On the road to digital servitization – The (dis)continuous interplay between business model and digital technology

Yihua Chen,Vinit Parida,Ivanka Visnjic,Zhengang Zhang

doi:10.1108/ijopm-08-2020-0544

Abstract

PurposeThe 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/approachThe 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.FindingsTo 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/implicationsBy combining process-perspective and business-model lenses, the authors offer nuanced insights into how digital servitization unfolds.Practical implicationsExecutives 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/valueA longitudinal case study of a traditional manufacturer that has achieved stellar success through digital servitization business models development.

Highlights

Over the past two decades, more and more manufacturers have begun to pursue servitization by adding customer-oriented services to their existing product offerings (Rajala et al, 2019; Visnjic et al, 2016; Cusumano et al, 2015; Neely, 2008)
In the body of the figure, we place the value capture mechanisms resulting from changes in the value proposition, the value delivery system and the application of the digital technology
We explain the value creation process that Gree underwent and how this process unfolded over the various stages

Summary

Introduction

Over the past two decades, more and more manufacturers have begun to pursue servitization by adding customer-oriented services (e.g. customized solutions) to their existing product offerings (Rajala et al, 2019; Visnjic et al, 2016; Cusumano et al, 2015; Neely, 2008). Manufacturers have been increasingly pursuing digitalization, using digital technology to better manage their product and service operations as well as develop new value propositions, the so-called smart products, services and solutions (Porter and Heppelmann, 2014; Bustinza et al, 2017). While a significant amount of knowledge has already been amassed, we know little about the nature of the digital servitization process as it unfolds. This is a notable gap, considering the attention that this transformation has received in academia and given its prevalence in practice (Jovanovic et al, 2021; Paschou et al, 2020). Considering that each of these two transformations is underpinned by complex business model changes (Hsuan et al, 2021; Rabetino et al, 2017; Sousa and da Silveira, 2017; Kowalkowski et al, 2015), it is unrealistic to expect that the convergence of the two transformation would be simple

Objectives

Methods

Results

Conclusion