Digital servitization business models in ecosystems: A theory of the firm

Abstract

The present study intends to extend the discussion about digital servitization business models from the perspective of the theory of the firm. We utilize four theories of the firm, the Industrial Organization (IO), Resource-Based View (RBV), Organizational Identity (OI), and Transaction Cost Approach (TCA) to understand digital servitization business models of firms in the context of ecosystems. Digitalization transforms solution providers' business models, and shapes their firm boundary decisions, as solution providers develop digital solutions across organizational boundaries within ecosystems such as harbours, mines, or airports. Hence, digitalization does not only impact on individual firms' business models, but requires that the business models of different firms within their ecosystems provide some form of fit or alignment. Hence, business models in digital servitization should be considered from the ecosystem perspective. Based on the literature review, we provide future research suggestions for digital servitization business models in ecosystems.

Full text

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Journal of Business Research
journal homepage: www.elsevier.com/locate/jbusres
Digital servitization business models in ecosystems: A theory of the firm
Marko Kohtamäki
a,b,⁎
, Vinit Parida
c,d
, Pejvak Oghazi
e
, Heiko Gebauer
f,g,h
, Tim Baines
i
a
University of Vaasa, School of Management, PO Box 700, FI-65101 Vaasa, Finland
b
University of South-Eastern Norway, USN Business School, Norway
c
Luleå University of Technology, Entrepreneurship and Innovation, 97187 Luleå, Sweden
d
University of Vaasa, School of Management, Finland
e
School of Social Sciences, Sodertorn University, 141 89 Stockholm, Sweden
f
Data Mining and Value Creation, Fraunhofer IMW, Neumarkt 9-19, 04109 Leipzig, Germany
g
International and Strategic Management, Linköping University, Sweden
h
Bosch IoT-Lab, University St. Gallen, Switzerland
i
Operations Strategy, Advanced Services Group, Aston Business School, Aston University, Birmingham B4 7ET, UK
ARTICLE INFO
Keywords:
Digitalization
Industry 4.0
Ecosystems
Digital servitization
Product-service systems (PSS)
Firm boundaries
Business model innovation
Platforms and sustainability
ABSTRACT
This study extends the discussion of digital servitization business models by adopting the perspective of the
theory of the firm. We use four theories of the firm (industrial organization, the resource-based view, organi-
zational identity, and the transaction cost approach) to understand digital servitization business models of firms
in the context of ecosystems. Digitalization transforms the business models of solution providers and shapes their
firm boundary decisions as they develop digital solutions across organizational boundaries within ecosystems
such as harbors, mines, and airports. Thus, digitalization not only affects individual firms' business models but
also requires the alignment of the business models of other firms within the ecosystem. Hence, business models
in digital servitization should be viewed from an ecosystem perspective. Based on a rigorous literature review,
we provide suggestions for future research on digital servitization business models within ecosystems.
1. Introduction
Digitalization aids servitization in manufacturing companies,
creating new opportunities for services, platforms, intelligent products,
and novel business models. In servitization studies, digitalization is
increasingly viewed as an enabler and driver of the business model,
value creation, and value capture (Lerch & Gotsch, 2015;Parida,
Sjödin, & Reim, 2019;Porter & Heppelmann, 2014). Digitalization and
software have been inherently involved in servitization from its infancy
(Rabetino, Harmsen, Kohtamäki, & Sihvonen, 2018), shaping serviti-
zation strategies and structures as well as macro- and micro-level ac-
tivities. Companies, such as Rolls-Royce, Wärtsilä, and Caterpillar have
used a variety of sensor-based technologies to enable product-service-
software systems and smart solutions (Grubic, 2018;Rymaszewska,
Helo, & Gunasekaran, 2017). However, software was underemphasized
in the early servitization research (Coreynen, Matthyssens, & Van
Bockhaven, 2017). It is now time to shed light on the role of digitali-
zation in servitization and let digitalization rewrite the servitization
narrative—a narrative that may diverge from the original servitization
story (Luoto, Brax, & Kohtamäki, 2017).
Studies have started documenting multiple industrial cases of the
transition toward digital servitization (Cenamor, Sjödin, & Parida,
2017). Business models for smart solutions entail the combination of
various products, services, software, and analytics (Porter &
Heppelmann, 2014). Companies are moving from remote monitoring to
optimization, control, and, ultimately, autonomous systems with ad-
vanced functionalities based on artificial intelligence. While some
companies are still overcoming the challenges of data collection,
warehousing, analytics, and prediction, leading companies such as ABB,
Volvo, and Wärtsilä are rapidly moving toward more autonomous so-
lutions (Parida et al., 2019;Porter & Heppelmann, 2015). However,
transition toward digital servitization seems far from easy, and the
implementation of digital servitization and the related technologies,
routines, and business models adds complexity and creates challenges.
Smart solutions (e.g., smart product-service systems) entail changes in
terms of business model configuration (i.e. the purchase of reliability,
availability, or outcomes rather than a product and service agreement;
Visnjic, Neely, & Jovanovic, 2018). Digitalization enables not only
improved preventive and proactive maintenance but also more effective
and efficient value creation and capture through a variety of software
https://doi.org/10.1016/j.jbusres.2019.06.027
⁎
Corresponding author at: University of Vaasa, School of Management, PO Box 700, FI-65101 Vaasa, Finland.
E-mail addresses: marko.kohtamaki@uva.fi(M. Kohtamäki), Vinit.parida@ltu.se (V. Parida), heiko.gebauer@imw.fraunhofer.de (H. Gebauer).
Journal of Business Research 104 (2019) 380–392
Available online 24 June 2019
0148-2963/ © 2019 The Author(s). Published by Elsevier Inc. This is an open access article under the CC BY license
(http://creativecommons.org/licenses/BY/4.0/).
T

components. Yet the typical challenges faced by many servitizing
companies remain: Customers expect smart solutions to be customized
to their needs, want to buy hardware instead of outcomes, and are re-
luctant to pilot truly novel smart solutions.
Moreover, digital servitization calls for collaboration across firm
boundaries as smart solutions interact with product-service-software
systems of other companies to implement smart autonomous ecosys-
tems (Bustinza, Bigdeli, Baines, & Elliot, 2015;Kowalkowski, Gebauer,
& Oliva, 2017;Rabetino & Kohtamäki, 2018;Salonen & Jaakkola, 2015;
Sklyar, Kowalkowski, Tronvoll, & Sörhammar, 2019). Indeed, in the
creation of autonomous products, as in the cases of Tesla, Rolls-Royce,
Wärtsilä, Caterpillar, and many others, companies cannot operate se-
parately from customers but must instead operate across firm bound-
aries. Smart solutions must be designed to operate and interact with the
solutions offered by many other manufacturers, used by customers,
delivered by distributors, maintained by different service partners, and
operated by third parties. Therefore, the integration of smart solutions
across firm boundaries is crucial. This rapid transformation requires
technological innovation as well as business models and collaborative
innovations when manufacturers struggle to configure their business
models and practices to enable smooth collaboration.
The present study takes stock of the servitization literature and
answers the following research questions: How does digital servitiza-
tion shape business model configurations, and which research direc-
tions should be taken based on the interplay between digital serviti-
zation business models and theories of the firm within ecosystems and
platforms? This study taps into the discussion of digital servitization
business models from the perspective of the theory of the firm. This
review establishes what types of business model configurations are
discussed in the servitization literature and how the digital shapes
servitization business models. This study contributes to both the ser-
vitization and the digital servitization literature.
