The next phase in servitization: transforming integrated solutions into modular solutions

Abstract

Purpose -The purpose of this paper is to identify integrated solutions business as the first generation of servitized offerings and modular solution offerings as the second development phase in servitization of original equipment manufacturers. This study examines how the servitized manufacturer, Kone, moves from integrated solutions to modular solutions business and develops the requisite capabilities to design, produce and implement modular solution offerings. Design/methodology/approach -The paper reports a longitudinal case study of a provider of integrated solutions installed in buildings. During the ten years studied, the manufacturer implemented a strategic initiative to modularize its integrated solutions offering. Findings -The firm's transition to modular solutions progressed through three major capability development phases: solutions based on ad hoc integration, smart solutions based on modular design and through-chain modularity. The modular structure aims at fostering the efficiency of the solution offering and the associated production system. Research limitations/implications -Leveraging the benefits of modularity calls for an aligned combination of strategic, operational and technical capabilities contributing to the integration of resources in a modular production system for the solution providers' competitive performance. Practical implications -The study reports how a solution provider can develop the operational capabilities to integrate the core and peripheral components into the solution, and orchestrate the modular production system. Originality/value -This study is a rare longitudinal analysis of how a manufacturer builds a modular offering, the solution platform and the required competitive capabilities to provide the solution. Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode 630 IJOPM 39,5 full-service offerings (Brax and Jonsson, 2009;Oliva and Kallenberg, 2003). Advanced levels of servitization require demanding competitive capabilities to ensure flexibility, quality and effectiveness in solution provision while controlling costs. A comprehensive systematic review by Brax and Visintin (2017) demonstrates that pre-existing research has extensively documented the processes and patterns of transitions and extensions of manufacturers' business models toward increasing reliance on generating revenue through service elements.Previous servitization research has identified various critical capabilities for the business models of companies providing integrated solutions. Developing operational capabilities into the solution providers' core competencies enhances their competitive advantages especially in industrial markets characterized by emerging technologies, heterogeneous of customer needs and acc...

Co-evolution of platform architecture, platform services, and platform governance: Expanding the platform value of industrial digital platforms

“…In particular, the emerging literature on digital servitization shows that digital technologies allow manufacturers to provide new value creation and value capture opportunities through monitoring, control, optimization, and autonomous functions (Gebauer et al, 2020;Kohtamäki et al, 2019;Paschou et al, 2020). In other words, digital technologies not only facilitate servitized business models (Arnold et al, 2016;Suppatvech et al, 2019;Vendrell-Herrero et al, 2017), such as outcome business models (Sjödin et al, 2020a;Visnjic et al, 2017) but also contribute to the development of emerging industrial digital platforms with opportunities for value creation and capture that go far beyond traditional products and services (Cenamor et al, 2017;Rajala et al, 2019;Wei et al, 2019). However, the industrial digital platform development has implications for industrial manufacturers.…”

“…Digital servitization is enabled by connecting installed bases of industrial assets and equipment to an industrial digital platform that provides aggregation of data and analytical capabilities for greater value creation and capture (Kiel et al, 2017;Paiola and Gebauer, 2020). Thus, previous research showed that digital servitization goes hand-in-hand with a platform approach (Cenamor et al, 2017;Leminen et al, 2020;Rajala et al, 2019;Wei et al, 2019). For instance, industrial digital platforms allow to connect various IIoT-enabled machines, collect operational and equipment data, and conduct cutting-edge analytics to provide advanced platform services, such as preventive maintenance, fleet management, or even site optimization (Kohtamäki et al, 2020).…”

What Are the Benefits of Data Sharing? Uniting Supply Chain and Platform Economy Perspectives

“…Services are obviously very different from physical products, and interfaces in modular service design can be, e.g., people and information (Voss & Hsuan, 2009), and it can generate market impact efficiently through innovative offerings by reusing and varying existing services (Tuunanen & Cassab, 2011). In service business, modularization can also significantly reduce transaction costs among key actors (Rajala et al, 2019).…”

Boundary negotiations: a paradox theoretical approach for efficient and flexible modular systems

“…Advanced services focus on the capabilities provided by a product's performance in use (Baines & Lightfoot, 2014). To design advanced services, research suggests a modular design strategy (Davies, 2004;Rajala et al, 2019). Modularity is a method for managing complex products and services efficiently (Baldwin & Clark, 2000) and refers to the degree to which a system's components can be separated and recombined with ease (Schilling, 2000).…”

“…Findings contribute to modularity and servitization literature by expanding understanding of the interplay between firm boundaries and management of efficiency and flexibility in the context of modular product-centric advanced services. Previous modularity studies have focussed on low variety contexts, such as the design and provision of advanced services in the elevator industry (e.g., Rajala et al, 2019), or on the organisations production system and excluded variety introduced to the system by the customer (e.g., Salonen et al, 2018;Kohtamäki et al, 2020), allowing them to transpose the scientific approach to modular design from manufacturing to service. In this study a servitized organisation operating in a high variety environment responds to emergent customer requirements by making physical design changes to products already designed, produced and exchanged with the customer.…”