Project

Capturing Value in Advanced Service Economies

Goal: The scope of B2B services has risen to the extent that almost every conceivable business operation can be hired as an external service, and they are one important aspect of the global services trend towards increasing collaboration. Services can enhance the value of a business by reducing costs of asset-ownership, freeing management capacity to focus on entrepreneurial opportunities, sharing uncertainties between firms, and divesting activities with low value-creation prospects. As such, services create value and drive economic growth through increasing the specialization of our economies. Indeed, economic statistics indicate that the growth of the service sector is largely driven by the rise of business services rather than consumer services.

In the domain of strategy, the rise of business services goes hand in hand with the strategic shift from product-centric strategies to service- based business models. Companies use business models as a strategic response to the increasing competitive pressure which shows in reduced margins and shorter time frames to capture the value from product innovation. As a response, firms organize around opportunities in order to craft value propositions that are difficult for others to copy.

We explore a range of issues in this context, incl. the Industrial Internet of Things (IIoT), service-based business models, governance mechanisms for B2B service contracts, and the role of B2B services in economic growth.

Methods: Conceptual Modeling

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Project log

Jochen Wirtz
added a research item
Nonownership value, delivering benefits without transferring the burdens of ownership, is a key pillar of service value propositions. To date, service research and management have put their attention primarily on the value that emerges when clients substitute ownership of assets, like vehicles, facilities or factories, with nonownership services, like rides, accommodation bookings or manufacturing orders. Currently scale and scope of nonownership services is growing at a breathtaking scale, connecting potentially any device or resource to the global information infrastructure. Once an asset is connected to global information infrastructures, it is transformed into a platform for service delivery, like renting, sharing or even performance outcomes. Not least, public communication infrastructure removes traditional barriers to scales of service contracts. In this chapter we argue that contract innovation provides the key to the extension of scale and scope of services. We hold that contracting innovation, defined as technological or institutional inventions for agreeing rights and responsibilities of service cocreators, condition growth of service businesses. We identify three key dimensions of contracting innovation: (1) Contract design innovations, inventions in translating customer needs into contractual specifications. (2) Contract technology innovation, technological inventions for codifying service specifications. (3) Infrastructure innovations, inventions in sharing contract specifications across stakeholders of service ecosystems. In particular, we offer a systematic overview of fundamental technological innovations enabling contract innovations. In particular, hardware innovations connect human and physical resources to information infrastructures, facilitating both, the specification of contracts on resource use and their seamless integration into effective service processes for contract fulfillment. Hardware innovations connect a growing range of devices, facilities and equipment to service systems, facilitating the specification of asset-based services. The software dimension entails the user-interface to service systems. With almost ubiquitous access to mobile networks, mobile applications constitute general information interfaces and, provide genuine interfaces for orchestrating service contracting with operations for fulfillment. Not least, innovations in infrastructures have worked as disruptive forces furnishing service growth, opening industries like financial services, industrial manufacturing or agriculture for novel forms of disruptive services. We offer a primer on research opportunities and management implications on the path to unlock service growth with enhanced contracting capabilities. We conclude stating that service firms thrive as contract innovators furnishing service productivity, transforming industrial forms of capitalism into service capitalism. Keywords: nonownership value, service ecosystem, service contracts, service capitalism, service infrastructures, Information and Communication Technologies (ICT)
Jochen Wirtz
added 3 research items
This chapter explores the role of external services provided to business organizations. Businesses combine internal operations with external services for pursuing their goals. The scope of external services has risen to the extent that almost every conceivable business operation can be hired as an external service, and they are one important aspect of the global services trend towards increasing collaboration. Services can enhance the value of a business by reducing costs of asset-ownership, freeing management capacity to focus on entrepreneurial opportunities, sharing uncertainties between firms, and divesting activities with low value-creation prospects. As such, services create value and drive economic growth through increasing the specialization of our economies. Indeed, economic statistics indicate that the growth of the service sector is largely driven by the rise of business services rather than consumer services.
