Servitization Practices in Healthcare:

The case of Royal Philips

Mónica do Rosário Agrela Figueira

Católica Porto Business School

July 2022
Servitization Practices in Healthcare:
The case of Royal Philips

Final work in Academic Context

Presented to Universidade Católica Portuguesa
In order to obtain a master’s degree in Management

by

Mónica do Rosário Agrela Figueira

Under the guidance of

Prof. Dr Rita Ribeiro

Católica Porto Business School, Universidade Católica Portuguesa

July 2022
Acknowledgements

I would like to express my gratitude for the support and availability of the people

who were there for this achievement:

Prof. Dr Rita Ribeiro for her constant availability and for making this work

possible. Her guidance and advice were essential during all the stages of the

project.

I would also like to give a special thanks to my family: my father, mother, and

brother, for the constant support and appreciation. Without their continuous

encouragement, love, and motivation, it would not be possible.

To Andréa, for all your support and friendship. My partner and a great friend

went through all this process with me.

To Tatiana and Jessica for always believing in me and giving constant motivation

through this process.

Finally, to Sara and Mariana, for their incentive and for always being loving and

available.

iv
Abstract
This research considers to what extent servitization in the healthcare industry has

evolved and transformed in this sector. As healthcare costs have risen over the

last few decades, significant attention has been directed to purchasing within this

sector. Servitization is a promising business model for healthcare since it can

reduce costs and risks when obtaining products and services. This study has the

main objective to understand if healthcare manufacturers are already

implementing this business model, if they do, which practices are they

implementing, understand how the transformation process was and which

changes were made. In addition, this study aims to understand the challenges

the company faced and the benefits servitization can bring. A single case study

in the form of research has been performed as a qualitative investigation on Royal

Philips, a Dutch product manufacturing company operating in the global market

that manufactures medical equipment. Besides that, the data was collected

through semi-structured interviews and the second data was available on the

Philips website. In addition, this study has an objective to contribute to the

academic literature on servitization and the healthcare manufacturing industry

since it is a topic that lacks data and research. The findings of this study were that

Royal Philips is still in the initial phase of shifting to a more services-oriented

business, and they are already implementing servitization strategies in some

departments. The company faced some challenges during the implementation,

but at the same time, this business model will bring many benefits. Still, the

company intends to improve their business model in the coming years.

Keywords: Servitization; Servitization in the healthcare; Healthcare sector;

Healthcare manufacturers; Medical equipment manufacturing.

9713 words

v
Resumo

A presente pesquisa tem em consideração em que medida a servitização na

indústria da saúde evoluiu e transformou este mesmo setor. Nas últimas décadas

os custos com a saúde têm aumentado e devido a este fator, maior atenção tem

sido direcionada às compras neste setor. A servitização é um modelo de negócio

promissor para o setor da saúde pois pode reduzir os custos e riscos no que toca

à obtenção de produtos e serviços. O presente estudo tem como principal objetivo

perceber se os fabricantes no setor da saúde estão a implementar este modelo de

negócio, e se sim, que práticas estão a implementar e perceber como foi o

processo de transformação. Em adição a presente pesquisa pretende também

perceber os desafios e os benefícios que a companhia enfrentou na

implementação. Um estudo de caso único em forma de pesquisa qualitativa é

realizado na Royal Philips Healthcare, uma empresa holandesa que opera no

mercado global que fabrica equipamentos médicos. Os dados foram reunidos

através de entrevistas semiestruturadas e dados disponíveis no site da Philips.

Em adição, este estudo tem como objetivo contribuir para a literatura académica

sobre o tópico da servitização a respeito da manufatura de equipamentos

médicos, visto que é um tópico ainda pouco explorado até à data. As conclusões

deste estudo foram que a Royal Philips ainda está numa fase inicial no que toca

à mudança para um negócio orientado a serviços e já está a implementar algumas

estratégias de servitização em determinados departamentos. A companhia

passou por alguns desafios ao implementar o modelo de negócio, mas ao mesmo

tempo este trará muitos benefícios. No entanto, a empresa pretende melhorar o

modelo de negócio nos próximos anos.

Palavras-chave: Servitização; Servitização no setor da saúde; Setor da saúde;

Fabricantes no setor da saúde; Fabricação de equipamento médico.

viii
Index

Acknowledgements ...................................................................................................... iv

Abstract .......................................................................................................................... iv

Resumo .......................................................................................................................... vii

Table Index .................................................................................................................. xiii

Introduction .................................................................................................................. 15

Chapter 1. Healthcare Sector Context ....................................................................... 19

Chapter 2. Literature Review ..................................................................................... 21

2.1. Servitization concept ....................................................................................... 21

2.2. Servitization in the Healthcare Sector................................................................ 27

3.1. Research Strategy ............................................................................................. 36

3.2. Data Collection and Analysis ......................................................................... 37

Chapter 4. The Royal Philips Case ............................................................................ 39

4.1. Case Description .............................................................................................. 39

4.2. Discussion ......................................................................................................... 40

References ..................................................................................................................... 51

ix
Table Index

Table 1- Classifying benefits and advantages of transitioning to servitization

(Adapted from [Link] et al. (2020)) ................................................................. 24

Table 2- Classifying the types of challenges in transitioning to servitization

(Adapted from [Link] et al. (2020)) ................................................................. 26

Table 3 - Classifying the challenges faced by Philips in the process of

transformation (Adapted from [Link] et al. (2020))...................................... 42

Table 4- Classifying the benefits faced by Philips in the process of transformation

(Adapted from [Link] et al. (2020)) ................................................................. 45

Introduction

In the past years, the manufacturing industry suffered several changes because

of declining product margins, growing competition, and transparent offerings

(Schouten, 2021 cited in Neely, 2008). Therefore, to confront these ever-increasing

circumstances, companies started progressing their competitive advantage from

focusing on selling goods to providing integrated services. The term servitization

was first indicated as the method of “moving from the old and outdated focus on

goods or services to integrated ‘bundles’ or systems with services in the lead

role” in earlier literature by Vandermerwe and Rada (1988), meaning that by

turns of traditional manufacture only selling goods, they would transition to

produce combinations by incorporating services to products. In other words, the

concept of servitization is conducted on manufacturing companies that start to

sell a mix of products and services as a solution to their customers.

