Short service stories: Transforming a product into a service offering

© SAP AG, Barbara Flügge Page 1 of 19
Short Service Stories: «How consumers and businesses tell us about what we should offer next»
- About Servitization: Transforming a product into a service offering -

Abstract
This paper is the starting point for the Short Service Story series. It is about introducing how to serve customers and businesses better, setting a clearer focus
on business services rather than be tied into a product-solely offering attitude. Servitization is a term that summarizes the trend of service orientation and
spans the relevant steps from service design, validation, execution towards evaluation and re-design. Successful businesses execute Servitization within their
company strategy. It is not only the execution as such but guiding their organization from within towards their ecosystem of business partners, customers, and
influencers.
The Short Service Story series is comprised of method and example driven descriptions how to tackle Servitization in distinct business environments, being a
small or large enterprise, residing in one or many business networks, targeting one industry or operating cross industry sectors locally, within a region or
globally. Insights are given in a comprehensive manner to easily coach the audience in performing Servitization related activities and projects on its own.
Each Short Service Story covers one specific viewpoint or topic. The Stories are being posted on the Service Store website.
For further requests, please direct your questions to Barbara Flügge (b.fluegge@sap.com). We welcome your feedback and comments! Thank You!
Keywords: Servitization, Business Services, Services, Business Network, Social Business Networks, Communities

Table of Content Page
1. The Service Business … 4
2. Our Approach, Terms and Definitions … 6
2.1 The Background Work … 6
2.2 Terms and Definitions … 6
3. Framing the Opportunity for Serving Better … 10
3.1 The 7 Trends … 10
3.2 Trend #1: Market Growth by Services Continues … 11
4. Insights: From being a Private Consumer to turning into a Business Customer ... 15
5. Outlook: Realizing the Opportunity for Serving Better in 3 Steps … 18
References … 19

1. The Service Business
Why services? Services can accelerate an organization’s business or if weakly carried out diminish its value proposed to the consumers. Examples of services
are manifold and once reflected upon you might like to add many more examples to the collection below (Figure 1).
Figure 1: Kaleidoscope of Services
We undertook a number of efforts to reflect an utmost authentic picture of the service industry needs. This included research activities to investigate the
economic situation of the services industry in various countries, locally as well as internationally, the review of publications and white papers. Our activities
covered more than forty interviews and workshops. We worked with experts and representatives from the service industry, academia and the information and
communication technology industry. These interactions followed the stages of a service lifecycle that includes service exploration, design, description, pricing,
deployment, and customer insights in service application. We have been conducting service related ideation projects by which we analysed and challenged the
nature of present and future services for a specific need. Hereby the need could be motivated by being a business partner-led or customer-related interaction
with the service provider. The ideation projects resulted in the design of a service lifecycle. Similar to a product, a service passes several stages from market
introduction towards phase-out, from design to evaluation and from test to deployment.

Services target distinct audiences such as the individual consumer and the decision maker in an organization. The organization might have a dedicated focus on
services or starts to becoming involved in the services business. The followers of the Short Service Stories will find useful hints to industry, geography, and
enterprise size. If not outlined differently, most of the hints are applicable to any industry, geography or enterprise size.

2. Our Approach
2.1 The Background Work
Being thankful to vital discussions we worked with representatives from our own organization and other organizations, for individuals and influencers. This
book would not have been possible without their contributions and many others: our partners from the Business Web initiative, the colleagues and business
partners from the THESEUS research initiative, our colleagues from industry, solution management, and business units within SAP, and internal as well as
external subject matter experts we engaged with. Furthermore, a big thank you goes to the early adopters of our methods and service provisioning approach.
Overall there has been a lead time of nearly three years. The findings we present here are a result of more than thirty workshops and more than fifty
interviews, and our very own ideation iterations in Services. As Service Enthusiasts we sharpened our ideas, findings and viewpoints in numerous discussion
rounds with colleagues and peers. The elaborations and review cycles we applied followed what researchers refer to as double-loop learning. Where
appropriate a detailing of each of the individual steps we conducted is being revealed. Where adjustments and findings differed radically from the single loop,
those will be outlined clearly in the relevant chapters of the forthcoming publications.
2.2 Terms and Definitions
Concerning terms and definitions we provide a glossary of terms in each of the Short Service Stories.
With respect to the term Service we are very much aware of the multiple definitions and notions that are applicable and in use. Please find an extract of
comments we received concerning what a Service is and does.
(a) Users do not always watch out for a service explicitly, but simply anticipate it to happen. An airline that stopped the handout of magazines and newspapers
in the airplane is offering them on the ground in the waiting halls – for free.
(b) A Service is a unique or repetitive add-on in a pre-defined value chain. Repetition is perceived a characteristic that once ordering the Service multiple times
the outcome remains unchanged. Regardless the numbers of use the Service is performing as originally outlined and remains consistent.
(c) A Service is seen as fulfilling a duty, thus resolving an actual problem or fulfilling a task that needs to be done.

