage
service-related behavior of their employees (Mathe and Shapiro, 1993). By doing this, industrial
marketing companies assure that the (abstract) value of service is lived out in the company.
Thus, we derive the following hypothesis:
Hi: The higher the service orientation of the business strategy (in terms of a: number of
services and b: emphasis on services), the higher the service orientation of corporate
culture.
Companies which have chosen a certain strategy will not only adequately adapt their
corporate culture but also their human resource management (Davis, 1983; Govindarajan and
Gupta, 1985; Gupta and Govindarajan, 1984a and b; Govindarajan, 1989; Leontiades, 1982).
Industrial marketing companies which have been traditionally strongly product-oriented, but
want to become highly service-oriented, will select, train, and reward employees who are capable
of dealing with the new challenges that services imply. Inparticular, they need to be able to deal
7
with the many personal interactions with customers which are required by the implementation of
a service-oriented strategy (Bowen, Siehl and Schneider, 1989). The higher the number of
services and the emphasis on services, the greater the number of personal interactions which will
occur with customers. Thus, industrial companies which a adopt a service-oriented strategy will
assure that employees are selected, trained, and rewarded on a permanent basis for these
encounters. Thus, we hypothesize:
H2: The higher the service orientation of the business strategy (in terms of a: number of
services and b: emphasis on services), the higher the service orientation of human
resource management.
The next set ofhypotheses examines the relationships betweenthe soft organizational factors
and service-related performance. First, industrial marketing companies with a high service
orientation of corporate culture not only stress the value of services but also live out this value.
The employees behave in a service-oriented way and are characterized by a high service
mentality. Industrial marketing companies with employees who are selected, trained, and
rewarded in a service-oriented way will be more likely to deliver services during the service
encounter which will fulfill customer needs. Customers like to interact with such kind of well-
educated and well-motivated employees who behave in a service-oriented way. Also, customers
satisfaction and loyalty will be enhanced. Taking all this together, this leads to a strengthening
of customer relationships. This reasoning is consistent with empirical findings that corporate
culture can affect and strengthen customer relationships (Appiah-Adu and Singh, 1999;
Homburg and Pflesser, 2000). Against this background, we derive the following hypothesis:
H3: The higher the service orientation of the two soft organizational factors (a: corporate
culture and b: human resource management), the higher the quality of customer
relationships.
For industrial marketing companies the measurement and the inspection of quality are
generally much more difficult for services as compared with products. The many personal
interactions between employees and customers caused by services offered lead to an increased
8
risk of failures. Correcting these failures may involve high costs for an industrial marketing
company (Jackson and Schuler, 1992). The risk of failures can be reduced by employees who
are well-trained, well-motivated, and behave in a service-oriented way. This replaces extensive
and expensive inspection and correction mechanisms. In addition to that, such employees not
only lower service-related costs but also increase service-related sales. Customers who interact
which this kind of employees get more value out of this interaction. This increases the
willingness-to-pay of customers for services. Thus, we hypothesize:
H4: The higher the service orientation of the two soft organizational factors (a: corporate
culture and b: humanresource management), the higher the direct service profitability.
The next hypothesis examines the link in the framework between service-related
performance and overall profitability. We argue that the quality of customer relationships will
have a positive impact on overall profitability. In general, previous studies have found that there
is a positive link betweencustomer satisfaction (a facet of quality of customer relationships) and
overall profitability (Anderson, Fornell, and Lehmann, 1994; Anderson, Fornell, and Rust, 1997;
Hallowell, 1996). A positive link between customer loyalty (another facet ofquality of customer
relationships) and profitability has also been in evidence (Hallowell, 1996; Loveman, 1998). It
can be argued that loyal customers can increase organizational profitability through the absence
of acquisition costs, lower operating costs, higher price tolerance, and referrals (Kalwani and
Narayandas, 1995; Reichheld and Sasser, 1990; Reichheld, 1996). Thus, it appears that there is a
general linkbetween quality of customer relationships and overall profitability.
Clearly, the direct service profitability increases the overall profitability, Therefore, when the
direct service profitability is high, all other things being held equal, the overall profitability will
be higher. Thus, we derive the hypothesis:
H5a: The higher the quality ofcustomer relationships, the higher the overall profitability.
