Digital Servitization Requires a Dynamic Business Model Evolution

Why It Matters

For design practitioners, understanding this dynamic interplay is crucial for developing products and services that not only leverage new technologies but also fundamentally reshape how value is created and captured. It highlights the need for a holistic approach that integrates technological innovation with strategic business model adaptation.

Key Finding

Companies need to build an ecosystem to deliver smart solutions, which then enables new ways to capture value. This transition happens through distinct stages where new business models are created and enabled by digital tech, while existing models are continuously refined.

Key Findings

• Successful smart solutions require an ecosystem value delivery system involving suppliers, distributors, partners, and customers.
• Multiple value capture mechanisms (efficiency, accountability, shared customer value, novelty) emerge once ecosystem relationships are aligned.
• Digital servitization involves stages of both discontinuous (new value propositions/delivery systems) and continuous (improvement of existing elements) interplay between business models and digital technologies.

Research Evidence

Aim: How do manufacturing companies transition from product-centric offerings to smart, digitally-enabled solutions through the evolution of their business models?

Method: Case Study

Procedure: The research examined a Chinese air conditioner manufacturer, Gree, analyzing its transformation into a provider of smart solutions. This involved understanding changes in its value proposition, value delivery system, and value capture mechanisms, driven by digital technologies like AI and IoT.

Context: Manufacturing industry, specifically the transition to digital servitization.

Design Principle

Embrace iterative business model evolution as a core component of digital product development.

How to Apply

When designing a new smart product or service, map out the potential ecosystem partners and consider how the business model will evolve to support its long-term success and value capture.

Limitations

The study focuses on a single case, which may limit the generalizability of findings to other industries or company sizes.

Student Guide (IB Design Technology)

Simple Explanation: To make smart products that work well, companies need to change how they do business, not just the technology. They have to work with others and find new ways to make money from their smart ideas.

Why This Matters: This research shows that just having a cool new technology isn't enough. For a design project to be truly successful in the long run, especially with digital products, you need to think about the business side and how it will change and grow.

Critical Thinking: To what extent does the 'discontinuous' aspect of business model change create significant risks for established manufacturing companies, and how can design mitigate these risks?

IA-Ready Paragraph: The transition to digital servitization, as exemplified by companies like Gree, underscores the critical need for design projects to integrate business model evolution with technological advancement. This research highlights that successful smart solutions are not solely product-driven but emerge from a dynamic interplay between continuous improvement of existing business elements and discontinuous creation of new value propositions and delivery systems, enabled by digital technologies. Therefore, a comprehensive design approach must consider the formation of value-generating ecosystems and adaptive value capture mechanisms.

Project Tips

• Consider how your design project could evolve into a service or smart solution over time.
• Think about who else needs to be involved (partners, suppliers) for your design to succeed.

How to Use in IA

• Use this research to justify why your design project needs to consider business model implications beyond the initial product concept.
• Reference the continuous and discontinuous interplay to explain the iterative nature of design and development for smart solutions.

Examiner Tips

• Demonstrate an understanding that innovation often involves significant shifts in business strategy, not just product features.
• Show how your design choices are informed by potential future business model adaptations.

Independent Variable: ["Digital technology adoption","Business model elements (value proposition, delivery, capture)"]

Dependent Variable: ["Digital servitization success","Smart solution offering"]

Controlled Variables: ["Company size","Industry sector"]

Strengths

• Provides a process perspective on digital servitization.
• Integrates business model theory with technological innovation.

Critical Questions

• How can smaller manufacturers replicate the ecosystem-building success of larger corporations?
• What are the ethical considerations when value capture mechanisms become highly data-dependent?

Extended Essay Application

• Investigate the digital servitization journey of a specific company in a chosen industry, analyzing the evolution of its business model and the role of digital technologies.
• Develop a conceptual framework for a new product or service that anticipates future business model shifts and ecosystem integration.

Source

On the road to digital servitization – The (dis)continuous interplay between business model and digital technology · International Journal of Operations & Production Management · 2021 · 10.1108/ijopm-08-2020-0544