Shifting towards a business model that offers services and solutions associated

with products can be challenging for companies, given that it is a complex

process involving organisational adjustments. Some of the world’s most

outstanding companies, such as Rolls Royce, IBM, and BAe Systems, successfully

implemented these servitization practices by making the necessary changes in

their business and establishing new strategies related to offering solutions

(Neely, 2008). In contrast, many companies face difficulties transitioning to a

servitization business model because of the challenges they confront during the

transformation process. These challenges involve relationships with customers,

changing the business culture, capability, and structure, and sometimes it can be

a demanding transformation process for companies to provide services as

solutions.
Royal Philips is a multinational conglomerate founded in the Netherlands in

Eindhoven, a technology company that works with lighting, healthcare, and

consumer well-being markets. It operates in the following segments: lighting,

innovation, group and services, consumer lifestyle, and healthcare (Philips,

2019). This research will focus on Royal Philips, which operates in the healthcare

segment regarding medical device manufacturing.

Regarding healthcare, Royal Philips is a leading health technology company that

provides its customers with image-guided therapy, diagnostic imaging, health

informatics, patient monitoring, home care, and consumer health (Philips, 2022).

Companies such as Royal Philips in the healthcare segment are still in an initial

stage of transformation towards implementing servitization because they are still

in a testing phase to implement this business model. The shift started in 2019, but

the company did not make significant changes yet. Therefore, companies facing

the same transition as Philips need to understand how the transformation

process works and identify the necessary changes inside the company to provide

solutions while manufacturing medical equipment. As a result, this study aims

to comprehend what changes were made and how was the process of

transformation when implementing servitization in healthcare manufacturing

companies. Besides, the other objective of the study is to understand the

challenges companies go through and the benefits that servitization can bring to

businesses.

Thus, the proposed research questions were the following:

- What was the transformation process regarding medical equipment

manufacturers in the healthcare sector when implementing servitization?

- What challenges and benefits did healthcare manufacturing companies face

during the transformation?

16
An analysis of the transformation progression in Philips will be investigated

based on a qualitative methodology in the form of a case study in combination

with the literature review.

This thesis is divided into five chapters. The first one is the health sector context,

in which an overview of the healthcare sector is given. Afterwards, chapter two,

“Literature review”, will provide a concept of the servitization and servitization

in the healthcare sector. Moreover, chapter three discusses the methodology and

explains the research method chosen for this study and how data was collected.

The fourth chapter will discuss a summary of the data collected and findings.

Finally, in the fifth chapter, the main conclusions and the research question are

described and responded to.

17
Chapter 1. Healthcare Sector Context
To provide clarity on the healthcare sector, according to Batrancea (2021), it is a

highly competitive, attractive, profitable, and ever-changing market. This sector

occupies 10% of gross domestic product (GPD) in a few developed countries.

When considering the case of the United States of America (USA) market, their

healthcare services and products stated approximately 18% of their GPD in 2020.

Their health spending share proliferated in 2013, and in Central Europe, a similar

tendency was seen, where healthcare services exemplify one of the critical sectors

in the current economy (Lábaj et al., 2018). It explains why many companies enter

the healthcare market and operate to differentiate from competitors and capture

excellent levels of financial performance. Besides, many companies engage in the

public sector to provide their stakeholders with acceptable profit margins

(Batrancea, 2021).

Expenditure in the healthcare sector tended to grow more rapidly than GPD. It

was revealed to be one of the more significant challenges in supply chain

management in the healthcare industry regarding managing the costs while

meeting customer needs (Lábaj et al., 2018).

The healthcare sector has considerable relevance in the economy because of its

structure of costs and new medical technology, and improvements in

information. For example, Germany and France were the countries in Europe

with the highest healthcare expenditure to GDP in 2019, according to statistics

from Eurostat (2021). In terms of numbers, Germany spent 403 billion euros and

France 270 billion euros (2021).

Besides that, healthcare organisations nowadays emphasise environmental,

social, and economic impacts. Therefore, new, sustainable health services are

emerging; hence, people have greater access to them, so companies must adopt

new organisational structures and more intricate financing mechanisms.

Involving the sustainability concept in the healthcare industry is essential to

protect available resources and develop the overall services provided to patients

(Elabed et al., 2019).

Sustainability awareness has increased among businesses. Thus, several

companies are trying to adopt sustainable strategies and new business models,

setting a framework by which the product waste can be eliminated or managed

and, if possible, extend its lifecycle.

Healthcare costs have risen over the last decades, so medical equipment

manufacturers' attention has been directed to purchasing behaviour within this

sector. Servitization is a promising business model for healthcare since it can

reduce costs and risks when obtaining products and services, increasing

efficiency (Elabed et al., 2019). Therefore, this topic will be discussed in the

following chapters

20
 Chapter 2. Literature Review

This chapter is combined into two parts: the first part of this section aims to

combine the existing literature about servitization in a more general way.

Afterwards, the second section integrates current literature on servitization

practices in the healthcare sector.

2.1. Servitization concept

Servitization is the name given to the process of using services to develop and

thrive revenue streams for manufacturing companies (Lay, 2014). To muddle

through consumers' growingly differentiated needs and wants and rigorous

competition in the product sector, many manufacturing companies have

revolutionised their product-based business models to a modified amalgamation

of service and product models to develop sustainably competitive businesses.

The practice of servitization has become prevalent over these years because most

manufacturing companies aim to achieve stable cash flows, higher profit

margins, and loyal customers. It is primarily believed that a diversified business

model is a key to uninterrupted revenue streams. In addition, Baines et al. (2020)

express the concept as a service-based business model innovation. The

servitization process allows companies to increase value by incorporating

services within the existing product portfolios. Kuhn (2020) believes this is one

of the emerging approaches toward creating, delivering and capturing value for

companies. As services are being added to product portfolios, there is a more

significant opportunity for business model innovation.

21
To achieve servitization on an organisational level, it is integral to reshape the

value chain for manufacturers. The goal can be accomplished through loftier

product development by conducting research and development, vertical

integration of production and delivery processes, and development of a

sustainable market position and improved economies of scale (Kuhn, 2020).

A few researchers have highlighted how servitization provides a valuable

prospect of creating a sustainable competitive advantage for organisations by

allowing them to reduce cost and innovation competitions within the industry

and focusing on higher rates of customer satisfaction and product-service

differentiation (Rosler et al., 2022). Several existing works represent a positive,

consistent, and non-linear correlation between company performance and

service implementation, primarily via customer satisfaction and product-service

differentiation strategies.

Vendrell-Herrero et al. (2021) recognise four distinct servitization stages for

original equipment manufacturers' (OEM) business structure. They shift from

being the product manufacturer to the value-added manufacturer, full-service

provider, and finally an integrated solutions provider. The level of servitization

of the manufacturer is dependent upon the range of services being products, for

example: whether the services are an ‘add-on’ to the original products or services

are being provided with tangible goods. The gradual shift throughout the four

stages allows the manufacturer to transform from the actual product to a

somewhat proactive service provider. Lay (2014) explains the difference between

a full-service provider and a value-added manufacturer. The latter concentrates

mainly on the customers’ usage of the product and its thorough functioning. The

former is concerned about the efficaciousness and productivity inculcated in the

end-users activities because of the product.

