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Solution business models: Transformation

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Article in Industrial Marketing Management July 2013
DOI: 10.1016/j.indmarman.2013.05.008
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Industrial Marketing Management 42 (2013) 705716
Contents lists available at ScienceDirect
Industrial Marketing Management
Solution business models: Transformation along four continua

Kaj Storbacka a,, Charlotta Windahl a, 1, Suvi Nenonen b, 2, Anna Salonen c, 3
a
b
c
University of Auckland Business School, Department of Marketing, Private Bag 92019, Auckland, New Zealand
Hanken School of Economics, Department of Marketing, University of Auckland Business School, Graduate School of Management, P.O. Box 479, FIN-00101 Helsinki, Finland
Aalto University School of Business, Department of Information and Service Economy, P.O. Box 21210, FI-00076 Aalto, Finland
a r t i c l e
i n f o
Article history:
Received 31 January 2012
Received in revised form 26 January 2013
Accepted 23 April 2013
Available online 2 June 2013
Keywords:
Business model
Solution business
Transformation
a b s t r a c t
Using a business model perspective, we identify four continua that are of specic relevance for industrial rms
transforming toward solution business models: customer embeddedness, offering integratedness, operational
adaptiveness, and organizational networkedness. Using these continua, we explore the opportunities and challenges related to solution business model development in two different business logics that are of particular importance in an industrial context: installed-base (IB) and input-to-process (I2P). The paper draws on eight
independent research projects, spanning an eleven-year period, involving a total of 52 multinational enterprises.
The ndings show that the nature and importance of the continua differ between the I2P and IB business logics.
IB rms can almost naturally transition toward solutions, usually through increasing customer embeddedness
and offering integratedness, and then by addressing issues around the other continua. For I2P rms, the changes
needed are less transitional. Rather, they have to completely change their mental models and address the development needs on all continua simultaneously.
2013 Elsevier Inc. All rights reserved.
1. Introduction
Servitize, move forward in the value chain, and transform your
product business model into a solution business model! Industrial
rms are urged to consider that the product is dead (Phillips, Ochs,
& Schrock, 1999, p. 51) and they need to manage the transition from
products to services (Oliva & Kallenberg, 2003, p.160), and make solutions the answer (Foote, Galbraith, Hope, & Miller, 2001, p.1), because
however difcult the transition, manufacturers can't afford to ignore
the opportunities that lie downstream (Wise & Baumgartner, 1999,
p.141).
When companies take so called servitization (Vandermerwe &
Rada, 1988) steps toward solutions, they concurrently change their
earning logic, move their position in the value network, and need to
use and develop capabilities in a different way inherently making fundamental business model changes. Nevertheless, though many scholars
implicitly encourage a change of business models, few explicitly address
challenges in developing and implementing solution business models
(Baines, Lightfoot, Benedettini, & Kay, 2009).
4th and Final Submission to Industrial Marketing Management Special Issue: Business
models exploring value drivers and the role of marketing.
Corresponding author. Tel.: +64 99237213.
E-mail addresses: k.storbacka@auckland.ac.nz (K. Storbacka),
c.windahl@auckland.ac.nz (C. Windahl), suvi.nenonen@hanken. (S. Nenonen),
anna.salonen@aalto. (A. Salonen).
1
Tel.: +64 99236301.
2
Tel.: +358 505626028.
3
Tel.: +358 403538338.
0019-8501/$ see front matter 2013 Elsevier Inc. All rights reserved.
http://dx.doi.org/10.1016/j.indmarman.2013.05.008
In this paper, we argue that using a business model lens when analyzing solution business is important for two reasons. First, it highlights
the challenges associated with the transformation toward solution business model (c.f. Demil & Lecocq, 2010). Few rms actually make a complete transformation from a product business to a solution business
they have part of their activities focused on solution business, whilst
building on their existing product business. Many of them will end up
having parallel business models (Markides & Charitou, 2004). This implies that solution business models are not static and that the transformation needs to be seen in terms of degrees of change. Even though
previous research highlights the importance of developing new solution
business models (c.f., Storbacka, 2011), there is lack of research related
to the transformational needs in various business model dimensions
(Kapletia & Probert, 2010).
Second, a business model approach facilitates a comparison across
different business contexts. This is relevant as solution business is
predisposed by particular industry conditions (Pisano, 2006; Storbacka,
2011), commonly accepted dominant designs (Baldwin & Clark, 2006;
Srinivasan, Lilien, & Rangaswamy, 2006), or industry recipes (Spender,
1989). There are, however, few specic guidelines and tools for developing solution business in different industrial or business contexts (Baines
et al., 2009). Rather, existing research tends to treat solution providers as
a homogenous group, which has led to calls for further research that go
beyond recommending broad reaching solution strategies and capabilities for solution suppliers (Kapletia & Probert, 2010).
This paper addresses the above identied gaps by focusing on
the following two research questions: (1) how do business models
need to change when rms transform toward solution business,
and (2) how do the opportunities and challenges for implementing

706
K. Storbacka et al. / Industrial Marketing Management 42 (2013) 705716
solution business models differ between industrial contexts? More