H5b: The higher the direct service profitability, the higher the overall profitability.
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Method
Data Collection andSample
Our unit of analysis was a Strategic Business Unit (SBU) in an industrial marketing company.
This level was selected because different SBUs within one industrial marketing company can
pursue different strategies concerning industrial services. We defined a SBU as a relatively
autonomous unit with the SBU management having control of at least three of the following
functions: marketing, sales, manufacturing, R&D, accounting/finance, and human resources
(Homburg, Workman, and Krohmer, 1999).
Preceding the survey, we conducted 10 face-to-face interviews with experts. The goal of
these interviews was to pretest a preliminary version of the questionnaire.
A random sample of senior sales manager names in SBUs were acquired from a
commercial data base provider. We verified the names of these managers through telephone
calls to the SBU. We included three industrial sectors: electrical engineering industry,
mechanical engineering industry, and metaiware industry. By including these industrial sectors,
we intended to assure a broad range of products concerning their complexity ranging from
production material/components via finished products to engineering projects. As an incentive
to participate, managers were promised two managerially-oriented working papers (immediately
after response) and a managerial summary ofresults (after completion ofthe study).
In total, 1.270 survey questionnaires were sent out. 271 questionnaires were returned for a
response rate of 21.3%. Table 1 provides information on sample characteristics. Approximately,
each industrial sector is represented to one third in the sample. In general, small, medium-size,
and large SBUs are represented with a significant share in the sample. This holds also true for
the three product types.
Insert Table 1 about here
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Nonresponse bias was tested by comparing early and late responders on all variables (as
suggested by Armstrong and Overton, 1977). No significant differences were found between the
two groups. Therefore, there is some evidence that nonresponse bias was not a problem with
these data.
Measure Development and Validation
As mentioned earlier, the service-oriented strategy is conceptualized in terms oftwo aspects: (1)
the number of industrial services offered, and (2) the emphasis placed on industrial services.
Based on a review of the limited literature on industrial services (e.g., Banting, 1984; Homburg
and Garbe, 1999) and the face-to-face-interviews, we identified five major categories of
industrial services (see Table 2). Within each of these service categories we identified between4
and 8 specific industrial services (see Table 2). In sum, this leads to a comprehensive list of 31
services which covers the range of services typically offered by industrial marketing firms to
their customers.
For eachof the 31 industrial services, we asked on a dichotomous scale (with O=not offered
and 1=offered) whether this service was offered. The number of services offered is then
directly calculated as the total of the services for which the respondent checked a 1.
Furthermore, for each of the five categories of industrial services, we asked on a Likert-type
scale (with the anchors 1=totally disagree and 5=totally agree) to which extent these services
were offered actively to customers. The construct emphasis on services will be measured by
these five items.
Consistent with our conceptualization of service orientation of corporate culture and of
human resource management, we used two scales focusing on values and behavior and three
scales referring to personnel recruitment, personnel training, and personnel
assessment/compensation (see Table 2). Due to the fact that, to the best ofour knowledge, there
is no research which empirically addressed the topic ofhow to successfully implement a service-
oriented strategy internally we could not use established scales. Thus, we developed new scales.
1 1
To some extent, scale development was guided by the work of Bowen, Siehl, and Schneider
(1989) and Mathe and Shapiro (1993).
In terms of performance measures, the construct quality of customer relationships was
operationalized using items which refer to aspects of the interaction with customers (e.g.,
frequency, intensity), to customer-related knowledge, and to customer satisfaction/customer
loyalty. The construct direct service profitability was assessed using two items which concern
the degree to which SBUs earn money with services. The overall profitability was
operationalized using two items which refer to return on sales (see Table 2). Return on sales is a
widely accepted performancemeasure in the industrial marketing area.
In terms of measurement validation, all reflective multi-item constructs together were then
subjected to a confirmatory factor analysis. The overall measures indicate a good fit with the
hypothesized measurement model ( x
2 / d.f= 1.03, GFI = .95; AGFI .94; CFI = 1.00; RMSEA =
.015). Composite reliabilities ofthe individual scales range from .75 to .94 (see Table 2) which
provides further evidence of the measures sound psychometric properties (Bagozzi and Yi,
1988). Discriminant validity was demonstrated through the test recommended by Fornell and
Larcker (1981). Together the results provide evidence that the measures have the sound
psychometric properties necessary for hypothesis testing.