Something continuously stated in literature when mentioning servitization is

product service systems (PSS). Servitization is a business model very close

22
associated with product-service systems (PSS). Both concepts include integrated

products and services, but the difference between these two definitions is that

PSS involves configuring services, products supporting infrastructure, and

networks. It usually is given to a system that delivers advanced services. In

contrast, servitization is an operation to shift from selling products and services

to selling a combination set of products and services (Lightfoot et al., 2013). The

term PSS was initially framed in Ahamed et al. (2013) research and how it is a

marketing model for organisations that assimilates products and services,

essentially due to a transformation towards servitization. This is achieved by

introducing added benefits and value to products or deriving a complete shift in

the product’s payment structure.

Current literature mentions the challenges faced by companies when

transitioning to servitization. During its process, several hurdles and problems

will need to be resolved. Therefore, implementing this technique randomly is

sure to fail. According to the currently available data, service businesses have a

mortality rate much higher than the industry average (Atos Consulting, 2011).

According to Martinez et al. (2010), the most significant parts of the servitization

problem categories are deeply ingrained product-service cultures, integrated

offerings, internal procedures and capabilities, strategic alignment, and supplier

relationships. The authors Baines and colleagues believe that it is vital to make

the shift from "product thinking" to "system thinking" (2007). Because services

are more challenging to explain and ambiguous, the design process for services

is quite different from those for commodities. This is the primary reason why

there is such a significant difference between the two (Slack, 2005). Companies

need to consider competition from customers, distributors, and suppliers that

comes from beyond their usual area of influence. In addition, they are required

to participate in new activities that customers formerly carried out. Consider how

the value proposition will be communicated to the customer in building a service

23
 offering. The organisation will have a tough time adjusting to the fundamental

changes that are occurring in the system (Baines et al., 2009).

Current literature indicates that the benefits, challenges, advantages, and

disadvantages of servitization strategies can be divided into the following

dimensions: organisational, operational, strategic, technological, financial, and

environmental which can be shown in table 1 and table 2.

Classifying the benefits when transitioning to servitization (M.M. Kamal et al., 2020)

Organisational Operational Strategic Technological Financial Environmental

• Improved • Reduced • Focused on • Developing • Increasing • Environmental

Efficiency and Operational Fulfilling System sales sustainability
Productivity Uncertainty customer Integration revenue and • Decreased cost
• Mitigating Risks • Services demands Capabilities profitability pressure from
• Retaining Design provide • Sustainable • Potential to • Reduced foreign competitors
& Production differentiation source on provide real- production • Differentiating
Capabilities in operational competitive time data costs from competitors’
• Delivering activities advantage regarding • Improved products
Distinctive Value- • Improve • Value-added operation and financial • Reducing the
Added Efficiency and services to maintenance performance environmental
Capabilities innovation of customers • Integrated and • Increase impact of
• Organizational manufacturing • Facilitate customised economics production
Transformation • Improving customer offering benefits • Vital role in
• Improved maintenance relationship • Implementing sustainable
Decision-Making efficiency and • Achieve and efficient economic growth
effectiveness customer delivery system • Improved
• Favourable satisfaction for goods and efficiency and
Position in the • Improved services productivity
value chain customer • Knowledge • Increase in Market
loyalty creation, attractiveness
• Opportunity capturing and • Reusable/Recycable
to generate management product (Annarelli
new business et al. 2018)
• Services • Extending product
support in lifecycle
increasing
product
distinctiveness
• Gain in
customer
retention
(Annarelli et
al. 2018)

Table 1- Classifying benefits and advantages of transitioning to servitization (Adapted from [Link]
et al. (2020))

24
The adapted table illustrated above (Table 1) represents the detailed findings of

M.M. Kamal (2020) regarding the benefits companies face when transitioning to

a servitization business model. The author's research focused on empirical and

conceptual studies in different manufacturing companies, such as companies

that manufacture and design high-value equipment for power, semiconductors,

aerospace and defence markets, heating, automotive, etc.

Existing literature demonstrates how the servitization process can bring various

benefits, such as strategic and market-based finances. When companies include

services to their existing products, they can dramatically accelerate the

performance and mitigate customer complaints. Consequentially, the inclusion

of services to products can improve customer loyalty which is then helpful in

multiplying sales (Zhang & Qi, 2021). It is usually more probable for loyal

customers to make purchases of their goods and services from the same

company. In addition, for the company, servitization can also assist them in

developing sustainable competitive advantages because their models have fewer

chances to be plagiarised than the other models that rely only on the product

base.

M.M. Kamal and colleagues (2020) mention that several benefits are discussed in

the current literature. In his opinion, manufacturers have plenty of reasons to

combine services in their offerings and introduce them to customers to get a

closer relationship with them, increase customer loyalty levels, expand more

valuable supplier-customer relationships, and achieve recurring and incremental

revenue streams (Annarelli et al., 2018).

While analysing the benefits servitization can bring to companies, the author

mentions that sustainable competitive advantage was one of the most quoted

benefits. Overall, adding services to current business models influences customer

satisfaction and improves competitiveness (M.M. Kamal et al., 2020).

25
 Classifying the challenges when transitioning to servitization (M.M. Kamal et al., 2020)

Organisational Operational Strategic Technological Financial Environmental

• Need for new • Lack of Training • A complex • Lack of Required • Lack of • Low level of
business models and education multi- infrastructure economic maturity and lack
• Providing Services facilities for staff dimension maintenance potential of of engagement in
is beyond • Slow model management the service servitized market
capability transitioning • Lack of • Unsophisticated component • Difficulty in
• Management from product strategic/relati design of service of product assessing the
support hampering manufacturer to onships with offering creates • Lack of environmental
the service delivery service provider suppliers/cust problems profitability impact
• Lack of • lack of omers • Lack of expertise due to • Constantly
communication/feed knowledge on • Aligning on technical inconsistent evolving
back Channels with transitioning organisational aspects of and competitive
customers towards design with servitization fragmented environment
• Shift in Corporate servitized service • Lack of information • Difficulty in
Organisational manufacturing strategy developing • Higher costs improving
Culture/ Need for • lack of delivery of • Servitization integrated service of service environmental
Organisational integrated adoption is system provisions performance
transformation offering challenging for • Design principles • Higher • Lack of
• Lack of • lack of organisational for goods/services investment understanding of
Standardisation, understanding strategy are inapt for in resources the
Internal Processes & and guiding • Lack of functional and environmental
Capabilities principles, knowledge on products difficulty to factors of impact
structures, and how quantify the of service
processes customers costs deployment
• Difficulties in value the • Lack of
maintenance strategic understandi
planning service ng of
(Annarelli et al. provision financial
2018) • Developing risks
• Need for process less complex
re-engineering and innovative
(Annarelli et al. services
2018) • Failure in
deploying a
successful
service
strategy
Table 2- Classifying the types of challenges in transitioning to servitization (Adapted from [Link] et
al. (2020))

