Abstract
Product providers have increasingly embraced services alongside their product offerings in order to improve performance. Yet, it remains unclear how this change in the market strategy and the underpinning innovation in the business model – the activity system design –jointly create value. Relying on 12 case studies of product providers that shifted to providing highly sophisticated service offerings – outcome-based contracts – we derive theoretical propositions regarding the interplay of service market strategy and business model innovation on value creation. The product providers we studied report two interdependent changes that they pursue to secure the required fit; they evolve the market strategy from pure products to outcomes so as to achieve a better fit with the client’s needs and to grow the service business. In parallel, they ‘open up’ their business models to maintain the internal activity system’s fit with their core competencies while relying on ecosystem partners for activities outside the pr...
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