We use four theories of the firm (industrial organization, the re-
source-based view, organizational identity, and the transaction cost
approach) to understand digital servitization business models within
ecosystems. We use these theories of the firm to understand config-
urations of the following five specific business models drawn from the
literature: 1) product-oriented service provider, 2) industrializer, 3)
customized integrated solution provider, 4) platform provider, and 5)
outcome provider (Huikkola & Kohtamäki, 2018;Kowalkowski,
Windahl, Kindström, & Gebauer, 2015). Digitalization transforms the
business models of solution providers and shapes their firm boundary
decisions as they develop digital solutions across firm boundaries
within ecosystems such as harbors, mines, and airports. Through this
conceptual essay and critical review, we address the digital transfor-
mation in manufacturing that is shaping business models, enabling new
strategic configurations, and providing new opportunities for digital
servitization research. This study therefore also makes a significant
managerial contribution by highlighting the configurations of digital
servitization business models, thereby enabling managers to design
Internet-of-Things-related digital servitization business models and
practices such as sayings and doings (Kohtamäki, Baines, Rabetino, &
Bigdeli, 2018). Finally, we introduce the articles in this special issue.
2. Review method and data description
We used two search strings to retrieve the relevant literature to
achieve our research aims. The first search string covered servitization-
related keywords. The search was conducted based on article titles,
keywords, and abstracts. The second search string filtered for AJG3-
and AJG4-ranked journals (AJG is the ranking used by the UK Research
Assessment Exercise) in strategic management, management, mar-
keting, organization, innovation, operations, and supply chain man-
agement. The second search enabled us to narrow the focus to papers in
high-impact journals in relevant research areas. We used the Scopus
database to conduct the search. The first search without the journal
filter returned 465 servitization-related studies in all journals. Of these,
161 studies were published in AJG3 and AJG4 journals. In terms of the
evolution of citations of the 465 studies in all journals, Fig. 1 shows that
the number of citations per year and the number of studies per year in
servitization increased over the period 2010 to 2018 (Kowalkowski
et al., 2017;Rabetino et al., 2018). Based on these yearly numbers,
servitization research has experienced considerable growth.
Of the 465 servitization articles, we were interested in those that
explicitly focused on digital servitization, theories of the firm (in-
dustrial organization, the resource-based view, organizational identity,
or the transaction cost approach), or business models. We used multiple
keywords to identify these areas in the 465 servitization studies. For
instance, we used several keywords when searching the titles, abstracts,
and keywords of the servitization articles to understand the presence of
digitalization in the servitization literature. These keywords included
the IoT, smart solutions, digitalization, and Industry 4.0. We separately
performed a similar process with relevant keywords for each of the
studied topics. Relevant alternative keywords for each topic were
gathered from highly impactful studies. Table 1 shows the number of
articles that had addressed the topics of interest in the servitization
literature at the time of the search (early 2019).
One limitation is our decision not to conduct a general review of
servitization because such extensive reviews already exist (Baines et al.,
2016;Kowalkowski et al., 2017;Rabetino et al., 2018). Hence, we ex-
cluded studies that did not explicitly focus on servitization business
models, any of the firm boundary theories, or the digital or software
component in servitization. Table 1 shows the number of servitization
studies using each of the four theories, reflecting the broad use of the
Fig. 1. Evolution of citations in servitization research (number of citations on the left-hand axis and number of studies on the right-hand axis).
M. Kohtamäki, et al. Journal of Business Research 104 (2019) 380–392
381

resource-based view in the servitization literature (85 studies) and the
multiple discussions related to servitization mindset, orientation, cul-
ture or identity (19 studies). Notably, very few studies actually used
industrial organization (five studies) or the transaction cost approach
(four studies). The data on servitization studies show that 43 studies
focused on digital servitization or related concepts. In addition, 96
studies used the concept of business models. A key conclusion from this
descriptive review is that servitization and digital servitization studies
tend to underuse well-established theoretical perspectives.
3. The industrial ecosystem perspective in the digital era:
delineating value systems, ecosystems, networks, and platforms
Successful implementation of digital servitization business models
extends operations beyond the boundaries of a single firm. Hence, it is
important to define the concepts in the context of a local industrial
ecosystem (from the perspective of Wärtsilä, Rolls-Royce, Sandvik, or
Caterpillar) such as harbors, airports, mines, and the like. The strategy
literature uses a variety of concepts and labels to describe the inter-
dependent system of companies. Such labels include the value system,
ecosystem, interorganizational network, and sometimes even the plat-
form, each with different meanings. Multiple synonymous concepts can
be found for these terms. For a manufacturing company, it is typical to
define the value system, understand one's position within it, and un-
derstand where, how, and why firm boundaries are determined and
how digitalization affects business models in different positions within
the value system and ecosystem. For example, Fig. 2 illustrates the
value system flowing from raw material suppliers to component sup-
pliers, system suppliers, solution providers, operators, and end-custo-
mers. Value systems with levels and denominators vary, and this de-
scription is from the context of moving vehicles where the operator
level separates manufacturing from end-customers. This is only one
description from a solution provider's perspective. Other business
models are discussed in the next section. Firms vary in their degree of
vertical integration—that is, how they define their firm boundaries. The
value system as a concept refers to the system extending from raw
material suppliers to end-customers (Porter, 1980). Ecosystems can
exist within the value system. They operate using market or networked
organizational forms. These systems are organized as hierarchies,
markets, or networks (Kohtamäki, Rabetino, & Möller, 2018;Thorelli,
1986;Williamson, 1985). An interorganizational network is typically
described as an organizational form between markets and hierarchies,
suggesting that a network is more integrated than the market but less
integrated than a hierarchy (Thorelli, 1986). This is important when
business models are conceptualized within ecosystems, acknowledging
the interdependency and alignment between a firm and ecosystem ac-
tors (Adner, 2016;Jacobides, Cennamo, Gawer, & Mgmt, 2018), par-
ticularly when developing smart solutions. Hence, make-or-buy deci-
sions have been coined as make-or-collaborate-or-buy decisions to
underline the intermediate organizational form between market and
hierarchy. Newer concepts of ecosystems and platforms can be defined
against the pre-existing concepts in the literature. The ecosystem as a
concept emphasizes the value creation and capture between inter-
related firms. The use of the concept in the literature varies, as does the
empirical landscape of different studies, thereby hampering definition
of the concept (Möller & Halinen, 2017). Business ecosystems are
driven by a hub firm such as Apple or Google, which drives and de-
velops its own business ecosystem. In this study, we use the concept of
an ecosystem when we refer to a predominantly local context. To ex-
plain the context we seek to depict here, we use a harbor as an example
of a local ecosystem, where technologies and business model config-
urations of multiple firms must combine to create an autonomous
Table 1
Firm boundary theories, digitalization, and business models in the servitization
literature.
Firm boundary theories Number of studies
Servitization 465
Resource-based view 85
Industrial organization 5
Organizational identity 19
Transaction cost approach 4
Digital servitization (IoT in servitization) 43
Business model 96
Fig. 2. Digitalization effects throughout value system/ecosystem (developed based on Rabetino & Kohtamäki, 2018).
