Why do multiple business models co-exist in ‘servitized’ firms? Laura Phillips

Servitization Shift from product to service, from ‘thing’ to outcome Not just traditional manufacturing industries Deregulation, technology, globalization and competitive pressures = economic push Customers demanding more Positioned as a strategic response to changes in external environment. ‘Success’ is controversial (Visnjic and Van Looy 2013, Neely 2008, Suarez et al., 2013) Suarez, Fernando F., Michael A. Cusumano, and Steven J. Kahl. "Services and the business models of product firms: An empirical analysis of the software industry." Management Science 59.2 (2013): 420-435.

Servitization Leads to changes in business model A “blueprint for how a company does business” (Osterwalder et al., 2005) The model must link the workings inside the firm to outside elements including the customer side (explaining how value is created) and how that value is captured or monetized (Baden-Fuller and Mangematin, 2013). Three parts Value proposition Creating value Capturing value Transformation changes all three simultaneously

How do firms transition? Are firms ‘moving’ from State A – State B They have multiple BMs Pluralistic vs. Evolutionary – how patterns, paths might differ Research challenge – longitudinal research Why do multiple business models co-exist in servitized firms? Theoretical lens - Institutional theory (Cusumano, Michael A., Steven J. Kahl, and Fernando F. Suarez. "Services, industry evolution, and the competitive strategies of product firms." Strategic management journal 36.4 (2015): 559-575.)

Institutional Theory Foundational work ‘similarity across organisations’ (Di Maggio and Powell 1983). Isomorphism. Mechanisms of institutional change (see for example Greenwood and Meyer (2008) Ketokivi and Schroeder (2004), Lai et al. (2006),Liu et al. (2010)) Coercive isomorphism Mimetic isomorphism Normative isomorphism Di Maggio and Powell Coercive, formal (regulatory bodies) and informal (societal pressures) Mimetic, Frequency/outcome based, copying what successful firms are doing, adopted even when there is no evidence of success. Normative, norms and standards, professionalization, SoPs, recruitment policies, training, often through professional organizations, become TfGs and embedded systems.

Lewin Force Field Analysis

Method Single case to develop new ideas and insights Organisation that is engaged in the process of change Leading wealth management firm that manufactures and provides a range of pension and investment products and services to financial advisers and private consumers “As a result of changing market dynamics, we expect to see a change over time in the type of customers we target….we will need to transform, from a business primarily aimed at intermediaries to one centred on the end customer.” “We explore a number of alternative business models - from a product manufacturer and B2B to a service-based organisation and B2B and B2C” 12 months 27 face-to-face semi-structured interviews Strategy and marketing documentation (c. 500 pages) and external reports (c. 1,000 pages) Themes and patterns: VP, Vcr, Vap - drivers ‘cutting and sorting’ (Ryan and Bertand 2003)

Methods Three business models:

Findings Pressure Business Model 1 Advised Regulation Business Model 2 Direct Consumers

Findings Pressure Constraint Business Model 1 Advised Regulation Consumers Business Model 2 Direct Consumers Organisation

Findings Pressure Constraint Business Model 1 Advised Regulation Consumers Business Model 2 Direct Consumers Business Model 3 Hybrid Competition Organisation

Conclusions Several coercive, mimetic and normative forces that characterise the organisation’s internal and external environment and create both opportunities and obstacles for organisational and strategic change. The organisation’s response is to accommodate these conflicting forces rather than to engage in contestation and conflict (Besharov and Smith 2014). Theoretical explanation for why servitized organisations operate multiple business models simultaneously where push forces lead the organisation to change while pull forces inhibit change (Lewin 1951) The co-existence of multiple business models was not an envisioned, strategic intent but rather emerged as a result of changes in the external environment.

Gap

Implications of multiple IL What is/will happen (Besharov and Smith 2014). Contestation and conflict Co-existence Logic blending

Types of Logic Multiplicity within organizations Degree of Centrality High Multiple logics are core to organizational functioning   Contested Extensive conflict Aligned Minimal conflict Low One logic is core to organizational functioning: other logics are peripheral Estranged Moderate conflict Dominant No conflict Logics provide contradictory prescriptions for action Logics provide compatible prescriptions for action Degree of compatibility Besharov, M.L. and Smith, W.K. (2014), "Multiple Institutional Logics in Organizations: Explaining Their Varied Nature and Implications", Academy of Management Review, Vol. 39 No. 3, pp. 364-381.