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Short Service Stories: «How consumers and businesses tell us about what we should offer next»

- About Servitization: Transforming a product into a service offering -

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Abstract

This paper is the starting point for the Short Service Story series. It is about introducing how to serve customers and businesses better, setting a clearer focus

on business services rather than be tied into a product-solely offering attitude. Servitization is a term that summarizes the trend of service orientation and

spans the relevant steps from service design, validation, execution towards evaluation and re-design. Successful businesses execute Servitization within their

company strategy. It is not only the execution as such but guiding their organization from within towards their ecosystem of business partners, customers, and

influencers.

The Short Service Story series is comprised of method and example driven descriptions how to tackle Servitization in distinct business environments, being a

small or large enterprise, residing in one or many business networks, targeting one industry or operating cross industry sectors locally, within a region or

globally. Insights are given in a comprehensive manner to easily coach the audience in performing Servitization related activities and projects on its own.

Each Short Service Story covers one specific viewpoint or topic. The Stories are being posted on the Service Store website.

For further requests, please direct your questions to Barbara Flügge (b.fluegge@sap.com). We welcome your feedback and comments! Thank You!

Keywords: Servitization, Business Services, Services, Business Network, Social Business Networks, Communities

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Table of Content Page

1. The Service Business … 4

2. Our Approach, Terms and Definitions … 6

2.1 The Background Work … 6

2.2 Terms and Definitions … 6

3. Framing the Opportunity for Serving Better … 10

3.1 The 7 Trends … 10

3.2 Trend #1: Market Growth by Services Continues … 11

4. Insights: From being a Private Consumer to turning into a Business Customer ... 15

5. Outlook: Realizing the Opportunity for Serving Better in 3 Steps … 18

References … 19

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1. The Service Business

Why services? Services can accelerate an organization’s business or if weakly carried out diminish its value proposed to the consumers. Examples of services

are manifold and once reflected upon you might like to add many more examples to the collection below (Figure 1).

Figure 1: Kaleidoscope of Services

We undertook a number of efforts to reflect an utmost authentic picture of the service industry needs. This included research activities to investigate the

economic situation of the services industry in various countries, locally as well as internationally, the review of publications and white papers. Our activities

covered more than forty interviews and workshops. We worked with experts and representatives from the service industry, academia and the information and

communication technology industry. These interactions followed the stages of a service lifecycle that includes service exploration, design, description, pricing,

deployment, and customer insights in service application. We have been conducting service related ideation projects by which we analysed and challenged the

nature of present and future services for a specific need. Hereby the need could be motivated by being a business partner-led or customer-related interaction

with the service provider. The ideation projects resulted in the design of a service lifecycle. Similar to a product, a service passes several stages from market

introduction towards phase-out, from design to evaluation and from test to deployment.

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Services target distinct audiences such as the individual consumer and the decision maker in an organization. The organization might have a dedicated focus on

services or starts to becoming involved in the services business. The followers of the Short Service Stories will find useful hints to industry, geography, and

enterprise size. If not outlined differently, most of the hints are applicable to any industry, geography or enterprise size.

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2. Our Approach

2.1 The Background Work

Being thankful to vital discussions we worked with representatives from our own organization and other organizations, for individuals and influencers. This

book would not have been possible without their contributions and many others: our partners from the Business Web initiative, the colleagues and business

partners from the THESEUS research initiative, our colleagues from industry, solution management, and business units within SAP, and internal as well as

external subject matter experts we engaged with. Furthermore, a big thank you goes to the early adopters of our methods and service provisioning approach.

Overall there has been a lead time of nearly three years. The findings we present here are a result of more than thirty workshops and more than fifty

interviews, and our very own ideation iterations in Services. As Service Enthusiasts we sharpened our ideas, findings and viewpoints in numerous discussion

rounds with colleagues and peers. The elaborations and review cycles we applied followed what researchers refer to as double-loop learning. Where

appropriate a detailing of each of the individual steps we conducted is being revealed. Where adjustments and findings differed radically from the single loop,

those will be outlined clearly in the relevant chapters of the forthcoming publications.

2.2 Terms and Definitions

Concerning terms and definitions we provide a glossary of terms in each of the Short Service Stories.

With respect to the term Service we are very much aware of the multiple definitions and notions that are applicable and in use. Please find an extract of

comments we received concerning what a Service is and does.

(a) Users do not always watch out for a service explicitly, but simply anticipate it to happen. An airline that stopped the handout of magazines and newspapers

in the airplane is offering them on the ground in the waiting halls – for free.

(b) A Service is a unique or repetitive add-on in a pre-defined value chain. Repetition is perceived a characteristic that once ordering the Service multiple times

the outcome remains unchanged. Regardless the numbers of use the Service is performing as originally outlined and remains consistent.