specically, the paper focuses on the two generic business logics
(Nenonen & Storbacka, 2010) of particular importance in a
business-to-business, industrial context: installed-base (IB) and
input-to-process (I2P). Firms operating with IB logic provide
investment goods, thus creating an installed base at the customers.
IB logic is common among rms representing machinery and equipment industries. The I2P logic is relevant for rms that provide goods
that are utilized as inputs in the customers' process. The good is
transformed during the customer's process in such a way that it
ceases to exist as a separate entity. I2P rms are found in industries
such as metal, pulp and paper, and utilities.
We address the two research questions with an abductive research
process, drawing simultaneously on the emerging body of business
model research, on literature in the solution business area, as well as
on empirical research.
2. A synthetizing research process
This paper draws on data collected from eight independent research
projects spanning an eleven-year period (20012011) and involving a
total of 52 multinational enterprises from various industries. Most of
the rms are headquartered in Finland, the Netherlands, or Sweden.
The industries represented include adhesion and surfacing solutions,
cargo handling systems, chemicals, construction, compressors, construction materials, copper tubes, elevator and escalators, energy, digital printing, electronic manufacturing services, uid handling and
separation, forklift trucks, industrial machinery, information technology
services, metals, mining and construction equipment, mobile software
solutions, network infrastructure, oil rening, pumps, pulp and paper,
real estate, shipbuilding, and telecommunications.
Six of the research projects were consortium-based, i.e., they involved groups of seven to twelve rms in a six to nine month process,
where the focus was on investigating various aspects of solution business models: e.g., business model innovation, solution sales, industrialization of solutions, and growth through solution business. Two of the
research projects focused on a limited number of rms and on longitudinal aspects of solution transformation.
Altogether, the projects included 216 in-depth interviews, and 15
one-day workshops within the consortia groups. The workshops involved a total of 151 managers with an extensive experience of, and
interest in solution business. Synthesizing the ndings from these
projects provides opportunities to better understand the complex
phenomenon of solution business model development as applied
across different empirical contexts.
Detailed methodologies of the individual research projects have
been reported in nine previously published studies (Salonen, 2011;
Salonen, Gabrielsson, & Al-Obaidi, 2006; Storbacka, 2011; Storbacka
& Nenonen, 2009; Storbacka, Polsa, & Sksjrvi, 2011; Storbacka,
Ryals, Davies, & Nenonen, 2009; Windahl, 2007; Windahl & Lakemond,
2006, 2010). Thus, we do not discuss them in detail in this paper,
but rather provide an overview of how the empirical data was
synthetized in the process leading to this paper.
The synthesizing research process focused on interpretation and
reection rather than on the collection and processing of data
(Alvesson & Skoldberg, 2005). The nature of the research process
was abductive, combining induction and deduction (Locke, 2010).
Thus, it can be characterized as a non-linear, non-sequential, iterative
process of systematic and constant movement between the empirical
data, the model and the literature, during which the analytical frameworks were reoriented as directed by empirical ndings (Dubois &
Gadde, 2002). In a reective process such as this, the aim is to combine
elements in order to establish emergent patterns, and rene the constructs used to portray reality (Eisenhardt, 1989).
The process of synthetizing was governed by a set of principles that
the researchers adhered to using criteria from interpretive research and
grounded theory (see also Flint, Woodruff, & Fisher Gardial, 2002).
Drawing on Lincoln and Guba (1985), Miles and Huberman (1994),
Spiggle (1994), Strauss and Corbin (1990), and Wallendorf and Belk
(1989), conformability, integrity, pre-understanding and dependability
were dened as the main governing principles.
In order to reduce researcher bias (conformability or objectivity)
and ensure that the results are acceptable representation of the data
(integrity or authenticity), the research process was based on a
three-stage series of interactions between the researchers.
The rst stage focused on articulating the researchers' preunderstanding (Normann, 1977) built on the previous research reports
and the fact that all researchers have had a long term (515 years) research interest in the solution business area. Additionally, two of the researchers also have 10+ years of experience from consulting in this
area. This conrmed that there are differences between diverse business logics, and identied that the business model transformations,
which rms moving into solutions were engaging in, could be analyzed
using four continua.
During the second stage the researchers substantiated and described
business model transformations using the four continua as a lens. In
order to secure dependability, reliability, or auditability, the research
process utilized triangulation (Creswell & Miller, 2000; Denzin, 1978;
Stake, 1995). Triangulation was a natural starting point as none of the
researchers had participated in all the nine research projects. Furthermore, the four researchers had not worked in a joint research process
before. Three forms of triangulation were used: (1) data triangulation
(the empirical data in the underlying studies was collected through
several sampling strategies, data was collected at different times
and social situations, as well as on a variety of rms and contexts),
(2) methodological triangulation (more than one method was used for
gathering data: interviews, interactive workshops with practitioners,
and observations), and (3) investigator triangulation (more than one
researcher interpreted the data). As a result the process produced consistency of explanations between researchers and research contexts.
During the third stage the focus was on synthetizing and validating
the ndings, a process that continued throughout the writing of the
paper. This was done by a continued interaction between the empirical
data and literature. In doing so it was noted that more literature support
could be found for the business model continua, whereas the business
logics characteristics pre-dominantly emerged from the empirical material. During the entire process all researchers were active participants
and knowledge was constructed collaboratively as interpretations were
altered, expanded and rened.
Due to the unusually large amount of data and the explicit aim to
synthesize, we do not report ndings for individual case rms, nor do
we report intermediary results or direct quotes by the rm representatives. Instead, our narrative focuses on important similarities within
and differences across the empirical contexts.
3. Transforming toward solution business models along four
continua
In this section we propose that a deeper understanding of the preconditions to success in solution business can be gained by using a business
model lens. We address our rst research question (how do business
models need to change when rms transform toward solution business),
by identifying four generic business model continua that can be used to
describe the transformation toward solution business models.
3.1. Applying a business model lens on solution business
Given the wide range of solution literature streams (Baines et al.,
2009; Fisher, Gebauer, & Fleish, 2012; Lay, Schroeter, & Biege, 2009;
Windahl & Lakemond, 2010), it becomes difcult to arrive at a xed
denition for the term solution (Evanschitzky, von Wangenheim, &
Woisetschlger, 2011). The denitions that do exist vary depending

on the scope of the offering, the type of elements integrated, or the

type of industries studied.
In this paper, we apply a process-oriented view whereby solutions
are dened as longitudinal, relational processes that comprise the joint
identication and denition of value creation opportunities, the integration and customization of solution elements, the deployment of these
elements into the customer's process, and various forms of customer support during the delivery of the solution (Storbacka, 2011; Tuli, Kohli, &
Bharadwaj, 2007). This process-oriented denition implies that rms
can develop a range of different types of solutions, and that rms selling and delivering solutions will need to change many aspects of their
business model simultaneously.
Consequently, this denition has links to business model literature. First, it suggests that a transformational and dynamic view on
solution business models is needed (c.f. Demil & Lecocq, 2010;
Winter & Szulanski, 2001). We argue that it is less important to identify the static elements of a business model focus should be on the
dynamics of how rms develop their business models. Second, it
emphasizes the value creation taking place for the customer and the
supplier. Nenonen and Storbacka (2010) found that value creation
to customers and value capture for the rm are the two most common elements in existing business model denitions. Furthermore,
the business model concept is argued to be externally oriented and
depicts the relationships that rms have with a variety of actors in
their value networks, thus capturing the change toward networked
value creation (Teece, 2010; Zott & Amit, 2008).
Drawing on Mason and Spring (2011), Storbacka, Frow, Nenonen,
and Payne (2012), and Zott and Amit (2010), we use customers, offerings,
operations, and organization as generic continua along which business
model transformation materializes. Reconciling literature proposing
that business models are systemic congurations by nature (Teece,
2010; Tikkanen, Lamberg, Parvinen, & Kallunki, 2005) and literature emphasizing the transformational and dynamic nature of business models
(Demil & Lecocq, 2010; Winter & Szulanski, 2001), we propose that
rms that engage in solution business over time need to change their
business models in all these four continua, by taking various forms of
development steps that are likely to be interdependent.
First, rms aim at customer embeddedness: they target selected
customers and become embedded in their situations and processes
in order to support the customers in their value creating process
(Payne, Storbacka, & Frow, 2008). Second, rms increase their offering
integratedness: they integrate technical, business, and system elements,
and as a result, aim at changing their earning logic to increase value capture. Third, rms focus on operational adaptiveness: in order to exibly
and cost-effectively adapt to the customers' processes, rms need to
apply modular thinking in their operational processes. Finally, rms
aim at organizational networkedness: rms orchestrate a network of
actors that provide solution elements to selected customers, thereby
inuencing value creating opportunities in the larger network. In the
following sections we discuss the solution business model transformation along the identied continua. The identied solution business
model transformation continua are illustrated in Fig. 1.
3.2. Customer embeddedness
The customer embeddedness continuum refers to a key result of providing solutions, i.e., that the relationships with customers become relational and long term (Spring & Araujo, 2009; Vargo & Lusch, 2008). The
solution is developed, sold and delivered through a long-term process
with the customer rather than to the customers, i.e., value creation has
to be understood through the eyes of the customers (Brady, Davies, &
Gann, 2005; Davies, 2004). Increasing degrees of embeddedness has
profound impacts on the capabilities required, in terms of engagement
processes, the ability to deliver the agreed performance longitudinally,
and measurements used to measure success (Brady et al., 2005; Day,
2011; Storbacka, 2011).
707
Fig. 1. Solution business model continua.
It has, however, been shown that not all customers are willing to accept this transformation toward increased embeddedness and a different view on value creation (Kowalkowski, 2011), and focusing efforts
on such customers may not be efcient. Hence, the rm has to dene
focus markets, segments, and customers for the solution business, and
develop segment specic strategies, including business goals (Cornet et
al., 2000; Foote et al., 2001; Miller, Hope, Eisenstat, Foote, & Galbraith,
2002). To achieve increased embeddedness, rms need to be able to
make segment and customer specic value propositions (Anderson &
Narus, 1991), which are unique and linked to critical business concerns
of the customers.
Some authors argue that it is important to target the customers'
non-core activities as this will facilitate their focus on more promising
business activities (Ehret & Wirtz, 2010). In contrast, getting paid for
the new value created may be difcult if the solution does not target
customers' core activities, as the value of non-core activities is likely
to be less appreciated.
Ideally, a solution provider needs to create new capabilities to
cover a more strategically focused agenda, e.g., by applying a strategic
account management program. It becomes important to both identify
business issues of concern to the customer's top management that are
too complex for the customer rm to address, and show tangible
business results (Lay, Hewlin, & Moore, 2009; Shepherd & Ahmed,
2000).
3.3. Offering integratedness
The offering integratedness continuum refers to the integration of
offering components, i.e., that a customer cannot unbundle the solution and buy the elements separately (Johansson, Krishnamurthy, &
Schlissberg, 2003). Solutions are often discussed as integrated systems
of several inter-dependent goods, service, systems, and knowledge elements creating value beyond the sum of its parts (Johansson et al.,
2003; Roegner, Seifert, & Swinford, 2001).
When a rm increases the level of integration and customization, it
ultimately assumes the role of a performance provider whereby it manages the customer's technical operations and long-term system optimization (Helander & Mller, 2007). This position requires deep knowledge of
the customer's industrial processes and typically involves creating new
value propositions and pricing mechanisms based on performance improvement (Stremersch, Wuyts, & Frambach, 2001). The earning logic
changes from discrete cash ows (from selling products and/or services
on a transactional basis) toward continuous cash ows (toward selling
longitudinal, relational solutions).
The offering dimension is the most (implicitly) discussed business
model dimension in the solution literature. Different authors and research streams emphasize different integration and transition paths
(Baines et al., 2009; Matthyssens & Vandenbempt, 2008; Tukker &
Tischner, 2006). For example, authors focused on system integration
often emphasize turnkey solutions (e.g., Davies, 2004; Davies, Brady,
& Hobday, 2006); whereas authors discussing so called service

