Microsoft Word - AJCEB Vol.2 No.1 compiled sized.doc INTEGRATED MANUFACTURING-SERVICES BUSINESSES IN THE AUSTRALIAN BUILDING AND CONSTRUCTION SECTOR THE AUSTRALIAN JOURNAL OF CONSTRUCTION ECONOMICS AND BUILDING VOL.2 NO.1 1 INTEGRATED MANUFACTURING-SERVICES BUSINESSES IN THE AUSTRALIAN BUILDING AND CONSTRUCTION SECTOR Dr Karen Manley, Queensland University of Technology Professor Jane Marceau, University of Western Sydney INTRODUCTION The focus of this paper has been prompted by: emphasis in the ‘knowledge-economy’ literature on the increasing role played by services in economic growth; and recent analysis which suggests that the most dynamic sector of many economies is an integrated manufacturing-services sector. The paper initially describes the emergence of an integrated manufacturing-services sector in the context of increasingly knowl- edge-based economic systems. It then re- ports on the results of a survey of manufacturers in the Australian building and construction (B&C) sector, investigating their involvement in service provision. The survey covers manufacturers of materials, products, equipment and machinery used on building and construction projects. The survey investigates the: nature of services offered growth of service provision role of service-provision in overseas work influence of contract type on value-adding opportunities through service provision marketing of services. The findings reveal the nature of service provision by manufacturers in the Australian B&C sector. It appears that the ‘bundling’ of products and services by these manufactur- ers is a key competitive strategy yielding significant benefits for them and the sector as a whole. THE NEW ECONOMY AND SERVICE-ENHANCED PRODUCTS This section briefly overviews the emer- gence of new economic systems and dis- cusses the role of services and service- enhancement of products in the context of these systems. Increasing competitive pressures intern- ationally and the influence of technology in creating new production systems and out- puts have combined to give rise to a new type of economic system – a learning inten- sive system, known as a ‘knowledge- economy’. The notion that modern economies can use- fully be depicted as knowledge-economies has become well established over the past decade. The knowledge-economy perspec- tive has been disseminated to a wide audi- ence in publications as diverse as the Beijing Review (e.g. Liu 1999: 6), the Califor- nia Management Review (eg 1998, Vol. 40, No. 3), Nature (e.g. Masood 1998: 714) and the OECD Observer (e.g. Drake 1998: 24). Knowledge-economies have evolved away from the production of physical output as the primary source of value and employ- ment, towards service activity as a key driver of growth. Indeed many analysts have drawn attention to the shrinking size of the manu- facturing sector compared to the services sector as a proportion of GDP across OECD countries over recent decades (e.g. Marceau et al., 1997: 7.6). This data has led some commentators to conclude that manufacturing activity has become less important to economic growth (e.g. Carson, 1998; Garcia-Mila and McGuire, 1998; Coyle, 1997). However, re- cent research suggests that this may not be true, instead it appears that much of the growth in services is directly dependent on manufacturing activity. The research con- cludes that unsophisticated interpretation of data leads to a picture of change that: …conceals as least as much as it re- veals. In particular, it obscures the increasing complexity of the link- ages between service activities and goods-producing activities (Pappas and Sheehan, 1998: 131). DR KAREN MANLEY AND PROFESSOR JANE MARCEAU 2 THE AUSTRALIAN JOURNAL OF CONSTRUCTION ECONOMICS AND BUILDING VOL.2 NO.1 Indeed the complexity of such linkages was reflected in research conducted for the pre- sent paper, which was complicated by the difficulties that survey respondents had in separating out their service offerings from their products. This was particularly so in relation to design and engineering services. For customised output, such services can be considered part of the manufacturing proc- ess that make the product saleable. Simi- larly, for any given sale there is likely to be an embodied R&D service component, a marketing service component and so on. Based on quantitative data, Pappas and Sheehan argue that one of the most rapidly growing segments in knowledge-based economies is an integrated manufacturing- services sector, defined as ‘the complex of production and service activities involved in the creation, production, and distribution of manufactured goods’ (Pappas and Sheehan, 1998: 131). Manufacturing has always involved service activities, particularly in areas such as ac- counting, scheduling, client service and so on. However, the increasing complexity of manufacturing output has increased service intensity in areas such as research and de- velopment, design, and engineering. Fur- ther, trends towards increasing customis- ation of output also increase service intensity (especially for design services), as do demands from customers to supply total packages. Such packages often involve transportation of output to construction