Servitization Inmaculada Freije

3rd International Conference on Business Servitization Bilbao, 13-14 November 2014

A step forward in the criteria for the inclusion

of services in the business model of the company: Is the specialization between the

customer and supplier contrary to PSS?

Inmaculada Freije Obregón,

Deusto Business School,

[email protected]


Agenda

• PSS: Product-Service Systems, types.

• PSS: risks and opportunities

• Value propositions as combinations of benefits and tradeoffs

• Criteria to identify the most competitive combination

• Conclusions

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• Servitization is about Adding value to a company´s offering through the inclusion of services and intagible services.

Source: Baines et al. 2007

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• PSS: Integrate products and services in a single offering. 3 types (Baines et al 2006):

Product-oriented PSS: adding services to the product such as maintenance, training and consulting for a better use, recycling,…

Use-oriented PSS : The product is not sold to the customer but the use or availability of it. (e.g. leasing, sharing,…).

Result-oriented PSS: What is sold is the capability or the result (e.g. packaged products, laundered clothes,…)

Product-Service Systems: Types


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PSS: risks and opportunities

• Servitization is the consequence of a developed and more complex competitive world where companies look for new ways to add value to their customers as a way to develop new income sources as well to protect their markets.

• Frequently as it implies going downstream in the value chain, there will be more opportunities to add value, through offering knowledge intensive services.

• Less likely to be overcome by low-cost producers as usually requires proximity and trust. And imply long-term relationships.

• The competitive advantages achieved could be more sustainable as long as it implies a new business model mainly if there are clear tradeoffs.

• But it is also difficult and risky: only 1 in 5 are successful in servitization process. As any other strategic movement it is very risky.


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Value propositions as combinations of benefits and tradeoffs

• Propositions are combinations of benefits (not only services) and tradeoffs that are offered to the customer in competition with offerings of a similar or different nature from other sources.

• However is not solely a matter of adding. Sometimes it may be more effective to leave certain aspects to the customers to fulfill by themselves. (e.g.: IKEA) and not only for cost reasons but also for better customization.

• Enviroment evolution open new opportunities: internet, social networks, etc.

• These combinations are the basis of the business model.

• What is the most competitive combination, for the targeted market, from the perspective of customers?


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Extent of distribution of benefits between supplier and customer:

Value propositions as combinations of benefits and tradeoffs

PSS


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Criteria to identify the most competitive combination

• Criteria:

1. Who has the best knowledge and specific technologies domain?

2. Who has the best ratio of costs and productivity?

3. Who has greater availability of the resources required?

4. Are there any difficulties for coordinating benefits between customer and provider?

5. How important and difficult is the trust between agents?

6. Are there significant risks arising from the loss of uniformity in quality

7. Does client appreciate participation or the potential individualized results ?


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1. Knowledge and specific technologies domain.

• Customer and providers have different capabilities and knowledge.

• Proximity could be a cause of different knowledge between the parties.

• Customers usually have better knowledge about their specific needs and the context of use

• Producers usually have better knowledge about the solution itself.

Type of improvement provided by

innovation

Innovation developed by:

%Users Users Manufacturers Total

New functional capability 82% 14 3 17

Sensitivity, resolution or accuracy

improvement

48% 11 12 23

Convenience or reliability

improvement

13% 3 21 24

Source: Riggs and Von Hippel (1994)


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• SPSS could be more adequate when customers do not have better knowledge o tecnologic domain above the provider.

• If so, participation of customer should be considered:

• In designing the SPSS-

• In adapting the service to their specific needs.


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2. Costs and productivity

The best final cost will be achieved if each party is responsible for the part in which they have better costs, e.g. because of proximity or because they are located in a low cost country.

SPSS could be more adequate when customers do not have better costs or productivity comparing provider.

3. Resources availability.

Usually providers are in better conditions because of critical mass. Specialization between customer and provider will be based in the customer resource availability and their appreciation of their conditions.

Sometimes again the specialisation is mainly necessary when defining the project.


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4. Are there any difficulties for coordinating benefits between customer and provider?

• If the fit is difficult to achieve and implies new activities there will be an opportunity for more complete offerings

• If benefits are very easy to integrate there could be opportunities for new offering definitions

5. The difficulty and importance of trust between agents.

• Trust in provider capabilities.

• Trust in provider behavior: mantaining the quality and not taking advantage in their own interest.

SPSS requires enough trust about important benefits.


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6. Are there significant risks arising from the loss of uniformity in quality

• When there is a risk in overall image without discriminating the specific causes.

• When the discrimination is very difficult, not clear at all or impossible.

A more complete offering can be valuable.

7. Does client appreciate participation or the potential individualized results ?

Apart from the effects in product conditions: price, etc. participation itself can be worthy:

• Less time-consuming, better choice.

• Enjoyment, learning, reputation, …


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Conclusions

Consequently, companies should explore the different business models so as to chose the most competitive and sustainable one.

• A more complete offering, like SPSS, can be the right option if the provider can attain better knowledge and technology domain, cost and productivity or resource availability or if customer is not interested in devoting efforts to certain activities, or if benefits are difficult to link o there are risks arising from the participation of different agents..

• However, sometimes the most worthy and competitive combination will require to leave some of these benefits to customers to develop by themselves, if customers are better positioned or appreciate the effects of their participation o the resulted customization.


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Services

Servitization Inmaculada Freije