Business Model Configuration for PSS: An Explorative Study

Business Model Configuration for PSS: An Explorative Study

Available online at www.sciencedirect.com ScienceDirect Procedia CIRP 64 (2017) 97 – 102 The 9th CIRP IPSS Conference: Circular Perspectives on Prod...

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Available online at www.sciencedirect.com

ScienceDirect Procedia CIRP 64 (2017) 97 – 102

The 9th CIRP IPSS Conference: Circular Perspectives on Product/Service-Systems

Business Model configuration for PSS: An explorative study Martha Orellanoa, Gilles Neubertb, Lilia Gzarac, Marie-Anne Le-Dainc a

École Nationale Supérieure des Mines de Saint Etienne, Henri Fayol Institute, 158, cours Fauriel 42100 Saint –Etienne, France b Emlyon Business School, 51 cours Fauriel 42000 Saint Etienne, France c Univ. Grenoble Alpes, CNRS, G-SCOP, 38 000 Grenoble, France.

*Corresponding author. Tel.: +0-000-000-0000 ; fax: +0-000-000-0000 . E-mail address: [email protected]

Abstract

Product Service System (PSS) is an innovative approach that consists in offering bundles of products and services for a global fulfilment of customer needs. Certainly, successful PSS deployment implies a transformation of the whole Business Model of the provider company; however, the traditional business models are oriented to deliver pure products or pure services rather than combined offers. Then, new Business Models must be conceived from PSS perspective to overcome the extant lack in the literature and to face the current industrial challenges. Based on a literature review, this paper analyses the specificities of business models in a PSS perspective. This analysis is improved by empirical evidences from a case study conducted in a Colombian Cake Shop, framed into the service context. The case study allows to verify some findings from the literature and provides new elements to enrich the framework of a PSS-based Business Model. Finally, some conclusions are discussed as well as the limitations of this work. ©2017 2017The The Authors. Published by Elsevier B.V.is an open access article under the CC BY-NC-ND license © Authors. Published by Elsevier B.V. This (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer-review under responsibility of the scientific committee of the 9th CIRP IPSS Conference: Circular Perspectives on Product/ServicePeer-review Systems. under responsibility of the scientific committee of the 9th CIRP IPSS Conference: Circular Perspectives on Product/Service-Systems. Keywords: Business Model CANVAS; PSS Development Process; customer value co-creation; collaborative relationship

1. Introduction To face the challenges of the competitive business environment and to fulfill the sustainability issues, many companies have started to adapt their business model focusing from product or service to global solution, integrating products and services in one system (PSS). The concept of PSS can be realized by offering together services and physical products to increase the value proposition and to better satisfy the customers’ needs, taking into account sustainability aspects[1]. Despite the concept of PSS has been largely discussed by academics[2][3]and increasingly implemented in industrial contexts, the Business Model transformation towards PSS perspective remains in its infancy and there is not a clear pathway to guide enterprises to face this challenge. Certainly, unsatisfactorily understanding of the Business

Model and its necessary mutation represents an obstacle to take complete advantage from PSS. Thanks to literature review, the aim of the paper is to propose some insights on business models specification for PSS development. Finally, a case study analyses, helps to identify key issues to consider for PSS success. A landmark is necessary to fulfil this research question, then, regarding the literature about Business Models, it exists a generic and well known approach called Business Model CANVAS[4]. CANVAS is a tool that can be used to systematically understand, design and implement a new business models and it consists of nine building blocks, which cooperate to generate and capture value. Nevertheless, and despite its success, the Business Model CANVAS is just a guide to establish the elements for generic Business Models, and it is necessary to use other empirical knowledge to understand each element from PSS perspective. From PSS literature and

2212-8271 © 2017 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer-review under responsibility of the scientific committee of the 9th CIRP IPSS Conference: Circular Perspectives on Product/Service-Systems. doi:10.1016/j.procir.2017.03.008

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empirical evidence from one case study of the development of a service oriented PSS, this paper proposes to specify the nine blocks of the CANVAS model to PSS context. The paper is structured as follows: First, a literature review about Business Model CANVAS and PSS development is conducted. Then, a single case study in a Colombian SME is described. Right away, the findings for a BM configuration for PSS is presented and a discussion takes place. Finally, the conclusion of this work, its limitations and future research avenues are given.