sites, installation of output and project manage- ment. Based on research undertaken by the US National Research Council (1994) and Quinn (1992), Pappas and Sheehan (1998: 132) con- clude that service inputs: …such as accounting, scheduling, design, quality control, planning, marketing and research and devel- opment, are central to the goods- producing sectors, and on some es- timates provide 60–75% of the input costs of modern manufacturing firms. Of course, manufacturers also provide ser- vice outputs. These can take many forms depending on the nature of the firm. Some more common services provided by manu- facturers include: …planning, [installation], technical support, environmental analysis, de- sign and engineering, systems inte- gration, economic assessments, procurement advice, legal advice, teaching and training, and facilities management and operations sup- port (Gann and Salter, 1998: 442). Note that some services can manifest as either service inputs or outputs. For exam- ple, planning can be undertaken to assist a manufacturer’s internal operations, and/or planning services can be provided to assist a manufacturer’s clients. Gann and Salter (1998: 1) suggest we are witnessing a new era in which ‘the distinc- tion between delivery of products and ser- vices has become blurred’. New services offered by manufacturers have been driven by changing demand patterns. Buyers of manufactured goods increasingly want more than the good itself — they might want finance options to buy it, transportation to move it, insurance to protect it, expertise to install it, landscaping to enhance its ap- pearance, advice on how to maximise re- turns from it and/or expertise to manage it. Hence manufacturers are increasingly ‘bundling’ products and services to offer clients enhanced performance and im- proved value. Indeed, in many instances ‘firm competences in adding services to the original physical project are the major en- ticement for the production of the artefact itself’ (Gann and Salter, 1998: 436). Gann and Salter report that, in the US, im- proved productivity performance has been linked to the effective bundling of products with a wide range of services in order to solve ‘tangible physical problems’ (Lester, 1998, in Gann and Salter, 1998: 433). This may be achieved by the application of R&D, engineering or design services to re- configure output, or, for example, changes in weight or endurance properties. Gann and Salter also suggest that service- enhanced products are particularly impor- tant for project-based firms, such as those operating in the building and construction industries. For many project-based firms, ‘services are increasingly necessary to en- sure that sophisticated component systems can be designed, integrated and operated as final complex products’ (Gann and Salter, 1998: 439). INTEGRATED MANUFACTURING-SERVICES BUSINESSES IN THE AUSTRALIAN BUILDING AND CONSTRUCTION SECTOR THE AUSTRALIAN JOURNAL OF CONSTRUCTION ECONOMICS AND BUILDING VOL.2 NO.1 3 A project is a significant undertaking rather than a relatively simple matter of supplying output to a distributor. Therefore a greater range of more sophisticated services will be necessary to execute a project. Supply to a distributor implies a relatively standardised product typically requiring no specialised engineering or design input. Also, supply to distribution channels will not involve any project-based services such as installation (possibly including plumbing services, elec- trical services and so on), landscaping or project management. In the Australian context, Pappas and Shee- han (1998) present a convincing case show- ing the existence of an integrated manufacturing-services sector. Their ap- proach relies primarily on input-output data and employment data to demonstrate ‘clear evidence of the increasing service intensity of Australian manufacturing’ (Pappas and Sheehan 1998: 141). The input-output data they present indicates that Australia’s manufacturing sector draws heavily on purchases from service firms in industries such as transportation, commu- nication services, finance, insurance, prop- erty services, and building services. This consumption of service inputs has increased rapidly since the late 1970s (Pappas and Sheehan, 1998: 9–13). Further, Pappas and Sheehan (1998: 13–14) present evidence to suggest that this growth is not simply the result of increased out- sourcing by manufacturers (which would simply shift the source of services provided from within the firm to external parties, rather than increasing the value of services consumed) but the result of increased ser- vice intensity in manufacturing operations. They rely on employment data showing a pronounced shift in the occupational distri- bution of employment within the manufac- turing sector in reaching this conclusion. Their data indicate that since the late 1970s the proportion of total manufacturing em- ployment accounted for by service occupa- tions has shown strong growth. The research undertaken for this paper rounds out this picture, primarily by extend- ing analysis of the provision of services by manufacturers. The current project also produces useful industry-level insights through its