(c) A Service is seen as fulfilling a duty, thus resolving an actual problem or fulfilling a task that needs to be done.

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(d) A Service could replace an internally performed activity and being outsourced to an external Service provider

(e) The purchase of a Service turns into a business result, regardless a free-of-charge or fee-based offering. What the respondents refer to is the aspect of a

business transaction the service provider and the service consumer negotiated between each other with a desired outcome. Being of commercial or qualitative

nature the transaction would not have advanced as such without the service delivered. On the contrary, a misleading or malfunctioning service delivery would

ask for the revisiting of service level agreements and other terms and conditions that become part.

The definition of Service we apply in our publications is as follows:

o Service

A service is a value-based transaction, being of economic or qualitative nature where one party has temporary access to resources of another party in order to perform a defined function (cf. Grubel 1987, Terzidis 2010).1

This “does not principally involve supplying a good […] It is to place a bundle of capabilities and competences (human, technological,

organisational) at the disposal of a client and to organize a solution” (Gadrey et al. 1995)2.

Consequently in comparison with goods, information technology-driven handling, trading and distribution of services need to cope with the following aspects:

Services are immaterial, if not intangible unless a service gets an image.

Services are dedicated to one consumer, thus transferability remains a challenge.

Services require a lead time prior to their execution; that is effort and cost intense.

Services are accessible at the time of the demand unless we find ways to store services.

1 See http://www.eirma.org/sites/www.eirma.org/files/doc/members/repsrt/rrt11/BarbaraFluegge_SAP.pdf/noproxy, as well as

http://servicewave.eu/2010/files/2011/01/ServiceWave2010_14th_terzidis.pdf and Grubel’s definition (1987) where “…a service is an economic transaction between two agents which leads to a change in the condition of a person or a good…” 2 Gadrey, J., Gallouj, F. & Weinstein, O. (1995). New modes of innovation. How services benefit industry. International Journal of Service Industry Management, 6(3), 4–16.

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o Servitization

Servitization is the process of analysis, design and deployment of services and apps that are being proposed to customers and prospects and

launched by a service provider and / or business partners in a Store-like environment (e.g. the SAP Store).

o Business Network Assessments, Business Networks, and Social Business Networks and Communities

The activities in Business Networks comprise the analysis, design and institutionalization of sophisticated business and consumer steered relationships between ADPC and their business partners and customers and among business partners and customers.

A Business Network is composed of distinct actors at different levels and the connectivity among the actors. Connectivity results from the business related and business relevant interactions that actors exchange among themselves partly, entirely, or on a bilateral basis.

A Business Network turns into a Social Business Network (henceforth: Community) once a social interest is being identified among the participating actors.

From our point of view, well-functioning Business Networks emphasize the relevance of any business-related, supporting and social interaction among actors.

Furthermore, they urge the relevance of legitimacy in case of business and contractual-imposed (regulation-imposed) institutional forces. Examples of

institutional forces are trade agreements, sales contracts or shipping agreements.

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o The double-loop3 looks as follows:

Figure 2: Double-loop and learning from the Double-loop (own graphic)

3 Source: Double-loop learning was introduced by Chris Argyris and is considered being part of the Theory of Action. For further references see Argyris, Chris (1976).Single-Loop and Double-Loop

Models in Research on Decision Making in Administrative Science Quarterly, Vol. 21, No. 3 (Sep., 1976), pp. 363-375, published by: Johnson Graduate School of Management, Cornell University. See also http://www.instructionaldesign.org/theories/double-loop.html. See also Argyris, Chris (1982). The Executive Mind and Double-Loop Learning. In Organizational Dynamics, Autumn 1982. © 1982, AWCOM Periodicals Division, American Management Associations. http://www.monitor.com/MENA/Portals/0/MonitorContent/imported/MonitorUnitedStates/Articles/PDFs/Monitor_Organizational_Dynamics.pdf

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3. Framing the Opportunity for Serving Better

3.1 The 7 Trends

Driven by our research activities, we claim 7 Trends that build the fundament about the increasing role of services for businesses. The 7 Trends are as follows:

Trend #1 Market Growth by Services continues

Trend #2 Anything-as-a-Service is in focus

Trend #3 Geographical Decoupling is needed to grow in the Services sector

Trend #4 Electronification of Service Ordering is advancing

Trend #5 Business Transformations are required to leverage the Services potential

Trend #6 Enterprises’ and Consumers’ Mobility increases

Trend #7 Mature Information Technology awaits Intelligent Content

In the subsequent Short Service Stories we will get back and introduce Trend by Trend. Concerning #1 please find a detailed capture in the following chapter.

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3.2 Trend #1: Market Growth by Services Continues

Market studies reveal a greater interest in and economical role of services to organizations than before. It is on the one hand the projected economic outcome

of Service delivery compared to Product sales. On the other hand the perceived ease of delivery execution compared to product installation let the number of

Service offerings grow.