Kamal and colleagues (2020) report that transitioning to a servitization business

model results in considerable benefits. However, offering services can provide

several challenges to companies. Table 2 illustrates a company's challenges while

transitioning to this business model. Suppose a company does not provide the

26
needed support from decision-makers and has a poor service culture. In that case,

it will be a challenging transformation process to move to a service-centric

approach. Besides that, the scholars mention that while implementing

servitization it is essential to change the company from top to bottom. For

example, the author addresses the need to align the servitization strategy with

corporate culture, production, marketing, and high investment resources;

therefore, service-centric approaches are so challenging.

According to the research findings of Kamal et al. (2020), one of the main

challenges that companies face while transitioning to a servitization business

model is deploying a successful service strategy, cautious and slow transition to

servitization, and lack of strategic relationships with suppliers or customers.

2.2. Servitization in the Healthcare Sector

The literature on servitization in the healthcare sector clarifies that delivering and

implementing servitized solutions into the healthcare business models is already

being practised across several regions (Kowalkowski et al., 2022). Hospitals are

partnering with service providers to review and evaluate the advantages of

servitization for medical equipment, more precisely radiology. This was

particularly important for the healthcare practitioners to understand its role and

usage in radiology and the cost required to develop a servitized model. Another

example cited in the literature focused on servitization for medical and imaging

equipment. Zolkiewski et al. (2021) comment that although there is a superior

degree of satisfaction due to the greater involvement of the supplier in the

provision of services at the hospital’s end, there is an interruption to further

development of service models due to multiple challenges.

According to the research conducted by Zolkiewski et al. (2021), manufacturers

in the healthcare sector are open to servitization and digitisation processes to

27
upgrade customer satisfaction levels, improve differentiation, and create

business moats that allow them to obtain noteworthy performances and

competitive edge via a robust organisational focus and a range of service-driven

operations. The efforts required and recommended for servitization enable the

manufacturers to craft and retain value throughout the product lifecycle, as well

as throughout the integral system of the organisation.

2.2.1. Servitization in the healthcare sector and

Organizational Resilience

Robinson & Chan’s (2015) study reveals how servitization in healthcare is

favourably associated with organisational resilience. Rosler et al. (2022) restate

how servitization is essentially the diversification of business models. It has

helped alleviate the impacts of administrative and operational disruptions due

to the pandemic outbreak and periods of extended lockdowns. Considering the

proposition of diversification within the healthcare sector, most researchers, such

as Zhang & Qi (2021), recommend an original avenue for medical device-

manufacturing organisations to strengthen their organisational resilience. Most

of these companies have already incorporated service provisions into their

conventional products to derive enhanced value for consumers. Some services

include IT-enabled remote service, repair and maintenance services for the

equipment, training services for technological developments, etc. Continuing the

ideologies proposed in earlier studies on healthcare servitization, Calabrese’s

(2019) work explains how the servitization approach can drastically upgrade

organisational resilience and allow manufacturing companies to tackle

environmental and external challenges more effectively. Guarcello & De Vargas

(2020) explore servitization with the primary aim of suggesting mechanisms that

can thrive long-term benefits for product manufacturers. Furthermore, Kuhn

(2020) states how servitization has emerged as one of the most competitive

strategies for participating in the era of rigorous product competition. When

28
additional services are available with products, Lay (2014) suggests a greater

‘customer stickiness’ with the organization and a greater sense of customer

interaction.

2.2.2. Market Positioning and Servitization of the

Healthcare Sector

Manufacturing companies in the healthcare sector are transitioning to

servitization competitive strategies, and Paiola et al. (2021) identify how digital

healthcare provides a unique and distinctive competency of mindset to

companies. Compared to other industrial sectors, the healthcare industry offers

a unique approach where a significant portion of its value chain is conveyed

downstream in scenarios embedded with consumers, especially when some

facets of the company tend to increase those downstream involvements, such as

a service branch. It can be implied through research-based evidence that various

servitization strategies can provide varied outcomes according to the company's

existing position in the value chain. The differentiation concept is not essentially

associated with performance in the medical industry, such as medical devices.

Instead, it is closely linked to customer satisfaction and how it is a principal

indicator of good performance and advantage. The medical device industry

comprises a plethora of niches and specialities, and the ideology of transforming

toward service-based models can provide manufacturers with the prospect of

innovating and developing their business at a smooth and steady pace (Baines et

al., 2020). At the same time, the more commercial aspects of the business can

innovate based on consumer perceptions. Also, the companies can better

customise their product-service models to gain the most significant possible

customer satisfaction advantages.

Zolkiewski et al. (2020) highlight ‘downstream customer satisfaction as one of

the driving forces behind the efficacious servitization of business models. The

most significant impediment in undergoing the digital revolution lies within the

29
existing salesforce structures embedded with in-house sales representation

instead of distributor-based representation. The company is subject to taking a

strategic decision as it makes a prudent choice between external or in-house sales

partnerships. The decision is integral in the healthcare industry due to the critical

nature of the salesforce, as well as the research and development feedback loop.

Manufacturing companies within the healthcare sector can typically use

partnerships with external distributors to conveniently tackle the convolution of

creating a business-oriented, commercial organisation as they strive to develop

new customer relationships. Lightfoot et al. (2013) criticise the inability of service

organisations to directly connect with their consumers, as this can deteriorate

new product development.

2.2.3. Product-Service Systems in Healthcare

PSS is a business model that could bring many benefits to a healthcare

manufacturing company. Robinson & Chan’s (2017) study identified some of the

most advantageous servitization shifts. He highlighted the concept of a results-

oriented servitization model that held the influence of delivering thriving

performance levels in healthcare. This work constitutes the foundations of

Calabrese et al. (2019) study, which demonstrated the significance of PSS in

accepting technological developments, but without any impending drawbacks

during the course. Concepts such as service innovation, servitization, and

service-dominant logic, have been expanding across operations management,

marketing, and design studies. However, PSS in the healthcare industry,

especially as regarding medical equipment investigation, is still insufficient. To

put into practice, the PSS system, according to Mittermeyer et al. (2011), is needed

an entirely new mindset from both the manufacturer and the consumer since the

adoption of this system will require many challenges in the company and a

considerable investment of money and time will be needed. Hence, there is

substantial evidence in existing literature regarding the impact of servitization of

30
medical devices on delivering a competitive advantage to companies operating

within a progressively commoditised and merchandised healthcare industry.