708
transition strategies (Fang, Palmatier, & Steenkamp, 2008) often emphasize increasingly advanced support services (e.g., Oliva &
Kallenberg, 2003). However, as stated in the introduction, with
some exceptions (see e.g., Matthyssens & Vandenbempt, 2008), few
authors discuss how the opportunities and challenges of integration
differ across contexts or business logics. In addition, as many rms
make a slow transition toward having only a certain part of their activities focus on solution business, the question of what level of
integratedness to aim for becomes crucial.
3.4. Operational adaptiveness
The operational adaptiveness continuum refers to the need to adapt
solutions (from development throughout delivery) to the customer's
situation and processes. The ability to create customer specic solutions
requires an approach based on modular thinking (Baldwin & Clark,
2000; Yigit & Allahverdi, 2003), which inuences both market facing
and operational processes (Meier, Roy, & Seliger, 2010). Firms need to
be able to respond to changing requirements rapidly, and at the same
time secure scalability and repeatability of solutions (Salonen, 2011;
Storbacka, 2011).
To support modularity, it becomes necessary to develop effective
information and knowledge management practices (Arnett &
Badrinarayanan, 2005; Johnstone, Dainty, & Wilkinson, 2009; Leigh
& Marshall, 2001; Pawar, Beltagui, & Riedel, 2009). For instance,
standardized solution modules can be digitalized into the rm's enterprise resource planning (ERP), or product data management
(PDM) system (Storbacka, 2011). To link customer specic value
propositions to efcient delivery, rms usually have conguration
tools (Meier et al., 2010) that help them to congure relevant customer
specic solutions. These tools can be used by customer facing units in
order to mix and match solution modules into combinations suitable
for the customers' situations (Davies et al., 2006). Solution congurators
are a key for the economies of repetition (Davies & Brady, 2000) as they
enable exible conguration of customer solutions and simultaneously
secure efcient delivery.
In order to excel in solution business and achieve economic viability,
it becomes important to balance the activity of integrating components
and tailoring solutions to specic customers with the need to create repeatable solutions (Foote et al., 2001; Shepherd & Ahmed, 2000), which
requires investments into new organizational capabilities (Storbacka,
2011).
3.5. Organizational networkedness
Progress along the organizational networkedness continuum implies that actors within the solution business network become increasingly dependent on each other's processes and activities, which
requires process harmonization across and within organizational
boundaries (Brady et al., 2005; Oliva & Kallenberg, 2003).
When it comes to managing internal challenges, the literature suggests different approaches. Some authors emphasize the need for separation, others the need for interaction and integration. In order to develop
new capabilities and enable experimentation with solution activities,
organizational separation might be needed; for example through separating the service department (Oliva & Kallenberg, 2003), or through
managing project-based solution initiatives in a separate unit (Davies &
Brady, 2000). However, in order to sustain and create repeatable solutions, there is a need to create mechanisms for interaction and integration between different organizational parts of the company (Gann &
Salter, 2000; Storbacka, 2011). Solution business needs input across departmental units, such as research and development, service and operations. The front-end's pull for customization needs to be balanced with
the back-end's push for standardization (Davies et al., 2006; Galbraith,
2002a).
When it comes to external challenges, rms need to recognize the

importance of cooperation with partners and suppliers. A rm that
develops its solution business based on a genuinely customer oriented
viewpoint will end up redening itself from a producer to a provider;
i.e., a provider does not produce everything that it provides. A solution
delivery should not be seen only as a dyadic exchange between provider
and customer, but rather as a collaborative effort among several actors in
a value network (Davies, 2004; Davies, Brady, & Hobday, 2007; Ivens,
Pardo, Salle, & Cova, 2009; Ulaga & Eggert, 2006; Windahl &
Lakemond, 2006). This external network contributes to the range of capabilities and good elements that can be integrated to create value for
customers (Galbraith, 2002b).
3.6. Creating congurational t between the continua
The above discussion draws attention to a number of considerations
for rms moving toward solution business. It illustrates that solution
business models are not static, nor is the transformation complete. It
is more a question of degrees of change taking place along the four interrelated continua. This ts well with the transformational approach
to business models (Demil & Lecocq, 2010) which suggests that the
business model concept can be especially useful in addressing change.
Building on this, we propose that the identied continua represent the
overriding change directions that rms move along when they develop
their solution business. There are various degrees of change that rms
can choose to take, and by combining different degrees of change on
the different continua, rms will end up with different solution business
models.
Even though different rms make diverse decisions on how far to
progress on each solution business model continua, the continua are
interrelated and interdependent (as illustrated in Fig. 2). Therefore,
the development steps taken along one continuum may necessitate
a change in the other continua as well. For example, the level of offering
integratedness will affect the possibilities for co-creation of value with
the customers (i.e., customer embeddedness), the need for partnering
with actors in the business network (i.e., organizational networkedness),
and the opportunities for customization, modularity and repeatability
(i.e., operational adaptiveness).
This ts well with the argument that business models are systemic
congurations by nature (Teece, 2010; Tikkanen et al., 2005) and with
Miller's (1996, p. 509) argument that congurations can be dened
as the degree to which an organization's elements are orchestrated
and connected by a single theme (such as solution business). A key
objective of congurations is to create harmony, consonance, or t
between the elements (Meyer, Tsui, & Hinings, 1993; Miller, 1996;
Normann, 2001). Thus, it can be said that effective solution business
Fig. 2. Solution business model continua are interrelated and interconnected.

