Academic Articles - ivankavisnjic.com

Revenue Models for Digital Services in the Railway Industry: A Framework for Choosing the Right Revenue Model

Journal of Business Research, 2023

While digital servitization provides manufacturing companies with the potential to earn additional revenues in the transition process from physical to digital offerings, the implementation of adequate value-capturing mechanisms is a major hurdle. The literature discerns little on the factors that influence the choice of revenue models for digital

services – namely, subscription, usage-based, and performance-based revenue models. In addition, we identify overarching factors influencing the choice of revenue models for digital services. They are related to a) customer digital readiness, b) digital service sophistication, and c) digital ecosystem partnerships. Building on these influencing factors, we propose a framework that recommends that companies evaluate revenue models in relation to specific digital services. We furnish several theoretical contributions to the digital servitization literature and provide managerial implications for practitioners to assist in the choice of revenue models for digital services.

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Managing the Transition to a Dual Business Model: Tradeoff, Paradox and Routinized Practices

Organisation Science, 2022

Building on an in-depth study of a manufacturing company’s shift from a product to a product-service business model, we explore how single-focus companies transition to a dual orientation. Although companies generally use highly sophisticated practices to manage a dual orientation, those that transition to one successfully start with less

sophisticated practices. Early on, the use of simple tradeoff practices, which maintain the product and service logics, helps single-focus companies explore the emergent tensions that their transition to a dual orientation causes. Conversely, adopting more sophisticated practices at this early stage overwhelms them. At a later stage, these companies’ growing understanding of the tensions allows them to experiment with more comprehensive paradox practices that transcend the product and service logics. Conversely, maintaining simple practices at this stage prevents them from gaining the solution experience required to complete the transition. The evolutionary process culminates in sophisticated routinized practices that institutionalize recurrent tensions’ solution, while allowing for further experimentation to deal with new tensions. The different practices’ appropriate sequence and pacing during the evolutionary process facilitate companies’ transition to a dual orientation.

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On the Road to Digital Servitization: The (Dis)continuous Interplay Between Business Model and Digital Technology

International Journal of Operations and Production Management, 2021

Purpose
The authors seek to understand the process of digital servitization as a shift of manufacturing companies from the provision of standard products and services to smart

solutions. Specifically, the authors focus on changes in the business model (i.e. the value proposition, the value delivery system and the value capture mechanism) for digital servitization.

Design/methodology/approach

The authors examine a Chinese air conditioner manufacturer, Gree, who became the global leader with their smart solutions. These solutions included performance-based contracts underpinned by artificial intelligence (AI)-powered air conditioners that automatically adjust to environmental changes and are capable of remote monitoring and servicing thanks to its Internet of things (IoT) technology.

Findings

To successfully offer smart solution value propositions, a manufacturer needs an ecosystem value delivery system composed of suppliers, distributors, partners and customers. Once the ecosystem relationships are well aligned, the manufacturer gains value with multiple value capture mechanisms (i.e. efficiency, accountability, shared customer value and novelty). To arrive at this point, a manufacturer has to pass through different stages that are characterized by both discontinuous and continuous interplay between business models and digital technologies. At the beginning of each stage, new value propositions and value delivery systems are first discontinuously created and then enabled with digital technology. As a result, new value capture mechanisms are activated. Meanwhile, the elements of the existing business model are continuously improved.

Research limitations/implications

By combining process-perspective and business-model lenses, the authors offer nuanced insights into how digital servitization unfolds.

Practical implications

Executives can obtain insights into the business model elements, they need to change over the course of digital servitization and how to manage the process.

Originality/value

A longitudinal case study of a traditional manufacturer that has achieved stellar success through digital servitization business models development.

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Value Creation and Value Capture Alignment in Business Model Innovation: A Process View on Outome-Based Business Models

Journal of Product Innovation Management, 2020

Industrial manufacturers are innovating their business models by shifting from selling products to selling outcome-based services, where the provider (manufacturer) guarantees to deliver the performance outcomes of the products and services. This form of business model innovation requires a profound yet little understood shift in how

value is created, delivered, and captured. To address this research gap, our study examines two successful and four unsuccessful cases of this shift. We find that effectiveness in business model innovation hinges on the three process phases that unfold in collaboration with the customers: value proposition definition, value provision design, and value-in-use delivery. We also find that that success is determined by the alignment of specific value creation and value capture activities in each phase: identifying value creation opportunities—agreeing on value distribution in value proposition definition, designing the value offering—deciding on the profit formula in the value provision design, and finally refining value creation processes—regulating incentive structures in the value-in-use delivery. Our process model contributes to the literature and practice on business model innovation by providing a thorough understanding of how alignment of value creation and value capture processes is ensured, whilst paying special attention to their interdependence and the interactions between provider and customer.