2.2.4. Stages of Servitization for Original Equipment

Manufacturers (OEMs)

This study will focus on OEMs as regards healthcare manufacturing and its

process while transitioning to a service-based approach. Scholars such as

Ahamed and colleagues (2013) mention that to implement servitization in an

OEM, the current business model will undergo several changes, and therefore

companies will face challenges in this transformation process. In the healthcare

industry, the concept of servitization implies how the hospital will no longer hold

its position as the equipment holder. Instead, the product or product-service

combination owner becomes the equipment owner. Hence, servitization calls for

a drastic shift in the original business model and the culture of the OEM and the

healthcare sector. The most forward-looking stage of the service model or the

OEM is the incorporated solutions provider that delivers an all-encompassing

range of solutions by fostering long-term relationships (Ahamed et al., 2013).

Regarding challenges faced by OEMs and suppliers emerging due to

servitization in the healthcare sector, it can be segregated with respect to

manufacturers and hospitals.

Considering the case of manufacturers, they are challenged to recognise the most

appropriate types of services that can be provided in targeted global markets.

There is also a constrained internal alignment with suppliers, implying a strong

possibility of missing out on core business functions in the early stages. In

addition, the servitization model does not offer a clear and explicit bifurcation of

the risks and responsibilities attributed to hospitals and suppliers (Lightfoot et

al., 2013).

From the hospitals and clinics’ perspective, these are bound to offer commitment

toward long-term service contracts, often limiting the possibility of switching

31
between suppliers. There is again a restricted and narrowed internal alignment

within healthcare centres, thus leading to the misalignment of the practitioner’s

expectations with the hospital’s service contract. There is also the possibility of

disagreeing interests and choices between the suppliers’ sales staff and medical

practitioners. The pronouncement of opting for servitized products and solutions

for a hospital is ideally based upon forecasts and strategy. Pourabdollahian &

Copani (2015) correctly identify the reason behind this, stating these contracts are

typically long-term and reliant upon investing currently to obtain equipment in

the future which may not have been completely developed during the formation

of the contract.

2.2.5. Services and Benefits for Healthcare

Paiola et al.’s (2021) research focused on evaluating medical device creators to

comprehend better the impact of providing services other than conventional

products and to recognise the extent to which manufacturing corporations can

give value by progressing their service strategies toward a result-oriented model.

The findings indicate a surging belief in cutting-edge service provisions

emerging as the most significant revenue driver across the service range and a

predictable rise in revenue across all service-providing features in the value

chain. The findings also present insights regarding how the newly developed

proficiencies and competencies in the additional services will lead to a long-

lasting competitive advantage in the healthcare sector. Paiola et al.’s (2021)

research state that there is only limited empirical evidence on how differentiation

in medical devices can only be achieved through service offerings. Baines et al.

(2009) show how a competitive advantage for an organisation can be gained

through high levels of customer satisfaction, which can further be linked to

improved patient outcomes and operational efficiency.

The literature reviewed indicates that remote monitoring technology is a

successful service implemented by manufacturing companies in healthcare

32
(Gubric, 2012). This technology can bring benefits to customers and the

manufacturer. As regards the customer, it minimises the downtime and transfer

risks to the manufacturer, so the faults and errors are detected remotely. The right

tools and spare parts will be prepared in advance to repair the equipment, which

will minimise downtime. However, the author mentions that the most significant

benefit of remote monitoring technology is that it prevents the equipment from

breakdown. Now the benefits of this service-based approach to the

manufacturer, according to the author (2012), is that adopting remote monitoring

technology will improve the equipment performance of their products. So, it will

enhance effectiveness, maintenance, and differentiation from the competitors.

Besides that, since remote diagnosis is from a distance, there is no need for direct

customer contact. The information is exchanged by direct input from the

equipment being monitored. The findings of Gubric (2012) also reveal that

adopting this technology will bring cost reduction advantages, insight into

customers’ needs and feedback for R&D, enabling knowledge creation and

learning.

2.2.6. Critical Success Factors to Implement

Servitization in healthcare
The review of existing literature expounds on some of the critical success factors

and approaches fundamental to successfully implementing servitization in the

healthcare sector. It is advisable to have a trust-based, venerable working

relationship between the supplier and the hospital. This is important to maintain

trust and keep track of the service performance. It is essential to have a shared

and conjoined opinion of practitioners, manufacturers, and hospitals regarding

the future developments expected of servitization. It is also crucial to embrace

digitalisation and innovation during the processes by tapping the high

technological know-how of both sides. In addition, customer-centricity is

expected for both parties to understand better service requirements and the

33
customer’s business (Paiola et al., 2021). An augmented sense of flexibility is

expected to allow hospitals to switch among suppliers to continue benefitting

from innovative and cutting-edge technological solutions. It is also crucial for the

employees to possess the necessary qualifications and skills to perform the

services. Product adaptation is also integral, meaning that it is probable to adapt

the technical product accordingly with the application of new services. A

measure of the success of servitization can also be made per the equipment’s

conditions. Strategic sourcing expertise is key to a good servitization strategy as

it is formulated on a high level. The board should be finalising decisions on the

supply chain management and the insourcing and outsourcing services rather

than the procurement (Zhang & Qi, 2021). The companies’ performance should

be monitored through a good alignment of interfaces and processes. Cost

categories are expected to be a challenging process due to the existence of

services; however, a profound understanding is still required. Finally,

organisational cultural change is particularly needed to adopt the service

throughout the organisation successfully.

We can conclude how OEMs have exhibited the success of servitization models

in enhancing customer value. As organizations shift from merely selling

products to delivering outcomes essentially linked with customer objections,

ownership costs can dramatically reduce whilst maximising efficiency gains. Due

to constrained profit margins and inflated prices within the healthcare sector,

servitization has become an incipient trend allowing OEMs to grant services to

hospitals and medical care centres. Servitization offerings have been inaugurated

at various levels but are often limited and narrowed due to specific attributes of

the healthcare sector. The review comprehensively discusses the purpose,

benefits, obstacles, and success factors required for adopting servitization in the

healthcare sector. To capitalise on the possible benefits, it is crucial for the

hospitals and OEMS to meticulously collaborate and avoid the existing barriers

34
as highlighted in the review. Uncertainty needs to be administered well by OEMs

that stem from long-term contracts. They should be working towards gaining a

clear view of the current and future circumstances and evaluating the resources

required for service delivery. On the other hand, hospitals must pay attention to

the guidelines needed to achieve their business goals.