models are characterized by congurational t between elements on the

continua, which implies a need for several iterations until a sufcient degree of t has been achieved.
Congurations are characterized by equinality (Doty, Glick, &
Huber, 1993), indicating that several congurations may be equally
effective, as long as there is a high degree of congurational t. This implies that several solution business model designs can create equally
good end results (in terms of value creation) as long as the business
model ts the actor and its context. Consequently, we argue that it is
especially important for rms to understand the context in which the
solution business model is to be implemented.
4. Solution business models in different business logics
In this section we address our second research question: how the
opportunities and challenges for implementing solution business
models differ between industrial contexts. During the research process,
as the empirical data was revisited and interpretations were altered and
rened, it became evident that rms operating in certain industries
shared common challenges. As a result, we adopted Nenonen and
Storbacka's (2010) suggestion that business-to-business rms apply generic business logics (c.f., Hagel & Singer, 1999; Johnson, 2010). They
identify ve business logics: installed-base (investment goods creating
an installed base), input-to-process (goods that are utilized as input in
the customers' process), continuous relationships (services characterized
by long-term contracts); consumer-brands (products for the consumer
market that are sold through a channel); and situational services
(project-based services, which fulll customers' situation-driven needs).
In this paper we chose to focus on comparing rms that operate
with an installed-base (IB) or an input-to-process (I2P) business
logic. This choice was guided by three considerations. First, based on
an initial grouping of the case rms, we concluded that the empirical
material was over-represented in the rst two logics. As the samples
of rms were not originally collected in order to enable comparisons
across business logics, this over-representation may be a result of a
number of issues: industry structures in the countries covered, issues
related to the researchers' access to case rms, various rms' interest
levels in the issues discussed in the research processes (business
model innovation, solution sales, industrialization of solutions, and
growth through solution business), and the pre-dominance of these
business logics in an industrial manufacturing business-to-business
context. Second, as our aim was to illustrate differences between
709
industrial contexts, using the four identied continua as a lens, we

concluded that using the depth of data that we had accumulated for
the IB and I2P business logics was more important than a more shallow analysis of all the business logics. Finally, as we cross-checked our
data it seems reasonable to assume that the identied continua are
relevant also in other business logics, which highlights an important
avenue for further research.
For an overview of the generic characteristics of, and the differences
between the IB and I2P business logics, please refer to Appendix 1.
Building on these characteristics we were able to better compare and
contrast issues related to the development of solution business and
identify how the logics both support and impede the transformation
toward solution business models.
There are two major observations that arise from our research
with regards to differences in solution business models between IB
and I2P business logics respectively: IB rms can make a gradual transition toward solutions; whereas for I2P rms, the transformations are
less transitional and the rms need to address challenges connected to
taking major steps toward solutions. These observations are discussed
sequentially in Sections 4.1 and 4.2. The ndings are based on the synthesis from the extensive data collected as described above and are,
within each section, reported separately for each of the four identied
continua. Table 1 below summarizes some of the main points in the following discussion.
4.1. IB rms can make gradual transitions toward solutions
Firms operating with an IB logic provide investment goods and related
services, creating an installed base at the customers. IB businesses are
often characterized by project sales and many IB rms are faced with
long sale cycles. Additionally, the markets for investment goods such as
large-scale engines, paper mills, or IT systems are often truly global.
At present many IB rms experience competitive challenges related
to growing industry maturity and intensied competition, resulting in
slow growth and declining margins. On the other hand, information
technologies offer new opportunities in terms of remote monitoring
and control of equipment. Therefore, motivated by achieving higher
margins and continuous cash ows, many IB rms are taking steps toward solution business models and building after-sale activities based
on their installed base, aiming at exploiting product lifecycles.
The more advanced solution business models are often designed around
performance contracts, e.g. when the IB rm assumes responsibility for
Table 1
Overview of the solution business model transformation for IB and I2P rms.
Installed-base (IB)
Gradual transition toward solutions is possible
Input-to-process (I2P)
Transformation to solution business requires a major conscious step
Customer embeddedness
Increasing embeddedness by combining the capex

side's innate strategic importance at the customer
with the opex side's natural longitudinal cooperation.
Main way to increase embeddedness is to leverage technical

expertise and in-depth process understanding.
Offering integratedness
Various opportunities to increase integratedness

starting by adding opex services to capex projects,
and ending up in providing performance contracts
that integrate capex and opex businesses.
Two distinct alternatives to increase integratedness:

(1) optimizing the use of the
supplier's goods in the customer's process,
and (2) optimizing the customer's entire process.
Operational adaptiveness
Increasing adaptiveness through modular

offering structure in order to ensure repeatability
and to overcome organizational distance
of sales and production.
The asset heavy production and the need for economies

of scale limit the technically nearly limitless adaptation
possibilities; price increases used to make the
adaptiveness economically feasible for the provider.
Organizational networkedness
Internal organizational networkedness often increased

by setting up separate smaller solution units, external
organizational networkedness improved through
harmonized processes with the suppliers.
Internal organizational networkedness limited by regional

decentralized organizational structures, the level of required
external networkedness depends on chosen level of offering
integratedness (optimizing the use of supplier's goods requires
little close cooperation with other business partners, whereas
optimizing the customer's process may necessitate closer
business partnerships).

710
the performance of certain operations related to a customer's business

processes, and they are compensated based on system performance,
using metrics such as return on investment, process efciency, and
consistency.
Two different types of businesses characterize the activities within
IB rms: the capex business (capital expenditure, as when customers
invest in new plants, heavy machinery or information technology systems) and the opex business (operational expenditure, such as services,
maintenance and repair related to the capex investments done). Consequently, this division of capex and opex activities inuences the possibilities and opportunities for embeddedness, integratedness, adaptiveness,
and networkedness.
4.1.1. Customer embeddedness in customers' core vs. non-core processes
Many IB rms have (even before thinking about providing solutions)
established long term relationships with customers. An increased focus
on total cost of ownership and a lifecycle view of the equipment increase
the opportunities for higher embeddedness in the opex side of the business. However, the transition toward solutions changes the relationships with the existing customers from reactive services (focused on
repairs and maintenance) to more proactive service solution contracts
(focused on optimization of customers' processes).
Our research shows that most IB rms have, however, realized that
all customers are not interested in solutions. Despite the possibilities
to shift from reactive to proactive relationships, it does not necessarily
imply a shift in how strategic the relationship is viewed to be by the customer or even by the supplier itself. If the IB rm gets embedded in the
customers' core processes, then the rm is almost certainly viewed as a
strategic partner with access to high-level decision-makers of the
customer. On the other hand, if the rm increases its embeddedness in
customers' non-core processes, it is likely that the rm is not viewed as
a strategic solution provider. Additionally, it seems that embeddedness
in the opex business (non-core or core processes) does not necessarily
ensure solution business opportunities in the capex side of the business.
Consequently, a key issue for IB rms is to dene focus segments and
customers for the solution business, and develop segment and customer
specic value propositions.
According to our research, the capex offerings are often strategically important for the customers and therefore involve high-level
decision makers from different functions. Consequently, the capex
business is characterized by large separate transactions with limited
natural opportunities for longitudinal cooperation between the IB
rm and its customers. Thus, if the IB rm is seeking to initiate solution business from the capex side of the business, the embeddedness
has to be ensured with a comprehensive strategic account management program or similar. The goal of such program is to secure
long-term relationships and a move toward more continuous cash
ows, e.g., by introducing the opex side business to complement the
capex business, or to bundle capex and opex businesses into performance contracts.
4.1.2. Offering integratedness and the capex and opex conict
Our research identied two particularly interesting challenges related
to offering integratedness in IB rms: unbundleability and the integration
of capex and opex.
Whereas IB rms want to create integrated solutions, customers
have a tendency to want to unbundle them. The unbundleability of
the offering components varies in capex and opex sides of the IB business. Even though it is technically possible to unbundle the core capex
product, very few customers are interested in that, as this would require
them to acquire the needed assembly capabilities and resources. However, it is quite possible to unbundle many of the opex services. In
many cases other actors than the original equipment manufacturer
can perform the repair and maintenance services. The offerings become
better protected against customer-driven unbundling as the business
model moves toward performance contracts. In performance contracts