(d) A Service could replace an internally performed activity and being outsourced to an external Service provider
(e) The purchase of a Service turns into a business result, regardless a free-of-charge or fee-based offering. What the respondents refer to is the aspect of a
business transaction the service provider and the service consumer negotiated between each other with a desired outcome. Being of commercial or qualitative
nature the transaction would not have advanced as such without the service delivered. On the contrary, a misleading or malfunctioning service delivery would
ask for the revisiting of service level agreements and other terms and conditions that become part.
The definition of Service we apply in our publications is as follows:
o Service
A service is a value-based transaction, being of economic or qualitative nature where one party has temporary access to resources of another
party in order to perform a defined function (cf. Grubel 1987, Terzidis 2010).1
This “does not principally involve supplying a good […] It is to place a bundle of capabilities and competences (human, technological,
organisational) at the disposal of a client and to organize a solution” (Gadrey et al. 1995)2
.
Consequently in comparison with goods, information technology-driven handling, trading and distribution of services need to cope with the following
aspects:
Services are immaterial, if not intangible unless a service gets an image.
Services are dedicated to one consumer, thus transferability remains a challenge.
Services require a lead time prior to their execution; that is effort and cost intense.
Services are accessible at the time of the demand unless we find ways to store services.
1
See http://www.eirma.org/sites/www.eirma.org/files/doc/members/repsrt/rrt11/BarbaraFluegge_SAP.pdf/noproxy, as well as
http://servicewave.eu/2010/files/2011/01/ServiceWave2010_14th_terzidis.pdf and Grubel’s definition (1987) where “…a service is an economic transaction between two agents which leads to a
change in the condition of a person or a good…”
2
Gadrey, J., Gallouj, F. & Weinstein, O. (1995). New modes of innovation. How services benefit industry. International Journal of Service Industry Management, 6(3), 4–16.

o Servitization
Servitization is the process of analysis, design and deployment of services and apps that are being proposed to customers and prospects and
launched by a service provider and / or business partners in a Store-like environment (e.g. the SAP Store).
o Business Network Assessments, Business Networks, and Social Business Networks and Communities
The activities in Business Networks comprise the analysis, design and institutionalization of sophisticated business and consumer steered
relationships between ADPC and their business partners and customers and among business partners and customers.
A Business Network is composed of distinct actors at different levels and the connectivity among the actors. Connectivity results from the
business related and business relevant interactions that actors exchange among themselves partly, entirely, or on a bilateral basis.
A Business Network turns into a Social Business Network (henceforth: Community) once a social interest is being identified among the
participating actors.
From our point of view, well-functioning Business Networks emphasize the relevance of any business-related, supporting and social interaction among actors.
Furthermore, they urge the relevance of legitimacy in case of business and contractual-imposed (regulation-imposed) institutional forces. Examples of
institutional forces are trade agreements, sales contracts or shipping agreements.

o The double-loop3
looks as follows:
Figure 2: Double-loop and learning from the Double-loop (own graphic)
3
Source: Double-loop learning was introduced by Chris Argyris and is considered being part of the Theory of Action. For further references see Argyris, Chris (1976).Single-Loop and Double-Loop
Models in Research on Decision Making in Administrative Science Quarterly, Vol. 21, No. 3 (Sep., 1976), pp. 363-375, published by: Johnson Graduate School of Management, Cornell University.
See also http://www.instructionaldesign.org/theories/double-loop.html. See also Argyris, Chris (1982). The Executive Mind and Double-Loop Learning. In Organizational Dynamics, Autumn 1982.
© 1982, AWCOM Periodicals Division, American Management Associations.
http://www.monitor.com/MENA/Portals/0/MonitorContent/imported/MonitorUnitedStates/Articles/PDFs/Monitor_Organizational_Dynamics.pdf

3. Framing the Opportunity for Serving Better
3.1 The 7 Trends
Driven by our research activities, we claim 7 Trends that build the fundament about the increasing role of services for businesses. The 7 Trends are as follows:
Trend #1 Market Growth by Services continues
Trend #2 Anything-as-a-Service is in focus
Trend #3 Geographical Decoupling is needed to grow in the Services sector
Trend #4 Electronification of Service Ordering is advancing
Trend #5 Business Transformations are required to leverage the Services potential
Trend #6 Enterprises’ and Consumers’ Mobility increases
Trend #7 Mature Information Technology awaits Intelligent Content
In the subsequent Short Service Stories we will get back and introduce Trend by Trend. Concerning #1 please find a detailed capture in the following chapter.