examination of the B&C sector. SERVICES PROVIDED BY MANUFACTURERS IN THE AUSTRALIAN BUILDING AND CONSTRUCTION SECTOR The remainder of the paper is based on a survey of 18 leading manufacturers in the Australian B&C sector. These manufactur- ers collectively dominate their industry. The survey was based on a questionnaire admin- istered by phone interview. The question- naire sought to determine the nature and growth of services offered and the scope for service enhancement. Sample businesses were selected from leading manufacturers. Hence, compared with the total population of manufacturers supplying the B&C sector, the manufactur- ers surveyed here can be expected to be at the forefront of the trend toward value- adding via the provision of services. Thirteen of the 18 respondents were mate- rial/product suppliers, while five were ma- chinery/equipment suppliers. Eight of the 18 respondents sold at least half of their output through direct project-based work, while 15 sold at least 20% of their output through direct project-based work. Hence, given findings in the literature concerning the im- portance of service-enhancement to pro- ject-based businesses (reported in the previous section), we would expect this sample to be actively involved in such enhancement. Nature and growth of services Technical service was the most common service provided by manufacturers, under- taken by 17 of the 18 respondents, as shown in Figure 1. Such services primarily involved providing clients with information regarding the characteristics of the material, product, machinery or equipment supplied. This in- cluded, for example, the provision of advice regarding strength, durability, weight, op- eration, systems integration and installa- tion, for example. Technical service was probably the most common service provided because a large number of different types of services could be considered technical ser- vices (including design, maintenance or training). DR KAREN MANLEY AND PROFESSOR JANE MARCEAU 4 THE AUSTRALIAN JOURNAL OF CONSTRUCTION ECONOMICS AND BUILDING VOL.2 NO.1 Figure 1: Nature of services provided to clients, by number of businesses Economic services refers primarily to the provision of comparative prices to potential clients; business plans refers to help with business plans for small clients; project man. refers to project management; financial services include the provision of payment options, such as extended credit. Design services were the second most common service provided. This is a more specific type of service and is the most im- portant single service (given the broad in- terpretation of technical services by respondents). This finding is likely to be re- lated to the increasing sophistication and customisation of manufactured input into B&C activity. After-sales services were the equal-third most common service offered. The survey question specifically related to ‘after-sales service provided by dedicated personnel’, rather than being more general. The three manufacturers that did not have any em- ployees devoted to after-sales service may have still provided such service, though in a more general way. Transport services were the other equal- third most common service provided. Most manufacturers would arrange transport of their output to their clients. However, it is interesting that manufacturers were mar- ginally more likely to provide design ser- vices than transport services. Perhaps the higher value of design work explains this finding. Engineering and installation services were the equal fourth most common services of- fered. Engineering services were closely associated with design and installation activity. The provision of installation services is very significant for it largely determines whether or not a manufacturer is directly active on construction sites and hence im- pacts of the scope to add value via the provi- sion of project-based services. Although installation is a key route to on-site work, other linkages to site-work are possible; for example, a steel manufacturer may not be involved in fabrication or installation of steel products, but may have significant design, engineering or project management exper- tise applied to on-site work. Interviews as- sociated with the survey suggest that leading manufacturers are both very likely to be engaged in on-site (project) work and very likely to rely on such work as a major source of revenue. Three other types of service were provided by at least half of the businesses surveyed. 