Implications from the Automotive Industry

sustainability
Article
Uncovering Productivity Gains of Digital and
Green Servitization: Implications from the
Automotive Industry
Marco Opazo-Basáez1,* ID, Ferran Vendrell-Herrero2 and Oscar F. Bustinza3 ID
1 Deusto Business School, University of Deusto, Bilbao 48014, Spain2 Birmingham Business School, University of Birmingham, Birmingham B152TT, UK;
[e-mail]3 Department of Business Management, University of Granada, Granada 18071, Spain; [e-mail]
* Correspondence: [e-mail]; Tel.: [phone]
Received: 8 January 2018; Accepted: 8 May 2018; Published: 11 May 2018
Abstract:The growing industrial concern about sustainability challenges has driven vehicle and auto
parts manufacturers to adopt service capabilities as a way to maintain competitiveness in compliance
with environmental regulations.As a result,automakers have progressively integrated digital
and green service initiatives to support operations and address environmental issues effectively.
The present study examined the effect of digital and green servitization on the firm’s productivity. To
test their effect quantitatively, this study used the ORBIS database to construct a multi-country sample
containing 228 companies in the automotive industry. Our findings indicate that implementation of
digital and green servitization is positively associated with higher productivity outcomes once the
two forms of servitization coexist and operate jointly. Moreover, the results of the study underscore
the importance of establishing a successional pathway of implementation priorities. Our evidence
suggests that firms willing to offer green services should consider offering digital services first, as
this is the only way to obtain productivity gains from green servitization.
Keywords: sustainability; digital servitization; green servitization; performance benefits
1. Introduction
Sustainability has gained considerable attention from organizations attempting to interweave
environmental, social and economic performance in their business strategy [1,2]. Its implementation
has induced companies to be more involved in complex global social-ecological challenges, such as
climate change, biodiversity loss or natural resources depletion [3]. In effect, sustainability adoption has
become a strategic imperative and a fundamental market requirement capable of influencing long-term
organizational and economic viability and success [4]. Hence, over the years, companies have gradually
been transitioning towards responsible environmental behavior and sustainable management of
their operations [5], conceiving sustainability as an opportunity for compliance with stakeholders
and government legislation, building difficult-to-replicate core competences, and optimizing firm
operations and performance [6].
One of the industries that has felt the incremental shift towards sustainability is the automotive
industry, characterized by its significant and permanent effect on the environment [7]. Throughout
the last century, this industry moved from a Fordist production system—in which the key elements of
firm performance were principally economies of scale, efficiency and promotion—to a smart system of
production, in which the entire supply chain, from design to customer loyalty programs, is connected
and monitored through digital technologies.Such evolving environments have forced automobile
Sustainability 2018, 10, 1524; doi:10.3390/su10051524 www.mdpi.com/journal/sustainability
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Sustainability 2018, 10, 1524 2 of 17
manufacturers to reinvent themselves in terms of strategic aims,product design and marketing
strategies [8]. New entrant Tesla Motors exemplifies this new conceptualization of the business model.
Other industry leaders, such as Toyota, Volvo, Nissan and BMW, are just some of the firms committed
to adopting new technologies to develop more environmentally friendly processes, communication
channels and products (e.g., electric and hybrid vehicles).
The automotive industry (for purposes of our study) constitutes a product system that relates
both directly and indirectly to economic wealth creation. Because this industry has a profound impact
on the natural and human environment [9], it plays a significant role in social and environmental
development in a sustainability context.Vehicle and auto parts manufacturers have been under
scrutiny by regulatory agencies to ensure that they satisfy environmental standards and reduce the
impact of both their products and their manufacturing processes [10]. This pressure has led them to
adopt innovative business strategies and leading-edge information and communication technologies
(ICTs) to achieve environmental and economic performance targets [11].
The search for new ways to combine sustainable development with competitiveness has induced
automotive companies to adoptservice capabilities [12], leading them increasingly to embrace
servitization. Technically, servitization refers to the process through which manufacturing companies
complement their traditional (product-based) offerings by integrating services into their business
operations [13]. In the automotive industry, servitization has served as the guiding strategy to sustain
and benefit from the incorporation of services, both in product development and throughout product
life cycle [12].