the customer usually signs an agreement with a single provider.
The integration of capex and opex businesses is not easy as both
sides have different starting points. The installed based created by
the capex projects is a natural place for the opex side to start providing
repair and maintenance services. As IB rms gain more experience, they
often expand their repair and maintenance services to also cover the
equipment manufactured by other actors. A long track record in
successful opex business, especially monitoring and control services,
creates a natural platform for entering solutions. These opex solutions
typically relate to running the existing capital equipment more efciently over their lifecycle, but do not necessary involve any new
capex components.
Selling fully-edged performance contracts, however, usually requires
a high level of integration between the capex and opex businesses. The
capex business has contacts to important powerful decision makers at
the customer side, whereas the opex side has long-term operational relationships. Together this embeddedness creates the platform for integrated solutions that can dramatically improve value creation both for the
customer and the supplier rm. Even though most rms realize this,
many rms tend to get stuck on the opex side. It seems that creating
the capex/opex integration is the key to successful transformation toward
a solution business model.
Among the investigated rms, those that do succeed in integrating
the capex and opex sides usually take deliberate strategic decisions to
move toward solutions. Rather than continuing the relatively natural
transition from repairs to maintenance toward performance contracts,
by just adding on different services, these rms invest in creating integrated solutions and enable capex sales to focus on selling solutions that
also cover the opex side.
4.1.3. Operational adaptiveness through modular congurations

Increasing operational adaptiveness poses considerable demands
for frictionless cooperation between the rm's sales, production, and
service operations. On the capex side of the IB businesses, the innate
adaptiveness to the customer situation varies considerably based on
the nature of the core product. In more simple installed base equipment
(e.g., elevators for low-rise residential buildings), the opportunities for
product tailoring are relatively low and the ability to customize the
offering based on customer needs is further lessened by the prevailing
product-oriented sales processes. On the other hand, in the case of
very complex and unique equipment (e.g., cruise liners), the product
is always tailored to meet the customer-specic needs from the very
beginning and the consultative sale processes associated with such
products are designed to support this consultative and adaptive
approach.
On the opex side of the IB business, the opportunities to adapt the
offering (i.e., repair, maintenance and process optimization) are in
theory almost limitless, but in reality optimal adaptiveness is not
reached because of the separation of capex and opex sale processes,
as well as the separated capex and opex purchasing processes of
customers; both separations seem to be very common in an IB context. This leads to a situation where the capex sale personnel may
have limited knowledge of the possibilities to adapt the rm's service
offering and the customer's need for adaptation.
As IB rms move toward solution business models and seek to
increase their adaptiveness in an economically feasible way, they
seem to adopt a modular offering structure and an information technology based offering conguration tools. These two aides help to
overcome the drift between the organizationally separate sales
and production: (1) by showing the sale persons the full range of
options available, and (2) by intentionally guiding the combination
of the modular options into solutions that simultaneously create
value for the customer as well as being technically and economically
feasible for the supplier.

711
4.1.4. Organizational networkedness and increased process

harmonization
In terms of organizational networkedness, the division into opex
and capex seems to create challenges for IB rms. In IB rms, capex
sales are usually geographically dispersed and separated from production, and sale personnel in IB rms do not often possess experience from the operational processes. Production and/or assembly
are relatively centralized, with a limited number of production and/
or assembly locations serving large geographical areas. The service
operations (e.g., repair and maintenance), on the other hand, are
typically organized locally, and many opex sale people have an operational background.
Many of the investigated IB rms operate within a business network
that is characterized by a multitude of reciprocal and relationally oriented
business relationships: the number of suppliers and other business
partners is high, and the objective is to create relatively long-term and
trusting relationships between the IB rm and its partners. Additionally,
it is not uncommon that process and offering harmonization reaches
levels in which the IB rm has integrated its enterprise resource planning
system with its suppliers' systems, enabling real-time optimization of the
entire business system. The relatively centralized organizational structure favored by many IB rms supports the creation of supplier management programs, which further support the level of networkedness
needed for solution business models.
Internally, the capex and opex separation affects the challenges
related to this continuum. For example, research and development
are usually focused on technical development of the capex side of
the business, with little knowledge about how to link technical opportunities to solution value propositions. As we have seen in the other
continua, the internal networkedness (integrating capex and opex
activities) becomes crucial if the rm is to deliver a solution. Many IB
rms therefore create smaller solution units in order to be able to
increase the internal networkedness and to experiment with different
types of solutions.
with long-standing contracts and regular contacts on the operational

level, the customer relationships tend to be strongly driven by price.
Therefore, there are some considerable challenges associated with increasing the embeddedness and becoming intimately involved in the
customers' core processes when designing solution business models.
First, the relationships are usually based on technical and operational
knowledge rather than knowledge about customers' business drivers.
Second, the I2P rms often produce goods that are used in customers'
non-core processes (e.g., magazine publishers consider content creation,
not printing the paper provided by the paper supplier, as their core process; electricity provided by a utility company is their only link to the
core processes of customers operating energy-intensive production).
Third, many I2P rms lack direct contact with the end customer since
their products are purchased and delivered to the end customer by a
specialized middle-man (e.g., paper merchants).
Despite these challenges, our research shows that opportunities
exist for I2P rms to increase customer embeddedness with selected
segments and customers. As many I2P rms' products are intrinsically
integrated into the customers' process (core or non-core), opportunities
exist to use their technical expertise and in-depth process understanding to create solutions improving the resource efciency of specic
customer processes. Additionally, many customers' lack of technical
and operational expertise related to their non-core processes open
opportunities to I2P rms for business process outsourcing solutions.
Similar to the IB rms, a well-functioning strategic account management program is usually a pre-requisite for increasing embeddedness.
However, whereas IB rms (especially on the capex side) use account
management to introduce long-term cooperation to their customer
relationships, the main objective of account management among I2P
rms is to gain access to the strategic decision-makers at the customer
and to generate more insight on customers' business drivers. Based on
this, decisions can be made whether to target customers' core and/or
non-core processes. This will in turn lead to an understanding of the
degrees of integratedness necessary for success.
4.2. Input-to-process rms need major steps toward solution business
4.2.2. Offering integratedness needs major steps

