Abstract
In this paper, we explore how manufacturing firms and their customers co-create digital service innovations in an attempt to address the digitalization paradox. We present empirical insights from a case study of four manufacturers and their customer relationships. The results suggest that value co-creation in digital servitization is best managed through an agile micro-service innovation approach. Such an approach requires incremental micro-service investments, sprint-based micro-service development, and micro-service learning by doing to ensure customized and scalable digital service offerings. The proposed agile co-creation model provides insight into the phases, activities, and organizational principles of a micro-service innovation approach. Relational teams that pool knowledge from providers’ and customers’ strategic, technological, and operational areas are crucial to ensure successful cooperation and governance for agile co-creation. This paper offers insight into how companies engage in agile co-creation processes, with important recommendations for innovation in manufacturing firms in the era of digitalization.
Highlights
In this paper, we explore how manufacturing firms and their customers co-create digital service innovations in an attempt to address the digitalization paradox
This study answers the following question: How can firms co-create digital service innovations with their customers to cope with the digitalization paradox and reap the benefits of digital servitization? Our findings contribute by characterizing the causes of the digitalization paradox as high investment, lower-than-expected revenues from digital services, and unexpected increases in delivery costs
The major implication is that to deal with the digitalization paradox, firms should adopt an agile co-creation process following a micro-service innovation approach
Summary
The results suggest that value co-creation in digital servitization is best managed through an agile micro-service innovation approach Such an approach requires incremental micro-service investments, sprint-based micro-service development, and micro-service learning by doing to ensure customized and scalable digital service offerings. This paper offers insight into how companies engage in agile co-creation processes, with important recommendations for innovation in manufacturing firms in the era of digitalization. We define digital servitization as the transformation in processes, capabilities, and offerings within industrial firms and their associate ecosystems to progressively create, deliver, and capture increased service value arising from a broad range of enabling digital technologies such as the Internet of Things (IoT), big data, artificial intelligence (AI), and cloud computing (Kohtamäki, Parida, Oghazi, Gebauer, & Baines, 2019; Parida, Sjödin, & Reim, 2019; Rindfleisch, O’Hern, Sachdev, 2017). Discussions with senior managers in the industry often raise questions along the lines of “are we digitalizing fast enough?” or “are we investing in the right things?” This pervasive complexity and uncertainty can lead companies into a digitalization paradox, where increasing revenues from digital services fail to deliver greater profits because of spiraling cost increases
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