35
Chapter 3. Methodology
The current chapter will describe the methodological approach chosen for this

research. At first, there will be a brief explanation of the research strategy and

afterwards, the interpretation of the research design will be defined.

3.1. Research Strategy

By analysing the existing literature about servitization and servitization practices

used by the healthcare sector the main objective that emerged was to understand

if companies in this sector are already practising the servitization business model

in their operations and if they do, the research intends to comprehend what

changes were done and how was the process of transformation. Besides, this

study aims to understand which challenges and benefits the service-based

business model brought to the company. A qualitative research methodology

was used to define the following research questions: “What was the transformation

process regarding medical equipment manufacturers in the healthcare sector when

implementing servitization?” and “What challenges and benefits did healthcare

manufacturing companies face during the transformation?”

The qualitative research methodology is a research strategy that “aims to provide

researchers with approaches that can be used to discover and examine the ways

in which interconnected people encounter, perceive, understand, and bring into

being processes, practices, and phenomena.” (Moen & Middelthon, 2015).

Therefore, two in-depth semi-structured interviews with a duration of fourteen

minutes were directed to employees in the different departments and markets of

the company Philips with the main objective of gathering data on the main

challenges and transformation developments that the interviewees faced while

working in the company during the past, what they face in the present and what

they expect to confront in the future.

36
A qualitative method approach was the most adequate for this study since it

enabled the researcher to collect in-depth observations related to a phenomenon

and consider interviewees' feelings (McIntosh & Morse, 2015). The fact that

Philips didn’t provide an overview or a detailed understanding of their

transformation and progress path as regards servitization, a qualitative method

is logical in this setting.

Therefore, a single case study method was thought to be the most applicable

technique to gather information in the field to gain a deeper understanding of

the potential future of servitization in the healthcare sector and to demonstrate

the current practices used by companies at the moment as regards to

servitization. Therefore, this case study was directed within the organisation

Philips, a medical equipment manufacturer in the healthcare sector that operates

on a global market scale.

3.2. Data Collection and Analysis

The case study method gathers a few sources of information to allow an in-depth

understanding of a few social situations (Madureira, 2004, citing Einsenhardt

1989, Yin 1994, & Creswell 1998).

First, to contextualize the topic of servitization, secondary data was used to

analyse the term servitization and give more transparency to the phenomenon in

context. After that, in-depth semi-structured qualitative interviews were

conducted in order to respond to the research question. A qualitative

interviewing “is a special form of conversation involving a researcher, a research

participant, and a theme. The interview entails interpersonal interaction between

epistemologically active subjects and aims at joint construction of knowledge

through reflection and articulation.” (Moen & Middelthon, 2015).

Both interviews were conducted online (zoom meetings) because of the distance.

37
When the interviews were directed, at the beginning of each interview, the

researcher asked the participants’ permission to record and transcribe the

interview to analyse the information.

These types of interviews ensure that the interviewee is free to respond to open

questions as they desire, and the researcher may investigate these responses.

Besides that, it contributes to the flexibility to explore complex definitions in

detail, providing the researcher with in-depth comprehension of the

participator’s knowledge of the transformation process (McIntosh & Morse,

2015).

To analyse the interview information, data was first organised in transcriptions,

and after that, the data was analysed manually.

38
Chapter 4. The Royal Philips Case
In this chapter, the discussion from two interviews is going to be discussed. The

interviews were conducted with one company, Philips, in the Netherlands. First,

a case description will be given, and after the discussion will take place.

[Link] Description
The case company Royal Philips is a multinational conglomerate global

manufacturer founded in the Netherlands in Eindhoven. It is a technology

company that works with lighting, healthcare, and consumer well-being

markets. It operates in the following segments: lighting, innovation, group and

services, consumer lifestyle, and healthcare (Philips, 2019). The segment analysed

in this study is healthcare. The company was founded in 1891; it is headquartered

in Amsterdam and has been operating in the healthcare industry for 125 years

(Philips, 2015). Royal Philips targets healthcare technology and operates in the

business-to-business and business-to-consumer markets.

In 2014 the company separated from its lighting activities to create a stand-alone

company and decided to focus on two business units: healthcare and consumer

lifestyle. After that, Royal Philips continued to operate as a health tech business,

and they had the opportunity to redesign their company, focusing on providing

solutions such as services. In terms of health products and services, Philips (2020)

operates in three areas: Diagnosis and treatment, Connected Care, and Personal

Health. First, the part of diagnosis and treatment (in which this study will focus),

the company focuses on selling ultrasound equipment, image-guided therapy

systems and devices, diagnostic imaging, high-end radiology and cardiology

informatics. As regards connected care, the company practices patient

monitoring, personal emergency response, respiratory care, and sleep care.

Finally, personal care involves male grooming, oral healthcare, mother and

childcare, and domestic appliances.

39
Philips's main objective is to change its current business model and implement a

service-based approach in the healthcare segment. However, this transformation

is taking longer given that they are stuck in a mature company's cultures, norms,

routines, and values (Philips, 2015).

As defined in Royal Philips's annual report (2021), solutions-based sales and

recurring revenues generated an increasing proportion of total sales in 2021 in

the healthcare segment, standing at 45%. So, to maintain this flow of health

technology innovation moving forward, the company invested 1.8 billion euros

in research and development R&D in 2021 to develop service-based sales.

The company's primary strategy regarding the healthcare segment is to focus on

customer needs and understand how innovation can benefit people’s health and

healthcare outcomes. So, it is Philip’s strategy to lead with innovative solutions

that integrate systems, products, software, services, and operational data and

leverage clinical to deliver customers with improved patient experience,

improved staff experience, lower cost of care, and better health outcomes

(Philips, 2021).

[Link]
After two conducted interviews with Royal Philips in Eindhoven, the

Netherlands, with two participants working in the healthcare segment, the

researcher tried to respond to the research question, “What was the transformation

process regarding medical equipment manufacturers in the healthcare sector when

implementing servitization?” and “What challenges and benefits did healthcare

manufacturing companies face during the transformation?” in order to understand

the transformation towards servitization in the company and the challenges and

benefits the company went through the process.

The respondents of the interview were both from different business units. The

first participant was a business instructor in the department of medical imaging

40
products such as magnetic resonance imaging (MRI). The second participant was

a venture leader for image-guided therapy, for example, X-rays equipment.