M. Kohtamäki, et al. Journal of Business Research 104 (2019) 380–392
382

harbor. This approach is to extend the use of the ecosystem concept in a
localized, highly specific setting (in contrast to global settings, which
are also relevant). Thus, an example is a harbor, where companies
develop new autonomous operations. In contrast to the concept of an
interorganizational network, the concept of an ecosystem is indifferent
to whether exchanges are coordinated through markets or network-type
mechanisms. This would at least separate ecosystems from inter-
organizational networks. This point is important because, in digital
servitization, the development of smart solutions moves beyond single-
firm boundaries. Hence, the development of, for example, autonomous
or semi-autonomous harbors requires the development of smart solu-
tions, technologies, and business model configurations that go beyond
firm boundaries. When firms develop connected smart solutions and
there is a shift toward the IoT, new ecosystems are likely to emerge.
These new ecosystems are not necessarily organized as interorganiza-
tional networks; instead, assisted by smart technologies such as block-
chain, they can be organized as markets. Hence, it is important to
conceptually differentiate ecosystems and interorganizational net-
works. Otherwise, we risk mixing concepts.
Gawer and Cusumano (Gawer & Cusumano, 2014: 417; Iansiti &
Levien, 2004)defined platforms as “products, services, or technologies
that act as a foundation upon which external innovators, organized as
an innovative business ecosystem, can develop their complementary
products, technologies, or services.”Hence, platforms enable connec-
tions between actors (e.g., multiple suppliers and customers) within an
ecosystem. In practice, a platform can refer to a webstore that links
multiple suppliers and customers (multi-sided markets) and that is
managed by a manufacturer. Uber and Airbnb are prominent examples
of platform business models. Hence, this type of platform is a business
model.
When moving toward a digital servitization business model, firms
must redefine their business model configurations. To do so, firms
should understand the configurations of other firms within the eco-
system to create strategic fit between business models (e.g., technolo-
gies, routines, value propositions, and pricing logics). Because many
potential activities depend on technologies and other capabilities of
other companies, implementing strategies is always limited by colla-
boration with other actors within the ecosystem. Thus, the focus on
ecosystems remains a key condition for digital servitization. We call for
research from this ecosystem perspective in digital servitization.
4. Conceptualization of a digital servitization business model
In the last three decades, the servitization-related literature has
grown through articles on servitization, product-service systems, ser-
vice-dominant logic (SDL), service innovation, and service operations.
Altogether, recent reviews have identified more than 1000 articles on
servitization-related fields (Rabetino et al., 2018), with the core servi-
tization literature accounting for approximately 465. Of these 465 ar-
ticles, only 43 actually discuss digital servitization or related concepts,
which form the core of this study. Digital servitization is still in its in-
fancy, requiring thorough definition and conceptualization. We argue
that digitalization is inherently embedded in servitization because
servitization builds on integrated product-service-software systems.
Thus, servitization is the transition from products and add-on services
to integrated product-service-software systems. Because the digital
servitization literature is in its infancy, a commonly accepted definition
does not yet exist.
We define digital servitization as the transition toward smart pro-
duct-service-software systems that enable value creation and capture
through monitoring, control, optimization, and autonomous function.
To gain value from digital servitization, firms must capitalize on three
dimensions of digital offerings (i.e., products, services, and software),
which should work together. Thus, the concept of digital servitization
reshapes the conventional idea of products as standalone concepts, in-
stead emphasizing the connectivity between products (IoT) and
between companies (manufacturers, operators, and customers) (Frank,
Mendes, Ayala, & Ghezzi, 2019).
Digital servitization is a multi-dimensional construct that comprises
multiple equifinal business model configurations that lead to optimal
outcomes (Sjödin, Parida, & Kohtamäki, 2019). Thus, there are various
pathways to building a digital servitization business model, and one
pressing issue is which dimensions should be used. There are several
business model typologies. Examples include 1) equipment supplier, 2)
solution provider, and 3) performance provider (Helander & Möller,
2008); 1) after sales service provider, 2) customer support service
provider, 3) customer service strategy, 4) development partner, and 5)
outsourcing partner (Gebauer, Edvardsson, Gustafsson, & Witell, 2010);
1) product business model, 2) service-agreement business model, 3)
process-oriented business model, and 4) performance-oriented business
model (Huikkola & Kohtamäki, 2018); and 1) industrializer, 2) avail-
ability provider, and 3) performance provider (Kowalkowski et al.,
2015). The ideal types identified in previous studies exist in the em-
pirical world and are hence viable. Thus, the equifinality assumption
holds in servitization as well as digital servitization. In other words,
several configurations can lead to optimal outcomes: There is no single
path or trajectory to success (Fiss, 2007;Forkmann, Ramos, Henneberg,
& Naudé, 2017;Sjödin, Parida, & Kohtamäki, 2016).
To conceptualize digital servitization business models, we start with
the product-service-software offering that reflects well the company's
solution strategy (Ehret & Wirtz, 2017;Kohtamäki, Partanen, Parida, &
Wincent, 2013). This strategy is evident in the offerings, and the con-
struction of the business model builds on the value proposition. A
variety of dimensions can be used to construct offerings in digital ser-
vitization. We use three dimensions: 1) solution customization (from
standardization to customization of offerings; Kowalkowski et al., 2015;
Mathieu, 2001;Matthyssens & Vandenbempt, 2010), 2) solution pricing
(from product-oriented to outcome-oriented; Gebauer, Saul,
Haldimann, & Gustafsson, 2017;Parida, Sjödin, Wincent, & Kohtamäki,
2014), and 3) solution digitalization (from monitoring to autonomous
solutions; Porter & Heppelmann, 2015;Fig. 3). These are the core
characteristics of smart solutions that digital servitization business
models are built on.
First, solution customization refers to the value created by tailoring
the product-service-software solution to customer needs. The solution
offerings of manufacturing companies vary by level of customization,
and product, service, and software characteristics can be customized,
modularized, or standardized. Solution customization plays a sig-
nificant role in effectiveness (value creation) and efficiency (of value
capture) of the business model, and the tension between effectiveness
and efficiency may be paradoxical (Kohtamäki, Rabetino, & Einola,
2018).
Second, solution pricing represents the core of value capture. The
levels of this dimension represent the archetypal characteristics of
something that is often referred to as a servitization business model.
However, at its core, it considers the pricing logic used in the product-
service-software offering. Thus, the pricing of the offering may be
product oriented, agreement oriented, availability oriented, or outcome
oriented (Gebauer et al., 2017;Huikkola & Kohtamäki, 2018).
The third dimension is solution digitalization. From the early days
of servitization, the digital or software dimension has been considered
central. The digital servitization draws from previous research on re-
mote diagnostics (Brax & Jonsson, 2009), remote monitoring tech-
nology (Davies, 2004;Grubic & Peppard, 2016) or smart technology
(Ostrom et al., 2010), to name a few concepts used in previous studies.
Whereas the early studies have focused mostly on technological aspects,
the research on digital servitization intends to emphasize the interplay
between technology and business model. A few studies have acknowl-
edged the important role of software in product-service-software sys-
tems suggesting that software can enable product and service bundling,
and therefore act as a catalyst (Kowalkowski, Kindström, & Gebauer,
2013;Töytäri et al., 2018). In particular, the latest servitization studies
M. Kohtamäki, et al. Journal of Business Research 104 (2019) 380–392
383

have emphasized the role of the IoT and software in smart solutions
(Coreynen et al., 2017;Sklyar, Kowalkowski, Sörhammar, & Tronvoll,
2019). The levels of this dimension reflect the literature on digital
servitization, the IoT, and smart products. They also include features
such as monitoring, control, optimization, and autonomous function
(Porter & Heppelmann, 2014). These are the core digital features in
smart solutions today. The description of these characteristics is not
conclusive, but it is parsimonious enough to separate digital servitiza-
tion business models and is coherent, in contrast to the literature.
