The Servitization Process: A proposal for changes to the Business

Model and Operation Decisions

Valeria de Castro María Luz Martín Peña

Eloísa Díaz Garrido Esperanza Marcos

SERVITIZATION 2014

Agenda

Motivation and Objectives

Literature Review

Proposal for a Servitization Process

Business Modeling

Operations decision-making

Conclusions and Future work

2/25

SERVITIZATION 2014

Motivation and Objetives

Servitization can be understood as the process of increasing value by adding services to products. [Vandermerwe and Rada, 1988].

The process of servitization can be seen as the development of an organization’s innovation capabilities in the sense that, rather than merely offering products, it can provide customers with complete product-service systems. [Neely, 2008; Visnjic and Van Looy, 2013].

Literature review:

Few works providing either guidelines and techniques with which to integrate goods and services into organizations or business models to facilitate the change of orientation from products to that of services.

3/25

SERVITIZATION 2014

Motivation and Objetives

Start point:

To carry out a successful servitization process, companies need to redesign their business model.

Key questions regarding the servitization process:

What changes must the company undertake in the area of operations?

Which business models are most appropriate?

Which business architecture structures will facilitate them?

4/25

SERVITIZATION 2014

Motivation and Objetives

Objetive:

To analyze the servitization process in the literature with the purpose of:

To define a proposal for the implementation of this process into companies from the point of view of operation decisions.

To identify techniques and methodologies for business modeling that can enable the servitization process.

5/25

SERVITIZATION 2014

Agenda

Motivation and Objectives

Literature Review

Proposal for a Servitization Process

Business Modeling

Operations decision-making

Conclusions and Future work

6/25

SERVITIZATION 2014

Literature Review

Servitization process:

An innovation process in the business model of an organization that leads to an integrated offering of goods and services, thus improving customer satisfaction and performance, and permitting the creation of competitive advantages.

Principal reasons to undertake a servitization process:

Economic-financial motivations

Strategic (competitive advantage) motivations

Commercial motivations

7/25

SERVITIZATION 2014

Literature Review

Need of an alignment between “the environment - the strategy - the organizational factors” [Neu and Brown, 2005; Gebauer et al., 2008].

Adopting a servitization process implicitly involves:

Changes in the design of their product-service offering

Changes in the organization’s strategy

Changes in the organizational design

8/25

Changes in the Business Model

SERVITIZATION 2014

Agenda

Motivation and Objectives

Literature Review

Proposal for a Servitization Process

Business Modeling

Operations decision-making

Conclusions and Future work

9/25

SERVITIZATION 2014

Proposal for a Servitization Process

Three stages:

10/25

Business Model

Business Architecture

Enterprise/ Operations

SER

VIT

IZA

TIO

N

Innovation stage

Understanding stage

Implementation and decision-making stage

SERVITIZATION 2014

Proposal for a Servitization Process

Three stages:

11/25

Business Model

Business Architecture

Enterprise/ Operations

SER

VIT

IZA

TIO

N

Innovation stage

Understanding stage

Implementation and decision-making stage

A proposal for the changes that should be made in operations decisions to help the servitization process

Relevant methods and techniques for business modeling that could be useful when carrying out a servitization process

SERVITIZATION 2014

Business Modeling

Innovation stage

Examples of models useful in a servitization process:

Value Model

Business Canvas Model

PCN Diagrams

12/25

Business Model

Business Architecture

Enterprise/ Operations

SERVITIZATION 2014

Business Modeling

Value model (Gordijn and Akkermans, 2003)

Graphic representation of a business idea as a set of value exchanges and value activities between different business entities.

13/25

Allows to analyze the economic benefits that could be obtained from services.

Allows to represent value activities produced by product (e.g. car sales) and service activities (e.g. after-sales service) in the same model.

Value added activities (added

services) are represented as value activities

Business Model

SERVITIZATION 2014

Business Modeling

Business canvas model (Osterwalder and Pigneur, 2010)

Define a set of concepts and provides a layout that allows companies to describe, visualize, assess and change its business model

14/25

A value added activities is

represented as a value proposal

Allows to represent and analyze any value added activity that the company wishes to offer.

One value proposal per model. A product as a value proposal will be represented in one model and an added services of that product must be represented a new value proposal using a new model.

SERVITIZATION 2014

Business Modeling

PCN (Process-Chain-Network) (Sampson, 2012)

Allows companies to represent and analyze services, which are seen as a type of process. It provides a balanced and centered view as regards both the customer and the supplier, placing emphasis on the relationships between them throughout the process.

15/25

Allows companies to carry out different types of analysis when designing or innovating the business model.

One value proposal per model.

SERVITIZATION 2014

Operations Decision-Making (I)

Implementation and decision-making stage

Important operations decisions in a servitization process:

Process and technology

Installations (capacity and location)

Production Planning and Control Systems

Human Resource Management

Quality Management

Business Model

Business Architecture

Enterprise/ Operations

16/25

SERVITIZATION 2014

Operations Decision-Making (I)

Process and technology Flexibility

Processes and technologies defined around the service offering.

Efficient information systems are needed. Tools that allow the improvement of organizational knowledge.

Vertical Integration The service offering should be included within the value chain of the servitizated company.

Installations: capacity Flexible capacity management mechanisms

Needs to respond to a non-programmed demand [Baines et al., 2009].

Installations: location Key factor: best location to respond to consumer needs.

Factory in one place. Multiple locations for offering services (maintenance, repair, etc.) as close as possible to customers.

17/25

SERVITIZATION 2014

Production Planning and Control Systems Need for coordination between the marketing, purchase and production areas.

Human Resource Management Workers with good knowledge of the product together with the ability to manage and develop relationships with customers.

Quality management Service quality is a measure of a products availability to deliver functional performance for the customer [Baines et al., 2009].

Reliable, easy to maintain and quickly repaired products are essential to get levels of service quality expected by customers.

Operations Decision-Making (II)

18/25

SERVITIZATION 2014

Agenda

Motivation and Objectives

Literature Review

Proposal for a Servitization Process

Business Modeling

Operations decision-making

Conclusions and Future work

19/25

SERVITIZATION 2014

Conclusions and Future work

Reasons for including services in product offering:

Increasing the product sales

Strengthening of customer relationships

Creating opportunities for growth in mature markets

Responding to customer needs

Etc. …

To carry out a successful servitization process, companies need to redesign their business models and align aspects of the environment, operations strategy and organization’s factors

We propose an approach for carrying out a servitization process

20/25

SERVITIZATION 2014

Conclusions and Future work

Servitization process:

Start: innovation in the business model We identified techniques and methodologies for business modeling

that can enable the servitization process.

End: Implementation and decision-making stage We defined a proposal for the implementation of this process into

companies from the point of view of operation decisions.

Future work:

To complet the definition of the servitization process

Validation of the process: Prove of concepts in real cases.

Empirical evaluation of the servitization process.

21/25

The Servitization Process: A proposal for changes to the Business Model and

Operation Decisions

Valeria de Castro María Luz Martín Peña

Eloísa Díaz Garrido Esperanza Marcos

Thanks for your attention!