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Paths to Service Capability Developement for Servitization: Examining an internal service ecosystem

Journal of Business Research, 2019

There is a need to examine the internal service ecosystem perspective to understand how the capability development process unfolds. To achieve this, an embedded case study of ten subsidiaries of a large multinational capital equipment manufacturer was conducted to analyze how front- and back-office capability development progresses

across the subsidiaries. Three different paths for capability development were identified, indicating: (i) the sequential development of capabilities and capability renewal; (ii) difficulties of capability replication; and (iii) capability retrenchment and service dilution. It is argued that a lack of interaction between the front- and back-office may constrain progress in terms of realizing efficiencies through the standardization of offerings, processes, and performance measures. Important managerial implications indicate the need to manage an internal service ecosystem that allows for capability replication, which requires a strong center to leverage learning.

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Orchestrating Industrial Ecosystem in Circular Economy: A Two-Stage Transformation Model for Large Manufacturing Companies

Journal of Business Research, 2019

Making the transition to a circular economy is an important goal for society and individual companies, particularly in resource-intensive manufacturing industries. Yet the complexity and interdependencies of such an undertaking mean that no single company can achieve it alone and ecosystem-wide orchestration is necessary. Based on a

qualitative study of six large manufacturing companies (ecosystem orchestrators) and their ecosystem partners, we develop a process model that describes the scarcely understood process of ecosystem transformation toward a circular economy paradigm. We provide evidence that ecosystem orchestrators achieve the transition toward a circular economy in two stages: 1) ecosystem readiness assessment and 2) ecosystem transformation. In each stage, specific and complementary mechanisms are deployed. The article elaborates on ecosystem transformation mechanisms and their purpose, use, and interdependencies in moving toward a circular economy paradigm.

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Which Services? How Industry Conditions Affect Choice of the Services that Manufacturing and Software Firms Offer

Journal of Product Innovation Management, 2019

This article studies the role of industry conditions as determinants of manufacturing and software firms’ decisions to offer services. It draws on the competence perspective on industry evolution and servitization to theorize and provide empirical evidence on how industry conditions affect firms’ choice to offer two distinct types of services product

oriented services and customer-oriented services. It is argued that firms are likely to offer product-oriented services in Schumpeterian industry environments to address high technological uncertainty by leveraging and reinforcing capabilities in the existing technology. In contrast, firms are likely to offer customer-oriented services in non-Schumpeterian industry environments to address value generation uncertainty by building competences in new technological or market areas. Based on longitudinal data on 410 public firms from manufacturing industries and the software industry, empirical evidence suggests that firms are indeed more likely to offer product-oriented services in Schumpeterian industry environments, such as in the early stage of the industry life cycle and under conditions of high R&D intensity and competition, whereas they are more likely to offer customer-oriented services in non-Schumpeterian environments, such as in the later stages of the industry life cycle and in highly cyclical industries.

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Envelopment lessons to manage digital platforms: The cases of Google and Yahoo

Strategic Change, 2018

Envelopment is a form of business model innovation where companies add new functionality to their platforms to outcompete rivals. The two large internet corporations analyzed in this study, Google and Yahoo, employed diverging envelopment strategies. Google added related functionality to their initial platform and then expanded into

functionally distinct platforms. Yahoo, on the other hand, expanded directly into functionally distinct platforms.