Insert Table 2 about here
Results
The hypothesized model was estimated by structural equation modeling techniques, using the
LISREL 8 program (J&eskog and S&bom, 1996a and b). The results of the LISREL analysis
are reported in Figure 2. The overall fit measures suggest that the hypothesized model provides
a good fit for the data. The chi-square-degrees of freedomratio showed strong results ( x 2 / d.f. =
12
1.26). The other overall measures (GEl =.94; AGFI = .92; CFI =.98; RMSEA .043) also meet
the requirements suggested in the relevant literature (e.g., Bagozzi and Yi, 1988).
Insert Figure 2 about here
The first two hypotheses deal with the effects of the two dimensions of a service-oriented
strategynumber of services and emphasis on serviceson the two soft organizational
factors service orientation of corporate culture and service orientation of human resource
management. As seen in Figure 2, both hypotheses concerning the link between emphasis on
services and the two soft factors (712 = .68, p =.01Hlb; 722 = .64, p =.01 H2b) are very
strongly supported in terms of significance and size of effects. The other hypotheses related to
number of services are not supported since the parameter estimates are positive (as hypothesized)
but not significant (711 =.05, n.s.Hla; 721 .05, n.s.H2a).
The next set of hypotheses examined the extent to which the two soft organizational factors
influence the two dimensions of service-related performance. As shown in Figure 2, all
hypotheses are supported. Specifically, the quality of customer relationships is positively
influenced by the service orientation of corporate culture (f331 .26, p =.01H3a) and the
service orientation ofhuman resource management (1332 =.33, p =.05H3b).
Furthermore, the direct service profitability is positively affected by the service orientation of
corporate culture (134v .17, p =.05H4a) and the service orientation of human resource
management (1342 .17, p =.01H4b).
As shown in Figure 2, hypotheses H5a and HSb are also supported. The overall profitability
is strongly and positively influenced by the quality of customer relationships (1353 .36, p S .01
HSa) and moderately affected by the direct service profitability ( f
3 s ~ r .08, p =.1 0HSb).
In summary, our empirical analyses provides support for our theoretical reasoning. We
essentially find support for our hypotheses with the exception of the effects of the number of
services on organizational arrangement parameters.
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Discussion
As mentioned previously, there has been a paucity of empirical research on strategy
implementation. What little research exists has focused on how strategy influences internal
organizational arrangement parameters in terms of a causal sequence of events where companies
decide on a strategy and then put in place appropriate organizational choices (Ginsberg and
Venkatraman 1985; Piercy 1998). Our study contributes to this important area by analyzing the
mediating role of soft organizational factors as key variables for the successful implementation
of a specific strategy in an industrial marketing settinga service-oriented strategy. To the best
of our knowledge, there is no research which empirically addressed the topic of how to
successfully implement a service-oriented strategy. Therefore, our study attempts to address an
important researchgap in our knowledge.
Our study shows that, once an industrial marketing company has formally decided upon a
service-oriented strategy in terms ofhow many services will be offered with what emphasis, the
two soft organizational factorscorporate culture and human resource management must be
brought in line to implement this strategy. Thus, from a theoretical perspective, the service
orientation ofthe soft factors is a very critical step in implementing a service-oriented strategy.
An interesting observation is that the effects of the two soft factors on the non-financial
performance measure (i.e., quality of customer relationships) are stronger than the effects on the
financial performance measure (i.e., direct service profitability). Additionally, the quality of
customer relationships influences overall profitability to a much higher degree than does direct
service profitability. Thus, the direct impact of a service-oriented strategy and a corresponding
orientation of organizational arrangement parameters is essentially mediated by quality of
customer relationships and not so much by direct service profitability. In other words, industrial
marketing companies that focus on services and design their culture and human resource
management in a service-oriented manner perform better not so much because of the direct
profits generated by services but ratherbecause ofimproved customer relationships.