0 2 4 6 8 10 12 14 16 18 Te ch ni ca l D es ig n Af te r sa le s Tr an sp or t En gi ne er in g In st al la tio n Tr ai ni ng R ep ai r/ m ai nt . So ft w ar e P ro je ct m an . Ec on om ic s er vi ce s Fi na nc ia l s er vi ce s E nv ir on m en t Sy st em in te gr at io n Fa ci lit ie s m an . B us in es s pl an s In su ra nc e Le ga l O th er INTEGRATED MANUFACTURING-SERVICES BUSINESSES IN THE AUSTRALIAN BUILDING AND CONSTRUCTION SECTOR THE AUSTRALIAN JOURNAL OF CONSTRUCTION ECONOMICS AND BUILDING VOL.2 NO.1 5 Own operate, project m anage, design, supply and install contract for project Project managem ent, design, supply and install contract for project Design, supply and install contract for project Supply and install contract for project Supply contract for project Further fabrication Distributor Manufacturer Forestry/mining Distributor These were training/teaching, repair/ maintenance and software services. Un- structured discussions with respondents revealed the following regarding the remaining services shown in Figure 1: Project management and systems inte- gration services appeared to be high value, strategically important services, is dis- cussed later in this paper Facility management services appeared to be strategically significant in view of growing client demand for increasingly comprehen- sive ‘total packages’ Business plan services comprised plan- ning help primarily for small businesses Economic services often involved the provi- sion of comparative prices to potential clients Financial services tended to comprise the provision of payment options to potential clients. The other services category contained a range of services including testing services, modernisation services (e.g. upgrading lifts), distribution services, landscaping services, colour consultancy and site security services. Discussions with survey respondents re- vealed that the ability of a manufacturer to add value to its operations via the provision of services is related to its role in the supply chain. Figure 2 presents a summary of the different ways in which manufacturers can be related to project work. As noted earlier, the significance of a close relationship to project work is that it gives manufacturers much greater scope to add value to their operations by the provision of services. Project work primarily involves work carried out on a construction site, but it also in- cludes site-related work such as product supply, transport services and the compo- nents of design/engineering/software ser- vices provided off-site. Hence, manufact- urers may respond to project-based demands without actively being present on- site. Non-project activity typically comprises sales through distribution outlets. Examples of services often provided to distributors, or to back-up distributor sales, include finance services, after-sales service and business advisory services. Project work can involve any of the following additional services: transport, installation, earth-moving, land- scaping, plumbing, electrical, design, pro- ject management and facilities manage- ment. Installation tends to be the ‘entry level’ service to on-site work. Figure 2: Supply-chain value-adding possibilities for manufacturers in the B&C sector DR KAREN MANLEY AND PROFESSOR JANE MARCEAU 6 THE AUSTRALIAN JOURNAL OF CONSTRUCTION ECONOMICS AND BUILDING VOL.2 NO.1 In terms of Figure 2 the least involvement a manufacturer could have in the B&C sector would be purchasing raw materials from an unrelated distributor, and selling manufac- tured output to an unrelated distributor. None of the survey respondents fell into this category. The two respondents with zero tender- based sales had no involvement in project work. They both had involvement in down- stream activity and sold their manufactured output to an unrelated organisation that un- dertook further fabrication. The fabricator was then in a position to bid on project- based contracts. For example, a glass manufacturer may be vertically integrated down-stream (under- taking mining activity), but not up-stream, selling the manufactured output (glass) to an unrelated window fabricator. The window fabricator (not the original glass manufac- turer) is then in a position to bid on project contracts (probably not contracts with broad responsibilities, like project management, because the fabricator’s part of the total value of a project would be too small to jus- tify taking on the associated risks). The least direct involvement a manufacturer can have on a project is through a contract for supply only (this will provide scope for normal client services plus limited scope for site-related services (e.g. transport to the site). The data indicate that two of the sur- veyed manufacturers fell into this category. The most involvement a manufacturer could have in the B&C sector would be to operate from the mining/forestry stage through to high value build-own-operate projects. At least one survey respondent was involved in the system to this extent, if all the busi- nesses controlled by the parent company were considered. This manufacturer provided all of the project services noted above, viz., installation, earth-moving, land- scaping, plumbing, electrical, project man- agement, ownership and facilities management. As could be expected, the more stages a manufacturer is involved in the greater the scope for service-enhancement of products. The supply/value-chain literature supports this conclusion, indicating that value- creation opportunities are directly related the breadth of a firm’s involvement in the supply/value chain (e.g. Walters and Lancaster, 2000; Normann and Ramirez, 1993). Further, interviews conducted alongside the survey indicated that the closer a manufac- turer is to on-site work, the greater the scope for service-enhancement, as the pro- ject end of the supply chain is more service intensive than the raw material end. Fourteen