These three dimensions can be used to create a typology of digital
servitization business models using the characteristics of solution of-
ferings as a starting point. Fig. 3 simplifies the ideal typical business
models based on the three dimensions that define the characteristics of
solution offerings. Any individual firm may apply a variety of business
models with different customer segments or business lines. The ideal or
typical descriptions of business models based on these three dimensions
provide a starting point for the analysis of business model configura-
tions in digital servitization. Different business units may also follow
different business models and strategic configurations. Thus, a business
model is a collection of routines used by the company to create, deliver,
and capture value (Osterwalder, Alexander & Pigneur, 2010;Teece,
2010). Hence, a manufacturing company's business model as a com-
prehensive concept can embed any variety of strategic configurations.
5. Theory of the firm and digital servitization
Digitalization enables the emergence of new business models, which
then affect companies beyond firm boundaries within ecosystems, af-
fecting component manufacturers, system suppliers, system integrators,
solution providers, operators, distributors, and customers. Changes in
one firm's business model can have a significant impact on other firms'
operations. For example, when companies change their business
models, value propositions, organizational structures, and IT-systems,
changes in one firm affect others within the ecosystem. Thus, the
concept of the business model should be understood as a dynamic one,
something that is continuously constructed and reconstructed. Many of
these changes take place at the micro-level when a firm changes its
activities. Changes in micro activities often shape the macro-level
ecosystem because the micro-level activities together constitute the
macro-level environment (Kohtamäki, Baines, Rabetino, & Bigdeli,
2018;Seidl & Whittington, 2014). In this setting, changes to a firm's
business model configuration may influence other firms' business
models at the ecosystem level.
We use four theories to study the optimal digital servitization
business model configurations within platforms and ecosystems and
thus understand these configurations. We use the theory of the firm to
craft the business model configurations of digital servitization (Santos &
Eisenhardt, 2005). The theory of the firm provides four theoretical
perspectives to analyze how digitalization affects servitization within
platforms and ecosystems. Typically, strategy theory provides four
theories to conceptualize the theory of the firm: industrial organization,
the resource-based view, organizational identity, and the transaction
cost approach (Santos & Eisenhardt, 2005).
We use these theories to provide insight into competitive advantage
in digital servitization. How do companies use different business
models to generate competitive advantage and increase power? Where
in the ecosystem do firms create the highest profits and how? Who is
our firm? What should the firm make or buy? These questions are re-
levant to any firm, but they are especially pertinent in times of digi-
talization and the IoT. At the micro level, changes in firm boundaries
refer to make-or-buy decisions—so-called outsourcing or insourcing
decisions. From the macro perspective, changes in firm boundaries
Fig. 3. Understanding the characteristics of solution offerings in digital servitization business models.
M. Kohtamäki, et al. Journal of Business Research 104 (2019) 380–392
384

affect the organization of the value systems, roles, capabilities, and
collaborative practices between actors (Rabetino & Kohtamäki, 2018).
Over time, architectures within ecosystems, players, and firm bound-
aries change, as do the boundaries between strategic groups and in-
dustries. These changes shape industrial value systems, raising many
pressing questions for future studies to address.
Servitization research has often used these theories separately when
studying servitization or digital servitization. When used together, they
create a powerful diagnostic tool to understand different business
models. Prior studies tend to explain why these theories should be used
together to focus on the interplay between them (e.g., Bäck &
Kohtamäki, 2015) instead of analyzing their processes or impact sepa-
rately. In servitization, few studies seem to have used these theories
together to delimit firm boundaries (Salonen & Jaakkola, 2015). The
selected theories provide grounds for advancing the discussion on the
organization of ecosystems, value systems, relationships, and compa-
nies when firms change their business models. Business model changes
shape firm boundary decisions, leading to outsourcing or insourcing
upstream or downstream.
Research Direction 1a: The literature on digital servitization should
study the interplay between servitization, the IoT, and different
theories of the firm.
Research Direction 1b: The interplay between theories of the firm
may shed light on the business model configurations in digital ser-
vitization and therefore deserve further attention in future studies.
5.1. The resource-based view
The resource-based view was developed to understand how com-
binations of valuable, rare, inimitable, nonsubstitutable, and organized
resources (VRIN/O) can generate competitive advantages for a firm
(Barney, 1991;Penrose, 1959). Competitive advantages emerge as
combinations of VRIN/O resources and processes in servitization too
(Baines, Lightfoot, Smart, & Fletcher, 2013;Lenka, Parida, Sjödin, &
Wincent, 2017;Paiola, Saccani, Perona, & Gebauer, 2013;Ulaga &
Reinartz, 2011). Resources should be reconfigured to seize new busi-
ness opportunities such as digital servitization. On these occasions,
companies should use dynamic capabilities of sensing, seizing, and re-
configuring (Huikkola, Kohtamäki, & Rabetino, 2016;Kindström,
Kowalkowski, & Sandberg, 2013;Teece, 2007;Teece, Pisano, & Shuen,
1997).
The digital part of digital servitization may provide a means to
develop processes and capabilities for better value creation and capture,
increased customization efficiency, more efficient order delivery, and
more effective resource reconfiguration when moving toward new
business opportunities such as new customer markets (even blue
oceans), novel projects, and smart solutions. The advantage is created
through processes and activities, through which technology companies
create value from competencies and resources located internally or
externally (Ardolino et al., 2018;Coreynen et al., 2017;Huikkola &
Kohtamäki, 2017;Visnjic et al., 2018).
To achieve the benefits of digital servitization, companies need
software capabilities where their business models become dependent on
the continuous acquisition, warehousing, analytics, and implementa-
tion of machine and fleet-level data (Hasselblatt, Huikkola, Kohtamäki,
& Nickell, 2018). For instance, Lenka, Parida, and Wincent (2017)
identified capabilities related to digitalization such as connect, in-
telligence, and analytic capabilities. Thus, digital servitization adds to
the capability requirements of companies. Adding advanced service and
software capabilities to the capability portfolio will not remove the
need for product engineering and manufacturing capabilities as shown
by previous servitization research. Ulaga and Reinartz (2011) identified
unique resources such as 1) installed base product usage and process
data, 2) product development and manufacturing assets, 3) product
salesforce and distribution network, and 4) field service organization
and distinctive capabilities. Such capabilities include 1) service related
data processing and interpretation capability, 2) execution risk assess-
ment and mitigation capability, 3) design-to-service capability, 4) hy-
brid offering sales capability, and 5) hybrid offering deployment cap-
ability, which could lead to advantages based on either differentiation
or cost leadership. Huikkola and Kohtamäki (2017) identified critical
resources and strategic processes that create strategic capabilities and
competitive advantages for solution providers. They found seven stra-
tegic capabilities: 1) fleet management, 2) technology development, 3)
mergers and acquisitions, 4) value quantification, 5) project manage-
ment, 6) supplier network management, and 7) value co-creation. In
their empirical study of 17 cases, Gebauer et al. (2017) identified the
organizational capabilities required for pay-per-use services. These in-
clude capabilities related to 1) financing, 2) aligning costs with
equipment usage, and 3) customer collaboration. Hasselblatt et al.
