Value creation in innovative service systems: A research project on the dynamics of service transition processes in industrial networks
The purpose of the project is to investigate the network-level transition process that takes place when businesses and industries move towards an increased service orientation and solutions provision. The change implies a shift in business logic: from goods logic, where the focus is on development and sales of physical equipment, to service logic, focusing on utility and customer value. The ability to manage this complex change is of strategic importance to industrial firms for competitive advantage. Because previous service research has generally emphasised the supplier firm and its resources, there is a critical knowledge gap concerning the role played by customers and other network actors in the transition.
The study will draw mainly on three theoretical fields to enhance our understanding of the problem at hand: service marketing, industrial network theory, and dynamic capabilities. Empirically, the project will combine in-depth qualitative studies of Swedish firms with an international, quantitative survey. Networks in both private and public sectors will be analysed. The project will contribute to theory by explaining how transition processes take place at network level, and how and why these processes succeed or fail.
The study will draw mainly on three theoretical fields to enhance our understanding of the problem at hand: service marketing, industrial network theory, and dynamic capabilities. Empirically, the project will combine in-depth qualitative studies of Swedish firms with an international, quantitative survey. Networks in both private and public sectors will be analysed. The project will contribute to theory by explaining how transition processes take place at network level, and how and why these processes succeed or fail.
Final report
The purpose of the project has been to study the transformation that takes place at the network level as industries and industries move towards increased service orientation. This transition often referred to as "servitization," is considered by researchers and business leaders to be a necessity for many industrial companies that traditionally focused on product leadership to maintain their long-term competitiveness. More specifically, the project has sought to understand how the selling company, in this case, industrial companies, acts in order to increase their service orientation. Digitization was in the first part of our empirical study very clearly highlighted as a key factor for successful servitization, the interaction between servitization and digitization became central to the project. Thus, the research also dealt with the organizational changes that take place in external as well as in-company networks (in the focal company) in connection with digital servitization, and how the dynamics of networks change throughout a digital transformation.
The theoretical starting points of the study were service marketing, industrial and social network theory. Initially, the research also built on dynamic capabilities, but after criticism from journal reviewers in connection with the publication, we chose instead to build on, and contribute to, other theoretical fields.
With regard to conducting the study, step 1 (2016–2017) was a qualitative case study of two business units within a leading multinational industrial company. These two units were internally considered the most advanced in terms of strategic focus on servitization and also (something we found out) regarding related investments in digitalization. They operate in different product and process industries, which enabled comparative analyzes between the two units as well as between industries. A total of 47 interviews were conducted with decision-makers in Europe and Asia.
Together with international researchers, we have also conducted a study of where we analyze and contrast digital servitization between the aerospace and marine industries. Based on the results of step 1, in step 2 (2017–2018), a survey was designed with the aim of investigating which technological and market-based capabilities (and configurations of capabilities) affect service orientation and competitiveness. Compared to the qualitative study, data were collected from different local service units in another global market-leading manufacturing company. This company is also active in several different industrial networks. The reason why was that we wanted to ensure validity and reliability in the responses and not confirm the qualitative results. Good access to this company was judged to render higher probable response rate, validity, and practical benefit, than the original plan to send the survey to manufacturers in different industries. Hence, we chose this design over the original plan. A total of 305 responses were obtained and these are currently being analyzed using structural equation models. In parallel with this, the study is being broadened to other parts of the company and further data collection is planned in the spring. The initial results from the statistical data collection look very promising as the data points to several interesting and relevant results. Administration surrounding the survey took longer than planned, which meant that data collection was only completed after the project was formally completed. Thus, no results from this section have been published yet. Instead, the publishing focus has been on the empirical results of Step 1 as well as conceptual and theoretical articles in service orientation and innovation.
The project has generated several interesting results, of which the three most important are reported here. First, this is the first known empirical research to explicitly link discussion of operand/operant resources and resource integration patterns, thereby increasing our understanding of service ecosystem dynamics and change. By facilitating coordination between actors, technology as an operant resource proved critical in enhancing ecosystem interactions. In this regard, technology played a dual role; increasing the complexity of resource integration patterns while at the same time enabling network actors to better manage this complexity. Second, the study contributes to research on organizational aspects of servitization. While extant literature emphasizes local service operations and management, and highlight decentralization of decision-making authority to lower-level managers, digital servitization to a certain extent calls for stronger intrafirm integration and centralization of decision-making authority required for global efficiency and standardization of operations. Requirements on the commonality of digital platforms and customer interfaces across segments and markets are key factors necessitating such change. Third, we identify three strategic shifts that underpin servitization, being increasingly digital and software-centric. To achieve such digital servitization, a firm and its network make three interconnected shifts: from certainty to discovery, from authority to partnership, and from scarcity to abundance. We contend that transformations within these overarching strategic areas represent shifts in how the firm and its network partners foster innovation, collaboration, and dematerialization of resources, as well as shifts in terms of organizational culture and identity.
