Towards a service-based business model Key aspects for future competitive advantage

Daniel Kindstrom
European Management Journal (2010) 28, 479 490

The article is clearly written - the language used is good, it has a coherent structure. In
addition to this, all the arguments mentioned in the article are easily understood. However, the
article lacks of described limitations that make it not corresponding the scientific writing
requirements. I found this article to be valuable for my future master thesis research because it
indicates the key aspects of service-based business model, the competitive advantage the
companies get using this model as well as the connections between service innovation and
new service development (NSD).
The hypothesis of the work is that business success of the company depends on the
organizational rearrangements (including business model redesign) that occur with the
creation of particular services and increased focus on new service development and service
innovations.
The reasoning behind the research topic is clearly identified and can be easily recognized by
the reader. In view of stiff competition and new customer demands nowadays the cutting-edge
trend is to transform product-based models of companies into the firms business models
based on services. The article explains the companys importance to become service-oriented
in order to increase their competiveness. The main challenge of product-centric firm is to
develop and provide more advanced services as well as combined product/service solutions.
All these changes have to be reflected in the new business model of a company that leads to
higher levels of financial performance. This paper argues that companies need to adopt a more
holistic, business-model approach in order to be successful in developing new services and
moving to service-based business model. This study should be of particular interest to top
managers who should approach and understand this change to the companys business model
and make it more service-oriented.
The formulation of the research problem is given in the work rather concretely. The aim of
this article is to identify the key aspects of a service-based business model because many
companies face the problem of shifting towards an increased focus on service offerings.
Although previous studies discussed specific aspects of the product-to-services
transformation, only few look at this problem from the holistic perspective and focus on
successful business model development in this new context. As a result, the author combined
new service development, service innovation literature and the business model concept with
the purpose of formulating a successful service-based business model, and proposed a more
holistic perspective.
The author used Bessant and Davies generic framework that consists of four types of service
innovations in order to understand the underpinnings of service innovation: (1) service
offering innovation; (2) process innovation; (3) position innovation; and (4) paradigm
innovation. In this work the first three elements are adopted as one component of the analysis,
whereas the fourth dimension includes the other three and considered as the business model
concept. This idea reflects the other research by Tidd et al. (2005) who proposed a similar
innovation classification in three types Technological, Organizational and Market. In this
research the author also used six common business model parameters according to
Chesbrough (2007) as a structuring and analytical framework.
There is no huge amount of information about service-based business models, as a result of
that an in-depth case study approach of seven market-leading manufacturing companies was
chosen as the best-suited research method. The empirical data comes from these companies
that participated in a four year research project with the aim to understand the best way to
transform the focus of their business from products to services.
There are 6 main criteria were used to determine the companies that are acceptable for the
research project. These companies needed to: 1. be in a manufacturing industry; 2. have
announced their intent to become more service oriented; 3. be of sufficient size; 4. be willing
to commit to a substantial investment in time and effort; 5. provide appropriate and open
access to information and informants; 6. have at least one service development project of
strategic importance currently under way.
There are 2 sources of empirical data interviews and focus groups as well as the companies
internal documents and annual reports. Case company respondents can be divided by 2
groups: (1) managers responsible for operational service development and (2) managers in
senior positions responsible for, among other things, service business units. The case
companies are successful in their product businesses; they have all identified services as the
area for future growth, especially in mature markets. The data analysis is based on the case
companies strategic reorganization and servitization efforts according to the business model
concept, its six parameters, and the service innovation framework.
The conceptual frameworks and research findings of this article indicate that companies need
to focus on all areas of their business models in a holistic approach, and not just change
isolated elements. According to the results of the article, companies must develop their
abilities to build relationships with customers, to visualize the intangible value of their service
offerings, and to advance a dynamic service offering portfolio that is adaptive to changing
customer needs. The findings in this study highlight a large number of important implications
for managers related to changes in the companies new service-based business model. In such
a way the article fits into the existing literature stream and the author made a relatively
significant contribution to the scientific body of knowledge.
The first limitation for this research is the limited amount of the companies that were taken
under consideration. A second, even more common limitation is the lack of a long-term
perspective in view of the fact that the companies transformation takes a large amount of
time.
There are several items that can be taken for further research:
- how to industrialize service offerings to a larger scale is an issue that will become
evident in many companies in the near future;
- generalizing the results to a broader population could link a transition to service-based
business models to, for instance, profitability and growth;
- the incremental shift of the company that will change the order parameters in the
business model over time.