Servitization and innovation strategy - the trade-off between product RD and service investments

The transition of manufacturing companies towards services, conventionally known as "servitization", is a departure from companies' core identity often resulting in significant changes to their innovation strategy. Under servitization, value innovations achieved by combining product offerings with complementary service elements are regarded as a flagship for competition and are adopted as viable substitutes for R&D-based product innovation. Whereas product-based knowledge is often treated as stable and taken for granted, strategically investing in servitization may result in inadequate funding of product innovation activity. By shifting resources and investments to services, which would otherwise have been used to enhance the stock of R&D know-how, the company's competence at R&D activity (R&D strength) may be negatively affected. In light of this, this chapter brings to the fore the notion of R&D strength to examine the relationship and trade-offs between servitization and product innovation.