Servitisation Managing in a converging technology environment © Copyright Göran Roos 2011

Source: AIM Research 2011

© Copyright Göran Roos 2011 Source: AIM Research 2011

© Copyright Göran Roos 2011 Source: AIM Research 2011

Technology ServerCustomerServerCustomer Server Customer Server D. Technology-Mediated Service Encounter D. Technology-Mediated Service Encounter E. Technology-Generated Service Encounter E. Technology-Generated Service Encounter A. Technology-Free Service Encounter A. Technology-Free Service Encounter B. Technology-Assisted Service Encounter B. Technology-Assisted Service Encounter C. Technology-Facilitated Service Encounter C. Technology-Facilitated Service Encounter McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e © Copyright Göran Roos 2011

Service Industry Human Contact Machine Assisted Service Electronic Service BankingTellerATMOnline banking GroceryCheckout clerkSelf-checkout stationOnline order/ pickup AirlinesTicket agentCheck-in kioskPrint boarding pass RestaurantsWait personVending machineOnline order/ delivery Movietheater Movie theaterTicket saleKiosk ticketingPay-for-view Bookstore Book storeInformation clerk Stock-availability terminal Online shopping EducationTeacherComputer tutorialDistance learning GamblingPoker dealerComputer pokerOnline poker McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e © Copyright Göran Roos 2011

Source: TEKES

Servitisation of Product Offerings Productification of Service Offerings © Copyright Göran Roos 2011

Which services are offered? % of manufacturing firms offering service Design and Development Services21.74% Systems and Solutions15.61% Retail and Distribution Services12.02% Maintenance and Support Services11.81% Installation and Implementation Services5.02% Financial Services3.75% Property and Real Estate3.66% Consulting Services2.63% Outsourcing and Operating Services1.67% Procurement Services1.14% Leasing Services0.99% Transportation and Trucking Services0.21% ANY FORM OF SERVICE 30.05% Neely, A., 2009, Exploring The Financial Consequences Of The Servitization Of Manufacturing, AIM Research Working Paper Series, 069-February © Copyright Göran Roos 2011

Known by nobody everybody Known by the Supplier Known by the Customer Knowledge distance Potential Value to be extracted from the relationship by the supplier © Copyright Göran Roos 2011

McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e © Copyright Göran Roos 2011 Low divergence High divergence Low divergence High divergence (standardized service) (customized service) (standardized service) (customized service) Processing Processing Processing Processing Processing Processing Processing Processing Processing Processing Processing Processing of goods Information of people of goods Information of people of goods Information of people of goods Information of people Dry Check Auto repair Computer Dry Check Auto repair Computer No Cleaning processing Tailoring a programming No Cleaning processing Tailoring a programming Customer Restocking Billing for a suit Designing a Customer Restocking Billing for a suit Designing a Contact a vending credit card building Contact a vending credit card building machine machine Ordering Supervision Ordering Supervision Indirect groceries of a landing Indirect groceries of a landing customer from a home by an air customer from a home by an air contact computer controller contact computer controller No Operating Withdrawing Operating Sampling Documenting Driving a No Operating Withdrawing Operating Sampling Documenting Driving a customer- a vending cash from an elevator food at a medical rental car customer- a vending cash from an elevator food at a medical rental car service machine an ATM Riding an buffet dinner history Using a service machine an ATM Riding an buffet dinner history Using a worker Assembling escalator Bagging of health club worker Assembling escalator Bagging of health club interaction premade groceries Searching for facility interaction premade groceries Searching for facility (self- furniture information (self- furniture information Direct service) in a library Customer Customer Food Giving a Providing Home Portrait Haircutting Contact service service in a lecture public carpet painting Performing worker restaurant Handling transit cleaning Counseling a surgical worker restaurant Handling transit cleaning Counseling a surgical interaction Hand car routine bank Mass Landscaping operation interaction Hand car routine bank Mass Landscaping operation washing transactions vaccination service washing transactions vaccination service

Enabling innovations move process steps toward customers. Relieving innovations move process steps away from customers. Source: Sampson, S. E., 2011, “A New Innovation Tool“, University of Utah Product and Service Innovation Conference, February 5 © Copyright Göran Roos 2011

Source: AIM Research 2011

© Copyright Göran Roos 2011 Source: AIM Research 2011

Rationalise, standardise and codify services for different markets Most successful model – Insurance Application Architecture (IAA) Implementation is common across multiple customers or “commoditised” Industry Models protected against imitability - patents, reputation, industry acceptance, brand acceptance, and technology Components reassembled for each unique project Balance between standardisation & customisation: Each customer implements the models in a different way “We would say the industry model, in general, represents about 80% standard across the board. But where it is the unique customer value, or client value, would be in the additional 20% where they need to focus their customisation efforts on.” IBM interview © Copyright Göran Roos 2011 Source: AIM Research 2011

Customised services Tacit knowledge co- created with client Solution architects Innovation & high value “Consultancy” Solutions life cycle engagement Understanding client needs Proposal or offer Solution design Standardised services Codified as processes or embedded in hardware and software Solution builders Performance & productivity “Operational” Solutions life cycle: delivery Integration and testing Process support Maintenance, security, etc. © Copyright Göran Roos 2011 Source: AIM Research 2011

© Copyright Göran Roos 2011 Source: AIM Research 2011

Service innovation driven by twin processes Replicate to achieve advantages of standardisation Reconfigure to offer customisation Service component standardisation process First-of-a kind projects: generate innovate response to customer’s needs Harvest and codify the knowledge gained Standardised service routines or processes Embedded services – ‘productised’ Different levels of maturity: competition behind efforts to move rapidly to 80/20 rule © Copyright Göran Roos 2011 Source: AIM Research 2011

Source: Booz Allen & Hamilton © Copyright Göran Roos 2011

“Moving into service” is not just colonizing more of the supply chain: it is reconfiguring the network, constructing new services Business models need to mesh and co-evolve Sustainable services should be rooted in the manufacturing know-how of the firm Ad hoc IT/IS across network is a critical ingredient Indirect capabilities/entrepreneurial aspect Who does it? The service business model manager? Working out how to transact is difficult and puts firms off © Copyright Göran Roos 2011 Source: AIM Research 2011

© Copyright Göran Roos 2011

Most manufacturers provide several services They are provided for offensive and defensive reasons And most see services as a key part of their value proposition But... firms typically earn little explicitly from services Most extensive serivtization associated with large firms manufacturing systems No strong relationship with performance © Copyright Göran Roos 2011 Source: AIM Research 2011

Services provide an opportunity to learn e.g., Installation = opportunity to learn (especially from lead users) To charge for or not charge for? Seek out Complementarities i.e., where the manufacturer has innate advantages over independent service providers © Copyright Göran Roos 2011 Source: AIM Research 2011

© Copyright Göran Roos 2011