(2018) studied manufacturers' capabilities in the IoT and found five
bundles of strategic IoT capabilities: 1) digital business model devel-
opment, 2) scalable solution platform building, 3) value selling, 4)
value delivery, and 5) business intelligence and measurement. The IoT
seems to transform capability requirements of manufacturers sig-
nificantly, and further research is needed to define manufacturers'
capabilities in digital servitization.
Research direction 2a: The literature on digital servitization should
explain how digital capabilities in servitization generate competitive
advantage and what types of configurations of resources and pro-
cesses they require. We call for studies on strategic capabilities in
digital servitization.
Research direction 2a: Research is needed on the role of dynamic
capabilities in resource reconfiguration for digital servitization.
5.2. Organizational identity
Building on the cognitive perspective of strategy, organizational
identity is concerned with who we are as an organization. Hence, or-
ganizational identity as a theory highlights the role of identity and
culture of the organization: How do the actors in different levels per-
ceive the organization, and how do the other actors within the eco-
system conceptualize the role and identity of the servitizing solution
provider? These are the key questions when the firm intends to make
sense of its existence, boundaries, identity, and mindset. Identity in-
forms strategic and organizational decisions and both vertical and
horizontal boundaries. As a theory, organizational identity builds on
managerial and strategic cognition as well as sensemaking (Gioia,
Patvardhan, Hamilton, & Corley, 2013).
Our analysis of the servitization and digital servitization literature
shows that few studies have directly used the identity approach. In the
servitization literature, 19 studies have used related concepts such as
service culture, mindset, and service orientation, but studies have
mainly used service culture as one of many concepts without actually
focusing on identity as such or the micro processes or underlying me-
chanisms of solution provider identity—that is, servitization identity.In
terms of digital servitization, we found very little research on the shift
from a manufacturing firm to a software company. Töytäri et al. (2018)
study was one of the rare studying the role of mindset and capabilities
in adoption of smart services. This is a meaningful shift beyond pure
servitization, combining manufacturing, service, and software en-
gineering identities. An interesting and potentially paradoxical question
is how can manufacturing, service, and hacker identities be combined
to create solution providers in the age of digitalization (Kohtamäki,
Rabetino, & Einola, 2018).
Research direction 3a: Research on digital servitization should ex-
plain how digital servitization transforms the identity of a manu-
facturing company. We call for research on the profound effect of
digital servitization on the organizational identity and culture of
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385

Table 2
Firm boundary theories in servitization.
Resource-based view Power-dependency approach Organizational identity Transaction cost approach
Central object of analysis Competitive advantage Power position Strategic cognition Make-or-buy decision
Core logic Build on capabilities
Firm builds competitive advantage by reconfiguring
resources and processes for VRIO(N) combination
Control the exchange relationship
Firms should adjust position through boundary
adjustment for improved bargaining power
Focus on the core
Firms should define the boundaries to align the
organizational mindset and activities
Minimize costs
If outsourcing creates cost advantages, firms
should outsource activities as opposed to own
production.
Core topics - Critical resources
- Strategic processes
- Strategic capabilities
- Bargaining power toward upstream and
downstream
- Dependency between buyer and supplier
- Threat of entrants and complementarities
- Service-oriented vs. engineering-oriented
organizational identity
- Organizational strategy
- Organizational culture
- Organizational structure
- Opportunism
- Bounded rationality
- Environmental uncertainty
- Relationship-specific investments
- Number of transactions
Tools, or criteria to identify VRIN/O Description of the value system
Five forces
Cognitive maps
Discourses, narratives
Environmental uncertainty
Relationship-specific investments
Number of transactions
Central question for the firm What constitutes your firm's core capability? How can we improve our influence? Who are we as an organization? Will the sum of production cost and transaction
cost achieved after outsourcing be less than the
total costs achieved within the firm before
outsourcing?
Central questions in
servitization
Which factors constitute our competitive advantage
when we move toward digital servitization?
How can resources and capabilities be reconfigured
for digital servitization?
How does digital servitization influence our
bargaining power? How does digitalization
change power positions within our industry and
across industries?
If/when we move toward digital servitization,
who will we become as an organization?
How does digital servitization influence our
make-or-buy decisions? How does digitalization
affect transaction costs across customer and
supplier relationships?
The effect of digitalization on
firm boundary
delineation
Manufacturing technology companies become more
like software companies. Capability requirements
change significantly with emphasis on data
acquisition, warehousing, analytics, and
implementation.
Digitalization enables information search on
alternative options, decreasing information
asymmetries. Digital economy requires new
ways of differentiation.
Identities change from product manufacturing to
servitization, advanced services, and software.
From pure production and engineering to
customer and service orientation.
Digitalization and IoT enables more effective
data acquisition, analytics, and implementation,
decreasing transactions costs.
Number of studies in
servitization
85 5 19 4
Number of studies in digital
servitization
13 2 1 1
Authors in strategy Barney, Peteraf, Wernefelt Porter Weick, Gioia, Coase, Williamson
Authors in servitization Visnjic, Baines, Kowalkowski, Gebauer, Parida,
Kohtamäki, Kowalkowski, Kindström
Neely, Martinez, Baines, Rabetino Bowen, Kowalkowski,
Gebauer
Bustinza, Bigdeli, Rabetino,
Sjödin, Parida, Kohtamäki
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386

manufacturing companies.
Research direction 3b: Research is needed on the paradoxical ten-
sions between product, service, and software organizations and or-
ganizational identities in solution providers.
5.3. Power approach
Drawing on industrial organization theory (Porter, 1980) and the
resource-dependency approach (Pfeffer & Salancik, 1978), the power
approach builds on the long tradition of studies that explore the impact
of positioning on bargaining power, competitive advantage, and per-
formance. Thus, the roots of the power approach are in the realist,
objectivist approach of industrial economics, where rational actors seek
the highest profits (Ezzamel & Willmott, 2004). Under this approach,
the theory and operational criteria are used to determine how a firm
can build an optimal position within the industry, strategic group, or
value system, where this position should be optimized for growth and
bargaining power. To operationalize the approach, Porter (1980) de-
veloped five forces to define an optimal market position. Porter's Five
Forces have since been used in a variety of contexts to describe and
determine the attractiveness of a market position with respect to other
positions. Competitive advantage is sought through low cost, differ-
entiation, or competitive scope (Porter, 1991). Strategy may be de-
termined as a configuration of sources of competitive advantage and
competitive scope. The theory and its main conceptual tools are still
relevant today when considering competitive advantage in the age of
digitalization (Porter, 2001;Porter & Heppelmann, 2014).