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Our results show that one dimension of a service-oriented strategyemphasis on services
and not number of serviceshas the biggest impact in terms of changing the service orientation
of corporate culture and human resource management. One possible explanation for this can be
that the emphasis on services much more strongly reflects as compared with number of services
the switch from a product-oriented firm to a service provider. In business practice, it could be
observed historically that industrial marketing companies offered services not systematically;
some customers asked for services and these desires were often fulfilled. Thus, the range of
offered services reflected a rather reactive activity and not a conscious activity of industrial
marketing companies. Following this thought, offering many services must not imply a switch
from a product-oriented firm to a service provider.
Another contribution of the present study is the introduction and development of new
measures. This holds true for the service orientation of the two soft organizational arrangement
parameters especially for the service orientation of human resource management. We define
these constructs and provide validated scales formeasuring them.
It is important to note that our study only examines service-oriented strategy implementation
issues in an industrial marketing context. It would be interesting to examine whether similar
relationships hold in other areas where services augment the core offering. One key area would
be that ofretailing. It is possible that the findings of this study may somewhat generalize to this
area as well. At the very least, the same framework could be applied in future research to
examine whether organizational soft factors mediate the relationship betweena service-oriented
strategy and organizational performance as well.
We addressed the mediating role of soft organizational factors as key variables for the
successful implementation of a service-oriented strategy. It would be interesting to analyze the
role of hard organizational factors such as organizational structure and information system. This
would answer the question if they are also playing a key role in implementing a service-oriented
strategy. By doing this, one could also compare the role of soft and hard organizational factors.
15
Are soft factors more important than hard factors in implementing a service-oriented strategy or
vice versa?
There are several key managerial implications which follow from our findings. First,
industrial marketing companies which want to switch from being a totally product-focused firm
to being a service provider must face and master the challenge to adapt their soft factors in a
service-oriented manner. This challenge is highlighted by Bonoma (1984, p. 69/70): It is
invariably easier to think up clever marketing strategies than it is to make them work under
company, competitor, and customer constraints. ... How to accomplish the strategy the
marketing implementation is problematic. If industrial marketing companies do not master
this task, they have difficulties to get a successful turnaround done from being a product-focused
firm to being a service provider.
Clearly a major change in soft organizational factors will often require a significant
investment in terms of resource and time on the part of industrial marketing companies. Our
results do indicate, however, that these investments can pay positive dividends in terms of
service-related performance and overall profitability.
Our study identified a high effect of one dimension of a service strategy emphasis on
serviceson changing the two soft organizational factors which in turn positively influence
service-related performance. This implies that industrial marketing companies should strongly
stress their services to their customers. This should be done independently from the number of
services offered.
In terms of aspects which positively affect organizational profitability we identified the high
importance of quality of customer relationships (a non-financial outcome) and not of direct
service profitability (a financial outcome). This can interpreted as an indicator that many
industrial companies do not adequately price their services. In the past, many industrial
marketing companies have given away their services free of charge (Anderson and Narus, 1995).
Coming from this starting point, industrial marketing companies should charge services to their
customers.
16
Finally, our results suggest that industrial marketing companies should not emphasize the
formulation of a strategy over implementation. The implementation of a strategy is critical.
Thus, while managers should be careful to develop an appropriate and effective strategy, they
should assign the large portion of their attention and resource to activities and tasks which are
related to implementation. In particular, our study suggest that the two soft factorscorporate
culture and human resource management are areas which merit significant attention.
17
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20
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Table 1 . Sample Characteristics
Industrial sector
Mechanical engineeringindustry 35.4 %
Electrical engineeringindustry 29.2 %
Metalware industry 35.4 %
Number ofemployees category (size)
Less then 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 %
1,000 to 2,499 employees 8.9 %
2,500 to 5,000 employees 2.7 %
Morethan 5,000 employees 13.2 %
Distribution of product type which the
highest sales
Productionmaterial/components 30.6 %
Finished products 41.8 %
Engineering projects 27.6 %
Table 2. Items, Scale Means, Standard Deviations, and Composite Reliabilities for
Measures
Construct Meanl Composite Items*
Standard
Deviation
Reliability
Service orientation of 4.44 / .65
corporate values ofthe
company
Service orientation of 3.86 / .69
employees behavior
Service orientation of 3.82 / .71
personnel recruitment
Service orientation of 3.64 / .94
personnel training
Service orientation of 3.14 / .92
personnel assessment!
compensation
.89
.94
.75
.82
.81
Customer service is one of the core values of our
corporate culture.
