Industrial manufacturers are innovating their business models by shifting from selling products to selling outcome‐based services, where the provider (manufacturer) guarantees to deliver the performance outcomes of the products and services. This form of business model innovation requires a profound yet little understood shift in how value is created, delivered, and captured. To address this research gap, our study examines two successful and four unsuccessful cases of this shift. We find that effectiveness in business model innovation hinges on the three process phases that unfold in collaboration with the customers: value proposition definition, value provision design, and value‐in‐use delivery. We also find that that success is determined by the alignment of specific value creation and value capture activities in each phase: identifying value creation opportunities—agreeing on value distribution in value proposition definition, designing the value offering—deciding on the profit formula in the value provision design, and finally refining value creation processes—regulating incentive structures in the value‐in‐use delivery. Our process model contributes to the literature and practice on business model innovation by providing a thorough understanding of how alignment of value creation and value capture processes is ensured, whilst paying special attention to their interdependence and the interactions between provider and customer.

Industrial manufacturers increasingly develop digital platforms in the business-to-business (B2B) context. This emergent form of digital platforms requires a profound yet little understood holistic perspective that encompasses the co-evolution of platform architecture, platform services, and platform governance. To address this research gap, our study examines multiple platform sponsors from an industrial manufacturing context. The study demarcates three platform archetypes: product platform, supply chain platform, and platform ecosystem. We argue that each platform archetype involves a gradual development of platform architecture, platform services, and platform governance, which mirror each other. We also find that each platform archetype is characterized by a specific innovation mechanism that contributes to the platform service discovery and expands the platform value. Our study extends the co-evolution perspective of platform ecosystem literature and digital servitization literature.

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Firms in a variety of manufacturing sectors as well as the software industry have increasingly embraced services alongside their product portfolios in order to improve financial performance. Yet, the key question "How do service market strategy change and the accompanying business model change interact, and how does their interplay affect value creation?" remains open. Relying on twelve case studies of firms that have shifted towards providing highly advanced services (e.g. outcome-based contracts), theoretical propositions concerning the interplay of market strategy and business model on value creation are derived. The firms studied report two interdependent changes: first, they evolve the market strategy from provision of pure products to provision of services and then outcomes, in order to achieve a better fit with customer needs and to grow their service businesses. Second, they rely increasingly on partners and suppliers to provide new activities that are outside their competence base. This 'open business model' allows them to grow their new service businesses effectively and efficiently. At the same time, however, the shift to a service market strategy requires enhanced accountability to customers and increases the threat of penalties in the case of failure, while reliance on partners and suppliers leads to loss of control over the activity system and increases the threat of failure due to third party dependency. Thus, this paper finds that the success of firms that shift to services and outcomes hinges on their ability to balance the trade-off between increased value (i.e. growth, efficiency and effectiveness) and increased uncertainty associated with service market strategy/open business model interplay.

PurposeThis study shows various pathways manufacturers can take when embarking on digital servitization (DS) journeys. It builds on the DS and modularity literature to map the strategic trajectories of product–service–software (PSSw) configurations.Design/methodology/approachThe study is exploratory and based on the inductive theory building method. The empirical data were gathered through a workshop with focus groups of 15 servitization manufacturers (with 22 respondents), an on-site workshop (in-depth case study), semi-structured interviews, observations and document study of archival data.FindingsThe DS trajectories are idiosyncratic and dependent on design architectures of PSSw modules, balancing choices between standardization and innovation. The adoption of software systems depends on the maturity of the industry-specific digital ecosystem. Decomposition and integration of PSSw modules facilitate DS transition through business model modularity. Seven testable propositions are presented.Research limitations/implicationsWith the small sample size from different industries and one in-depth case study, generalizing the findings was not possible.Practical implicationsThe mapping exercise is powerful when top management from different functional departments can participate together to share their expertise and achieve consensus. It logs the “states” that the manufacturer undergoes over time.Originality/valueThe Digital Servitization Cube serves as a conceptual framework for manufacturers to systematically map and categorize their current and future PSSw strategies. It bridges the cross-disciplinary theoretical discussion in DS.

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Building on an in-depth study of a manufacturing company’s shift from a product to a product-service business model, we explore how single-focus companies transition to a dual orientation. Although companies generally use highly sophisticated practices to manage a dual orientation, those that transition to one successfully start with less sophisticated practices. Early on, the use of simple tradeoff practices, which maintain the product and service logics, helps single-focus companies explore the emergent tensions that their transition to a dual orientation causes. Conversely, adopting more sophisticated practices at this early stage overwhelms them. At a later stage, these companies’ growing understanding of the tensions allows them to experiment with more comprehensive paradox practices that transcend the product and service logics. Conversely, maintaining simple practices at this stage prevents them from gaining the solution experience required to complete the transition. The evolutionary process culminates in sophisticated routinized practices that institutionalize recurrent tensions’ solution, while allowing for further experimentation to deal with new tensions. The different practices’ appropriate sequence and pacing during the evolutionary process facilitate companies’ transition to a dual orientation.