Now focusing on the status of Royal Philips in the implementation of

servitization, the company is still in the process of transformation toward

providing services as solutions. One of the respondents pointed out that 2015 was

the year when a change in the industry happened (the traditional product-

focused approach becoming less predominant and new propositions of mixes of

products and personalised services being developed):

“In 2015, we noticed a change in the general industry to shift towards solutions

and find offerings to the customer, not a box only but a full service itself.”

However, the participant mentioned that the shift only started to take effect in

2019, which illustrates that the transformation process to provide services was

hard to implement in 2015 when the industry shift happened, which determines

that the company faced challenges to start incorporating this new business

model.

“But the shift really happened or has started to happen, like two years ago when

we looked specifically into addressing some of the challenges which come with the

business concept and transforming the company from one entitlement towards a

receiving recurring revenue.”

Implementing servitization randomly will end in failure (Atos Consulting, 2011).

Therefore, it is essential for the company first to investigate which changes will

take in transitioning to servitization.

Scholars such as Zolkiewski et al. (2021) confirm that manufacturers in the

healthcare sector are open to servitization and digitisation processes to upgrade

customer satisfaction, obtain noteworthy performances and gain a competitive

edge; however, the development of new service models will bring multiple

challenges.

41
Classifying the challenges faced by Philips in their process of transformation (M.M. Kamal et
al., 2020)
Organisational Operational Strategic Technological Financial Environmental
• Need for new • Slow • Aligning • Lack of expertise • Lack of • Difficulty in
business models transitioning organisational on technical profitability improving
• Providing Services from product design with aspects of due to environmental
is beyond the manufacturer to service servitization inconsistent performance
capability service provider strategy • Lack of and • Lack of
• A shift in Corporate • lack of • Servitization developing fragmented understanding of
Organisational knowledge on adoption is integrated service information the
Culture/ Need for transitioning challenging for system • Higher costs environmental
Organisational towards organisational of service factors of impact
transformation servitized strategy provisions of service
manufacturing • Failure in • Higher deployment
• lack of deploying a investment
understanding successful in resources
and guiding service and
principles, strategy difficulty in
structures, and quantifying
processes the costs
• Need for process
re-engineering
(Annarelli et al.
2018)

Table 3 - Classifying the challenges faced by Philips in the process of transformation (Adapted from
[Link] et al. (2020))

The transformation towards a servitization business model in Phillips presented

a problem in the general change management. Table 3 shows the challenges the

company faced when implementing changes at the different levels of the

organisation. Regarding operational challenges, it is identified that the company

fears the slow transition from product manufacturer to service provider or the

failure of this business model because they may be unable to capture growth, face

customer relevance, and lose market share. Because of these challenges, Royal

Philips may have a reduced ability to overcome the negative impacts on their

health technology business models, rising long-term risks of default, and

customer dependency. Therefore, all these factors may influence Philips's

business in terms of financial and operational results (Philips, 2021).

Other challenges faced by the company were specifically in organisational and

financial dimensions. Kamal and his colleagues (2020) mention in the literature

42
that when adopting servitization, companies will face challenges in the part of

organisational strategy, organisational transformation, and service design. It

requires enormous changes regarding servitization strategy, corporate culture,

production, marketing, and high investment resources, making it challenging for

businesses to shift to a servitization business model. The second interviewee

mentioned that some years ago, the company focused on developing marketing

strategies to represent their services and ensure that their customers were

educated about the service-based approach. However, she stated that the process

was still slow, and the transitioning shift will take 5 to 10 years to take place.

According to the same participant, the model “has just kicked in” in the

company’s business unit. Thus, the company is still performing pilots, analysing

what it wants to offer, and investigating the positioning and what they intend to

provide. Then they will start to implement the service-based business model in

specific markets when they are sure that it might succeed with the service-based

business model.

Servitization calls for a shift in the current business model and organisational

culture. It can be challenging for the company to create new strategies and

business models while transitioning to servitization. Scholars such as Ahamed

(2013) mention that the most forward-looking stage of the service-based

approach to an OEM is delivering an all-encompassing range of solutions by

fostering long-term relationships with its customers. Participant 1 states that he

is aware that the relationship with customers will change after introducing

solutions such as services to clients, which will traduce benefits for the company

in terms of strategic advantages. The participant mentioned:

“Notice that having a more interactive approach with the customer brings some

benefits. In the past, we delivered the box and came back after seven or ten years

to a union contract, and now we have a more… servitization will enable us to

have regular touchpoints with the customer.”

43
In terms of financial challenges, the company expects to have higher costs in their

investments in resources with new services. As regards operational challenges, it

is evident that the company is going through a slow transition from product

manufacturer to service provider. In addition, a lack of understanding and

guiding principles, structures, and processes is occurring:

“Same for if we would still use software AI features, we need to do many costs in

getting in paying doctors to help annotate and create the software, and we need to

make much more R&D investment to get it there and then our sale of the software

we get much less so we would need huge quantities to get a return on investment

on that on the software as well. So, financially it's going to be an interesting

challenge to remain positive on the balance sheet so that we can make those

investments move longer to our money. Operationally we need to change the

organizational structure to be able to sell this in a more structured way and also

deliver on our contractual agreements organised and sell it, go to the next

customer. We sell it and return to the first one after ten years for selling something

new. But we would need it, yeah operations processes that we sell and

constantly deliver the service to a higher quality.”

The quality of the service is also something that Philips may experience some

challenges with. Issues such as service design, suppliers, and cyber security

threats are some of the problems that could lead to higher costs of design,

financial liabilities and claims, damage to the brand reputation and competitive

disadvantage.

In the image-guided therapy department, the company is still offering customers

the traditional payment models, but the company is expecting it to change and

implement a different purchasing behaviour. But it was mentioned by the

participant that it is difficult to change the mindset of some clients because they

are stuck to what they have always been doing and do not want to know new

business models because they are stuck to the institutional culture.