High-quality customer service is of similarlyhigh
importanceto us as the quality of our products.
We understand ourselves not only as a supplier of
products but as a provider of comprehensive
performance bundles for the solution of our
customers problems.
Theemployees are aware of the importance of a
comprehensive and a high-qualitycustomer service
and they act accordingly.
Theemployees activelytake the role ofproblem-
solvers for the customers.
Theconcems of the customers are ofhigh importance
for the employees.
Theemployees have a distinctive service mentality.
Theemployees engage strongly in the solution of
customers problems.
We are able to find talentedjunior stafffor service-
related activities.
Social competence and the abilities in face-to-face-
contacts with customers are decisive criteria for
recruitment.
Thereadiness for customer service of newly recruited
employeesis required.
We examine the readiness for customer service of
newlyrecruited employees.
Newly recruitedemployees are trained carefully for
the interactions with customers.
Qualification measures not only take the training of
technical competence into consideration but also the
training of social competence.
Theperformance of employees is recorded and
evaluated systematically.
Outstandingperformance in customer service is
highlyappreciated.
Employees with a distinctive service orientation have
verygood opportunities for career development.
Outstanding performance in customer service is
rewarded in the context of compensation for example
through bonuses.
Table 2. Continued (1)
Construct Mean! Composite Items*
Standard
Deviation
Reliability
Quality of customer
relationships
Direct service
profitability
Overall profitability
Number ofservices
3.67/.54
3.10/
1.14
3.61 /
1.08
13.10/
4.08
.89
.86
.90
**
Frequency of interactionwith customers.
Intensity of interactionwith customers.
Intensity ofpersonal relationships with customers.
Understandingof the customers business.
Knowledge of customer needs.
Exploitation ofthe existingsales potential.
Development of new sales potential (cross selling).
Realization of customer satisfaction.
Retention of existingcustomers.
The services we offer are profitable.
Throughthe offering of services we generate a
substantial amount ofprofit.
Average return on sales (operating result before tax /
sales) of the business unit over the last three years.
Average retum on sales in comparison to industry
average.
Services for technical security and optimization:
Assembly/installation/implementing
Technical support for similar products of other
manufacturers
Dismantling/recycling/disposal
Rearmament/retrofit/upgrading, adaptation of the
product to specific customer needs
Inspection/maintenance
Services supporting the processes of cooperation:
Consignment storage
Just-in-time-delivery
0
0
0
Project management/prime contractorship
Customer support for adjustment of EDP-systems
Electronic ordering/order processing (EDI)
Table 2. Continued (2)
Construct Meanl Composite Items*
Standard
Deviation
Reliability
Number of services 13 .10 / - ** Information and consulting services:
Personal consulting/sales force visits
Product demonstration/sample delivery
Cost-benefit-calculation/visualization ofbenefits
Customer magazine
Customer consulting and support by phone
Written information material/documentation
Technical user training
Website with product information.
Services for training and further consulting:
Business training
Seminars/lectures/events for customers
Feasibility studies/problem analyses
Cooperation/support in research and development
Services in the business-related field:
Procurement aid
Sales aid/advertising/marketing support
Insurance services
Rent/mediation ofmachinery/tools
Business consulting
Financial aid (e.g., leasing, mediation of loans)
Dealing with secondhand products
Rent/mediation ofpersonnel
Emphasis on services 3.67 / .83 .77 Extent to which the services for technical security and
optimization are offered activelyto customers.
Extent to which the services supporting the process of
cooperation are offered activelyto customers.
Extent to which the information and consulting
services are offered activelyto customers.
Extent to which the services for training and further
consultingare offeredactively to customers.
Extent to which the services in the business-related
field are offered activelyto customers.
* All items, except the items for number of services, were measured on a 5-point scale ( 1 lowest score, 5 =
highest score). Theitems for number of services were measured on a dichotomous scale (with 0 =not offered
and 1 =offered).
** Composite reliabilityis not applicable for the formative measure number of services.
4.08