In the following we are highlighting the key findings of the most relevant market studies. The World Trade Organization (WTO) compared services related to

world transportation in the year 1995 to the year 2006. Part of the argument of the rise of sea transport to 43 per cent and the moderate increase to 7 per cent

for airborne freight in 2006 concerned the increasing fuel costs that hit especially the airborne freight business. Another part of the argument takes into

account the increasing demand for export services such as export declaration processing, safety and security scheduling, monitoring where possible the

estimate time of arrival to be as precise as possible. Hereby, the WTO denotes developed markets such as the European Union that contribute to a large extent

to commercial services enablement. WTO distinguishes business, professional and technical services. Business services are legal, management and advertising

services. Engineering and consultancy services refer to technical as well as management services.

Investigated and published by the European Services Forum, the financial value of exported services from European Union labour forces reached not less than

440 Billion Euros and an overall trade surplus of 65 Billion Euros. More than 140 Million jobs have been created in the European Union Members States by the

services business. The contribution of services reached a nine Trillion Euro for the total of the gross domestic products of the European Union Member States.

Figure 3: Services in the European Union (EU)

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Service relevance has been estimated for local markets such as Germany4 as well from an international perspective. As outlined in the subsequent Figure the

structural share of the gross domestic product of Germany indicates the emerging role of the services sector compared to the manufacturing and product-

oriented sectors. The chart is to be read as follows: the segment service industry is composed of the contributions of the public and private service provider

sector, finance, leasing and business services, the commerce, hotel and restaurant as well as the transport sector. The segment product industry is comprised

of those sectors that make accountable for building, agricultural, fishery and forestry related contributions as well as the outcome of the overall industry

related (note: mainly manufacturing) sector.

In 2009 the services business, 24.1% of which by service providers, 31.1% of which by financial and real-estate services, and partly 17.5% of which trade and

traffic management related services, contributed two third to the gross domestic product of Germany than the product manufacturing (22.2%), the

construction (4.3%) and the agricultural industries.

4 Sources: Statistical Yearbook 2010 for the Federal Republic of Germany, Office for German (check Statistisches Bundesamt, 2010)

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Figure 4: Industry Segments Composing the Gross Domestic Product (GDP) of Germany from 1991 and 2009

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A recent study issued by German Ministry of Economics and Technology5 in late 2010 confirms the relevance of services to enterprises. Furthermore, it outlines

the baseline to meet the projected growth potential for services. It is based mainly on the use of information technology and launching web-based services

where possible. The study argues the relevance of services for businesses with the increasing demand for cloud computing services.

The projected value of web-based services is argued as follows: „[…] Yet the revenue volume that has been estimated for public cloud-based offerings that

target publicly tradable services in the Internet of Services reached in the year 2010 only around 650 Million Euro, not more than zero point six percent (0.6%)

of the overall spend for information technology in Germany. However, in the upcoming years the market for cloud computing offerings will be massively

increasing and reaching till the year 2025 a revenue volume of twenty Billion Euro. Moreover, an additional revenue potential of one point six (1.6) Billion Euro

in the year 2025 is being forecasted for service related project activities benefiting information and communication technology (ICT) providers and service

providers. Service related project activities encompass consulting, service integration and deployment tasks, the development of cloud-based offerings as well

as enabling cloud-based offering for service providers and consumers. […]”6.

The study elaborates further that “[…] the above stated forecast does not include the revenue forecast for private cloud computing initiatives. Hereby the

market potential is according to the German Ministry of Economics and Technology two and a half times higher than the one for public cloud computing and

public cloud-based offerings. The revenue potential estimated is between two and three Billion Euros. […] Moreover, combining public and private cloud-based

offerings the forecasted revenue potential will be around thirty Billion Euros in 2025. […]”7.

5 Source: Das wirtschaftliche Potenzial des Internet der Dienste (Autorenschaft: Berlecon Research, International Business School of Service Management (ISS), Zentrum für Europäische

Wirtschaftsforschung (ZEW) und Pierre Audoin Consultants (PAC) im Auftrag des Bundesministeriums für Wirtschaft und Technologie (BMWi), Berlin, 10/2010) 6 Source: ibid, translated from German into English. The original citation can be found in ibid, page 57.

7 Source: ibid, translated from German into English. The original citation can be found in ibid, page 58.

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4. Insights: From being a Private Consumer to turning into a Business Customer

The hype around app stores that target mainly consumer and privately used apps will sustain undoubtedly. This trend allowed us to take a closer look into what

might be working well for business relevant apps and services and what not. The maturing consumer is distinguishing clearly what she or he is looking for.

