From Servitization to the Service of
Things
New Business & Economic
Models of the Internet-of-Things from a
Service-Dominant Logic
Approach
Irene Ng
Professor of Marketing & Service Systems
Director, International Institute for Product & Service Innovation
WMG, University of Warwick
Topics of research
• Stuff I usually talk about
• Markets - new video on Wolfson College
Cambridge lecture is out https://
m.youtube.com/watch?
feature=youtu.be&v=2C6slwyHpY4
• Value - too many presentations to count
• Personal data - Google 'HAT' http://
hubofallthings.com
• Things - TODAY
• Service - TODAY
The connected thing
Is more visible (can be discovered)
Allows for actuation (can be controlled)
Is part of a system (can be coordinated)
Is dynamically reconfigurable (can be
contextually useful)
• integrates customer data (can be
personalisable)
…. Implications for the future?
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20 October 2014
Copyright Irene Ng, 2012. All rights reserved.
Internet-of-Things
• Conceptualizations
• Internet-of-Things as Assemblage or
Service System
• Internet-of-Things as Digital
Materiality
• Internet-of-Things as liquification and
density of information resources
• Internet-of-Things as modules,
transactions and service
• Two important drivers for Business Model
Innovation: Digitization and connectivity
Service of Things
• Applying Service Dominant Logic into
Internet of Things
• Time for a recap
Service-Dominant Logic Basics
S-D
Logic
A logic that views service, rather than goods, as
the focus of economic and social exchange
i.e., Service is exchanged for service
Essential Concepts and Components
Service: the application of competences for the
benefit of another entity
Service (singular) is a process—distinct from “services”—
particular types of goods
Shifts primary focus to “operant resources” from
“operand resources”
Sees value as always co-created
Sees goods as appliances for service deliver
Implies all economies are service economies
All businesses are service businesses
Slide Credit: Steve Vargo, Vargo & Lusch 2004, 2008)
SD logic recap
Servitization literature
• Two major strands - traditional and cocreated servitization
Traditional Servitization v Co-created
Servitization (SD logic approach)
• Points of convergence
– Move from traditional transactional exchange
between firm and customer to a longitudinal
relationship centred approach
– Focus on service within a hybird productservice offering
– Customer centricity is important
– Optimally configure resources (human and
material) to enable more effective and
efficient service
Traditional Servitization v Co-created
Servitization
• Points of divergence
– WHERE is value created
• TS: value is created by the firm – main
differentiator is service as value-added activities.
Value is atomistically embedded in both physical
and service created by the firm for the customer’s
use. Customer is passive receiver
• CS: value is created in use by the customer. Firm’s
value is a value proposition to the customer.
Customer is active co-creator of value
Traditional Servitization v Co-created
Servitization
• Points of divergence
– Design of servitized offering
• TS: does not consider the service (and resources)
of the customer. Customer is exogenous, risks must
be managed and accounted for. Product cannot be
redesigned for better fit to service or customer
• CS: customer resource is key in the context of
creating value in use. Able to make information
complete, able to mobilize at lower risks etc. Risk
can be mitigated. Product can be redesigned to
reduce risks of service (scalability & replicability)
and transform servitized offering
Traditional Servitization v Co-created
Servitization
• Points of divergence
– Value co-production and Value co-creation
• TS: Value co-production: Customer’s involvement
in co-producing the service (because value is
created by the firm)
• CS: Value proposition co-production: Customer’s
involvement in co-producing the value proposition.
Value co-creation: Creation of Value-in-use
Traditional Servitization v Co-created
Servitization
• Points of Divergence
– Contextual Variety and Complexity
• TS: complexity – to be managed (since customer is
exogenous to the system)
• CS: contextual variety – dealing with the causes of
variety and to decide level and type of variety to
be absorbed by which resources (firm’s or
customer), co-capability
Traditional Servitization v Co-created
Servitization
• Points of
divergence
– Solutions v
Outcomes
• TS: Solutions are
delivered
• CS: Outcomes are
achieved jointly
through cocapability
When is TS or CS applicable
• TS:
– Existing contracts, operational efficiencies
needed, legacy products, no possibility of
product redesign, contract costs are prized
systemic costs are not important
• CS:
– New contracts, both efficient and effective
operations could be built in, product can be
redesigned/designed, innovation is prized,
overall systemic costs is important
Applying the concept of co-created
servitization to Business Model Innovation
in the Internet-of-Things
The BMI Wheel
Business Model v Business Model
Innovation
• Business Model
– Value creation, value proposition, value ‘capture’/
appropriation
– Rearrangement of components within existing business to
achieve clarity and to analyse weaknesses/strengths
• Business Model Innovation
– Transformative action that innovates on the business model
• Business Model Innovation in Internet-of-Things
– Transformative action that innovates on the business model
taking advantage of Digitization and connectivity
Digitization and Connectivity
• Impact on:
• Value proposition
• Dynamic reconfigurability, information(data)
availability, fit to context
• Value capture
• New transaction boundaries, horizontal
displacement of markets, risk transference across
markets, scalability (hybrid digital and physical)
• Value creation
• New concurrent channels of physical and
information resources, reach and fit to context
BMI Wheel
Embargoed for publication. Please
email Irene for a confidential
copy