Positivism vs. Hermeneutics

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Empirical Data

In this section the empirical findings will be presented separately for each interview as well as a presentation of the data collection. Individual questions from the questionnaire have been attached to provide emphasis on critical moments from the interviews.
The Empirical results will be presented below. The following sections present both secondary col-lected through literature and primary data collected through interviews on the case studies.


Founded in 1907, SKF is a global manufacturer, focused on bearing manufacturing, concern and proclaimed world leaders of products, solutions and services. SKF is an abbreviation for Svenska Kullagerfabriken AB. SKF groups its technologies into the following categories, Bearings and Units, Seals, Mechatronics, Services, and Lubrication Systems. The company is further divided into three divisions; Industrial Division, Service Division (servicing original OEM´s) as well as an Automotive Division – combined branching over 40 segments. SKF also has its own R&D department.

Service Division

Our interests for this study are firmly based on SKF service portfolio. From a broad scan of their annual reports and value proposition, the following description of their service division is provided;
The Service Division of SKF serves on a global scale, focused on aftermarket services, as well as providing knowledge based services and a broad product variety, of seals and bearings and Mecha-tronics. With a network of over 7,000 authorized distributors, the division boasts five global Condi-tion Monitoring Centers focused on designing and delivering hardware and software. SKF is openly engaged in building Solutions factories in which the future infrastructure for delivering complete, integrated solutions through the SKF´s technology platform. SKF is represented in 130 countries with over 100 manufacturing sites and sales companies supported by 15 000 distributor locations and a strong e-market presence. At the end of 2009 the firm employed 41,127 worldwide with a turnover of 3,203 Million Swedish Kronor’s (SKF, 2011).
The focus of SKF is traditionally on the pulp and paper market. The products distributed by SKF are assisted by artificial intelligence which can assist operations. These include eddy current readers, ultrasonic and magnetic readers. In short these are devices that help read electromagnetic signals, such as current and voltage fluctuations. This helps in predicting and defining new parameters for future products design. (SKF, 2010) Moreover, SKF introduces two streams of research that en-compass a smarter working environment;
Intelligent machining and integrating sensors and measuring equipment into machines for more consistent and reliable manufacturing processes.
Advanced intelligent technologies for vision systems and measuring enabling a tighter control of manufacturing processes.
Further focus is being placed on product life cycle management whereby SKF is actively researching into sustainability issues (SKF, 2010). Moreover, the service department is an independent business unit in the SKF organization steered by its own profit centre. Aftermarket services currently amount to 60% of the firm’s income and R&D spending of the firm amounted to 2, 2% of annual sales ex-cluding IT solutions remaining the same as 2008. The focus on research is currently, on the sustain-ability, core-technologies, new products and extending the links to technical universities (SKF, 2010).

Interviews with SKF AB

Technology is in the focus of SKF´s service strategy. Increasingly, services are moving towards de-veloping High tech centers for prototyping and customer service excellence improvement. This is constituted in the secondary data collected on the firm. Certain questions have been chosen from the questionnaire to be presented here. This is due to their importance and relevance to the study. Where the Interviewer was unable to answer, secondary information has been used to support the interview questions.