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The Path to Outcome Delivery: Interplay of Service Market Strategy and Open Business Models

Technovation, 2018

Firms in a variety of manufacturing sectors as well as the software industry have increasingly embraced services alongside their product portfolios in order to improve financial performance. Yet, the key question “How do service market strategy change and the accompanying business model change interact, and how does their interplay affect value

creation?” remains open. Relying on twelve case studies of firms that have shifted towards providing highly advanced services (e.g. outcome-based contracts), theoretical propositions concerning the interplay of market strategy and business model on value creation are derived. The firms studied report two interdependent changes: first, they evolve the market strategy from provision of pure products to provision of services and then outcomes, in order to achieve a better fit with customer needs and to grow their service businesses. Second, they rely increasingly on partners and suppliers to provide new activities that are outside their competence base. This ‘open business model’ allows them to grow their new service businesses effectively and efficiently. At the same time, however, the shift to a service market strategy requires enhanced accountability to customers and increases the threat of penalties in the case of failure, while reliance on partners and suppliers leads to loss of control over the activity system and increases the threat of failure due to third party dependency. Thus, this paper finds that the success of firms that shift to services and outcomes hinges on their ability to balance the trade-off between increased value (i.e. growth, efficiency and effectiveness) and increased uncertainty associated with service market strategy/open business model interplay.

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What Brings the Value to Outcome-based Contact Providers? Value Drivers in Outcome Business Models

International Journal of Production Economics, 2017

Outcome-based contracts (OBCs) are frequently seen as the most advanced level of service offering that product firms offer. To deliver OBCs, product firms have to shift from the traditional product business model (PBM) to adopting an outcome business model (OBM). This constitutes a major change that rearranges their activity system and

therefore profoundly changes their value-creation process. The literature tells us little about what this change entails and the key value drivers that OBC providers focus on as they adopt outcome business models. To tackle this topic, we study four global capital equipment manufacturers that recently started to offer highly advanced forms of OBC: Bombardier, Caterpillar, Hitachi and Rolls Royce. We learn that, apart from recognized value drivers, such as efficiency, novelty, lock-in and complementarity, OBC providers draw value from what we have labelled accountability value. Second, the value drivers are more diverse in OBMs than in traditional PBMs. Third, while in PBMs there is a trade-off between value drivers, in OBMs value drivers are mutually reinforcing, as they create a synergistic interplay. At the same time, however, firms are exposed to some sources of value loss as they start providing OBCs and shift to OBMs. We contribute to the literature by connecting the OBM literature with the broader value-creation literature and identifying (specific) value drivers as they appear in the OBM context, as well as the relationships among them.

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Only the Brave: Product Innovation, Service Business Model Innovation on Manufacturing Firm Performance

Journal of Product Innovation Management, 2016

Recent empirical findings concerning the performance effects of service business model innovation (servitization) and its interplay with product innovation are mixed. Using the lenses of the demand-based view on value creation and complementarity, the performance impact of two key service business models is examined: the product-oriented model

and the customer-oriented model, implemented jointly with product innovation. Results indicate that the interplay between service business model innovation and product innovation results in long-term performance benefits coupled with a degree of short-term performance sacrifice. Service business model innovation in isolation from product innovation results in short-term profit gains but long-term knowledge loss and, thus, market performance decline. Our study suggests that firms need to look beyond the evidence on short-term effects in order to achieve superior performance in the long run.

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Servitization: Disentangling the Impact of Service Business Model Innovation on Manufacturing Firm Performance

Journal of Operations Management, 2013

As manufacturing businesses operate in an ever more competitive, global economy where products are easily commoditized, innovating by adding services to the core product offering has become a popular strategy. Contrary to the economic benefits expected, recent findings pinpoint implementation hurdles that lead to a potential performance

decline, the so-called ‘servitization paradox’. In this paper, we analyze this paradox by disentangling the value creation and value appropriation processes of 44 national subsidiaries of a global manufacturing firm turned product-service provider, in the 2001–2007 period. Our findings show that the firm under study is able to successfully transcend the inherent substitution of products by services and to enact complementary sales dynamics between the two activities. Moreover, labor-intensive services such as maintenance, which imply higher levels of customer proximity, further enhance product sales. Empirical results also reveal a positive yet non-linear relationship between the scale of service activities and profitability: while initial levels of servicing result in a steep increase in profitability, a period of relative decline is observed before the positive relationship between the scale of services and profitability re-emerges. These findings suggest the presence of initial short-term gains but also indicate the existence of a ‘profitability’ hurdle; profitable growth seems feasible only to the extent that investments in service capability are translated into economies of scale. In helping to clarify the performance implications of service innovation, our findings suggest pathways to sustainable growth through servitization for manufacturing firms.

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