Servitization has enabled automakers to support operations through the inclusion of digital
services [14]. These services represent a non-material solution to support data-intensive production
processes, while providing companies with advanced business intelligence and analytic tools crucial
to information availability and better-informed decision making in manufacturing [15,16]. Companies’
progressive implementation shapes a new organizational scenario,in which labor-intensive and
time-consuming procedures are dynamized by intangible software solutions. These new opportunities
increase competitiveness in industrial production [17], positioning digital servitization as an innovative
and dependable strategy capable of optimizing operations and improving firm performance [14,18].
Additionally,for sustainability purposes,ICTs have promoted the implementation of green
services [19]. Green services provide automakers with the necessary means to monitor and control
sustainable initiatives (e.g.,restoration and site remediation,waste and emissions reduction,raw
material recycling, maintenance and repair management, and water and energy conservation) aimed at
achieving cleaner production methods [20,21]. Their implementation in manufacturing firms entails the
effective entwining of digital capabilities and environmentally-focused initiatives in convergence with
the firm’s sustainability and performance objectives. Green service adoption provides the groundwork
for green servitization of business as a broader strategic approach addressing interests or utilities beyond
the conventional boundaries of the firm, including environmental issues [22].
A growing body of quantitative research assesses the relationship between servitization and
productivity.Recentarticles show thatfirms implementing servitization practices significantly
increase operating margins [23–25], sales growth [26,27], employment [14] and key performance
indicators [17]. They also seem to reduce environmental impacts [28–30]. However, servitization also
has underlying commercial and operational risks that raise the probability of default [31]. Interestingly,
the servitization literature lacks research that focuses on productivity as a measure of economic
performance, even though productivity has long been considered a standard measure of economic
performance for traditional manufacturers [32].
The literature has discussed the potential of servitization for sustainability extensively [33–35].
Several studies indicate the relevance of servitization to enhancing sustainability in the automotive
industry [36–39]. Although these studies contribute great insights, most papers focus on individual
and direct effects of servitization within the firm, omitting broader (e.g., environmental or social) effects
and thus painting only a partial picture of servitization’s influence. Further, although existing research
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has analyzed different levels and types of servitization (e.g., [27]), to the best of our knowledge, no
research so far has attempted to analyze the dichotomization of digital and green servitization in
manufacturing companies and the effect of this dichotomous productivity.
To address this gap, our paper aims to assess empirically the effect of digital and green servitization
on the firm’s productivity through a study sample of 228 firms in 21 countries in the automotive industry.
The information was gathered from the ORBIS database for the period 2015–2016. Our original research
design follows recent trends in servitization research [40], exploiting the information provided by
ORBIS on secondary industries to determine which manufacturing firms (first industry) also offer
services (second industry).This approach enables us to construct binary measures for digital and
green services implementation.
Further, this study seeks to reveal the importance of establishing an optimal implementation order
of servitization strategies to achieve sustainability and economic performance. To that end, we draw
on a recent paper by Agrawal and Bellos [22] that reports a positive relationship between servitization,
sustainability and productivity.
Our results indicate that exploitation of digital and green servitization strategies is positively
associated with higherproductivity outcomesonce the two strategiescoexistand operate
simultaneously. The main empirical contribution of this paper is its empirical insights into the effect
of a dual-servitization strategy (digital and green, separately and jointly) on the firm’s performance.
The paper also attempts to identify a feasible pathway for implementation of these strategies, one in
which digital servitization can be considered as a primary requisite for achieving productivity gains
from green servitization.
The paper is organized as follows. Section 2 presents a theoretical review of sustainability and
digital servitization and formulates the hypotheses. In Section 3, we describe the methodology and
data used to assess the economic performance of digital and green servitization. Section 4 provides
the results of the research based on analysis of secondary data gathered from the ORBIS database.
Subsequently, Section 5 presents discussion and implications. Finally, Section 6 provides conclusions
and a prospectus for future research.
2. Literature Review and Hypothesis Development
2.1. Sustainability in the Automotive Industry
Increased awareness of sustainability matters is having an enormous impact on the automotive
industry [41]. Over the years, this industry has experienced stringent environmental pressures in the
form of governmental regulations to reduce emissions and waste throughout vehicle production [21].
In so doing,automakers must cope with two main challenges—complying with environmental
standards and ensuring the firm’s successful long-term performance [42].