The project has also generated and identified a number of new and interesting research questions. In terms of new research questions being generated through the project, the issue of the role of digitalization as an enabler and driver of transition processes in businesses increasing their service orientation early on was identified. Hence, we strived to address this question while at the same time identifying opportunities for further research. As firms increasingly are required to facilitate the flexible orchestration of complex arrangements of people and technologies for value creation, the boundaries between humans and technology in service ecosystems are becoming more blurred. While we focused on ‘analytical intelligence; – that is, a technology that can process information to solve a problem, learn from it, and adapt systematically – more advanced forms of technology support intuitive and empathetic learning and adaptation based on understanding and experience. As these forms of technology begin to make major inroads, with observable disruptive impacts on firms and service ecosystems, future research should examine the effects on resource integration. In addition, through a systematic review of servitization research (219 paper from 2005 to 2017), we identify eleven research priorities. For example, in addition to the role of technology for servitization, our research highlights that the need to replace the focal-manufacturer perspective with a multi-actor perspective that highlights the important role of relationships with existing and potentially new network actors warrant further research.
The project had since started a clear international focus. Apart from the fact that the data collection has largely been carried out abroad (both qualitative and quantitative part), we have had several collaborations with international researchers. Within the framework of the project, shorter research stays at the Center for Services Leadership at Arizona State University and the Meiji University in Tokyo have taken place, and we have also invited researchers from, among others, Finland and the United Kingdom. We have been invited to several universities to present our research, such as Chalmers and Mälardalen University in Sweden, as well as the Kedge Business School, Meiji University, Nottingham University, Padua University and the National University of Singapore. Several of our articles have been written together with researchers from other universities and countries (Finland, Italy, Switzerland, Spain, the United Kingdom, and the United States).
In order to disseminate our results, we have also presented the research at relevant scientific conferences in industrial marketing and service research. In addition, the project manager organized the leading international conference on industry servitization, SSC, in Linköping 2019 (https://liu.se/en/news-item/stora-utmaningar-nar-tjanster-transverter-industri). The main theme of the conference was based on our research questions and results, “Delivering Services Growth in the Digital Era”. In addition to bringing together leading researchers from various management disciplines, representatives from industrial companies were also invited, and we conducted a final presentation on the project. In order to better disseminate the results to groups outside the scientific community, there is also a practitioner-oriented book, Service Strategy in Action. The book, which is based on previous research as well as results from step 1, has been disseminated and is used e.g. by sales organizations in industrial companies and also as course literature at universities in Italy and Sweden. An Italian version has also been published and a Japanese version is currently being written. In addition to the publication list below, the research results have also been published for an academically curious public (e.g., Dagens Industri, MGMT (Management of Innovation & Technology), and a UK podcast interview).
The theoretical starting points of the study were service marketing, industrial and social network theory. Initially, the research also built on dynamic capabilities, but after criticism from journal reviewers in connection with the publication, we chose instead to build on, and contribute to, other theoretical fields.
With regard to conducting the study, step 1 (2016–2017) was a qualitative case study of two business units within a leading multinational industrial company. These two units were internally considered the most advanced in terms of strategic focus on servitization and also (something we found out) regarding related investments in digitalization. They operate in different product and process industries, which enabled comparative analyzes between the two units as well as between industries. A total of 47 interviews were conducted with decision-makers in Europe and Asia.
Together with international researchers, we have also conducted a study of where we analyze and contrast digital servitization between the aerospace and marine industries. Based on the results of step 1, in step 2 (2017–2018), a survey was designed with the aim of investigating which technological and market-based capabilities (and configurations of capabilities) affect service orientation and competitiveness. Compared to the qualitative study, data were collected from different local service units in another global market-leading manufacturing company. This company is also active in several different industrial networks. The reason why was that we wanted to ensure validity and reliability in the responses and not confirm the qualitative results. Good access to this company was judged to render higher probable response rate, validity, and practical benefit, than the original plan to send the survey to manufacturers in different industries. Hence, we chose this design over the original plan. A total of 305 responses were obtained and these are currently being analyzed using structural equation models. In parallel with this, the study is being broadened to other parts of the company and further data collection is planned in the spring. The initial results from the statistical data collection look very promising as the data points to several interesting and relevant results. Administration surrounding the survey took longer than planned, which meant that data collection was only completed after the project was formally completed. Thus, no results from this section have been published yet. Instead, the publishing focus has been on the empirical results of Step 1 as well as conceptual and theoretical articles in service orientation and innovation.