Purpose – The purpose of this paper is to explore the contribution of global business services to improved productivity and economic growth of the world economy, which has gone largely unnoticed in service research. Design/Methodology/Approach – The authors draw on macroeconomic data and industry reports, and link them to the non-ownership-concept in service research and theories of the firm. Findings – Business services explain a large share of the growth of the global service economy. The fast growth of business services coincides with shifts from domestic production towards global outsourcing of services. A new wave of global business services are traded across borders and have emerged as important drivers of growth in the world’s service sector. Research Limitations and Implications – This paper advances the understanding of non-ownership services in an increasingly global and specialized post-industrial economy. The paper makes a conceptual contribution supported by descriptive data, but without empirical testing. Originality/Value – The authors integrate the non-ownership concept and three related economic theories of the firm to explain the role of global business services in driving business performance and the international transformation of service economies.
Can you think of 3 global service brands? And what is it Americans can do but Germans, Japanese and Koreans cannot? Tongue in cheek video but with a serious message.
Michael Ehret
added 2 research items
The Buying Center is a central construct of Business to Business Research. Yet, B2B markets are on a verge of a fundamental transformation. We call researchers for revisiting the Buying Center Construct and invite them to submit work to a special session at the upcoming CBIM workshop and for a special issue of Industrial Marketing Managment.
Business markets thrive when firms share opportunities and costs for mutual gain, employing legal constructs including service contracts, special purpose companies, trusts or collateral. However, B2B Marketing research remains largely silent on the legal craftsmanship at work at the boundary of the firm, rarely moving beyond efficiency analysis proposed by transaction cost approaches. Katharina Pistor’s “The code of capital” offers a framework for the role of private law in constituting business. Motivated by the 2007 financial crisis, Pistor offers a framework of how private law empowers business actors to transform assets into capital, shield profits and delegate costs. Pistor decodes the legal modules at work at the boundaries of the firm, shows examples for both, their virtuous and questionable use, identifies a role for companies in the rise of digital contractual interfaces like blockchains and smart contracts, and legal instruments for claiming revenues and protecting profits. B2B researchers get a valuable primer on the architecture of private law that shapes the legal boundaries of the firm and its implication for institutional theories of legal boundaries of the firm.
Michael Ehret
added a research item
Why have services grown into the dominant sector of developed economies? Our analysis of macroeconomic data shows that business services make the strongest contribution to the rise of the service sector. We integrate three related economic theories of the firm to explain business services in shaping firms, industries and economies. Business service providers relieve their clients from the costs of asset ownership (Property Rights Theory), unlock management capacity (Resource-Based View) and support their clients in navigating their firm's boundaries towards their most valuable business opportunities (Entrepreneurial Theory of the Firm). We show how these theories build on the non-ownership value provided by business services that result from sound division of labor between organizations. We highlight three areas that call for research and provide opportunities for service science: (1) Systematic design of business-models for fostering service performance, (2) the transformation of high-tech-products into service-hubs, and (3) service-driven innovation and the transformation of R&D into a service industry. [Service Science, ISSN 2164-3962 (print), ISSN 2164-3970 (online), was published by Services Science Global (SSG) from 2009 to 2011 as issues under ISBN 978-1-4276-2090-3.]
Michael Ehret
added a research item
Growing connectivity has driven business in general and innovation in particular more complex. Companies realise that they need to cultivate eco-system to thrive in connected economies. We are calling for academic contributions to a special issue of Industrial Marketing Management to advance theory and empirical insight into innovation eco-systems.
Jochen Wirtz
added a research item
Nonownership offers a key value proposition of service by empowering both provider and client to navigate closer to the positive opportunity domain of uncertainty while mitigating uncertainty downsides. While non-ownership contracts for resource sharing or business services offer useful legal devices for sharing uncertainties across organizational boundaries they cannot work in isolation. The key to the pathway of virtuously transforming uncertainty into opportunities for both, clients and providers, is the interactivity of resources and processes. Service capital resides on the interactivity of resources, like connected equipment, user-knowledge or social capital. CE is critical for the formation of service capital and driving the interactivity of business. CE paths the way to processes for fulfilling the promises of nonownership. Customer knowledge sharing enables providers to show an impact for clients and control costs and downsides in their own operations. Customer learning drives the “value-in-use” of service offerings and creates a market platform for nonownership offerings. At the same time, nonownership contracts empower managers to design inter-organizational interfaces where both, clients and providers can mutually gain from sharing uncertainty.
Jochen Wirtz
added an update
How do you capture value in the service economy? How do you build competitive advantage in the service economy? What should you own to have pricing power and be able to capture value?
This is discussed in YouTube Video Part 2 of Winning in Service Markets - see https://www.youtube.com/watch?v=bRI2tCDqQn8&t=16s
Subscribe to my YouTube Channel - more videos will be posted – https://www.youtube.com/c/ProfessorJochenWirtz
 