of the 18 respondents provided at least eight different services (as defined in Figure 1). Hence, more than three-quarters of respondents provided nearly half of the total number of services listed in the survey. This indicates a very high level of service intensity amongst manufacturers in the Australian B&C sector. Discussions with survey respondents indicated that this broad scope of activity is indeed the result of in- creasing client demands for the delivery of comprehensive ‘total packages’, as dis- cussed earlier. Three respondents provided four or less services; two of these respondents were the smallest businesses in the sample and had low levels of involvement in project-based work. The highest value services offered are shown in Figure 3. INTEGRATED MANUFACTURING-SERVICES BUSINESSES IN THE AUSTRALIAN BUILDING AND CONSTRUCTION SECTOR THE AUSTRALIAN JOURNAL OF CONSTRUCTION ECONOMICS AND BUILDING VOL.2 NO.1 7 0 2 4 6 8 10 12 Installation Design Proj. Man. Engineering After-Sales Repair/Maint. Figure 3: The highest value service offered, by number of respondents Eleven of the 17 respondents able to answer this question nominated installation as their highest value service. This appeared to be because of the immediate revenue gener- ated from installation services and the stra- tegic role played by such services. It appears that installation services are of par- ticular strategic importance to the manufac- turers surveyed. As noted earlier, part of this importance lies in the scope to add fur- ther value via the provision of related ser- vices once an on-site role has been established. Respondents were also asked to nominate the newest, most innovative and fastest growing services they offered. Figure 4 shows that of the ten respondents able to identify the newest service offered, three nominated installation. Hence, instal- lation services were again highlighted, al- though this time in a less pronounced way. Figure 4: The newest service offered, by number of respondents 0 1 2 3 4 Installation Facilities Management Financial IT Fire Engineering Design Remote Electronic Monitoring Repair Maintenance DR KAREN MANLEY AND PROFESSOR JANE MARCEAU 8 THE AUSTRALIAN JOURNAL OF CONSTRUCTION ECONOMICS AND BUILDING VOL.2 NO.1 0 1 2 3 4 5 6 7 Design Facility Managem ent Rem ote Electronic Monitoring IT Figure 5: Most innovative service offered, by number of respondents Figure 5 shows that of the 10 respondents able to identify the most innovative service offered, six nominated design services — three of the six were able to be more spe- cific, noting design specialities such as web- based design, concrete design and fire en- gineering design. The respondent nominating web-based de- sign as their most innovative service ex- plained that their clients (not project owners but major contractors in this instance) can scan in their plans and lodge them elec- tronically at the manufacturer’s web-site. This manufacturer is then able to provide product quotes and design analysis elec- tronically. The major contractor uses the information provided to finalise its quote and submit a tender for say, a design and build contract. If the builder wins the job, the manufacturer is likely to become a sub- contractor. Despite the examples of innovative design methods and applications noted above, dis- cussions with respondents indicated that the result shown in Figure 5 tends to reflect the inherent creativity associated with de- sign activity rather than indicating that the design methods employed or design applications were particularly innovative. Figure 6 shows that of the eight respon- dents able to identify the fastest growing service offered, two nominated installation while another two nominated repair/ maintenance. The results indicate that there is no single service growing appreciably more rapidly than others offered by manu- facturers supplying the B&C sector. Growth seems to revolve around the range of ser- vices offered. Twelve of the 18 respondents had ‘greatly extended’ the range of services offered over the past decade. This is to be expected given: an increasing desire on the part of project owners to limit the number of players they deal with and to obtain a ‘total project solu- tion’ from one source the trend toward increased outsourcing of project functions by project owners, particu- larly in the public sector. Scope for Service Enhancement The scope for service enhancement by re- spondents was investigated with regard to export markets, negotiated contracts, inde- pendent marketing of services, and sources of service improvement. Of the 13 respondents active in export mar- kets, only four thought that services were markedly more important in those markets compared to domestic markets. It seems that the importance of services in export markets is very much related to the type of business being conducted in those markets. In this case, most of the respondents were selling to distributors rather than being directly involved on B&C projects. They INTEGRATED MANUFACTURING-SERVICES BUSINESSES IN THE AUSTRALIAN BUILDING AND CONSTRUCTION SECTOR THE AUSTRALIAN JOURNAL OF CONSTRUCTION ECONOMICS AND BUILDING VOL.2 NO.1 9 provided those distributors with