Executive summary from product provision to advanced service solutions

1. From product provision to service solutions:
challenges and enablers in servitization
depending on type of Product-Service Systems
Authors:
Andreas Nygårds
Patric Hammar
Executive summary of the master thesis

2. Servitization shift
Product-oriented PSS
(PoPSS)
Use-oriented PSS
(UoPSS)
Result-oriented PSS
(RoPSS)
Product-Service Systems
Pure products
Product sale Product + services Subscription Pay per service
unit
Sell Sell
Repair
Lease Sell copy
$ in exchange for
product
$ in exchange for
outcome of product
$ in exchange for
access to product
$ in exchange for
product + service
Purpose and definition of service types utilized in this master thesis
The purpose of this master thesis is to investigate which challenges a servitizing company are faced with, depending on the type of Product
Service System that is offered. Moreover, the enablers for deploying a servitization strategy is examined. The classification framework of services
used, is presented below.
Executive summary| 1
The following slides will describe the challenges and enablers identified in this master thesis. Each challenge and enabler is categorized according
to the Product-Service System above, which is described by placing the challenge under a specific PSS. For example, the Service Development
challenges are placed under PoPSS, which means that companies offering PoPSS services experience these challenges.
Description of the following slides
Purpose

3. PoPSS
Servitization shift
Service development
Faster development process Scalability
Well-defined SDP
Agile processes
Modularity
Platform thinking
Internet of Things
Reaction to
product status
Integration to IT
systems
Data security
Development team with unrestricted budget
Develop new capabilities
Internet of Things
Scalability Transform data into commercial value
Develop standards
Partnerships
Develop new capabilities and processes
No universal standard Laws and regulations Future communication network
Internet of Things
Update IoT system continuously
Culture
“not invented here” Product oriented mindset
Internal marketing and educating the employees
Internal communication department
Sales process
Sales force competence Customer restrictions Customer maturity
Effective customer communication
Educate customer
Training sales force
Acquire external competence
Business model
Integration of business model BM development Increased risk Internal cannibalization
Develop technical capabilities Collaboration between department
Head of Sales
Adequate pricing methods
Lack of connection
Internet of Things
New target for sales force
Approach higher up in the hierarchy
New competence
Sales process
UoPSS RoPSS
Executive summary of master thesis
Executive summary| 2
Challenge
Enabler

4. PoPSS
Servitization shift
Culture
“not invented here”
Companies experience the syndrome of “not invented here” which means that they are reluctant to
accept solutions that come from external sources, for example from partnerships.
Product oriented mindset
This challenge is mentioned by all companies and refers to the difficulties of changing the mindset
from product orientation to customer orientation. A stronger customer orientation is required from all
department within a company.
To manage this, companies need to communicate within the company why and how the servitiation takes place. Education and training of employees needs to be performed, at all levels in the
organization. If there are resources available, one effective way is to establish a communication department whose purpose is to communication strategic changes, such as servitzation.
UoPSS RoPSS
Executive summary of master thesis
Sales process
Sales force competence
Selling products and services is very different.
When selling products price, volume, and mixes
are negotiated. However, when selling services
a value and a solution is offered. Thus, value
selling competences for the sales force are
needed.
Customer restrictions
In some cases customers have
restrictions, for example policies,
that prohibits them from purchasing
advanced services.
Customer maturity
Some customers find it difficult to
understand the value of the new
services. That is, for example, that they
are unable to understand the TCO.
In order to overcome these challenges, effective customer communication is
essential. Furthermore, the service provider needs to educate the customer to
understand the value of the new offerings.One approach to manage this is to train the
existing sales force in the new way of selling. A
second approach is to transform employees
within the organization that previously had no
sales responsibility to also include sales in their
work tasks. For example, technicians and service
personnel. A third approach is to acquire
external sales personnel with previous
experience in value selling.
New target for sales force
Ordinary procurement departments is not used to or are
incapable of managing advanced service offerings.
Approaching the customer organization higher up in the
hierarchy is a way to manage this challenge. To a person that
has authority to take decisions that has a strategic impact on
the organization.
Sales process
Service development
Faster development process
The development cycles for
products are longer compared
to the development cycles of
services. Thus, integrating those
becomes problematic.
Scalability
Offering services require a
higher degree of
customization for each
customer. Hence,
scalability become an issue
when offering services.
To manage this a new service
development process needs to be
developed and defined. The new
process needs to be agile.
To enable customization and at
the same time making the
solution scalable,
modularization and platform
thinking is beneficial when
developing the offerings.
Challenge
Enabler
Executive summary| 3

5. PoPSS
Servitization shift
Internet of Things
Reaction to product status
The IoT systems needs to be up and running 24/7 and be able
to react to the status of the product.
Integration to IT systems
The integration of the IoT system into customers’ IT system can
be difficult.
Data security
Securely managing the data that is generated from the IoT
systems is challenging.
New technical capabilities needs to be developed.
Internet of Things
Scalability
Developing IoT system in small scale is for many companies
manageable, but when scaling the IoT systems problems occur.
Transform data into commercial value
The challenge is to transform the data that is generated from the
IoT systems to insights that has a commercial value.
To manage this, development of standards can be beneficial.
Furthermore, to establish partnerships with partners with existing
solutions that is integrable into existing systems can overcome
this challenge.
To manage this new capabilities and processes needs to be
developed. Processes to gather, analyze, and interpret data needs
to be developed in order to derive actionable insights.
No universal standard
There is no universal standards for IoT systems which becomes
problematic when developing and integrating IoT systems.
Laws and regulations
New laws and regulations are established continuously which
companies needs to consider when developing and building IoT
systems.
Future communication network
The wireless network technology that the IoT systems utilizes to
communicate needs to be in use several years into the future or
the IoT systems will stop to function.
Internet of Things
To manage these challenges the IoT systems needs to be updated continuously to comply with new laws and regulations as well as to function with the future communication network.
Lack of connection at customer site
When offering advanced services it is fundamental that the IoT
systems are up and running 24/7, otherwise the business model
will fail. Thus, loosing network connection at customer site can
have severe consequences on the business.
Internet of Things
UoPSS RoPSS
Executive summary of master thesis
Challenge
Enabler
Executive summary| 4

6. PoPSS
Servitization shift
Business model
Integration of business model
When offering advanced
services integrating recurring
revenues into the existing ERP
systems becomes
problematic.
BM development
Offering UoPSS or RoPSS
requires that new business
models are developed.
Companies without
experience in this field may
find it difficult.
Increased risk
Offering advanced
services implies higher risk
since a promise is made to
the customer that the
product will be up and
running. If the product
breaks down often the
profit will decrease or
become negative.
Internal cannibalization
New advanced service offering
can cannibalize the traditional
product sales since the product is
sold as a service.
To manage this new technical
capabilities needs to be
developed. Updating the ERP
systems is also necessary.
To overcome this challenge,
collaboration between
departments is essential.
Deploying a person that is
responsible for both service sales
and product sales may also
overcome this challenge. That
person is then concerned with
the sales as a whole and not
product vs. services.
To manage this, adequate
pricing methods needs to
be developed. The
increased risk needs to be
considered when pricing
the offer.
UoPSS RoPSS
Executive summary of master thesis
Executive summary| 5
Business model
Pricing
When starting to offer services it is difficult to know how to
price them. Different customers experience different benefits,
which makes it even more difficult since the pricing needs to
be based on the value perceived by the customer.
To manage this new capabilities in value based pricing needs
to be developed and/or acquired. Furthermore, pilot projects
to test the customers willingness to pay can be suitable.
Challenge
Enabler