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03/10/11 Service Modularity and Business Model Design of ICT-‐intensive Services Virpi Kris=ina Tuunainena , Risto Rajalaa and Harold Cassabb aAalto University School of Economics, Finland bThe University of Auckland Business School, New ZealandCambridge Service Week, Cambridge, UK, 22-‐23 September, 2011 Service modularity and organiza=onal performance: Gaps in theory and prac=ce Theoretical gap: feasibility and appropriateness of modularity in service business model design Managerial gap: impact of service design on the performance of the organization Research needed on: the link between strategies, modular business model designs, and performance of service organizations 1
03/10/11 Aims of the study • Examine the key variables of modular service design, parHcularly in the case of ICT-‐intensive services – Literature on modularity in markeHng, organizaHon science, service research, innovaHon research, informaHon systems science, soNware engineering, … • Study the relaHonship or link between service business model modularity and innovaHon strategy approaches • Contribute to the understanding of how service modularity is linked with service providers producHvity Research process • based on a review of the relevant literature, idenHfy the relevant constructs and the business model design elements for ICT-‐intensive services • iniHal conceptual framework and research model for invesHgaHng service modularity of ICT-‐intensive services • empirical, qualitaHve inquiry among several ICT service providers • research model reﬁnement and hypotheses generaHon • model and hypotheses tesHng with quanHtaHve survey data 2
03/10/11 (Ini=al) model constructs: • independent variables: – service innova=on strategy types (2 constructs: exploraHve and exploitaHve approaches to service innovaHon) – rela=onships: the customer, intra-‐organizaHonal and inter-‐ organizaHonal collaboraHon (2 constructs: type of customer relaHonship; level of networking) • intermediary variables: – business model design elements (3 constructs: oﬀering, resources, and revenue model); • dependent variables: – organiza=onal performance measures (2 constructs: cost-‐oriented and revenue-‐oriented performance) Business model design • the oﬀering: service components, value proposiHon, soluHon concept user experience ‒ e.g. cloud services, travel • resources: capabiliHes and assets in the service operaHon system, processes, knowledge, socio-‐technical network, organizaHon ‒ internal resources (technological, ﬁnancial, knowledge, organizaHonal,…) ‒ external resources (customers, partners, …) • revenue model: pricing, revenue management, service bundling ‒ modularity vs. bundle ‒ one or two (or many) sided markets ‒ network eﬀects (same-‐and cross side) ‒ subsidizaHon 3
03/10/11 Customer rela=onship as the context for oﬀering TYPE OF SERVICE Contingent Customized Standard Mass Relationship Delivery Contract Transaction Internal Production Hierarchy costs Service Technological Agent or innovation Alliance TYPE OF CHANNEL Self Service Field Personnel Social Open Innovation Automation Network Transaction and quality costs (adapted from Vepsäläinen & Apte, 1987) Diﬀerent strategic approaches exploitation exploration innovation strategy closed innovation open innovation focus profit focus cost reduction revenue expansion quality focus internal external quality measures defect rate customer satisfaction/retention operational focus standardization customization service goal service uniformity customer proximity organizational focus existing organization; new internal processes; operations, accounting marketing, human resources, research and development typical improvement maximize efficiency to reduce service innovation to increase initiative costs customer convenience example application a customer information system improved platform to enable that resulted in shorter hospital customer access to on- stays and reduced operating demand video streams costs (Lehig Valley Hospital) (Netflix) (adapted from Rust et al. 2002; Broring&Herzog, 2008; Rajala, 2009) 4
03/10/11 Preliminary insights • Premises of modularity are conHngent on the type of service innovaHon strategy (i.e., exploraHve or exploitaHve orientaHon) • Beneﬁts of modularity seem to be linked with diﬀerent business model elements, depending of strategic orientaHon • InnovaHon strategy in ICT-‐intensive services: choice of approach or ambidexterity? – balance between exploraHve and exploitaHve orieantaHons – balance of open and closed innovaHon approaches Insights for the London Borough ofSuttonThe framework usable in the considerations of:• developing and agreeing on the definitions of the core-, non-core and group-based ICT service• identifying the essential elements of the ICT service (in regard to the desired service level)• considering alternative models of ICT service delivery such as shared service provision and outsourcing• assessing the interactions, relationships, identities and structures of the ICT service to increase the understanding on how do they impact on what needs to be achieved 5
03/10/11 Thank you! Professor Virpi Kristiina Tuunainen, Directorvirpi.email@example.com, +358 50 589 7541Dr. Risto Rajala, Research Directorristo.firstname.lastname@example.org, +358 40 353 8140Aalto Service Factoryservicefactory.aalto.fi 6