The unbundleability of the offering components does not seem to
be a major problem for the I2P rms. First, the core product of the I2P
rms (paper, chemical, electricity) is such that it is technically not
feasible to unbundle the product. The technical services related to
the use of the core product are also usually purchased from the producer
of the core product, as the relevance of the technical expertise is highly
dependent on the fact that the service personnel knows the composition
of the product in detail and has authority to discuss changes in the composition with the heads of the production. Similar to the IB performance
contracts, in process optimization or outsourcing, the customer is usually not that interested to unbundle the offering as it would work against
the overall value proposition of such a solution.
For the I2P rms, the process of integrating more components to
the solution seems less straightforward (and less transitional) than
for the IB rms. Essentially, the only way to differentiate commodities
is to look at the processes related to providing and using them. There
seems to be two approaches for I2P rms to help running their customers'
processes more effectively: (1) optimizing the use of the supplier's goods
in the customer's process, and (2) optimizing the customer's process. The
rst avenue is more common and is usually done by integrating service
elements to the overall offering (e.g., ensuring the right chemicals dosing
at the customer plant a practice that typically is called technical
service). There is, however, no natural transition from the rst type of
offering integratedness (i.e., optimizing the use of the good) to the second
(i.e., optimizing customer's process).
At the moment, there are relatively few examples of I2P rms taking
over customers' processes and many rms are hesitant to take such a
step. This hesitancy is most often explained by the following factors: (1)
the current low-margin business does not allow suppliers to take on the
risk exposures often associated with process outsourcing, (2) there is a
The I2P logic is relevant for rms providing goods that are utilized
as input in their customers' processes. The good is consumed or
transformed during the customer's process in such a way that it
ceases to exist as a separate entity and no installed base is created.
Producing goods such as steel, paper, or electricity requires major
investments into production facilities. Therefore, I2P rms often
have considerable assets in their balance sheets. Additionally, I2P
rms often have limited opportunities for offering differentiation,
leading to slim margins.
In order to tackle the challenges of asset-heavy production and
small margins, many I2P rms aim for strategies enabling them to
secure economies of scale and optimize their production capacity.
I2P rms tend to strive toward solution business models in which
their customers outsource their operations. An example of such solution business model can be found in the chemical business where
solution providers offer chemical management processes for customers, including inventory monitoring, re-ordering, and on-site distribution management. For I2P rms, the long-term contracts and the
input-to-production-process nature of their offering create almost
continuous cash ows from the current customers. Therefore, the
transition toward solution business among I2P rms is not so much
motivated by the need to transform discrete cash ows into continuous (as was the case for IB rms), but by the need to differentiate
from competition and to ensure sufcient margins.
4.2.1. Customer embeddedness: From arm's length to embedded
relationships
I2P rms have traditionally been suppliers of commodities. Even
though the I2P rms tend to have very long-term customer relationships

712
lack of suitable resources and capabilities to manage the customer's process with sufcient effectiveness (specically to integrate the expertise of
other suppliers), and (3) the limited contacts outside purchasing and
operations that often characterize I2P rms' customer relationships may
make the customers hesitant to make strategically important decisions
about outsourcing process management to the I2P rms.
4.2.3. Operational adaptiveness difcult due to asset heavy production

I2P rms often have asset heavy production facilities (e.g., paper
machine, renery, chemical plant, furnace, nuclear power plant, utility
infrastructure), which are designed to achieve economies of scale. The
good itself is standardized to enable long production runs, thus creating
inbuilt exibility challenges. Due to logistical challenges, production
facilities are usually organized on a regional basis. Technical service is
typically located in connection with customer plants/factories. Sales
tends to have stronger links to production than in IB rms; actually, it
is quite common to nd I2P rms in which the sale personnel report
directly to the production facility head and are responsible for lling
the facility's capacity.
In most cases, the core products of I2P rms offer technically limitless adaptation possibilities to the customer situations and processes:
paper can be produced in any thickness and width, and chemicals can
be manufactured in a multitude of concentration levels. However,
customizations are often deemed as economically unfeasible for the
provider. Therefore, the mindset of I2P sale personnel is more guided
by economies of scale thus challenging considerably the possibilities
to achieve high degrees of adaptiveness.
Due to the exible nature of their core products, I2P rms do not
usually seek to determine a modular offering structure when moving
toward a solution business model. Instead, the I2P rms tend to favor
creating guidelines that help the sale persons to increase adaptiveness
without compromising economies of scale. Pricing differentiation is
given a considerable emphasis in these guidelines: even though
some adaptations such as very special paper coating or 24/7 stock
availability are technically possible, they imply negative impacts on
the economies of scale which have to be covered by a price increase
for the customer.
4.2.4. Organizational networkedness restricted by regional structure

The business networks of many I2P rms are characterized by market driven business relationships. The number of suppliers and other
business partners may be high, but the relationships revolve mostly
around price and much of the raw materials are purchased through
auctions or other market mechanisms. The regional and relatively
de-centralized organizational structure makes it also fairly difcult
to establish rm-wide partnerships or partnership management
programs.
For I2P rms, the type of offering integratedness (optimize use of
goods vs. optimize process) affects the challenges associated with the
organizational networkedness. If the rms choose to optimize the
use of the supplier's goods in the customer's process, there is likely
to be less need for long-term and reciprocal relationships to other
suppliers i.e., external networkedness. However, if choosing to
optimize the customer's process there is likely to be a need for closer
business partnerships and external networkedness. For example, it is
not uncommon to see chemistry companies form strategic partnerships with dosing equipment manufacturers.
Internally, the de-centralized structure makes it difcult to create
and implement corporate wide solution initiatives, and achieve internal networkedness. In addition, because of the differences between
customers, it does not make sense to use trial and error, and
experiment with one customer (i.e., create separate units), since the
knowledge gained will most likely not be transferrable to other
customers.
5. Discussion
This paper responds to calls for providing specic guidelines and
tools for the development of solution business models in different
contexts (Baines et al., 2009), and for improving rms' capabilities to
co-create complex business solutions (Marketing Science Institute,
2010). In the paper we illustrate that using a business model lens contributes to our understanding of solution business in two interrelated
ways. First, by integrating a systemic and dynamic view on solution
business, it deconstructs the process denition of solutions, and conceptualizes changes taking place in four interrelated continua of specic relevance for industrial rms developing solution business
models. Second, using the continua, the paper identies opportunities and challenges related to developing solution business models
in two different industrial contexts: installed-base (IB) and
input-to-process (I2P). We will next describe these contributions
more closely.
5.1. Various degrees of change along four interdependent continua
To date there is not much research addressing the need for crossfunctional alignment (Nordin & Kowalkowski, 2010) in solution business model development. Previous research tends to focus on particular aspects of solution business. These aspects include servitization
(e.g., Baines et al., 2009; Mathieu, 2001), solution marketing and sales
(e.g., Anderson, Narus, & van Rossum, 2006; Spekman & Carraway,
2002; Tuli et al., 2007), solution strategy and management (e.g., Brady
et al., 2005; Davies, 2004; Galbraith, 2002a), and operation management related to product/service systems (e.g., Meier et al., 2010; Tan,
Matzen, McAloone, & Evans, 2010).
Our research incorporates all of these aspects and, thus, provides
an overview of the complexities associated with the transformation
toward solution business, as rms attempt to change the way that
they create value. The identied continua customer embeddedness,
offering integratedness, operational adaptiveness and organizational
networkedness emphasize degrees of change (rather than an absolute change) hereby facilitating the comparison of different types of
solution business models as well as challenges between and within
contexts.
The continua are interdependent, i.e., a change in one of them will
affect the others, and only a comprehensive view will help rms to
realize the value creation potential inherent in a transformation toward solution business. Consequently, there is a clear need for interaction between customer embeddedness and offering integratedness
in order to be able to develop customer specic value propositions. In
addition, degrees of integratedness and embeddedness need to be
balanced with various degrees of operational adaptiveness. This becomes especially important, as rms need to secure the delivery of
repeatable solutions. Various degrees of operational adaptiveness
imply different levels of offering component and process modularity,
which enables rms to cost-effectively match their solution with the
customers' processes, activities and characteristics. Furthermore, higher
degrees of offering integratedness and operational adaptiveness are
likely to demand higher degrees of organizational networkedness. It
becomes paramount to increase cooperation across functional as
well as organizational boundaries in order to increase integration of
components and achieve modularity. Higher levels of networkedness
imply a need for developing modular congurations across the
network.
5.2. Solution business models in two business logics
Extant literature on solution business gives few specic guidelines
and tools for developing solution business in different industrial contexts. Our research explicates that the nature and importance of, as
well as the interdependencies between, the identied continua differ

