Uncertainty Management in Engineering-Service Development

To maintain a competitive advantage, manufacturers increasingly compete through servitization by adding services to their products. This results in oerings such as pay-per-use services and output-warranties, which are called engineering services and promise many benefits including a more stable revenue stream and closer customer relationships. Yet, examining this practice reveals that servitization is characterized by high failure rates in the field, often resulting in high financial losses or even bankruptcy. One reason for these failures is that engineering services give rise to distinct challenges during their development, which results in increased uncertainty faced by manufacturers. For example, manufacturers face uncertainty when estimating future costs in order to set a competitive price. However, little is known about how to manage this uncertainty. Responding to the pressing needs from practice and building a theoretical understanding, this thesis explores how manufacturers can manage uncertainty in engineering-service development. It does so by exploring two central gaps in the literature, namely, (1) a lack of theory on relevant uncertainty types and their criticality in engineering-service development and (2) a lack of suitable uncertainty management practices. The results show that engineering-service development gives rise to five uncertainty types, namely, environmental, technical, resource, relational, and organizational uncertainty, which vary in their criticality depending on the development project. These uncertainty types can be managed through distinct bundles of organizational capabilities, which are reflected in, for example, agile management practices. Here, the successful adoption of agile management practices in manufacturers can be strategically influenced by increasing isolation and shielding (protecting) the organizational unit adopting agile management practices, from the surrounding organization that is not adopting these practices. Overall, this thesis contributes to the servitization literature by building an in-depth understanding of how manufacturers can manage the challenges in engineering-service development. It does so through explaining these challenges through the lens of uncertainty, and theoretically deriving insights into how to manage it. This has strong implications for practice and provides solid groundwork for future research on uncertainty in servitization.