and then, the definition of the Value Proposition [9][4]. The different elements of a Business Model are exposed on Figure 1. In this structure, the main and central element of the Business Model is “value proposition”, getting inputs from key partnerships (key activities and resources) to provide solutions to the customer segment (which implies relationships and channels). Finally, these set of activities generate a revenue and are supported by a cost structure. Business Model CANVAS Key Activities

2. Business Model CANVAS for PSS 2.1. Business Model CANVAS Regarding literature, many research papers on Business Model definition are proposed. These works can be classified into three categories, as follow: x Those defining the business model as an abstract overarching concept that can describe all real-world businesses. x Those proposing different types of business models, addressing a set of businesses with common characteristics. x Those defining “different aspects of” or “a conceptualization of” a particular real-world business model (DELL Business Model, XEROX Business Mode). Osterwalder A. extracted a semantic and global definition of BM[4], considered today by many authors as a generic one: x

Business Model Concept: A business model is a conceptual tool that contains a set of elements and their relationships and allows expressing the business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value to generate profitable and sustainable revenue streams. As a complement of the well accepted Osterwalder’ definition of Business Model, Zott et al. [5] argue that the business model explain not only a focal firm, going beyond its boundaries by articulating partners and customer business in a business ecosystem. Chesbrough supports this approach[6], affirming that the Business Model correspond basically to an open networks where there is an important flow of knowledge between all implied actors.

x

BM building blocks: According to [4] and supported by several authors [7]-[8] there are nine key elements for building any Business Model: Value Propositions (VP), Customer Segments (C), Customer Relationships (CR), Channels for customer engagement (CH), Key Activities (KA), Key Resources (KR), Key Partners (KP), Cost Structure (CS), and Revenue Streams (RS).

For building a BM, it is necessary to identify these elements and their relations to describe what a company does to deliver and capture value. The point of departure is the definition of the Customer segments according to their needs

Key Partnerships

Customer Relationships

Value Proposition Key Resources

Cost Structure

Customer Segment Channels

Revenue Streams

Figure 1. Business Model CANVAS elements

In order to address the PSS question related to Business Models, Table 1. is elaborated from a depth literature review in Web of Science about Business Models and PSS, and considering papers from the last 6 years, where the most of documents are based on case studies in different industrial contexts. In this table the nine elements of the Business Model CANVAS are defined from a generic point of view according to Osterwalder [4]. In addition, for each Building Block, a list of elements is exposed according to PSS perspective. Regarding Table 1, about the customer segment, a PSS offer allows to access to new markets, then new criteria are considered to segment this market, for instance, the customer values and expertness. In the industry, these two criteria have a high importance because of the non-transfer of propriety of high-performed products, so, it is necessary a certain degree of competence and engagement of the customer. In addition, most of the authors recognize a change in the customer perception of value, which instead of being focused on the product itself, it is focused on the service experience and human values, as the commitment and trust. This change is explained by the Service Dominant Logic [10] in which the value contained in an offer depends mainly on the delivered service, and the product is only an enabler to deliver that service. Furthermore, new channels must be considered to deliver the post-purchase services, which encompasses the maintenance and the customer training, frequently needed. Moreover, taking into account the importance of the usephase, some sophisticated ICT systems have to be used to follow the product performance, which becomes a critical point of success for the PSS offer [11]. In addition, considering customer and partners, the relationships in PSS are closer and longer and they have a network structure. A more important share of knowledge, responsibilities, risk and profitability characterizes this network structure. Then, some ethics values as the engagement and the trust become critical aspects.

Martha Orellano et al. / Procedia CIRP 64 (2017) 97 – 102 Table 1. Business Model configuration for PSS CANVAS Building Block [4]

Customer Segments

Generic Definition It is the core of the BM and determines the value proposition. An organization serves on one or several large or small customer segments The BM is designed after the understanding of the customer needs

Value proposition

Channels

Customer Relationship

Revenue Streams

Key Resources

Bundle of products and/or services that create value for specific customer segment

Communication, distribution, and sales channels

Kind of relation stablished between provider company and a specific customer segment

Capturing cash generated from each customer segment

Assets required to make the BM works

PSS Elements

Basically, segmenting the customer is the result of identifying who the customer is and it depends on: x Customer needs [11]–[14] x New segments (including global market), so cultural and regional differences are strongly considered [13] x Customer perception of value (customization, sustainability, getting the job done, etc.) [7] [18] x User expertness [13] x Customer values and habits (responsibility, ownership) [13]