3.2 Trend #1: Market Growth by Services Continues
Market studies reveal a greater interest in and economical role of services to organizations than before. It is on the one hand the projected economic outcome
of Service delivery compared to Product sales. On the other hand the perceived ease of delivery execution compared to product installation let the number of
Service offerings grow.
In the following we are highlighting the key findings of the most relevant market studies. The World Trade Organization (WTO) compared services related to
world transportation in the year 1995 to the year 2006. Part of the argument of the rise of sea transport to 43 per cent and the moderate increase to 7 per cent
for airborne freight in 2006 concerned the increasing fuel costs that hit especially the airborne freight business. Another part of the argument takes into
account the increasing demand for export services such as export declaration processing, safety and security scheduling, monitoring where possible the
estimate time of arrival to be as precise as possible. Hereby, the WTO denotes developed markets such as the European Union that contribute to a large extent
to commercial services enablement. WTO distinguishes business, professional and technical services. Business services are legal, management and advertising
services. Engineering and consultancy services refer to technical as well as management services.
Investigated and published by the European Services Forum, the financial value of exported services from European Union labour forces reached not less than
440 Billion Euros and an overall trade surplus of 65 Billion Euros. More than 140 Million jobs have been created in the European Union Members States by the
services business. The contribution of services reached a nine Trillion Euro for the total of the gross domestic products of the European Union Member States.
Figure 3: Services in the European Union (EU)

Service relevance has been estimated for local markets such as Germany4
as well from an international perspective. As outlined in the subsequent Figure the
structural share of the gross domestic product of Germany indicates the emerging role of the services sector compared to the manufacturing and product-
oriented sectors. The chart is to be read as follows: the segment service industry is composed of the contributions of the public and private service provider
sector, finance, leasing and business services, the commerce, hotel and restaurant as well as the transport sector. The segment product industry is comprised
of those sectors that make accountable for building, agricultural, fishery and forestry related contributions as well as the outcome of the overall industry
related (note: mainly manufacturing) sector.
In 2009 the services business, 24.1% of which by service providers, 31.1% of which by financial and real-estate services, and partly 17.5% of which trade and
traffic management related services, contributed two third to the gross domestic product of Germany than the product manufacturing (22.2%), the
construction (4.3%) and the agricultural industries.
4
Sources: Statistical Yearbook 2010 for the Federal Republic of Germany, Office for German (check Statistisches Bundesamt, 2010)

Figure 4: Industry Segments Composing the Gross Domestic Product (GDP) of Germany from 1991 and 2009

A recent study issued by German Ministry of Economics and Technology5
in late 2010 confirms the relevance of services to enterprises. Furthermore, it outlines
the baseline to meet the projected growth potential for services. It is based mainly on the use of information technology and launching web-based services
where possible. The study argues the relevance of services for businesses with the increasing demand for cloud computing services.
The projected value of web-based services is argued as follows: „[…] Yet the revenue volume that has been estimated for public cloud-based offerings that
target publicly tradable services in the Internet of Services reached in the year 2010 only around 650 Million Euro, not more than zero point six percent (0.6%)
of the overall spend for information technology in Germany. However, in the upcoming years the market for cloud computing offerings will be massively
increasing and reaching till the year 2025 a revenue volume of twenty Billion Euro. Moreover, an additional revenue potential of one point six (1.6) Billion Euro
in the year 2025 is being forecasted for service related project activities benefiting information and communication technology (ICT) providers and service
providers. Service related project activities encompass consulting, service integration and deployment tasks, the development of cloud-based offerings as well
as enabling cloud-based offering for service providers and consumers. […]”6
.
The study elaborates further that “[…] the above stated forecast does not include the revenue forecast for private cloud computing initiatives. Hereby the
market potential is according to the German Ministry of Economics and Technology two and a half times higher than the one for public cloud computing and
public cloud-based offerings. The revenue potential estimated is between two and three Billion Euros. […] Moreover, combining public and private cloud-based
offerings the forecasted revenue potential will be around thirty Billion Euros in 2025. […]”7
.
5
Source: Das wirtschaftliche Potenzial des Internet der Dienste (Autorenschaft: Berlecon Research, International Business School of Service Management (ISS), Zentrum für Europäische
Wirtschaftsforschung (ZEW) und Pierre Audoin Consultants (PAC) im Auftrag des Bundesministeriums für Wirtschaft und Technologie (BMWi), Berlin, 10/2010)
6
Source: ibid, translated from German into English. The original citation can be found in ibid, page 57.
7
Source: ibid, translated from German into English. The original citation can be found in ibid, page 58.