The analysis of the literature reveals a lack of empirical studies that
have used industrial economics in servitization. Few studies have em-
ployed industrial organization and related models. In a single case
study, Rabetino and Kohtamäki (2018) presented a case in point, ar-
guing that, in some cases, such as the propulsion industry, servitization
requires repositioning and direct engagement with the operator to sell
and deliver integrated solutions. They used Porter's Five Forces to
analyze positioning in the propulsion industry. Davies, Brady, and
Hobday (Davies, Brady, & Hobday, 2007)defined two options for im-
plementing servitization to provide integrated solutions: system in-
tegration and vertically integrated system selling. In their study on
servitization, organizational structure, and value chain position,
Bustinza et al. (2015) found that manufacturing firms in the UK use
servitization to differentiate and move upstream to improve control and
enhance performance. Hence, value chain position plays an important
role in service performance. Visnjic, Jovanovic, Neely, and Engwall
(2017) identified five value drivers of outcome business models, re-
ferring to their framework as CLEAN (Complementarities, Lock-in, Ef-
ficiency, Accountability, Novelty). The use of and interplay between
value drivers should improve a firm's position when using the outcome
business model. Hou and Neely (2018) cited dependency as a critical
factor that increases commercial risk in outcome-based services. Thus,
some studies have applied the power approach to servitization, but
none have actually focused on the interplay between digitalization, the
ecosystem architecture, and positioning. Further research is needed to
study the effect of digitalization on firms' power position in different
parts of the ecosystem, also acknowledging Rabetino and Kohtamäki's
(2018) observation that manufacturers need some bargaining power to
sell integrated solutions and enable data acquisition, analytics, and
implementation (i.e., digital servitization). Moreover, power positions
play an important role in shaping ecosystems for autonomous opera-
tions. Collaborative efforts are often needed when seeking a balance
between different players within the ecosystem. Further research on
these topics is needed.
Research direction 4a: Digital servitization studies should examine
how digitalization transforms bargaining power in different sections
of value systems and ecosystems and how manufacturers increase
their power using digitalization.
Research direction 4b: Future research is needed to explore not only
how digitalization enables value creation but also how manu-
facturers shift their value capture from product-centric, to service-
centric, and further to data-centric.
Table 2 summarizes the four different theories of the firm and builds
on the strategy, servitization and digital servitization literatures (Santos
& Eisenhardt, 2005, 2009).
5.4. Transaction cost approach
Since its infancy, the transaction cost approach has been used to
develop a theory on make-or-buy decisions and the conditions that
determine the emergence of transaction costs (Coase, 1937;Williamson,
1985). While the theory acknowledges opportunism and bounded ra-
tionality as important preliminary assumptions, it defines environ-
mental uncertainty, relationship-specific investments, and number of
transactions as important decision-making criteria. According to the
theory, environmental uncertainty, relationship-specific investments
and a large number of transactions generate conditions where manu-
facturing firms' transaction costs tend to increase, wiping out the ben-
efits of the lower production costs that would result from the use of
market mechanisms (i.e., outsourcing activity to markets). Accordingly,
in conditions of high environmental uncertainty, relationship-specific
investments, and a large number of transactions, a company should
make instead of buy because buying products or services under ex-ante
uncertainties would increase the sum of resulting production and
transactions costs over the overall costs of producing the same outputs
within the organization (Williamson, 1985). Williamson's generic
model emphasizes pure governance models instead of intermediate
ones, whereas some scholars claim that, as intermediate hybrid forms
exist anyway, firms need capabilities to collaborate within ecosystems.
Hence, networks or hybrid governance forms are defined as inter-
mediate forms between markets and hierarchies (Powell, 1990).
In the provision of product-service-software systems, transaction
costs can be significant because of the sales and delivery of highly
complex, customized smart solutions. Delivering smart solutions also
incurs significant transaction costs because of upstream interactions
with the service supply chain in addition to product supply.
Digitalization may potentially increase visibility in the exchange re-
lationship and, because of this visibility, decrease transaction costs.
However, scarce empirical research has examined the role of transac-
tion costs in servitization or digital servitization. Accordingly, any
considerations are based on general transaction cost theory. In their
configurational study, Sjödin et al. (2019) identified governance con-
figurations used in governing advanced service partnerships. They
discuss the management of partnerships in the context of advanced
service innovation, identifying three relational or network governance
tactics: innovation governance strategy, relational governance strategy,
and market-based governance strategy. Bigdeli, Bustinza, Vendrell-
Herrero, and Baines (2018) identified the key role of supply chain
collaboration in mitigating the risk of implementing advanced services.
Kamp, Ochoa, and Diaz (2017) emphasized the importance of trust
building between users and producers to share data. So far, no studies
have focused on the effect of digitalization on transaction costs, so
empirical research from this perspective is needed.
Research direction 5a: The servitization literature lacks studies of
the role of transaction costs in servitization. The digital servitization
literature has so far neglected the effect of digitalization on trans-
action costs in downstream and upstream interactions. We call for
studies that explore how digitalization transforms collaboration in
servitization ecosystems.
Research direction 5b: The creation of ecosystems for autonomous
smart solutions entails significant transaction costs as developers
must configure and integrate technologies, routines, and business
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387

models between multiple firms within the ecosystem. More research
is needed on the role of transaction costs in these collaborations and
on appropriate governance structures for these collaborations.
6. Digital servitization business models and the theory of the firm
Table 3 shows the five business models and their configurations
based on the four theories discussed in this paper. We distinguish be-
tween five separate business models: product-oriented service provider,
industrializer, customized integrated solution provider, platform pro-
vider, and outcome provider. Table 3 compares the business models
through the different lenses, identifying the central characteristics of
the business model configurations.
Product-oriented service provider reflects the business model of a firm
that provides products and add-on services. The role of remote diag-
nostics depends on the company technology strategy, but, in this defi-
nition, it does not affect product or add-on service pricing, which is still
based on sold units. Accordingly, this could be thought of as a tradi-
tional product business model. Regarding capabilities, product manu-
facturers need the processes required for efficient design, manu-
facturing, and delivery. The service portfolio is mainly based on basic
offerings—so-called add-on services (Parida et al., 2014). Product-or-
iented service providers have faced the commoditization trap that they
often try to evade through improved service offerings and new digital
services. Often, power is on the customer side, particularly in the case
of simpler products and services where the manufacturer switching cost
is low. Product manufacturers build on product and manufacturing
identity. Transaction costs are reduced by offering standard products
and add-on services that are fairly easy to sell and purchase.
Research direction 6a: Because the digital servitization research
domain lacks empirical studies of smart solutions and advanced
services, digital servitization scholars should analyze the role of
digitalization in developing these companies, their offerings, and
capabilities, as well as the role of digitalization in developing these
companies.
Research direction 6b: Considering the product-oriented focus of
these companies, studies should focus on how IoT applications can
shape future business models and how the IoT affects the role of
services in the future.
Industrializer emphasizes product and service modularity to improve
efficiency despite increasing demands by customers to customize of-
ferings to their needs. Hence, in this business model, the company
emphasizes modularity to increase efficiency of product-service de-
livery and cope with the paradox of effective provision of customized
solutions (Cenamor et al., 2017) versus efficient delivery of solu-
tions—the so-called paradox of performance in servitization
(Kohtamäki, Rabetino, & Einola, 2018). In terms of strategic cap-
abilities, the emphasis is on combining effective solution customization
with efficient order delivery. To achieve this goal, an industrializer
should develop capabilities in modularity. Prior studies have pre-
dominantly examined modularity in terms of product or service mod-
ules. In the age of digitalization, however, the importance of software
should also be considered. Digitalization builds on offerings and cap-
abilities that can be integrated into modular offerings. The bargaining
power of industrializers is based on relatively low prices with some
capacity for efficient modular customization. The identity of an in-
dustrializer still builds on manufacturing with an emphasis on effi-
ciency rather than effectiveness and customization. Moreover, in many
of these companies, engineering plays an important role in company
culture. Effective modularity can reduce transaction costs in down-
stream and upstream interactions.
