SPRU, University of Sussex, UK
Recent literature on business strategy argues that firms should concentrate less on making stand-alone physical products and more on delivering high-value services and solutions to a customer's needs (Quinn 1992 ; Slywotzky 1996 ; Slywotzky and Morrison 1998 ; Hax and Wilde 1999 ; Sharma and Molloy 1999 ; Wise and Baumgartner 1999 ; Cornet et al. 2000 ; Bennett, Sharma, and Tipping 2001 ; Foote et al. 2001 ; Galbraith 2002). All of these authors argue that competitive advantage is not simply about providing services, but how services are combined with products to provide high-value 'integrated solutions' that address a customer's business or operational needs.
Although this recent trend in business strategy has attracted the attention of management consultants, business strategy authors and practitioners, with few exceptions (e.g. Hax and Wilde 1999 ; Galbraith 2002) there has been surprisingly little academic research on this subject. In an attempt to redress this imbalance, this chapter concentrates on the most cogent and convincingly argued case for the shift to services put forward by Wise and Baumgartner (1999). These authors argue that firms are building on their base in manufacturing and moving downstream into the provision of services and solutions to distribute, operate, maintain, and finance a product through its life cycle.
The chapter aims to test Wise and Baumgartner's claims that firms are integrating forwards into services and solutions by examining recent changes in the strategies of leading international firms. It focuses on suppliers of an important high-cost subset of capital goods called complex products and systems (CoPS), such as flight simulators (Miller et al. 1995), mobile phone networks (Davies 1997) and aero-engines (Prencipe 1997). In contrast to consumer goods industries that produce standardized products in high-volume for large final consumer markets, CoPS are produced as one-off projects or in small tailored batches to meet the particular needs of government, institutional, and business customers (Hobday 1998).