Which is offered to the customer segment x Performance and functionality [13] [11] x Lower responsibility during the lifecycle [13] [11] x Service experience [11][14] x Customization [13] [11] [14] x Level of operational cost reduction [13] [11][14] x Level of Getting the job done/ Results performance [11][14] x Trust/ commitment / Attraction [13] x Flexibility in contracts [14] Own or outsourced channels for: x Strong marketing campaigns [13] x Retail and sales training (service oriented) [13] x Data Sharing during use-phase [12][11] x Service support [12] x Distribution network [14] In some cases of PSS, the following situation take place: x Non-physical means, internet based PSS [14] x No distribution channels needed: operation in customer facilities [14][15] x x x x x x x x x x x x x x

Key Activities

Activities required to make the BM work. Specific for each kind of value proposition

x x x

PSS is characterized by close and long-term relationships [13][14][11] Operational links [13][14][11] Sharing information an knowledge [11] Value co-creation [12] Interaction improvement [12] Contracts needed [14][11][13] Revenue stream from the service delivery [14][11][17] Different Pricing mechanisms (rather customized) fix or variable: Pay per use, pay per result, pay per service unit, pay per performance, availability, subscription [4] [13] [14] Have to take into account a strong risk and uncertainty [13][14][17] Notion of Risk Premium [11] Revenue distribution among partners (need to fixe contacts with partners) [14][11] New roles: for example, PSS manager (responsible for the coordination between partners) [16] Most sophisticated ICT support for the set of services implied when delivery PSS offer and the need of sharing information e.g. Control of data information generated during use phase [11] Service orientation in the whole company (human resource formation and recruitment) [17] [12] Higher initial investment/strong financial capacity or strong financial partnership (e.g. the payback of the robust equipment is longest than in traditional pay per product BM) [13] [15] New needs of knowledge (e.g. service, R&D) [13][15] Lifecycle design based on service optic: modular design, keep attention on materials and performance [18][19] Personal training in service optic [17] [12] Strong management of Customer relationships [13][14][11][12]

Key Partnerships

Network of suppliers and partners that make the BM works

A strong partnership structure is needed with the following characteristics: x Specific competences (marketing, sensor technology) [13][15] x Financial Partner [13][15] x Long-term and close relation with partners: because of sharing of knowledge (data information) and risk [13][15] x Share responsibilities [17]

Cost Structure

All the cost incurred to operate the BM

x x x

Pricing mechanism: Value driven model (rather than cost-driven) [11] Sharing costs and risk within partners or who intervene in some key activities [13][15][20][11] High initial investment: accounting adapted to Long pay-back period [13][15][20]

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All these changes in the Business Model influence the key activities and key resources that henceforward focus on a service culture and on a strong relation management. Finally, in regard of the Cost structure and the Revenue streams, an important issue is the Risk management and the need of strong contractual relation between the different actors. Also, on one hand, it is necessary to establish new mechanisms to calculate the cost based on the whole PSS lifecycle[21]. On the other hand, the revenue streams are mostly based on the service rather than the product, and the mechanisms to establish the price have to be value-based and not cost-based, which implies a good understanding of which value is delivered in a PSS offer, how and for whom. We should note that all authors cited in Table 1 study the BM for PSS based on cases coming from manufacturing industry. Certainly, a service perspective could complement this approach, providing new elements derived from service industry. In the following, a PSS case study is exposed and analyzed. The objective is to enrich the BM CANVAS description for PSS, founded in the literature review.

occasion. The offer consists on the provision of service packages that include cakes, snacks and party decoration (materials, transport and installation in situ conducted by a partner). The nature of its offer process is comparable to PSS because of the bundles of products and services required to fulfil customer needs. Moreover, it is considered as a servicebased PSS because the offer is designed as a service and the customer satisfaction is strongly influenced by the service experience. This case allows us better understand the service perspective when developing a PSS. The interest to select this SME remains on: x x x x