Smart Products

Question 1: What is the role of Smart products in relation to your service offering?
SKF focuses on the usage of sensors in their bearings, (i.e. “Smart bearings”) in order to measure temperature, speed, direction, rotation and vibration. Sensors are capable of reporting back status updates on the actual bearing, the original machine and the conditions it is operating in such as heat, tolerance, and stability.
Using sensors in their products SKF is able to understand more about the customer operating envi-ronment, the machinery tolerance levels as well as the original OEM’s machinery that the bearing runs in. Respondent C mentions that the increasing developments into technology have allowed these sensors to transmit data through the usage of wireless technologies, and comments this has allowed SKF to increase the remote monitoring ability and our ability to catch errors early, increas-ing both service performance and extending their services to cover the original OEM machine and the management of its spare parts as well.
In discussing sensor usage, various possibilities are supported both in the secondary data as well as the interview. The possibility of sensors allows, SKF to impact the installation costs and time to install machines, and was mentioned as a standard feature for SKF high end bearings. Much of the attention of smart products in SKF is associated with monitoring ability and priorities are matched to SLA offerings, and product lifecycle management (SKF, 2010). There are plans to continue de-veloping these sectors of the business. According to Respondent C, the use of sensors is critical to SKF service design, and they further state; “It is on the basis of this that services such as Remote Maintenance, Root-cause Analysis and Condition Monitoring are possible.”
Question 2 how do smart products generate value in your B2B Relationship?
The manufacturing strategy at SKF is zero tolerance. This is explained as an attempt to achieve zero waste and defects in production. With this, customers are provided with the opportunity to use SKF
condition monitoring to improve their own production and are offered the ability to share informa-tion with SKF and vice versa. Respondent C mentioned that through the information sharing capa-bilities, SKF drives best practice and iterative development in its manufacturing processes as well as Six Sigma (a highly rigorous product quality program) to ensure constant manufacturing excellence.

Demand Management

Question 3: How would you describe your relationship with your customers? Two examples are transactional or relationship based?
The closeness of the customer is mentioned as extremely important to SKF, as well as the relation-ship with the distribution network. Respondent C mentions the advantages of a close relationship as the ability to improve uptime and efficiency whilst focus on processes and having the ability to rec-ommend the right maintenance strategy. Moreover, to optimize the working processes between all parties involved. SKF can provide additional services such as consulting services from strategic planning to life cycle costing by coming closer to the customer, they add; “Our strategy is simple; we are highly customer oriented and always aware of the customer best interest.”

Customer Service Models

Question 4: Describe you service strategy? Are your services rather product oriented (technical services), use oriented (leasing) or result oriented (i.e. you can freely choose how to produce result)?
Respondent C: A brief introduction was provided by the respondent into the nature of SKF and service management. The strategy is described as highly service oriented and suggests that Opera-tions management is a critical part of SKF service strategy made up services, products and proc-esses.” Respondent C continued to say that SKF has taken on numerous service roles throughout the last twenty years. In the past a lot of attention was placed on spare parts management and rou-tine and manual checkups of the installed base at customer sites but now technology is at the fore-front of the service business.
SKF is described as being focused on providing results. Services are explained as process oriented and products are explained as being designed with more intelligence to match the business needs and customer expectation. Respondent C states; “We have always considered services are a core-component of our business. Since the early 1980´s we have been strongly engaged in service management and our strategy can be described as basing our solutions around performance and processes.”
Question 5. What is the major revenue income source?
SKF is described as a value driven firm. The major value stream comes from high end service con-tracts, and strategic process orientation amongst customers.
Question 6. Describe your service portfolio and approach?
The customer portfolio ranges from manufacturers of cars, trucks, two-wheelers, automotive com-ponents, household appliances and small electric motors. Since the lead time for developing a new generation of these products is normally fairly long, SKF is often involved in the development process years before production starts. Many of SKF products for each segment are specifically designed for each customer and each application. Respondent C adds “SKF is a huge family; we have thousands of distributors, around the world, in an attempt to stay close to our customer.”
Respondent C: “When rolling out a service SKF controls the risk of taking on too much responsibility is narrowed down by best practise measures established by SKF to evaluate the customer and the pain points to maximize service customization and pricing issues. SKF also believes in keeping the customer as close as possible…”
Respondent C went on to say; “In the transition phase of a service deal we are often up between 15 -30 people onsite in the transition or service takeover phase of the customer. Secondly, the service is followed up by service person-nel throughout the service contract. Our average service lifeline is between 3 to 5 years. And we strategically locate partners who share the same values, structure and experiences.”
Question 7: Can you briefly list the major trends in service business models in your industry?
The interviewee described the outlook of the industry as is, whereby many product centric firms were suggested at looking more and more at services. Additionally these firms are looking at innova-tive service opportunities with their products. Other major trends surfacing from the interview were both predictive maintenance and remote services. These were described as best practise for most industrial manufacturers in involved in heavy machinery. In an attempt to increase the service port-folios, SKF uses a strategy of acquiring new firms in the service sector. It is explained as a long and careful process whereby intense groundwork is laid out in order to match the two cultures of the firm.
Asking about the orientation of the product in relation to the business model ( that is how does the product effect the business model i.e. sale or lease), the respondent mentioned that due to the fact that the bearings are a central component of other OEM machines, i.e. the printing press, SKF now looks at servicing the entire product. The respondent explains:
“What we have managed to do is be an early mover into sensor based technology, building up complex and highly scalable applications that motivate the OEM to turn over his service business to us. That means that we are ultimately in charge of service for the entire machine, with our product being just a single component of it. This has leveraged us into a position whereby we are the service bearer of not only our bearings but also the manufacturer’s machine. An example of this is in the paper-pulp industry, with expensive rollers, and printers.”
Question 8: What services do you offer?
The current services offered are; condition monitoring and maintenance consultancy; service agree-ments and training, rebuilding, business consulting, engineering solutions, refurbishment solutions, alignment services as well as maintenance services, and diagnostics including – remote services, lu-brication analysis and on site thermo graphic monitoring (SKF, 2010). Respondent C concludes that services within remote diagnostics are becoming increasingly popular and widely used due to techno-logical developments.
The services are explained as result oriented. SKF engages in full service agreements that cover the original OEM product. SKF bearings are components of the original machine and are sold to the
product OEM. Service investments are said to weigh heavily in the facilitation of online monitoring tools, whereby SKF can track the status of their products in order to fulfill their service agreements.

