The path to outcome delivery: Interplay of service market strategy and open business models

• Published in: Technovation 2018-04, Vol.72-73 (April - May 2018), p.46-59
• Main Authors: Visnjic, Ivanka, Neely, Andy, Jovanovic, Marin
• Format: Article
• Language: English
• Subjects: Accountability; Business models; Companies; Customer services; Customers; Dependence; Dependency; Financial performance; Industrial Economics and Management; Industriell ekonomi och organisation; Loss of control; Manufacturing; Market strategy; Markets; Open business models; Outcome-based contracts; Penalties; Portfolios; Reliance; Service innovation; Service market strategy; Servitization; Software industry; Strategy; Suppliers; Uncertainty; Value creation
• ISSN: 0166-4972; 1879-2383; 1879-2383
• DOI: 10.1016/j.technovation.2018.02.003

Firms in a variety of manufacturing sectors as well as the software industry have increasingly embraced services alongside their product portfolios in order to improve financial performance. Yet, the key question “How do service market strategy change and the accompanying business model change interact, and how does their interplay affect value creation?” remains open. Relying on twelve case studies of firms that have shifted towards providing highly advanced services (e.g. outcome-based contracts), theoretical propositions concerning the interplay of market strategy and business model on value creation are derived. The firms studied report two interdependent changes: first, they evolve the market strategy from provision of pure products to provision of services and then outcomes, in order to achieve a better fit with customer needs and to grow their service businesses. Second, they rely increasingly on partners and suppliers to provide new activities that are outside their competence base. This 'open business model' allows them to grow their new service businesses effectively and efficiently. At the same time, however, the shift to a service market strategy requires enhanced accountability to customers and increases the threat of penalties in the case of failure, while reliance on partners and suppliers leads to loss of control over the activity system and increases the threat of failure due to third party dependency. Thus, this paper finds that the success of firms that shift to services and outcomes hinges on their ability to balance the trade-off between increased value (i.e. growth, efficiency and effectiveness) and increased uncertainty associated with service market strategy/open business model interplay. •Study illustrates how changes in the market strategy and the underlying changes in the business model jointly create value.•Study presents 12 case studies of product providers that shifted to providing highly sophisticated services – outcome-based contracts.•The firms studied report two interdependent changes: first, they evolve the market strategy from provision of pure products to provision of services and then outcomes, in order to achieve a better fit with customer needs and to grow their service businesses. Second, they rely increasingly on partners and suppliers to provide new activities that are outside their competence base.•Outcome market strategy demands enhanced accountability to customers while opening up the business model leads to lo