Research direction 7a: The digital servitization literature fails to
provide detailed micro-level empirical evidence of the role of
Table 3
Connecting business models and firm boundaries in digital ecosystem.
Product provider Industrializer Integrated solutions provider Outcome provider Platform provider
Description of the
business model
Emphasis on standardized products
and add-on services
Modular product offerings and service
agreements
Customized/modular product-service
systems with some performance
guarantees or operational services
Provision of availability
Customized/modular product-service
systems owned by the manufacturer,
predominantly performance pricing
Service-dominant business model where the
platform provider enables provider-customer
interactions and sharing services
The role of
digitalization
Some smart features based on
remote diagnostics
Efficient use of some remote
diagnostics features, typically related
to monitoring, diagnostics, and
proactive maintenance
Remote diagnostics enabling provision of
availability requiring effective
monitoring, control, and optimization
Remote diagnostics enabling monitor,
control, optimization, and autonomous
operation (in some highly advanced cases
such as moving vehicles)
Digital platform enabling effective
interactions. Operator may monitor, control,
optimize, and provide ecosystem enabling
autonomous products (e.g., vehicles)
Resource-based view Capabilities related to product
selling, manufacturing,
distribution, and delivery as well as
brand management.
Capabilities to mass customize while
maintaining high production capacity.
Particular emphasis on modularity-
based efficiencies.
Solutions sales and delivery, remote
diagnostic, preventive maintenance,
advanced services, IoT. Increasing
emphasis on project management
capabilities
Value-based selling, delivery of outcome-
based services, IoT, AI solutions
Digital platform, user interface, and large
number of providers and customers. Brand
development. IoT to enable monitoring,
control, optimization and autonomous
products
Power approach Product differentiation or cost-
advantage
Product-service strategy relies on cost-
advantage and scale economies
Customized product-service system,
advanced services, customer lock-in
Ease of buying and use, customer lock-in Strong provider holds significant power
generated by knowledge about actors and the
ecosystem
Organizational identity Product manufacturing Technology and Manufacturing
orientation
Solution provider, customer orientation,
balancing between technology and
customer orientation
Performance provider
Fully customer oriented, yet also
evolving technology orientation
Interest in platform and true service-
dominant logic. “Saves the world”through
sharing business model and waste reduction
Transaction cost
approach
Low relationship-specific
investments
More stable and simple business
environment
Intermediate relationship-specific
investments
Dynamic and complex business
environment
High relationship-specific investments
Very dynamic and complex business
environment
High relationship-specific investments
Very dynamic and complex business
environment
Digital platform enabling creation of sharing
services. Digital platform saves transaction
costs
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388

modularity in digital servitization or servitization in general. Future
research should provide more detailed empirical findings on mod-
ularity and related routines in digital servitization, particularly
concerning industrializers.
Research direction 7b: The configuration of the product, service,
and software modules to ensure better service and digital content
needs clarifying. What should constitute a core module and how is it
possible to benefit from such a modular approach?
Customized integrated solution provider refers to companies that offer
integrated product-service solutions. Under this model, provision of
availability may play a significant role, and, particularly in large in-
tegrated solutions, the model often entails relatively high levels of so-
lution customization (Windahl & Lakemond, 2010). Provision of
availability sets relatively high standards of remote diagnostics, re-
quiring accurate data acquisition, analytics, and implementation.
However, the customers of companies that apply this business model
may still want to purchase integrated solutions with performance
guarantees and availability instead of pure outcomes (e.g., cost-per-ton-
contracts; Rabetino, Kohtamäki, Lehtonen, & Kostama, 2015). Some
companies using this business model may move toward autonomous
features in their solutions by providing monitoring, control, optimiza-
tion and crewless autonomy as a service. This requires the development
of capabilities in digitalization (e.g., capabilities in monitoring, control,
optimization, and autonomous vehicles). These capabilities build on
sales, design, and delivery of integrated lifecycle solutions. Develop-
ment of integrated solutions requires in-depth knowledge of not only
customers but also other partner company equipment and processes, as
well as the integration of technologies (e.g., software beyond firm
boundaries). Hence, in many ways, the bargaining power of these
companies is increasingly based on knowledge integration to create and
capture value from customers or customers' customers. Organizational
identity of an integrated solution provider is based on a paradoxical
combination of engineering and customer orientations (Kohtamäki,
Rabetino, & Einola, 2018). Customization and delivery of complex so-
lutions increase transaction costs that heighten the importance of pro-
ject management capabilities.
Research direction 8a: The digital servitization literature broadly
neglects changes in business model configurations of customized
integrated solution providers. More empirical evidence is required
to understand how digitalization shapes the ability of customized
integrated solution providers to engage with other ecosystem actors
to deliver higher value to customers.
Research direction 8b: A related issue has to do with how to co-
develop business models with ecosystem partners. How is it possible
to co-create and capture value over extended contracted duration of
the solution?
Outcome provision refers to solution providers that sell outcomes
instead of products or services (Visnjic et al., 2017). Thus, instead of
selling products, providers retain ownership and sell the value created
by the product. Examples are the power generated by engines, as in
Rolls-Royce's iconic power-by-the-hour concept (Ng, Parry, Smith,
Maull, & Briscoe, 2012;Smith, 2013). Offering such solutions requires
the capability of accurately measuring the generated performance,
often entailing accurate monitoring and control of the product or fleet
of products. Being able to continuously measure and optimize the
equipment or processes is a critical underlying requirement of outcome
providers. The company needs strategic capabilities to sell and imple-
ment outcome-based contracts, suggesting capabilities in detailed
monitoring, control and optimization of even autonomous solutions.
Implementation of these systems, require also in-depth collaboration
between ecosystem actors. Thus, the outcome-based business model
sets very high capability-requirements for solution providers. The or-
ganizational identity of these types of companies centers on the
customer as well as the value of engineering and technology, creating a
paradoxical tension between the customer and the technology mindset
(Kohtamäki, Rabetino, & Einola, 2018). In many ways, these companies
must maintain technological development to provide performance in
the future too. Provision of performance can potentially decrease
transaction costs at the fleet level, but this decrease is related to factors
such as technological uncertainty, relationship-specific investments,
and information asymmetry between provider and customer.
Regarding outcome provision, very little research exist demon-
strating pure ideal typical models of outcome provision in customized
integrated solutions (Grubic & Jennions, 2018). Currently, descriptions
of outcome-based contracts may be ideal-typical, while in the empirical
world, different hybrid-models prevail. This conclusion of course holds
to any conceptual business model description, and description of
business model configurations. More empirical evidence is needed on
outcome-based business models, with detailed empirical data.
Research direction 9a: The literature on outcome-based business
models is still relatively scarce, and the role of digitalization in these
models seems to be understudied. Thus, more empirical research on
the role of digitalization in outcome-based business models is
needed. There is a need for further research on outcomes in these
business models (e.g., energy savings) and the increasing role of
sustainability in these business models.
Research direction 9b: A key challenge for outcome solution pro-
viders is to deliver the promised performance over time (e.g., three
or more years of contracts). There is currently a poor understanding
of how to manage digitalization-enabled governance mechanisms
during this implementation phase.
Platform provider refers to a fully-fledged digitally enabled service
business model where the company is a platform provider that connects
various providers and customers. For instance, consider a car manu-
facturer that transforms its business model to a car-sharing platform
business model. This transformation entails a full transition from car
manufacturer to provision of car sharing services and may require a
software platform for multiple different providers and customers.
