Developing Viable ‘Value Co-Creating’ Systems Models for Service Transformation
Prof. Irene Ng
Service Transformation is the journey of the service provider from selling exchangeable offerings to
an outcome-focused co-creator of value with the customer. For an established organisation, the
move to being an excellent service and manufacturing firm can be a difficult one, involving
unnecessary cost and risk. Indeed, up to 57% of businesses see lower profits from ‘adding’ services.
Underlying these problems is that the capability of a manufacturing firm is fundamentally different
from the capability of a service firm, from the way the firm delivers its core value proposition to the
way the entire firm is configured and coordinated for a hybrid value proposition of manufacturing
and service, therefore creating problems in the viability of the provider system. The Viable Systems
Model (VSM) describes the necessary conditions for viability. Viability is defined as the ability to
maintain an independent existence within a specified environment. In business, a firm that is viable
is able to obtain funding or revenues for its offerings such that it is above the cost of delivering such
offerings.
The VSM is made out of five subsystems/elements:
1) Primary activity (part of key transformation)
2) Regulation/Tactical – interface between 3 and 1
3) Operations planning and control /audit – rules, resources, rights, responsibilities – interface
between 4/5 and 1/2
4) Management (and R&D), strategy, environment scanning (for adaptability) and
5) Policy (decisions to maintain entity, balance demands from all parts, steer the organisation)
It has been argued that the move to service is therefore the re-specification of system 1 of the
service provider, the boundary between the customer and the service provider and the
corresponding system 2,3,4,5 and homeostats supporting the change of the service provider’s value
proposition from selling exchangeable offerings to contribution to value creating activities towards
value-in-use.
Through the investigation of three Business-to-Business service contracts, this project will
empirically investigate the transformation of the organization from a manufacturer into a serviceoriented firm able to co-create value with the customer. VSM will provide a framework and guidance
to: (1) visualize the traditional manufacturer system model, including subsystems 1,2,3,4 and 5 (2)
visualize the potential future state of the organization’s value co-creating service system model,
including subsystems 1,2,3,4 and 5; and (3) analyse and assess the factors affecting viability of the
system transformation.