Establishing Smart Service Systems is a Challenge

A Case Study on Pitfalls and Implications

Abstract

The trend for ‘servitization’ reflects manufacturers’ increasing efforts to offer services along with their physical goods. Organizations establish smart  service systems with digitally networked products—e.g., cars, industrial machinery, or home appliances—as boundary objects that connect the organization with customers, offering them digital channels for communication  and interaction. While anecdotal evidence indicates that many manufacturers  fail to establish profitable services, few studies have traced the underlying  causes for failure. We perform a revelatory case study at a global white-goods  manufacturer to identify pitfalls and derive guidelines for establishing smart  service systems. Based on interpreting qualitative data from interviews and  additional organizational resources, we analyze how and why the manufacturer’s efforts to establish pay-per-use services based on a smart laundry machine failed. While we provide insights that can guide management  in establishing smart service systems, our findings also motivate updating  concepts and methods currently discussed in service science.

Introduction

Almost four out of five manufacturers acknowledge servitization is an opportunity for  differentiation and growth [1]. Not surprisingly, many organizations seek to expand  their product portfolio and establish smart service systems by equipping their physical  products with connectivity and information processing capabilities, to transform these  products into boundary objects that are situated at the customer interface [2].

Technological trends, such as drones, AI platforms, and immersive technology can  offer great opportunities, but they can also increase the complexity of servitization.  Hence, the transformation to become a service provider is more challenging than ever  [3] and it might even jeopardize an organization’s overall success. For instance, Siemens’ service division “Siemens Business Services” turned out to be unviable [4]. Especially for manufacturers, resources and capabilities established in an organization can oppose innovation [5], since they may interfere with creativity and restrict the mindset for service development. Therefore, organizations need to overcome established structures, redefine their strategy, and promote change for transforming  into service providers [6, 7]. Service logic reiterates that service providers cannot  determine the value of their offerings for customers—in terms of the offerings’ value-in-exchange—but they need to offer value propositions that attract customers to  engage in value co-creation [8]. Value co-creation refers to joint and reciprocal  interactions between multiple actors that integrate their resources and apply their  competencies to create value [9] in a smart service system [10]. As a beneficiary,  customers perceive and determine a service’s value during its consumption (value-in-use) [8].  

Service research reports successful service transformation projects [11–13], while  few (if any) studies explored abortive smart service systems. Analyzing reasons for  unsuccessful smart service systems is imperative, since many manufacturers conduct  servitization projects and might, without proper guidance, reiterate the same mistakes.  Hence, we set out to perform a single case study to investigate “How and why do attempts to establish smart service systems fail?”. We analyze an organization’s  unsuccessful attempt to establish pay-per-use services based on using a smart laundry  machine. The organization is an established manufacturer that is now trying to add  value by offering supplementary services. By analyzing qualitative data from  interviews and complementary data sources, we identify six pitfalls from which we  derive implications and guidelines for implementing smart service systems.

From analyzing the case of an unsuccessful transformation, we add unique  empirical insights to the emerging literature on smart service systems. We discuss  why servitization is a systemic approach that goes beyond developing service-oriented value propositions as additional units of output. Also, our findings provide an  impetus for service research to update and refine theory, recognizing servitization as a transformation process. Further, we highlight that updating smart products and  transforming organizational structures is vital for establishing a smart service system.  The paper is structured as follows. Section two provides a theoretical background  of smart service systems and its engineering. In section three, we illustrate and justify  our research method. In section four, we present our case and pinpoint the pitfalls of  the smart service system engineering project. In section five, we interpret and discuss  our findings to derive implications for establishing smart service systems. Section six  summarizes our findings, identifies limitations, and sketches a path for further  research.