The project has generated several interesting results, of which the three most important are reported here. First, this is the first known empirical research to explicitly link discussion of operand/operant resources and resource integration patterns, thereby increasing our understanding of service ecosystem dynamics and change. By facilitating coordination between actors, technology as an operant resource proved critical in enhancing ecosystem interactions. In this regard, technology played a dual role; increasing the complexity of resource integration patterns while at the same time enabling network actors to better manage this complexity. Second, the study contributes to research on organizational aspects of servitization. While extant literature emphasizes local service operations and management, and highlight decentralization of decision-making authority to lower-level managers, digital servitization to a certain extent calls for stronger intrafirm integration and centralization of decision-making authority required for global efficiency and standardization of operations. Requirements on the commonality of digital platforms and customer interfaces across segments and markets are key factors necessitating such change. Third, we identify three strategic shifts that underpin servitization, being increasingly digital and software-centric. To achieve such digital servitization, a firm and its network make three interconnected shifts: from certainty to discovery, from authority to partnership, and from scarcity to abundance. We contend that transformations within these overarching strategic areas represent shifts in how the firm and its network partners foster innovation, collaboration, and dematerialization of resources, as well as shifts in terms of organizational culture and identity.
The project has also generated and identified a number of new and interesting research questions. In terms of new research questions being generated through the project, the issue of the role of digitalization as an enabler and driver of transition processes in businesses increasing their service orientation early on was identified. Hence, we strived to address this question while at the same time identifying opportunities for further research. As firms increasingly are required to facilitate the flexible orchestration of complex arrangements of people and technologies for value creation, the boundaries between humans and technology in service ecosystems are becoming more blurred. While we focused on ‘analytical intelligence; – that is, a technology that can process information to solve a problem, learn from it, and adapt systematically – more advanced forms of technology support intuitive and empathetic learning and adaptation based on understanding and experience. As these forms of technology begin to make major inroads, with observable disruptive impacts on firms and service ecosystems, future research should examine the effects on resource integration. In addition, through a systematic review of servitization research (219 paper from 2005 to 2017), we identify eleven research priorities. For example, in addition to the role of technology for servitization, our research highlights that the need to replace the focal-manufacturer perspective with a multi-actor perspective that highlights the important role of relationships with existing and potentially new network actors warrant further research.
The project had since started a clear international focus. Apart from the fact that the data collection has largely been carried out abroad (both qualitative and quantitative part), we have had several collaborations with international researchers. Within the framework of the project, shorter research stays at the Center for Services Leadership at Arizona State University and the Meiji University in Tokyo have taken place, and we have also invited researchers from, among others, Finland and the United Kingdom. We have been invited to several universities to present our research, such as Chalmers and Mälardalen University in Sweden, as well as the Kedge Business School, Meiji University, Nottingham University, Padua University and the National University of Singapore. Several of our articles have been written together with researchers from other universities and countries (Finland, Italy, Switzerland, Spain, the United Kingdom, and the United States).
In order to disseminate our results, we have also presented the research at relevant scientific conferences in industrial marketing and service research. In addition, the project manager organized the leading international conference on industry servitization, SSC, in Linköping 2019 (https://liu.se/en/news-item/stora-utmaningar-nar-tjanster-transverter-industri). The main theme of the conference was based on our research questions and results, “Delivering Services Growth in the Digital Era”. In addition to bringing together leading researchers from various management disciplines, representatives from industrial companies were also invited, and we conducted a final presentation on the project. In order to better disseminate the results to groups outside the scientific community, there is also a practitioner-oriented book, Service Strategy in Action. The book, which is based on previous research as well as results from step 1, has been disseminated and is used e.g. by sales organizations in industrial companies and also as course literature at universities in Italy and Sweden. An Italian version has also been published and a Japanese version is currently being written. In addition to the publication list below, the research results have also been published for an academically curious public (e.g., Dagens Industri, MGMT (Management of Innovation & Technology), and a UK podcast interview).