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Technology Supporting the Service Strategy

Question 9: How has your service strategy changed in relation to new technology?
The interviewee was unable to address the issues pertaining to the technological infrastructure at SKF. Hence, we have used secondary data to help us answer this question for the analysis.
In evaluating the service strategy relation with new technology, SKF collaborates with their distribu-tion partners, through e-business portals. It is described that customers need to get the right prod-ucts at the right time. A key driver of SKF’s technology development today is an increased focus on developing the offerings of the company. Those being products and services. The information sys-tem houses a customer relationship management interface, and is highly integrated with customer, supplier and distributor (SKF, 2010).
Question 10: What kind of information on your installed base do you currently have and how do you access it?
SKF presents a comprehensive solution to manage their information needs. All software is maintained in house and is built on the principles of pro-active reliability maintenance, operator driven reliability and integrated maintenance solutions.

1 Introduction
1.1 Background
1.2 Problem Statement and Purpose
1.3 Research Question
1.4 Interested Parties
1.5 Delimitations
1.6 Disposition
1.7 Definitions
1.8 Smart Products Project Description
2 Methodology 
2.1 Positivism vs. Hermeneutics
2.2 Inductive Research vs. Deductive Research
2.3 The Research Purpose
2.4 A Case Study Strategy
2.5 Method Summary
3 Frame of Reference
3.1 Smart Products
3.2 Industrial Services
3.3 Relationship Marketing
3.4 Service Value Creation
3.5 Service Business Models
3.6 Frame of Reference Summary
4 Empirical Data
4.1 SKF AB
4.2 Interviews with SKF AB
4.3 Atlas Copco Tooling Division Sweden
4.4 SAP AG
5 Analysis
5.1 Smart Products Usage, Advantages and Pain Points among Product Firms
5.2 Services Offered
5.3 Demand Management
5.4 Customer Service Models
5.5 Technology Supporting the Service Strategy of Product Firms
5.6 Value creation Criteria
6 Conclusion 
6.1.1 Discussion and Future Research
7 References
The 21st Century Manufacturer: The Role of Smart Products in the Transition from a Product to a Service Based Focus in Manufacturing Industries

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