To overcome regulatory pressures, maintain sustainable operations and achieve a better image,
automotive companies have increasingly adopted sustainable initiatives throughout all phases of a
product’s life cycle, from extraction of raw materials including design, production and distribution
to use of the product by consumers and disposal at the end of the product’s life cycle [43]. These
initiatives provide automakers with a framework for pursuing organizational competitiveness through
sustainable operations, targeting CO2 emissions reduction, reuse, remanufacture/repair and recycling
of materials or products,green design,green marketing,sustainable transportation and product
end-of-life practices [21]. Recent studies indicate that sustainable initiatives have become the norm by
which automakers now operate, satisfy regulations and improve competitive position [44,45].
Renault motors, for example, has focused its operations on increasing the “reuse rate” for products
and raw materials in current processes and on developing new processes, especially for recycling
materials in end-of-life vehicles [46]. At Ford,component recycling has been facilitated by input
substitutes,such as bio-based composite materials [47]. Similarly,BMW recently launched the i3,
a carbon-fiber-bodied car that is 95% recyclable [48]. Such sustainable initiatives are expected to
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provide automakers with a set of benefits, such as:(1) enhanced resource optimization (materials
savings) resulting from continued substitution, reuse and recycling of production inputs; (2) better
utilization of by-products in new product development;and (3) lower product cost (e.g.,due to
material substitution and conversion of waste into valuable forms) [49]. Further, Toyota, which plans
to have a combustion-engine-free supply chain by 2050 [50], has implemented “Sustainable plants”
committed to reducing CO2 emissions by replacing fossil fuels with photovoltaic power generation
systems [51]. Volvo has introduced “Silane-based technology” to recycle water in water-consuming
production processes [46], improving (4) energy and water optimization during production process.
As to (5) energy optimization during product use, Michelin has launched energy-saving tires, and
Audi Motors has created energy-efficient LED lighting [49].
Sustainableinitiativeshave also becomean effectivecatalystto satisfy the increasing
environmental commitment of stakeholders [52], improve corporate image and increase customer
satisfaction [53]. Over the past few years, a new type of automobile consumer has appeared, one
who demands more sustainable operations and is willing to criticize and condemn unsustainable
manufacturing practices [54]. The Volkswagen scandal, in which the company used “defeat devices”
to cheat emissions tests, severely threatened the company’s image and undermined public trust in the
brand [55], with significant financial consequences; an overall sales drop of 7.9% in 2015 [56]. Further,
sustainable demands are producing high demand for cars that are safer for our environment [57].
When Nissan Motors launched its Leaf model,the first 100% electric car,customer response was
overwhelming,with sales of over 110,000 units globally [58]. A few weeks after Tesla Motors
announced launch of the company’s first mass-market vehicle in 2016,over 400,000 customers
worldwide pre-ordered the new Model 3, for which first deliveries were expected at the end of 2017 [59].
Sustainability has become much more than an environmental approach to meeting governmental
regulations, pursuing competitiveness and satisfying the growing demand for green products (hybrid
and electric vehicles) in the automotive industry [53]. It has become a philosophy that supports
corporate objectives (e.g., enhances company image) and determines long-term success [37,41].
Rather than trying to capture the entire realm of sustainability (social,environmentaland
economic [1]),we limit investigation here to the latter two elements,following the eco-efficiency
approach [60]. This approach focuses on improving sustainability by addressing environmental
and economic performance simultaneously within organizations,specifically,by examining the
environmental and productivity gains of green and digital servitization strategies in automobile
manufacturers.This approach is in no way intended to deny or disparage the existence of possible
social improvements, due mainly to the “social utility” behind environmental protection and the tight
interrelation between the sustainability elements [61].
2.2. Digital and Green Servitization
2.2.1. Digital Servitization (Productivity-Oriented Services)
Recent advances in ICTs and the emergence of digitalization and smart products [62] have
introduced new pathways through which services can be provided, giving rise to a wide range of
new application spheres [14]. Within this context,organizations have begun to introduce digital
technologies to bridge products and services and to expand the scope of their offerings [63]. This new
paradigm, in which product and service propositions can be offered and delivered completely through
digital channels, is publicized as digital servitization [14,18].
Digitalservitization may be described as the sub-branch ofservitization thatimplies the
dematerialization ofphysicalgoods by electronic means for the purpose ofbolstering firms ́
performance and competitiveness through the support of ICT capabilities [64,65].
For automobile manufacturers, this strategy creates opportunities to extend their business model
through digital interactions with stakeholders, dynamizing co-creation and value creation processes in
supply chain [66]. It also enables firms to reach out to customers digitally and thus rapidly to sense
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