between industrial contexts. Consequently, also the challenges and

opportunities related to the transformation toward solution business
models will be different.
This is exemplied in the paper by analyzing the transformation
toward solution business models in two business logics (IB and I2P).
We found that IB rms can almost naturally transition toward solutions, usually by increasing the customer embeddedness and offering
integratedness and then addressing issues around the other continua.
Additionally, IB rms seem to have more opportunities to experiment
with different degrees on all continua, as well as different degrees of
dependencies between the continua. An IB rm can move from less
advanced service contracts, in which the interdependencies between
the continua are not necessarily that strong, toward increasingly
advanced interdependencies. In many cases, this gradual transition
actually prevents the rms from explicitly addressing the interdependencies and many rms end up with various kinds of mists between
the continua. For instance, rms may develop value propositions
related to customized life-cycle solutions, but end up not modularizing
the solutions and, hence, creating an operationally complex and untenable cost position.
For I2P rms, the changes needed are less transitional; rather
rms have to completely change their mental models and more
explicitly address the effects on all of the continua. Rather than gradually transitioning along the continua, I2P rms need to make choices
between possibly discrete options. There are especially strong overlaps
between offering integratedness, customer embeddedness and operational adaptiveness if the rm offers solutions related to optimizing the
use of the supplier's goods in the customer's process. In the optimizing
customer's process option, the overlaps are especially strong between
offering integratedness, customer embeddedness and organizational
networkedness. Many I2P rms seem to especially struggle with the
transformation toward fully-edged solutions, as this transformation
may mean that they have to change their business denition, for instance
by incorporating equipment and equipment maintenance into their solutions. The increased complexity resulting from such a move may increase
operational costs more than the solution business generates additional
revenue.
5.3. Further research avenues

The research process has several limitations that also constitute
potential avenues for further research. First, there are sampling biases
in the underlying studies, as these samples originally were not driven
by the comparison between IB and I2P, but rather by the case rms'
interest in, and experience from solution business. Hence, there are
more IB rms than I2P rms in the sample. Furthermore, it is clear
that the case-rms do not cover all possible forms of IB or I2P rms.
The IB sample is biased toward large scale investment goods, such
as machines and production lines. Component suppliers are clearly
underrepresented. The I2P sample is biased toward asset heavy production of commodities (electricity, chemicals, paper, etc.), which
may have overemphasized economies of a scale. I2P rms focusing
on highly specialized goods and operating a batch production system may experience different challenges. Consequently, sampling
should be developed in order to cover a larger array of both IB and
I2P rms and more research is needed specically focusing on I2P
rms.
Second, there are other business logics that would warrant further
investigation. Nenonen and Storbacka (2010) identify three additional
generic business logics in business-to-business rms: continuous relationships (services that are characterized by long-term contracts);
consumer-brands (products for the consumer market that are sold
through a channel); and situational services (project-based services,
which fulll customers' situation-driven needs). A further exploration
of the differences between solution business models in these business
713
logics would improve our understanding of the transformation toward

solution business.
Third, some of the solution business model dimensions are less
investigated than others within the solution literature. Issues that
would need additional investigation are for instance: how do rms
select segments and/or customers that they focus their solution
business models on, what are the challenges related to targeting
customers' core versus non-core processes, and how do the customers' capabilities inuence successful solution business model
development?
Finally, the research suggests a need to apply a network perspective in developing solution business models. This highlights role
of the network actors in co-creating the solution. The idea of value
co-creation in a network includes the idea of reciprocity, i.e., not
only should one be freed from a dyadic perspective, but also from
the providercustomer notion. Adapting an actor-to-actor perspective (Vargo & Lusch, 2011) would emphasize the role of the customer in developing solution business models. It is clear that customers
buying solutions also need to adapt their business models, and
this perspective constitutes an interesting avenue for further
research.
5.4. Managerial implications

The research highlights several important implications for rms
wanting to develop their solution business. It suggests that moving
toward solution business requires changes in all parts of the business
model. Hence, rms should be liberated from the shackles of functional thinking, and that they need to make solution business
development a common strategic priority anchored within top
management. Without managerial commitment, the need for resources for developing new capabilities may not be recognized
within functions that are not customer facing. By making the solution business a priority for the whole rm, all functions can more
easily be aligned.
It is important to note the interdependence of the identied continua. Moving toward greater embeddedness will, for instance, require changes also in the other continua. Furthermore, having an
excellence only in one of the business dimensions may not create a
sufcient competitive advantage, if the rm has capability gaps in
the other dimensions. The key is to secure congurational t between
the dimensions and develop gradually and simultaneously across
dimensions.
This paper does not suggest that there is one ideal solution business model for any particular business logic. Instead, it argues that
there are several possible solution business models that may be
equally successful. The comparison between the IB and I2P business
logic, however, clearly highlights that rms need to be careful when
benchmarking across industrial contexts. A setup that works and creates value in one industry may not be viable in another industry, due
to the underlying logic of that industry. It is, hence, important to understand the underlying business logic and implement changes based
on this. This will also make it easier to identify where problems will
arise.
When analyzing the participating case-rms, we noted that there
are major differences in how rms have started their solution business. Due to the natural extension into life-cycle thinking, many of
the IB rms have more or less drifted toward solution business, letting opportunities identied among customers drive a quest toward
solutions. Other rms, particularly those with an I2P business logic,
start with strategic decisions and make deliberate investments in
building the necessary capabilities on a broad scale. The research
does not provide us with evidence on which development path is
more effective, but it clearly indicates that a gradual development is
particularly difcult for rms in the I2P context.
714
Appendix 1. Characteristics of installed-base (IB) and input-to-process (I2P) business logics
Customer
Product market characteristics