3. Research Methodology The purpose of this explorative research is to improve the conceptual understanding of the required adaptation of BM for PSS context. We have selected a case study approach to study this complex phenomenon [22]. The case study belonging to PSS development and delivery is considered in a Colombian Cake Shop. The aim is to provide some clarifications about the interaction between the elements of a Business Model by analyzing the PSS development process in a service-oriented context. Finally, the information gathered from the literature review and the Case Study is analyzed, allowing us to propose new elements to consider in a Business Model for a Service Oriented Solution (SOS). 4. Case study: Topping Cakes Topping Cakes is a Colombian Cake Shop that provides different solutions to organizations for celebrating any

The possibility to access to relevant information about the interaction between products and service contained in the global offer (from design to delivery) Information about customer participation into the process development of the value proposition and the close relation company/customers Information about the supplier involvement into the process development of the value proposition and the kind of relation company/supplier The possibility to study PSS from a strong service optic, which is an essential issue regarding transition toward PSS. Especially if most of works on CANVAS adaptation for PSS are issued from manufacturing industry

Topping cakes considers that its offer is essentially a service. Moreover, for the company a service means “a customer solution”. Topping Cakes adds products to an extant service, which are essentially pastry. In this research, we study a specific offer called “armamos tu celebracion” (we make your celebration). This offer is addressed to different local organizations (placed in Santa Marta, Colombia) which celebrate each month the birthdays of their employees. Topping Cakes is responsible for organizing the whole event: providing (making and delivering) pastry products and installing the decoration on the day previously specified by the customer. From data collection and literature review about services and PSS development, we established a model of the PSS development process of the company (Figure 2). This model is composed of different interrelated steps. This approach

Figure 2. PSS development process in Topping Cakes

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highlights the importance of specific service characteristics: intangibility, simultaneity, perishability and heterogeneity, which greatly influences the whole process when delivering services. In consequence, these characteristics also influence the delivery of service-oriented PSS as is illustrated in Figure 2. In the following, each step of the process is explained: 1. Planning: 1.1. Idea generation: Ideas to meet the customer needs identified from market or from a specific customer. 1.2. Design and resources identification: Some solutions are designed based on the need of the customer: celebrate the employees’ birthdays. In addition, the resources needed are identified, for both, service design and complementary products. The different ideas are communicated to the partner in order to define resources. 2. Conception: After selecting the ideas in cooperation with the partner, the design and detailing start by defining service packages. In parallel, the different alternatives are considered as needs to perform the products implied in the offer (In this case, pastry products that require some specifications for their preservation). 3. Testing: The different service packages are sent to the customer, which is going to test them. 4. Market Launch: If the test is successful, the solution is launched, if not, some modifications are done accordingly. 5. Adaptation of PSS: This offer is a partially customized one. It consists of different services packages previously defined that allow the customer selects and adapts for its specific needs. 6. Process Interaction: During the delivery process, the customer is strongly involved as well as the partner. A set of interaction takes place during the transport, installation and post service provision. Here, the customer can still make some modification (back-arrow in Figure 2). This specific aspect is due to the heterogeneity present in the service-oriented offers. 7. Results: In service-oriented PSS, the results depend on the customer experience. In this case, the sentiments and corporal expressions are key points to measure customer satisfaction. In addition, some technics as questionnaires are used to get more specific information. This situation is due to two characteristics of the service-based offers: intangibility and perishability. 5. Results and Discussion Regarding the PSS development Process of Topping Cakes and the nine Building Blocks of CANVAS adapted to PSS, we can present some new elements and verify other ones that were already described in the literature. In table 2. The new findings from the case are presented In Bold text and the elements found in the literature and verified in the case study are presented in Italic text. The principal Building Blocks of a BM implied in the PSS Process of topping Cakes are Customer Segment, Value Proposition, Customer Relationships, Key Partners and Revenue Streams. The other ones remain as in a typical sales offer, and then we do not consider them in the results, it means that Topping Cakes

