This document summarizes a presentation on identifying the most competitive combinations for product-service system (PSS) business models. It discusses: - The three main types of PSS models: product-oriented, use-oriented, and result-oriented. - The risks and opportunities of servitization, including adding value through services but also the difficulty of success. - Using criteria to evaluate which party (customer or supplier) is best positioned to provide different benefits based on their knowledge, costs, resources, ability to coordinate, trust levels, and risk/quality control needs. - The conclusion that companies should explore different business models, with more complete solutions like PSS potentially best when the supplier has advantages, but sometimes leaving

1. 3rd International Conference on Business Servitization
Bilbao, 13-14 November 2014
A step forward in the criteria for the inclusion
of services in the business model of the
company: Is the specialization between the
customer and supplier contrary to PSS?
Inmaculada Freije Obregón,
Deusto Business School,
ifreije@deusto.es

2. 3rd International Conference on Business Servitization
Bilbao, 13-14 November 2014
Agenda
• PSS: Product-Service Systems, types.
• PSS: risks and opportunities
• Value propositions as combinations of benefits and
tradeoffs
• Criteria to identify the most competitive combination
• Conclusions
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3. 3rd International Conference on Business Servitization
Bilbao, 13-14 November 2014
• Servitization is about Adding value to a company´s offering through the
inclusion of services and intagible services.
Source: Baines et al. 2007
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• PSS: Integrate products and services in a single offering. 3 types (Baines et
al 2006):
 Product-oriented PSS: adding services to the product such as
maintenance, training and consulting for a better use, recycling,…
 Use-oriented PSS : The product is not
sold to the customer but the use or
availability of it. (e.g. leasing, sharing,…).
 Result-oriented PSS: What is sold is the
capability or the result (e.g. packaged
products, laundered clothes,…)
Product-Service Systems: Types

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Bilbao, 13-14 November 2014
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PSS: risks and opportunities
• Servitization is the consequence of a developed and more complex
competitive world where companies look for new ways to add value to
their customers as a way to develop new income sources as well to protect
their markets.
• Frequently as it implies going downstream in the value chain, there will be
more opportunities to add value, through offering knowledge intensive
services.
• Less likely to be overcome by low-cost producers as usually requires
proximity and trust. And imply long-term relationships.
• The competitive advantages achieved could be more sustainable as long as
it implies a new business model mainly if there are clear tradeoffs.
• But it is also difficult and risky: only 1 in 5 are successful in servitization
process. As any other strategic movement it is very risky.

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Bilbao, 13-14 November 2014
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Value propositions as combinations of
benefits and tradeoffs
• Propositions are combinations of benefits (not only services) and tradeoffs
that are offered to the customer in competition with offerings of a similar
or different nature from other sources.
• However is not solely a matter of adding. Sometimes it may be more
effective to leave certain aspects to the customers to fulfill by themselves.
(e.g.: IKEA) and not only for cost reasons but also for better customization.
• Enviroment evolution open new opportunities: internet, social networks,
etc.
• These combinations are the basis of the business model.
• What is the most competitive combination, for the targeted market, from
the perspective of customers?

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Bilbao, 13-14 November 2014
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Extent of distribution of benefits between
supplier and customer:
Value propositions as combinations of
benefits and tradeoffs
PSS

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Bilbao, 13-14 November 2014
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Criteria to identify the most competitive
combination
• Criteria:
1. Who has the best knowledge and specific technologies domain?
2. Who has the best ratio of costs and productivity?
3. Who has greater availability of the resources required?
4. Are there any difficulties for coordinating benefits between
customer and provider?
5. How important and difficult is the trust between agents?
6. Are there significant risks arising from the loss of uniformity in quality
7. Does client appreciate participation or the potential individualized
results ?

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Bilbao, 13-14 November 2014
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Criteria to identify the most competitive
combination
1. Knowledge and specific technologies domain.
• Customer and providers have different capabilities and knowledge.
• Proximity could be a cause of different knowledge between the
parties.
• Customers usually have better knowledge about their specific needs
and the context of use
• Producers usually have better knowledge about the solution itself.
Type of improvement provided by
innovation
Innovation developed by:
%Users Users Manufacturers Total
New functional capability 82% 14 3 17
Sensitivity, resolution or accuracy
improvement
48% 11 12 23
Convenience or reliability
improvement
13% 3 21 24
Source: Riggs and Von Hippel (1994)

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Bilbao, 13-14 November 2014
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Criteria to identify the most competitive
combination
• SPSS could be more adequate when customers do not have better
knowledge o tecnologic domain above the provider.
• If so, participation of customer should be considered:
• In designing the SPSS-
• In adapting the service to their specific needs.

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Bilbao, 13-14 November 2014
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Criteria to identify the most competitive
combination
2. Costs and productivity
The best final cost will be achieved if each party is responsible for the
part in which they have better costs, e.g. because of proximity or
because they are located in a low cost country.
SPSS could be more adequate when customers do not have better
costs or productivity comparing provider.
3. Resources availability.
Usually providers are in better conditions because of critical mass.
Specialization between customer and provider will be based in the
customer resource availability and their appreciation of their
conditions.
Sometimes again the specialisation is mainly necessary when defining
the project.

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Bilbao, 13-14 November 2014
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Criteria to identify the most competitive
combination
4. Are there any difficulties for coordinating benefits between
customer and provider?
• If the fit is difficult to achieve and implies new activities there
will be an opportunity for more complete offerings
• If benefits are very easy to integrate there could be opportunities
for new offering definitions
5. The difficulty and importance of trust between agents.
• Trust in provider capabilities.
• Trust in provider behavior: mantaining the quality and not taking
advantage in their own interest.
SPSS requires enough trust about important benefits.

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Criteria to identify the most competitive
combination
6. Are there significant risks arising from the loss of uniformity in quality
• When there is a risk in overall image without discriminating the
specific causes.
• When the discrimination is very difficult, not clear at all or
impossible.
A more complete offering can be valuable.
7. Does client appreciate participation or the potential individualized
results ?
Apart from the effects in product conditions: price, etc. participation
itself can be worthy:
• Less time-consuming, better choice.
• Enjoyment, learning, reputation, …

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Conclusions
Consequently, companies should explore the different business models so
as to chose the most competitive and sustainable one.
• A more complete offering, like SPSS, can be the right option if the provider
can attain better knowledge and technology domain, cost and productivity
or resource availability or if customer is not interested in devoting efforts
to certain activities, or if benefits are difficult to link o there are risks
arising from the participation of different agents..
• However, sometimes the most worthy and competitive combination will
require to leave some of these benefits to customers to develop by
themselves, if customers are better positioned or appreciate the effects of
their participation o the resulted customization.

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