Attributes such as gaining flexibility, having a great user experience and receive a well-fitting response to his or her interests drive the decisions for or against

app and service usage. Other key decision drivers are secured transactions that accompany the service consumption and data capture, avoiding paper and

manual handling, and furthermore to connect with like-minded.

What works from a technical and functional perspective in our private consumer environment certainly is expected to work in our daily business activities. The

following examples will span the technical evolvements from private to business consumption.

On the one hand the consumers feel individually targeted by the app offerings. Based on technical enhancements behavior- and being-in-favor-driven analytics

turn into recommendations how to connect, where to link and shop and to who reach out. On the other hand, these personalized offerings should not neglect

the need the consumers have in what we call personal safeguarding measures. One example is the ultimate functioning of a feature such as Evernote8 once it is

being purchased in the store and download to the consumer’s personal device. Another example are the multiple offerings for a QR code scanner that we want

to deploy immediately to capture and order the grocery store offering in the subway station before heading home.

Decision processes in a consumer-context are manifold. Securing our credentials, following of what is being offered by whom, a great user experience and the

offering of a paperless transaction influence our decision for or against the offered functionality. The before-after experience and how the deployment of the

app worked is the human reaction on judging: a great before-after experience turns more likely into a second purchase. The contrary, the malfunctioning or a

misleading offering, causes negative ratings and an in the ultimate stage the de-listing of an app offering.

We asked interviewees for their decision making process in a private, consumer targeted context (see left hand side of the figure below). What is then the

difference from a business user perspective? Assuming the business user, an account executive, purchases Evernote as an accompanying feature, he sees the

8 Source: Evernote is a registered trademark of Evernote Corporation. For further information see http://evernote.com/ .

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benefit of capturing notes much more easily, being able to assort them afterwards and recording in the meanwhile the next steps he agreed upon with the

vising company representative. The following illustration sets into relation expectations for private use and expectations that are business related.

Figure 5: Piggy-Backing expectations as consumer and customer for private and business usage

The business user passes his expectations from private consumption to business consumption needs – he piggy-backs his expectations. Why should the app

function worse or better or differently anyway? In our example, the account executive still expects that the user experience is a great one. What is new is that

he expects that the notes he captures will be uploaded immediately, automatically to the customer relationship management information system the company

uses. Did he seek for approval for the purchase? Most likely. Nowadays company policies cover which information systems and apps are to be purchased and

which are not selectable. With the upcoming trend of bring-your-own-device these policies needs to be expanded to better distinguish between business and

private identities of users, business and private consumption needs and which approval processes to be executed by whom and when.

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Business users by nature design and deploy safeguarding measures to decide upon whom and which and where to reveal business related credentials and

where to hide it. Business users ask for a governance and compliance framework that is working in any on-premise and on-demand environment. This is not

only the case because of liability reasons and business data that ranges from publicly available to confidential and company-internal data. Publicly available

data are for example financial data issued in annual reports. Confidential data is about giving discrete access to supplier and customers concerning production-

and distribution-relevant delivery notifications. Confidential data refers to secured data in human resources management, credit and debit accounting.

Consequently, any business related offering being a service or an app that leverages the use of the internet or mobile devices will be becoming rated by

business users. The above introduced viewpoints will serve as an overview what needs to be covered in the offering design and what not.

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5. Outlook: Realizing the Opportunity for Serving Better in 3 Steps

What is the best way to become ready for Services provisioning? We found a phased approach useful and identified 3 Steps. The 3 Steps allow any organization

turn into a Service Provider. The Three Steps are detailed below and outlined in the subsequent figure:

o Step 1 Analyze: this step refers to the analytical efforts to be made to know which Services you want to offer

o Step 2 Provide and Prepare: this step refers to the preparatory steps to make the Service accessible for Web trade

o Step 3 Offer: this step refers to the activities that are required to sell the Service in a meaningful, commercially sensing and customer relevant manner

Figure 6: 3 Steps from Service Opportunity to Service Offering

Further insights in our approach will be provided in the forthcoming publications.

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References

Argyris, Chris (1976).Single-Loop and Double-Loop Models in Research on Decision Making in Administrative Science Quarterly, Vol. 21, No. 3 (Sep., 1976), pp. 363-375, published by: Johnson Graduate School of Management, Cornell University Argyris, Chris (1982). The Executive Mind and Double-Loop Learning. In Organizational Dynamics, Autumn 1982. © 1982, AWCOM Periodicals Division, American Management Associations. http://www.monitor.com/MENA/Portals/0/MonitorContent/imported/MonitorUnitedStates/Articles/PDFs/Monitor_Organizational_Dynamics.pdf Web References

Double-loop learning: http://www.instructionaldesign.org/theories/double-loop.html Evernote and Evernote Corporation. For further information see http://evernote.com/