continue to perform the same activities that in a classical offer and the cost structure does not have any significant change. In this case, the new customer segments for Topping Cakes correspond those of the partner and viceversa. Concerning the Revenue Streams, the service becomes a new and highly important revenue stream for Topping Cakes. Moreover, new pricing mechanisms and revenue distribution among partners are considered, in accordance with the principles exposed in the literature (see Table 1.). On the other hand, new findings have to be highlighted concerning Value Proposition, Customer Relationships and Key partners. Regarding Value Proposition, in the case study the value is not only created for the customer. We found that value is created also for the partner and the core company (Topping Cakes), and could be different from money. Such value for Core Provider (Topping Cakes) and partner can take the form of: access to new market segments corresponding to those of each one, Customer loyalty improvement, commitment and trust improvement with the partner, knowledge to manage future partnerships, new revenue streams trough service delivery, brand diffusion and direct access to information about customer behavior and expectations. In accordance with this finding, some authors in service field argue that value has multi-recipients and multi-types. Depending on the actor perception, it could be intangible or tangible [23]. However, in both PSS and Business Model literature, the concept of value is mostly related to the customer perception and satisfaction and partners are mainly interested in economic issues, capturing money [17] [20]. This multi-perspective of Value found in service context could represent a driver for PSS adoption. With respect to Customer Relationships, even if most of findings coincide with those referenced in the literature, there is an important one referring to Customer Feelings. Considering the service-oriented nature of the case study, customer perceptions, reactions, state of mind and feelings derived from service experience have an essential role to guarantee the PSS success. Topping Cakes evaluate these feelings during the interaction with the customer and not only after the service delivery. In PSS literature, customer is analyzed from the role of co-producer, knowledge provider, idea generator [24] among others but not frequently as a sensitive actor. In contrast, the service literature talks about the understanding of customer feelings to create intangible value as loyalty and confidence and to ensure long-term relationships [25]. Finally, concerning to Key Partners, it is possible to stand out the Early Supplier Involvement (ESI). This notion takes place in the PSS process of Topping Cakes because of the intense participation of the partner during the design, conception and delivery of the offer. Nevertheless, ESI is a notion mainly observed in new product development (NPD) and a little bit in New Service Development (NSD) literature. However, in PSS, this notion is replaced by the notion of supply chain networks or collaborative networks, in which suppliers as well as customers and competitors are integrated to the PSS process to share knowledge and elaborate a set of offers better performed [5][6] [16].

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Table 2. Improvement of BM CANVAS for PSS CANVAS Building PSS elements found in the case study block [4] x Customer needs [11]–[14] Customer Segments x Access to New segments [13] : the new segments correspond those of the partner x Customer perception of value [7] [18]

Value proposition

x x x x x x x x x x x x x x x x

Service experience [11][14] Customization [13] [11] [14] Getting the job done [11][14] Trust/ commitment / Attraction [13] Value has a multi actor perspective: it is not only perceived by customer, but also for Core Provider (Topping Cakes) and Partners

Long-term relationships [13][14][11] Sharing information [11] Value co-creation [12]: Customer as co-designer of the offer in early stages and as user in last stages Interaction improvement [12] Evaluation of customer Feelings during service delivery Close relation with partners: because of sharing of knowledge (data information) and risk [13][15] Key Partnerships Share responsibilities [17] Early supplier involvement: the supplier in this case is a co-creator of the offer from early stages Revenue stream from the service delivery [14][11][17] Revenue Streams New Pricing mechanisms customized and variable: Pay per service unit [4][13][14] Revenue distribution among partners (contract with the partner) [14][11] 85–105, 2013. [9] M. Pieroni et al., “Transforming a Traditional Product Offer into 6. Conclusion PSS: A Practical Application,” Procedia CIRP, vol. 47, pp. 412– The adoption of PSS is a huge challenge for companies to 417, 2016. [10] S. Vargo and R. Lusch, “Service-dominant logic: continuing the better satisfy the customer needs and increase their evolution,” J. Acad. Mark. Sci., 2008. competitiveness. To face this challenge, companies have to [11] F. Adrodegari, M. Ardolino, and N. Saccani, “A structured business transform their Business Model, which represent a complex model typology for product-service systems in capital goods sector,” 2014. task. This transformation requires a deep understanding of the [12] F. Adrodegari, N. Saccani, and C. Kowalkowski, “A Framework for elements that define a Business Model, especially the value PSS Business Models: Formalization and Application,” Procedia proposition. In this paper, based on the Business Model CIRP, vol. 47, pp. 519–524, 2016. [13] A. P. B. Barquet, M. G. de Oliveira, C. R. Amigo, V. P. Cunha, and CANVAS we propose an analysis of the BM elements in a H. Rozenfeld, “Employing the business model concept to support service-oriented PSS perspective. 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