Success of technology companies not just about the products – University of Vaasa strengthens the digital servitization of companies
The Strategic Business Development or SBD research group at the University of Vaasa has a long tradition of studying digital servitization. This means the transition of manufacturing companies towards digital service business. In practice, the companies track product usage and maintain their products based on user diagnostics. The products are optimised and a wide range of product-related information is used to improve customer value.
– Our research group has been developing the service business and digital service business-related research field and business cooperation for over fifteen years. Our expertise is particularly strong in areas like business models of digital service business, the operating models of sales and value creation, strategy practices, change processes and the development of the product–service offering, says Marko Kohtamäki, strategy professor at the University of Vaasa and head of the research group.
Move towards digital service business is vital
Digital services are very important, particularly for western technology companies that are trying to stay afloat in the price competition. Digitalisation enhances user experience, increases productivity and enables new kinds of services. It allows companies to sell usability and bill for performance in addition to selling products. As a result, digital services generate additional revenue, improve profitability and increase market value for companies that develop and utilise them. Research has shown that service business is beneficial to manufacturing companies and customers alike.
– The benefits of digital services are substantial for companies that use complex product-service systems. On the other hand, not all services and digital solutions generate value in the same way for customers and suppliers. It is essential that companies can create business models, which enable the delivery of quality solutions over medium and long term periods, says Kohtamäki.
The move towards digital service business is vital for Finland as a significant portion of the country’s exports consists of products from the manufacturing industry whose customers buy usability. Equipment breakdowns in manufacturing can halt production, causing significant costs and, in the worst case scenario, lead to long-term supply issues. For this reason, many technology companies are marketing life cycle services where they sell usability throughout the product’s long life cycle. Life cycle services rely on digital product tracking and management of the entire product base in a way where equipment is serviced pre-emptively.
– Life cycle services form a key operational model, which helps integrate services into different stages in the product’s life cycle. The life cycle also makes it possible to examine the required capabilities at different stages of the life cycle and see opportunities for developing sustainable product-service systems, says professor Rodrigo Rabetino from the University of Vaasa.
Life cycle services also ensure better product tracking which helps reduce costs throughout a product’s life cycle and which in turn contributes to sustainable business.
Development requires coordination of different worlds
It takes time for a company to start service business. In many instances, services are not sold as add-ons with the product but a service agreement is signed separately. This calls for business models that promote the use of digital services in customer relationships. The company has to know how to productise its services, create pricing models, and to develop its service business systematically.
– Thought patterns and operating models that emphasise customer value are characteristic of service business. In service business development, it’s a good idea to approach things from customer value perspective. In other words, you have to think about what goals you are helping the customer reach through the cooperation, what the key elements of customer value are, what kind of change is required from each party and how to turn the customer relationship into a partnership that benefits both parties, says Pekka Töytäri, a professor of entrepreneurship from the University of Vaasa.
Research has shown that coordinating product and service business with digital services is not simple. The strategy, operating model and culture of a manufacturing company often revolve around the products. Service business is different in nature and selling services is different from selling products, for example. Digital services also come with an additional challenge as developing software differs from products and services.
– It’s often relatively difficult to integrate top-quality product, service and software development organisations into one company and invest in them in a way that does not leave service business in the background, says Associate Professor Tuomas Huikkola from the University of Vaasa.
Digital service business development requires coordination of product, service and software development cultures, which are all very different, so the task is not always easy. These different dimensions must be able to evolve side by side, looking for common opportunities, but this often poses a typical challenge: coordinating different worlds in what different people do is often difficult.
– Dissimilarities between operating models, cultures and ways of thinking pose a significant challenge for development. The strategic development of technology companies can be governed through heuristics and rules of inference, for example. Simple, predetermined guidelines take operations and development in the right direction, Huikkola says.
Research-based development helps companies
Experts from the University of Vaasa are present in the fields of both research and business, influencing and supporting companies in service business development through things like corporate collaboration and numerous projects.
– We perform research-based development at workshops, for example, where we help companies describe strategies, business models, required competencies and value creation methods. The workshops are participatory, meaning that the descriptions created actually lead to systematic development and action, says Kohtamäki.
The impact of the SBD research group is not limited to just numerous projects and companies, but also extends to research, teaching, scientific conferences, published articles, a large number of references as well as the development of new scientific frameworks and concepts.