Revenue model innovations for competitive product-service systems : overcoming the service paradox

• Erlösmodell-Innovationen für wettbewerbsfähige Produkt-Service-Systeme : Überwindung des Service Paradox

Kellerhaus, Sascha Michael; Piller, Frank Thomas (Thesis advisor); Paluch, Stefanie (Thesis advisor)

Aachen (2023)
Dissertation / PhD Thesis

Dissertation, Rheinisch-Westfälische Technische Hochschule Aachen, 2023

Abstract

The fourth industrial revolution ("Industry 4.0") is in full swing. Gaining momentum over the past decade, manufacturing firms understand the potential of digitization for the industry. The digitization trend come upon the longstanding journey of servitization. Together, they also go hand-in-hand, as service-dominant value propositions are required for realizing values of digital technologies. With this drive, firms aim for strategies towards new service-driven business model, leverage the technological and also the commercial potential of digitization-driven innovations. Traditionally applied by product-dominant manufacturing firms, the digitization is fostering again interest in product-service systems (PSS) by merging traditional product components with digital services in an integrated manner. Thus, the well adopted servitization approach of PSS is revitalizing with new customer value packages by PSS business model innovations. Firms understand that following this transformation path towards digitization and servitization is essential for generating new customer value and thus for staying competitive. While best practices of PSS business models show up higher profitability by monetizing the value created, a lot of firms are struggling with being economically successful with their service offerings. They have problems capturing the value created. This effect of unsatisfying business with service-oriented, PSS business models is discussed as the ‘service paradox’ in literature. One reason of the service paradox is driven by the fact that the customer value creation and the related way of collaboration between the provider and the customer with services changing in contrast to hardware sales. It is taking place also beyond the transaction in the use phase. Along with that the value capture should cover this use-orientation. But most unsuccessful firms still sell on a transactional base, thus not monetizing the value creation in the use-phase. Successful providers show a greater focus on the value capture in the use-phase. Thus, they take seriously the critical role of a suitable revenue model and drive the success of their PSS business model revenue model innovations (RMI). Literature shows up a lack of insights and implications of RMI for PSS business models, especially as a source of competitive advantage. Although the literature on PSS has created a profound understanding of practical relevance towards service-dominant value propositions, research lacks knowledge on the role of RMI for PSS value capture and customer value creation for competitive advantage. The service school states that PSS business models need new relational processes between the actors that go beyond typical financial and physical transactions. However, the criticality of an suitable revenue model to face these relational changes still seems to be poorly understood. With this research, I aim for knowledge about the role of RMI for PSS business model success and competitiveness. I study the crucial role of RMI for PSS competitiveness by an integrated research approach on PSS value proposition and revenue model innovation. I applied a combination of research methods to cover quantitative but also qualitative data analytics and to answer my research questions towards the goal of my study. Firstly, I present a comprehensive overview of PSS value propositions, which lay the ground for understanding PSS value creation and thus the basis to be captured by revenue models. The findings are clustered in product and service-related value propositions and additional business model-related and intangible value propositions. Secondly, I conduct an explorative analysis on RMI for PSS business models. With an interdisciplinary approach, I analyze marketing, innovation and service literature on revenue models, their insights, characterizations, and applications. I identified 12 applied RMI and differentiate these into product-centric and customer-centric items. Taking the knowledge about PSS and its value creation into account, I derive the RMI and PSS characteristics and present potential RMI options for product-service, use- and result-oriented PSS business models. I summarize my findings by stating seven research propositions of RMI characteristics for capturing PSS-created values. Thirdly, I exercise a multiple case study on successful RMI-driven PSS business models. On the one hand, I create profound insights into the value capture mechanism of RMI within PSS business models. Still, on the other hand, I can explore new insights on the role of RMI concerning value creation. Counter-intuitively to the manifested RMI role of value capture, my results show that RMI for PSS can facilitate additional value creation regarding risk assumption and resource provision. Furthermore, I found out that RMI can create lock-in effects for the provider for upselling options within the usage phase. I backed the insight of my study on the crucial role of RMI from the perspective of the resource-dependence theory (RDT) as a source of competitive advantage. Central to the RDT is the argument that increasing a customer’s dependence on a provider while reducing uncertainty by providing a specific competence is essential to succeed as a PSS provider. I found that the revenue model mechanism within PSS business models facilitates enhanced provider integration into the customer value chain by reducing customer uncertainty and increasing dependencies between PSS providers and customers. Thus, RMI are crucial for customer attraction and the success of the PSS. I summarize these findings by six additional research propositions. I conclude my findings of the analysis and studies under the perspective of the of the RMI role to overcome the service paradox. I am discussing the outcome of RMI for PSS’ competitiveness overall. The RMI facilitates the PSS value creation (uncertainty/risk reductions, resource provision) and, RDT-related, the power balance between providers and customers. This leads to dependence increase on provider and thus a higher bargaining power of the provider and additionally, potential lock-in effects in the use phase. My findings enlarge the view on RMI not being just the mechanism for value capture in business models but also for value creation, facilitating competitiveness overall. My research proposes from the RDT perspective that suitable RMI should be integrated in to PSS business models to reduce uncertainty and increase the dependence to balance the power between PSS providers and their customers to create a joint competitive advantage. The 12 identified RMI options for PSS shall encourage managers to apply options for their product-service, use, or result-oriented PSS aiming for success and competitiveness. Furthermore, my study contributes to the innovation management and marketing literature by explaining the role of RMI in PSS business model success and competitiveness based on resource-dependence theory. Furthermore, it gives theoretical grounding on PSS and its RMI. My research states that RMI have the ability to disrupt PSS business models to overcome the service paradox. My proposed distinct mechanisms of RMI-enabled provider value capture and customer value creation extend the common understanding of business model innovation by RMI. Furthermore, the explored RMI-enabled value creation and capture themes encourage managers to design their RMI for a successful PSS business model.

Institutions

• Chair of Technology and Innovation Management (TIM) [812710]