Michael Ehret
added a research item
Service Providers as Entrepreneurs of Cocreation Assets Once they enter the service business, companies might take entrepreneurial responsibilities they may not be aware of. Yesterday we received the certificate for the best paper finalist award of the AMA SERVSIG conference held this summer in Paris. Join our project for related papers and watch out for more to come.
Jochen Wirtz
added an update
Our latest paper has just been accepted - Abstract:
In advanced service economies, almost any activity, skill, and asset can be bought on competitive markets, making it increasingly difficult to build competitive advantage on any of those inputs. Therefore, firms have to carefully decide what to own in order to capture value. That is, firms have to explore what types of assets can add value to their customers and at the same time are difficult or illegal to copy by competition. We examined this question and identified asset categories that potentially allow a firm to appropriate value. They are (1) resource-based assets (e.g., proprietary equipment and systems, manufacturing-related intellectual property (IP), and social capital with employees); (2) platform-based assets (e.g., physical and intellectual platform assets, and critical mass and volume-based advantages,); and (3) market-based assets (e.g., brands and related brand equity, physical and virtual points-of-sale, access to physical and virtual distribution networks, and customer information and loyalty programs). Furthermore, we propose that each of these three asset categories can take the form of three types of capital. They are (1) tangible capital (i.e., it has a physical manifestation such as equipment and physical points-of-sale); (2) intangible capital (i.e., it can be codified and legally protected such as patents and brands); and (3) social capital (i.e., it is embedded in people’s minds and cannot be legally protected such as trust, goodwill and engagement of employees, partners and customers). The three asset types and their three manifestations are integrated into a framework for an asset typology. For example, market-based assets can come in all three forms, that is in tangible (e.g., point-of-sale networks), intangible (e.g., brands), and social (e.g., customer equity) form. Finally, we identified four important organizational capabilities of asset integration that are independent of asset ownership but effectively link owned and outsources assets, capabilities, and processes to value creation and can also allow a firm to capture value. They are (1) business models for designing the architecture and “Gestalt” of value creation; (2) a customer-centric culture and a climate for service; (3) innovation capabilities, and (4) the effective management of an integrated web of processes and activities. We discuss the why and how of this asset typology and its implications for management, strategy, and research.
 
Jochen Wirtz
added a research item
In advanced service economies, almost any activity, skill, and asset can be bought on competitive markets, making it increasingly difficult to build competitive advantage on any of those inputs. Therefore, firms have to carefully decide what to own in order to capture value. That is, firms have to explore what types of assets can add value to their customers and at the same time are difficult or illegal to copy by competition. We examined this question and identified asset categories that potentially allow a firm to appropriate value. They are (1) resource-based assets (e.g., proprietary equipment and systems, manufacturing-related intellectual property (IP), and social capital with employees); (2) platform-based assets (e.g., physical and intellectual platform assets, and critical mass and volume-based advantages,); and (3) market-based assets (e.g., brands and related brand equity, physical and virtual points-of-sale, access to physical and virtual distribution networks, and customer information and loyalty programs). Furthermore, we propose that each of these three asset categories can take the form of three types of capital. They are (1) tangible capital (i.e., it has a physical manifestation such as equipment and physical points-of-sale); (2) intangible capital (i.e., it can be codified and legally protected such as patents and brands); and (3) social capital (i.e., it is embedded in people’s minds and cannot be legally protected such as trust, goodwill and engagement of employees, partners and customers). The three asset types and their three manifestations are integrated into a framework for an asset typology. For example, market-based assets can come in all three forms, that is in tangible (e.g., point-of-sale networks), intangible (e.g., brands), and social (e.g., customer equity) form. Finally, we identified four important organizational capabilities of asset integration that are independent of asset ownership but effectively link owned and outsources assets, capabilities, and processes to value creation and can also allow a firm to capture value. They are (1) business models for designing the architecture and “Gestalt” of value creation; (2) a customer-centric culture and a climate for service; (3) innovation capabilities, and (4) the effective management of an integrated web of processes and activities. We discuss the why and how of this asset typology and its implications for management, strategy, and research.
Jochen Wirtz
added an update
our latest paper on this topic is published now -- see
 