the same services that they provided to their domestic distributors. Further, in most cases the distributor was responsible for after-sales service. In contrast, respondents working directly on overseas projects (i.e. not using distributors) emphatically made the point that the service intensity of their contribution to those pro- jects was greater than for domestic pro- jects. For instance, overseas projects may involve: a greater transport service component the need for translation services more elaborate packaging services (e.g. to ensure packaging can withstand extreme weather conditions, or extended travel, or handling by inexperienced parties) more complex after-sales service arrangements more complex design services (to meet overseas standards) more intensive system integration ser- vices (ensuring compatibility with foreign systems). The differences found here between the ser- vice-intensity of project versus distribution activity in export markets supports the find- ings by Gann and Salter (1998) that service- enhancement is particularly important for project-based firms. The survey also investigated the scope for service enhancement via negotiated con- tracts rather than open-bidding contracts. Eleven of the 16 respondents able to answer this question strongly felt that a dedicated (negotiated) relationship with project owners enabled them to deliver a greater range of services and better quality service. Further, several respondents noted that there was scope for greater provision of design ser- vices on negotiated contracts. It appears that the four respondents who did not see greater scope for service enhance- ment on negotiated contracts felt that the common industry practice of submitting non-conforming bids in competitive bidding situations allowed the same scope for ser- vice enhancement (although many respon- dents disagreed with this view). This scope was thought to arise through the extra de- sign work, although clearly under these conditions there would be, for instance, less scope to negotiate a position of project management. Also, in a competitive situa- tion, the scope for service enhancement is limited by the manufacturers ability to win the contract with a non-confirming bid, as opposed to negotiated processes, which provide greater security. Figure 6: Fastest growing services offered, by number of respondents 0 1 2 3 Installation Repair Maintenance Web-based Design Services Facilities Management Remote Electronic Monitoring Rental Services DR KAREN MANLEY AND PROFESSOR JANE MARCEAU 10 THE AUSTRALIAN JOURNAL OF CONSTRUCTION ECONOMICS AND BUILDING VOL.2 NO.1 These results highlight the extent to which relationships with clients create opportuni- ties for value-adding via the provision of ser- vices. In part this is because the additional communication with clients involved in ne- gotiated contracts allows the manufacturer to better understand client requirements, putting it in a better position to provide a comprehensive and effective package of products and services to meet total client needs. The importance of such ‘bundling’ opportunities to the profitability of manufac- turing enterprises was discussed earlier. This ‘bundling’ is reflected in marketing be- haviour. For instance, of the 18 respondents, 15 never marketed services independently of products. Of the three that did, one re- spondent often provided facilities manage- ment services in relation to facilities built and installed by competitors, while another respondent occasionally provided colour consultancy services and landscaping de- sign services independently of products. These findings support the notion of the emergence of an integrated manufacturing- services sector, which was raised by Pappas and Sheehan (1998) and discussed earlier. It appears that the services provided by manu- facturers are complexly entwined with their physical output, so much so that it is not profitable for them to provide services inde- pendently. As may be expected, the core value of operations seems to remain with the manufacturing activity. The last question in the survey sought to determine the extent to which project-based learning was the key source of learning in relation to service improvement, compared to the role of on-going business processes (such as annual market surveys). Of the 16 respondents answering this question, nine felt strongly that service improvement arose mainly from project work, while seven sup- ported the proposition less strongly. The latter group appeared to be less involved in on-site work. This finding adds weight to the proposition that the overall competitiveness of manu- facturers in the B&C sector is influenced by the extent of their involvement in project- based work and the extent to which they maximise opportunities arising from such involvement. Although project work is clearly a major source of service improvement, several respondents considered that market surveys were also an important source of learning. CONCLUSION The literature review conducted for this pa- per indicated the importance of integrated provision of products and services. The em- pirical work conducted for this study sug- gests that such integration is growing