Geographical market
characteristics
Main competitive drivers
Importance of the good to
the customer
Sale case characteristics
Customer relationship
characteristics
Offering
Capex goods are typically sold as distinct sale cases that can be followed in a sale funnel.
Efforts to win the most desired sale cases
In capex business the intensity of the customer relationships varies from
intense cooperation (during the sale case) to little/no cooperation
(between the sale cases), usually contacts in various functions incl. top management
Capex business usually very cyclical (dependent on customers' propensity
to make investments), opex business usually resistant to economic cycles
Detect and win the best sale cases (capex) and maximize the service coverage in the
available installed base (opex)
Characteristics of the
core product
Possibilities to differentiate the core product (capex) vary from moderate to almost limitless;
capex products create an installed base at the customer that requires life-cycle services
Earning uctuation
from the core product
Typical value
proposition elements
Offering structure
Project-based cash ows from the capex products, no cash ows after the project has
been delivered
Use value of the products (what does the product enable), cost efciency over the product
life-cycle, product quality
The capex product usually consists of many product categories and versions within a
category, usually a wide range of opex services with varying levels of standardization
Role of services
To provide more stable and continuous cash ows, to provide continuous contacts
to the customer; services are often prices separately from the products
Traditionally cost-plus and market pricing, trend toward value-based pricing
Possibilities to differentiate the core product vary from none to very

moderate; core product vanishes/changes in the customer
processes no installed base requiring life-cycle services
Continuous cash ows from the core product, e.g., monthly payments
based on contracts
Competitive price, possibilities to improve customers' process
efciency, product quality
The core product can often be customized based on customer needs
in certain variables (e.g., paper thickness, width; chemicals
concentration), services typically technical services with limited levels
of standardization
To differentiate from the competition and to ensure sufcient
margins; services do not usually carry a separate price from the product
Market pricing or marginal pricing
Characteristics of core
product production
Investments into
production facilities
Capex production typically divided into component manufacturing and assembly
Integrated production facilities due to process or batch production
Investments into production facilities vary from moderate to considerable
Centralization of production
Manufacturing and assembly of capex product centralized in order to achieve economies of scale
Business network &

supply chain
Often a very considerable supplier network supplying components and sub-modules;

many capex good providers focus on assembly and manufacture only some critical
components/modules
Just-in-time deliveries very important to the customers (e.g., delivering the escalator
when optimal for the construction project)
Services are produced locally, usually country or area specic service teams
Often very asset heavy production facilities requiring considerable

investments (e.g., paper machine, oil renery, chemical plant, furnace,
nuclear power plant, utility infrastructure)
Typically regional production due to the balancing act between
economies of scale in production and logistical costs; a trend to locate
own production close to the customer sites
Supplier networks vary in size, but the role of the suppliers is more
to provide raw materials to the rm which are then used in the
process production
Regularity of the deliveries very important to the customers
(i.e., not disturbing customers' own processes)
Service personnel usually located at own regional production and/or
R&D facilities
Delivery timing
Service delivery
Organization
Pure opex market (both the tangible good and the associated services
are operational expenditures for the customers)
Geographically usually regional markets, often uneconomical/difcult
to transport goods over long distances
Price (good is a commodity/near commodity as oil, electricity, pulp, paper)
The importance of the good varies from strategic/critical to
supporting/mundane
No distinct sale cases. Efforts to acquire new customer relationships,
in existing customer relationships the focus is
on securing the next (annual) contract with desired volume and price level
Long-term and on-going customer relationships, limited
contacts outside the purchasing (buyers of the goods) and
operations (users of the goods)
Economic cycles usually do not inuence the existence of
long-term contracts and the volume in tons usually uctuates
relatively mildly, but the economic cycles can have a considerable impact
on the price levels
Maximize capacity utilization
Key role of sales
Pricing logics
Operations
Input-to-process (I2P)
Both capex market (equipment = the good is an investment for the customer) and opex
market (repair & maintenance = the good is an operational expenditure for the customers)
Geographically usually global markets, the good can often be transported economically for
long distances
Product excellence (capex) and scope & availability of service (opex)
The capex goods tend to be strategically important to the customer
Organizational structure
Locus of power
Key performance indicators
Usually capex and opex are organized into different divisions, enabling them to utilize
different business models; a trend toward an integrated organization with a three-dimensional
matrix (product/service, customer segment, geography)
Divisions with P/L responsibility, i.e., capex and opex divisions; usually capex business
has at least informal power position over opex
Capex: order base, product market share; opex: contract base (years of contracts),
machines with service agreements, ROCE
Typically organized around products or customer segments;

typically relatively high degree of regional (or even production site)
independence
The organizational divisions that own and control the production facilities
Capacity utilization, tons delivered, ROCE
Implications of economic
uctuations
Installed-base (IB)

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Dr. Kaj Storbacka is a professor of Marketing at the University of Auckland Business
School. His main research interests include market driving strategies, business model
design, and solution business transformation. His research has been published in
journals such as Journal of the Academy of Marketing Science, Industrial Marketing Management, Journal of Business Research, European Journal of Marketing, and Marketing Theory.
Dr. Charlotta Windahl is a senior lecturer at the Department of Marketing, University
of Auckland Business School. Charlotta's research interests are in the cross-sections of
marketing, innovation and design/integrative thinking; and include issues related to
developing and commercializing solutions through product/service and business model
innovation. She has published in international journals, such as Industrial Marketing Management and European Journal of Innovation Management.
Dr. Suvi Nenonen is an associate professor of Marketing at Hanken School of Economics in
Finland, and Senior Lecturer at the University of Auckland Business School's Graduate
School of Management. Her research interests include markets and market shaping, business model innovation, and customer asset management. Her research has been published
in journals such as European Journal of Marketing, Industrial Marketing Management, Marketing Theory, and Journal of Business & Industrial Marketing.
Dr. Anna Salonen is a post-doctoral researcher at the Aalto University School of Business, Department of Information and Service Economy. Her research mainly focuses on
service transition strategies of industrial manufacturers with particular focus on solution business. She has previously published in Industrial Marketing Management and
the Journal of Business-to-Business Marketing.

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Solution business models: Transformation

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Contents lists available at ScienceDirect

Industrial Marketing Management

Solution business models: Transformation along four continua

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K. Storbacka et al. / Industrial Marketing Management 42 (2013) 705716

solution business models differ between industrial contexts? More

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on the scope of the offering, the type of elements integrated, or the

Fig. 1. Solution business model continua.

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K. Storbacka et al. / Industrial Marketing Management 42 (2013) 705716

When it comes to external challenges, rms need to recognize the

Fig. 2. Solution business model continua are interrelated and interconnected.

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models are characterized by congurational t between elements on the

industrial contexts, using the four identied continua as a lens, we

Increasing embeddedness by combining the capex

Main way to increase embeddedness is to leverage technical

Various opportunities to increase integratedness

Two distinct alternatives to increase integratedness:

Increasing adaptiveness through modular

The asset heavy production and the need for economies

Internal organizational networkedness often increased

Internal organizational networkedness limited by regional

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K. Storbacka et al. / Industrial Marketing Management 42 (2013) 705716

the performance of certain operations related to a customer's business

model moves toward performance contracts. In performance contracts

4.1.3. Operational adaptiveness through modular congurations

Author's personal copy

4.1.4. Organizational networkedness and increased process

with long-standing contracts and regular contacts on the operational

4.2. Input-to-process rms need major steps toward solution business

4.2.2. Offering integratedness needs major steps

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K. Storbacka et al. / Industrial Marketing Management 42 (2013) 705716

4.2.3. Operational adaptiveness difcult due to asset heavy production

4.2.4. Organizational networkedness restricted by regional structure

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between industrial contexts. Consequently, also the challenges and

5.3. Further research avenues

logics would improve our understanding of the transformation toward

5.4. Managerial implications

Author's personal copy

Appendix 1. Characteristics of installed-base (IB) and input-to-process (I2P) business logics

Product market characteristics

Possibilities to differentiate the core product vary from none to very

Capex production typically divided into component manufacturing and assembly

Integrated production facilities due to process or batch production

Investments into production facilities vary from moderate to considerable

Business network &

Often a very considerable supplier network supplying components and sub-modules;

Often very asset heavy production facilities requiring considerable