4. Insights: From being a Private Consumer to turning into a Business Customer
The hype around app stores that target mainly consumer and privately used apps will sustain undoubtedly. This trend allowed us to take a closer look into what
might be working well for business relevant apps and services and what not. The maturing consumer is distinguishing clearly what she or he is looking for.
Attributes such as gaining flexibility, having a great user experience and receive a well-fitting response to his or her interests drive the decisions for or against
app and service usage. Other key decision drivers are secured transactions that accompany the service consumption and data capture, avoiding paper and
manual handling, and furthermore to connect with like-minded.
What works from a technical and functional perspective in our private consumer environment certainly is expected to work in our daily business activities. The
following examples will span the technical evolvements from private to business consumption.
On the one hand the consumers feel individually targeted by the app offerings. Based on technical enhancements behavior- and being-in-favor-driven analytics
turn into recommendations how to connect, where to link and shop and to who reach out. On the other hand, these personalized offerings should not neglect
the need the consumers have in what we call personal safeguarding measures. One example is the ultimate functioning of a feature such as Evernote8
once it is
being purchased in the store and download to the consumer’s personal device. Another example are the multiple offerings for a QR code scanner that we want
to deploy immediately to capture and order the grocery store offering in the subway station before heading home.
Decision processes in a consumer-context are manifold. Securing our credentials, following of what is being offered by whom, a great user experience and the
offering of a paperless transaction influence our decision for or against the offered functionality. The before-after experience and how the deployment of the
app worked is the human reaction on judging: a great before-after experience turns more likely into a second purchase. The contrary, the malfunctioning or a
misleading offering, causes negative ratings and an in the ultimate stage the de-listing of an app offering.
We asked interviewees for their decision making process in a private, consumer targeted context (see left hand side of the figure below). What is then the
difference from a business user perspective? Assuming the business user, an account executive, purchases Evernote as an accompanying feature, he sees the
8
Source: Evernote is a registered trademark of Evernote Corporation. For further information see http://evernote.com/ .

benefit of capturing notes much more easily, being able to assort them afterwards and recording in the meanwhile the next steps he agreed upon with the
vising company representative. The following illustration sets into relation expectations for private use and expectations that are business related.
Figure 5: Piggy-Backing expectations as consumer and customer for private and business usage
The business user passes his expectations from private consumption to business consumption needs – he piggy-backs his expectations. Why should the app
function worse or better or differently anyway? In our example, the account executive still expects that the user experience is a great one. What is new is that
he expects that the notes he captures will be uploaded immediately, automatically to the customer relationship management information system the company
uses. Did he seek for approval for the purchase? Most likely. Nowadays company policies cover which information systems and apps are to be purchased and
which are not selectable. With the upcoming trend of bring-your-own-device these policies needs to be expanded to better distinguish between business and
private identities of users, business and private consumption needs and which approval processes to be executed by whom and when.

Business users by nature design and deploy safeguarding measures to decide upon whom and which and where to reveal business related credentials and
where to hide it. Business users ask for a governance and compliance framework that is working in any on-premise and on-demand environment. This is not
only the case because of liability reasons and business data that ranges from publicly available to confidential and company-internal data. Publicly available
data are for example financial data issued in annual reports. Confidential data is about giving discrete access to supplier and customers concerning production-
and distribution-relevant delivery notifications. Confidential data refers to secured data in human resources management, credit and debit accounting.
Consequently, any business related offering being a service or an app that leverages the use of the internet or mobile devices will be becoming rated by
business users. The above introduced viewpoints will serve as an overview what needs to be covered in the offering design and what not.

5. Outlook: Realizing the Opportunity for Serving Better in 3 Steps
What is the best way to become ready for Services provisioning? We found a phased approach useful and identified 3 Steps. The 3 Steps allow any organization
turn into a Service Provider. The Three Steps are detailed below and outlined in the subsequent figure:
o Step 1 Analyze: this step refers to the analytical efforts to be made to know which Services you want to offer
o Step 2 Provide and Prepare: this step refers to the preparatory steps to make the Service accessible for Web trade
o Step 3 Offer: this step refers to the activities that are required to sell the Service in a meaningful, commercially sensing and customer relevant manner
Figure 6: 3 Steps from Service Opportunity to Service Offering
Further insights in our approach will be provided in the forthcoming publications.

References
Argyris, Chris (1976).Single-Loop and Double-Loop Models in Research on Decision Making in Administrative Science Quarterly, Vol. 21, No. 3 (Sep., 1976), pp.
363-375, published by: Johnson Graduate School of Management, Cornell University
Argyris, Chris (1982). The Executive Mind and Double-Loop Learning. In Organizational Dynamics, Autumn 1982. © 1982, AWCOM Periodicals Division,
American Management Associations.
http://www.monitor.com/MENA/Portals/0/MonitorContent/imported/MonitorUnitedStates/Articles/PDFs/Monitor_Organizational_Dynamics.pdf
Web References
Double-loop learning: http://www.instructionaldesign.org/theories/double-loop.html
Evernote and Evernote Corporation. For further information see http://evernote.com/

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