in the Australian B&C sector. Manufacturers are: providing an expanding range of services and already provides all of the services indi- cated in the literature reviewed reaping significant value from service provision. The results of the study support many of Gann and Salter’s (1998) findings, namely that: manufacturers are ‘bundling’ products and services to improve business perform- ance the distinction between products and ser- vices has become blurred the delivery of new services has been driven by changing client demand patterns manufacturer competency in adding ser- vices to original physical products is a key driving force behind manufacturing; and services are increasingly necessary to ensure sophisticated component systems can be designed, integrated and operated. Indeed, the ‘blurring’ of the distinction be- tween products and services complicated the research process underpinning this study. Interviewees found it difficult to iden- tify the services they offered without prompting from the researcher, as many of their services were so closely associated with their products that, to the respondents, the services were essentially part of the products. Despite supporting Gann and Salter’s (1998) finding that changing client demand pat- terns are a key driver of service- enhancement of products, this study found that manufacturers were not always keen to provide a broader range of services. Some manufacturers felt pushed to provide a greater variety of functions on projects in order to maintain profitability. However, in an ideal world, they would choose to con- centrate on a more limited range of core competencies. INTEGRATED MANUFACTURING-SERVICES BUSINESSES IN THE AUSTRALIAN BUILDING AND CONSTRUCTION SECTOR THE AUSTRALIAN JOURNAL OF CONSTRUCTION ECONOMICS AND BUILDING VOL.2 NO.1 11 Many manufacturers rely on high-level ser- vice skills to underpin overall performance. This was particularly true of manufacturers providing complex component systems. Such findings support Gann and Salter’s (1998) observation that service- enhancement of output drives manufactur- ing success in knowledge economies. This project has made a key contribution to the literature in terms of our knowledge of the role of different services in manufactur- ers’ operations, and the factors influencing the scope of service-enhancement. The present study found that installation and design services are of particular strate- gic importance to manufacturers. Both these services play crucial roles in securing projects and are key gateways to adding more value via the provision of other services. This study also found that greater scope for service enhancement exists: for project work in export markets com- pared to domestic markets (although this finding does not apply to more straightfor- ward distribution arrangements overseas) in relation to negotiated contracts com- pared to open bidding contracts in relation to the joint provision of prod- ucts and services, compared to marketing services independently through project-based learning, compared to learning arising from on-going business process (such as annual market surveys), particularly if the manufacturer is heavily engaged in project-based work where a manufacturer is engaged in sev- eral stages of the supply-chain where a manufacturer is operating close to the project-end of the supply-chain. The higher levels of service enhancement recorded were associated with larger manu- facturers producing more complex prod- ucts. Further, the concept of ‘service- enhancement’ or ‘value-adding through the provision of services’ was far more readily understood by such manufacturers com- pared to smaller manufacturers producing a single, relatively simple product. Further research, conducted on a larger scale than the present study, is required to improve the robustness of results. Such re- search appears to be warranted based on: the extent to which service enhancement is undertaken by manufacturers the role that such enhancement is said to play in the formation of integrated manufac- turing-services sectors the apparent importance of such sectors in the effective functioning of successful knowledge economies. In particular, although this study supports suggestions in the literature that client de- mands are an important factor underpinning increased service provision by manufactur- ers, it is necessary that further investigation be carried out to determine manufacturers’ capabilities to meet these new demands, for example, how are smaller manufacturers coping with these trends? It is also impor- tant to understand the limits to the new in- tegration: how do manufacturers manage the expansion of their core capabilities into new service areas, and how does such ex- pansion impact on service providers? Inter- views conducted for this paper suggest that these are important issues worthy of further attention. REFERENCES California Management Review (1998) Spe- cial Issue of Knowledge and the Firm. Cali- fornia Management Review, 40 (3). Carson, I. (1998) The World as a Single Ma- chine. The Economist, 347 (8073), s3–s6. Coyle, D. (1997) Economics: The Weightless Economy. 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