Offering product-service systems (PSS) arguably results in economic, environmental and social benefits but also entails significant challenges related to relational dynamics between the provider and the customer. Although prior studies suggest that adverse customer behaviour during PSS provision is likely, they provide a limited theoretical understanding of the conceptualization of such relational problems and, more importantly, offer few possible ways to address these problems. By applying the lens of agency theory, this study examines PSS provider-customer relational problems and solutions. Therefore, the purpose of this study is to identify agency problems and propose mechanisms to mitigate adverse customer behaviour in PSS provision. Based on a multiple case study approach involving two manufacturing companies, several results are presented. First, we identify and describe two underlying reasons for adverse customer behaviour. These reasons are associated with goal differentiation and monitoring challenges. Second, different agency mechanisms (i.e. sharing, monitoring and trust) are presented as approaches to mitigate the likelihood of adverse customer behaviour. The matching of agency problems with agency mechanisms to mitigate these problems lays the groundwork for developing a framework for agency situation evaluation during the formation and ongoing phases of the PSS agreement. In addition, the choice of agency mechanism is found to be correlated with the maturity and type of customer relationship and can change over time as new customers become known and then become loyal. The proposed framework has major theoretical implications for the PSS literature as well as managerial implications for large manufacturing companies engaged in PSS provision.

Introduction

Manufacturing companies are increasingly focusing on service-led growth to gain new revenue streams and achieve sustainable competitive advantages. In this regard, servitization by offering product-service systems (PSS) is proposed as an attractive solution for manufacturing companies to achieve economic, environmental and social benefits (Adrodegari, Saccani, Kowalkowski, & Vilo, 2017; Vezzoli, Ceschin, Diehl, & Kohtala, 2015). More specifically, through the integration of provider and customer operations, efficiency is increased because each party focuses on its core competencies, and operations are optimised. Thus, PSS has great potential to affect the triple bottom line. For example, prolonged product lifetimes and increased resource utilisation are part of the sustainability achievements that can be achieved through successful PSS implementation (Kuijken, Gemser, & Wijnberg, 2017; Roy, 2000; Tukker, 2004, 2013). An under-researched issue within the PSS literature relates to how PSS offerings significantly change the relational dynamics between providers and customers (Schuh, Klotzbach, & Gaus, 2008; Sundin, Öhrwall Rönnbäck, & Sakao, 2010). Increased service content inherently leads to closer and more repetitive interactions with customers (Kowalkowski, 2010), whilst responsibility for product performance moves from the customer to the provider for more advanced PSS (Erkoyuncu, Durugbo, & Roy, 2013). Thus, the logic of PSS offerings raises the likelihood of unintended and unpredictable customer behaviour that affects the provider’s operations, and the risk of adverse or opportunistic customer behaviour increases (Ng, Ding, & Yip, 2013; Sakao, Rönnbäck, & Sandström, 2013). This study shows that the inability to predict and mitigate adverse customer behaviour represents a major barrier to explaining why numerous manufacturing companies fail to realise the benefits of PSS (Erkoyuncu et al., 2013). Furthermore, changing customer behaviour might negatively influence economic and sustainable achievements and rebound effects could even lead to situations where more resources are consumed, resulting in greater financial losses (Bartolomeo et al., 2003; Manzini & Vezzoli, 2003).