Jochen Wirtz
added a research item
This article is open access. See: https://elibrary.vahlen.de/10.15358/2511-8676-2017-1-22/capturing-value-in-the-service-economy-jahrgang-1-2017-heft-1 . Abstract: The benefits of specialization have been driving the rise of the service economy and pushing capability frontiers and economic growth. In service economies, almost any activity, asset, and skill can be bought on competitive markets, making it harder to build competitive advantage on those inputs. Therefore, firms have to carefully decide what to own in order to capture value, and they need to prioritize investments in those assets while outsourcing almost everything else. Service businesses capture value by connecting resource markets with service markets, and we identified three types of assets that allow a firm to connect markets and capture value in the process. They are: (1) resource-based assets shaping capabilities and capacities of services; (2) platform-based assets connecting resource owners with users, allowing to generate network effects, critical mass, volume and/ or liquidity; and (3) market-based assets providing the interface for interaction with customers. We propose further three key dimensions that shape each service-asset type: Physical capital, intellectual capital and social capital including service climate as a framework for a typology of service assets. We identify further two domains of service management that allow firms to capture value: (1) business models for designing the architecture and " Gestalt " of value creation; and (2) the effective management of an integrated web of processes and activities. We discuss implications for management and further research.
Jochen Wirtz
added 3 research items
In this study, we investigate why companies intend to use nonownership services by conducting qualitative interviews with 10 experts to develop our hypotheses, then using a survey to test them. Our findings show that, as hypothesized, firms’ intentions to use nonownership services are affected by both financial (i.e., tax efficiency and cash and liquid asset management) and nonfinancial (i.e., control over assets and access to the latest technology and tools) factors, with access to the latest technology and tools being the most important driver. Furthermore, we show that the effect that the desire to gain access to the latest technology and tools has on intentions to use nonownership services is enhanced (i.e., moderated) when firms wish to reduce the risk of obsolescence. The hypothesized moderation effect of firm size on the importance of cash and liquid asset management is marginally significant. These findings are an important contribution to the literature, as previous studies have almost exclusively focused on the financial drivers of nonownership service use.
Jochen Wirtz
added an update
Project goal
The scope of B2B services has risen to the extent that almost every conceivable business operation can be hired as an external service, and they are one important aspect of the global services trend towards increasing collaboration. Services can enhance the value of a business by reducing costs of asset-ownership, freeing management capacity to focus on entrepreneurial opportunities, sharing uncertainties between firms, and divesting activities with low value-creation prospects. As such, services create value and drive economic growth through increasing the specialization of our economies. Indeed, economic statistics indicate that the growth of the service sector is largely driven by the rise of business services rather than consumer services.
In the domain of strategy, the rise of business services goes hand in hand with the strategic shift from product-centric strategies to service- based business models. Companies use business models as a strategic response to the increasing competitive pressure which shows in reduced margins and shorter time frames to capture the value from product innovation. As a response, firms organize around opportunities in order to craft value propositions that are difficult for others to copy.
We explore a range of issues in this context, incl. the Industrial Internet of Things (IIoT), service-based business models, governance mechanisms for B2B service contracts, and the role of B2B services in economic growth.
Background and motivation
This project shows the importance B2B services play in driving economic growth. We showed that in the US economy, it is contrary to common belief not B2C services that grow their share of GDP, but B2B services.
 
Jochen Wirtz
added a project goal
The scope of B2B services has risen to the extent that almost every conceivable business operation can be hired as an external service, and they are one important aspect of the global services trend towards increasing collaboration. Services can enhance the value of a business by reducing costs of asset-ownership, freeing management capacity to focus on entrepreneurial opportunities, sharing uncertainties between firms, and divesting activities with low value-creation prospects. As such, services create value and drive economic growth through increasing the specialization of our economies. Indeed, economic statistics indicate that the growth of the service sector is largely driven by the rise of business services rather than consumer services.
In the domain of strategy, the rise of business services goes hand in hand with the strategic shift from product-centric strategies to service- based business models. Companies use business models as a strategic response to the increasing competitive pressure which shows in reduced margins and shorter time frames to capture the value from product innovation. As a response, firms organize around opportunities in order to craft value propositions that are difficult for others to copy.
We explore a range of issues in this context, incl. the Industrial Internet of Things (IIoT), service-based business models, governance mechanisms for B2B service contracts, and the role of B2B services in economic growth.