44
 Classifying the benefits faced by Philips in their process of transformation (M.M. Kamal
et al., 2020)
Organisational Operational Strategic Technological Financial Environmental

• Improved • Reduced • Focused on • Developing • Increasing • Environmental

Efficiency and Operational Fulfilling System sales sustainability
Productivity Uncertainty customer Integration revenue and • Differentiating
• Delivering • Services demands Capabilities profitability from competitors’
Distinctive Value- provide • Sustainable • Potential to • Improved products
Added differentiation source of provide real- financial • Reducing the
Capabilities in operational competitive time data performance environmental
activities advantage regarding • Increase impact of
• Improve • Value-added operation and economics production
Efficiency and services to maintenance benefits • Improved
innovation of customers • Integrated and efficiency and
manufacturing • Achieve customised productivity
• Improving customer offering • Increase in Market
maintenance satisfaction • Implementing attractiveness
efficiency and • Improved and efficient • Reusable/Recycable
effectiveness customer delivery system product (Annarelli
loyalty for goods and et al. 2018)
• Gain in services • Extending product
customer • Knowledge lifecycle
retention creation,
(Annarelli et capturing and
al. 2018) management

Table 4- Classifying the benefits faced by Philips in the process of transformation (Adapted from
[Link] et al. (2020))

As Lay (2014) stated, the concept of servitization has become prevalent over the

last decades because most manufacturing companies aim to achieve higher profit

margins, stable cash flows, and loyal customers. Table 4 illustrates the benefits

servitization can bring Philips while transitioning to services combined with

products. In the case of Philips, both interviewees are aware that by

implementing the servitization business model the company will benefit in terms

of financial advantages by building revenue streams and generating profit.

“Servitization or the concept of servitization is the process of trying to build

revenue streams.”

In addition, the first interview participant mentioned that in his business unit,

the company is heading towards the goal of selling services as solutions to

customers, which means that in his department, the company is still in the

45
process of investigating the new business model of servitization. In order to bring

strategic benefits to the company and meet customer needs while transitioning

to servitization, the business is trying to focus on fulfilling the customer needs,

providing value-added services to customers, facilitating customer relationships,

and achieving customer satisfaction (Kamal et al., 2020) so it is their objective

investigating different payment models and looking for what customers are

asking from the company:

“Are they asking for basic services? Are they asking for advance services?”

Scholars (Lightfoot et al., 2013) claim that from a healthcare systems perspective,

these are bound to engage in long-term service contracts, limiting the possibility

of switching between suppliers. Royal Philips is implementing service contracts.

As mentioned by the second participant:

“So, 100% of my customers buy a service contract. So that is already for the last

20 years that we sell big equipment it costs 600,000 euro's and most of the

customers buy a service contract whit it. So that is a type of servitization I think

that's there for a long while.”

However, it is identified by the participant that the customer purchases their

solutions via a capital expense, which means the healthcare providers buy the

equipment and a license in a one-time purchase. Given this, it is unclear if Philips

is currently establishing long-term contracts with its customers.

The company considers the environmental strategy when focusing on the entire

lifecycle of the product.

“Making the customer interact with you as a company not only when the selling

of this box happens but also towards working with the entire lifecycle of the

product.”

Zolkiewski and his colleagues (2021) recommend that shifting to a servitization

business model allows manufacturers to retain and craft value throughout the

product lifecycle.

46
By offering these unique and value-added services, the healthcare manufacturer

will gain a competitive advantage by providing distinctive competency (Paiola

et al., 2021). Furthermore, this competitive advantage can also be translated into

high levels of customer satisfaction which can further be linked to improved

patient outcomes and operational efficiency, which is one of Philips’ objectives

(Baines et al. 2009).

Something that Philips is concerned about at the moment is trying to educate

both the staff and clients regarding the servitization business model, which will

result in a closer relationship between the developer and the customer and

traduce in strategic benefits for the company.

In terms of technological benefits, since the company is the leader in offering

health tech solutions and innovations, the company needs to continue with

innovation, deliver it to the market on timely bases, and gain a sustainable

competitive advantage when providing services to its customers. The company

must define the right value proposition and exemplary architecture to succeed

when launching innovations (Phillips, 2021).

The results of this study show that the company is still going through a long

process of transformation. In order to successfully implement the servitization

business model in the company, it must be the company’s focal point in its

strategic and operational plans. Furthermore, having good communication with

staff and clients is a must because these two factors are the ones that are more

important to implementing the changes. So, they need the correct information

and present an attitude toward the change.

47
Chapter 5. Conclusion

This study aimed to understand if healthcare manufacturing companies are

already practising the servitization business model in their operations and, if

they do, what changes were done, and how was the transformation process.

Therefore, to understand how the servitization business model takes place in the

manufacturing company, it was also analysed how servitization affects the

change in the current business model in terms of benefits and challenges. The

research question answers how the transformation process in the healthcare

manufacturing company was, what changes the company had to implement at

an organisational level and what challenges and benefits they faced when

integrating servitization into the existing business model.

According to the research findings, businesses still in the process of servitization

have a higher success rate when it comes to services than companies with

business models that have been around longer. This indicates that the initial

benefits of a service-oriented strategy may be quickly gained since modifications

to business structures are often just minor. However, to fully enjoy the benefits

of this shift, companies that transition from "value-added manufacturers" to

"service providers" need to analyse their business model and organisational

structure in-depth. In the case of Philips, the company is still investigating and

piloting the service-based business model to understand the changes needed in

the organisation’s core.

A critical addition that may be made to the existing body of research on

servitization is the development of a theoretical understanding of the

transformative shifts brought about by the digital servitization of labour in

Philips. The current body of research on digitalisation and Philips' service

strategy is expanded significantly because of the findings in three significant

48
ways. In general, this information contributes to the definition of a company's

measures to ensure the digital servitization process is successful.

This study aimed to understand the implementation of service-based business

models’ transformation in the health manufacturing company. However, the

conclusions did not cover all critical factors and challenges when integrating

servitization into the actual business model of the company.

For a manufacturing company to achieve the desired servitization outcomes, it

needs to assess the various challenges in line with its performance purposes and

the challenges addressed in the short-term and long-term. Additionally, aligning

servitization strategy with organisational culture is vital to provide space for

service innovation (M.M. Kamal et al., 2020).

As with any scientific and academic research, this study and its findings have

limitations.

One limitation of this study was that the customer perspective and their

experience with the manufacturer were not included. All the data was collected

from interviews with the manufacturer (Royal Philips) and secondary data

provided in documents on Philips's website. The customer perspective would

have provided to the research the market situation as regards the servitization

business model offers, and the perceived value from the customer would be

described. In future studies, customer perception could be included in order to

understand where the customer stands within the servitization business model.

In addition, the study did not investigate other competitors on the market. For

future studies, this topic could also be a subject to be analysed to create a more

inclusive investigation of this matter.

Another limitation of this study was the time that it took for the company to

respond regarding the interviewees' participation in this research study. The

company's response took some time from the researcher, which would be

necessary to conduct further research.

49
Another constraint to be mentioned is the methodological limitation of the case

study. Only two interviews were conducted, which provides a limited view on

shifting towards a service-based approach in a large-scale company such as

Philips. Because of the time constraints, it was impossible to interview more

people and business units. For future research, in order to have more details

about the process of transformation in the company, more interviews will be

conducted in a variety of departments and in a different geographical scope.

50
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