Similar models may take place and disrupt multiple industries. These
business models are related to sustainability and waste reduction. Thus,
instead of only providing performance (e.g., moving from A to B), these
models may combine sustainability and energy saving arguments.
People support the sustainability movement by not owning a vehicle
and instead using ride-sharing services when required. Thus, platform
business models may be aligned with sustainability arguments by re-
ducing energy consumption and waste by effectively using economies
of scope. Platform providers need the digital platform, numerous pro-
viders and customers, and, to achieve this, a strong brand name. A
digital platform is needed not only to share information and facilitate
exchanges but also to monitor, control, and optimize services and
products. The power position of platform providers is potentially strong
because of the data they collect on the usage of services. Platform
providers can use the data to generate a variety of new business op-
portunities, but need capabilities that enable creation and im-
plementation of a platform (Eloranta & Turunen, 2016). In terms of
organizational identity, platform providers are likely to have a service-
dominant identity, as the core operational model builds on interaction
between potentially large number of customers and providers. The
platform reduces transaction costs involved in the exchanges by using
effective applications. Existing platforms provide good example of how
digital technologies hold potential to minimize transaction costs
through automation. Yet, the literature on digital servitization and
servitization provide very little detailed empirical evidence on platform
business models. The study from Eloranta and Turunen (2016) is one of
the rare examples of platform studies in servitization. In the near future,
we may see these types of models to emerge also in manufacturing and
integrated solutions. Perhaps the digital servitization literature can
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389

provide necessary conceptual models and tools to develop platform
business models in companies.
Research direction 10a: The literature on platform-based business
models is modest or almost nonexistent in the digital servitization
literature. Thus, we call for the digital servitization literature to tap
into platform business models. Further research is also needed on
the role of sustainability in the provision of platform-based business
models.
Research direction 10b: The management or orchestration of multi-
actor business models needs further investigation. We also call for
empirical studies that capture process insights into how providers
transition toward becoming platform providers.
7. Conclusions
7.1. Theoretical conclusions
The four theories of the firm used in this study provide opportunities
to create novel insights into digital servitization business model con-
figurations and offer a good starting point for strategizing in the era of
digitalization. When crafting the concept of digital servitization, the
heritage of the servitization literature should be acknowledged. Since
its infancy, software has been included in the research on servitization
and product-service-software systems (e.g., smart solutions). The cur-
rent review explores how the servitization literature acknowledges di-
gitalization, what types of business model configurations are discussed
in the servitization literature, how the digital component shapes ser-
vitization business models, and how digital servitization is defined and
constructed in the servitization literature. To craft a series of business
model configurations, we use four theories of the firm. This study
contributes to both the servitization and the digital servitization lit-
erature.
Our first contribution is the review of the servitization literature.
Drawing on previous studies (Kowalkowski et al., 2015), we provide a
definition and conceptualization of digital servitization. We define di-
gital servitization as the transition toward smart product-service-soft-
ware systems that enable value creation and capture through mon-
itoring, control, optimization, and autonomous function (For other
definitions, see e.g., Lerch & Gotsch, 2015;Sklyar, Kowalkowski,
Sörhammar, & Tronvoll, 2019). Unlike previous servitization research,
this study conceptualizes and highlights the effects of digitalization.
Although the digitalization has been part of the servitization literature
since its infancy, its role has been undermined (Coreynen et al., 2017).
We present some key characteristics of digital servitization in relation
to the need to consider the digital dimension, which is an inherent
component of product-service-software systems and digital servitiza-
tion.
Second, we extend the dialogue on digital servitization by pre-
senting a typology of five business models (Huikkola & Kohtamäki,
2018;Kowalkowski et al., 2015). The goal is to describe digital servi-
tization business model configurations within ecosystems. We craft a
three-dimensional model consisting of the dimensions of solution cus-
tomization (standardized, modular, or customized), pricing (product-,
agreement-, availability-, or outcome-oriented pricing), and digitaliza-
tion (monitoring, control, optimization, or autonomous). These di-
mensions are then used to define five business models: 1) the product
business model, 2) industrializer, 3) integrated solution provider, 4)
outcome provider, and 5) platform provider. A key message of this
study is that companies may choose between the digital servitization
business models and that each of them could provide performance gains
for the company. We also contribute to the digital servitization research
by listing numerous avenues for further research as a result of using the
theory-of-the-firm to conceptualize digital servitization business model
configurations.
The third and perhaps most important contribution is the use of four
theories of the firm (industrial organization, the resource-based view,
organizational identity, and the transaction cost approach) to under-
stand the configurations of the five identified digital servitization
business models. Table 3 shows the five business model configurations
interpreted using the four theories of the firm. These theories provide a
basis to theorize about business model configurations in digital servi-
tization. A key finding aligned with previous reviews of servitization
(Rabetino et al., 2018) is that researchers continue to underuse estab-
lished theoretical perspectives. The most dominant theoretical per-
spective is still the resource-based view. To address the proposed
challenge, we provide numerous suggestions for how the theoretical
perspectives can be adopted in future studies of digital servitization.
Finally, as the number of studies of digital servitization increase in
the coming years, we call for more studies to adopt an ecosystem or
value system perspective. Most studies are firm centric, and few studies
have taken a dyadic view of servitization (Forkmann, Henneberg,
Witell, & Kindström, 2017) and digital servitization. However, as firms
mature in their ability to combine servitization with digitalization, they
advance in their monitoring, control, optimization, and automation
capabilities. This would imply that digital servitization business models
will require value system actors' involvement and that this platform and
ecosystem would be critical.
In conclusion, a core argument throughout this study and the entire
special issue is the effect of digitalization on solution providers' business
models and firms' boundary decisions as companies develop digital
solutions across firm boundaries to monitor and operate a fleet. The
evolution of digitalization requires increasing emphasis beyond the
boundaries of a single firm to align the business models and technolo-
gies of different firms within the ecosystem. Hence, the business models
in digital servitization should be considered in the context of a value
system or ecosystem. Based on this discussion, we provide suggestions
for future research.
From a practical perspective, this paper sheds light on how digital
servitization can emerge within an ecosystem from the perspective of a
firm boundary. This could be of significance as digitalization becomes
more and more central to success within industries and markets. More
specifically, we provide three key contributions to managers re-
sponsible for digitalization and servitization initiatives within manu-
facturing companies. First, we recommend that managers recognize the
linkages between servitization and digitalization because they work
best together. We foresee challenges and missed opportunities for value
creation and value capturing if firms overlook the use of these concepts
together. For example, service delivery benefits from digitalization
capabilities for logistic management. Similarly, remote monitoring
technology would need service contacts to capture the value it gen-
erates for customers. Second, we present five digital servitization
business models. These business models are unique in relation to the
level of offer configuration, servitization, and digitalization. We re-
commend that managers critically evaluate which business model best
fits their internal capabilities and external market environment because
all these business models have the potential to generate revenue and
growth. However, for long-term competitiveness, we foresee the need
to move toward a more advanced offering with customization, out-
come-oriented, and autonomous characteristics. Finally, we urge com-
panies to recognize that, in increasingly competitive and turbulent
market environments, they must work and experiment with multiple
business models. Being locked into a single business model, no matter
how profitable, can create deep-rooted rigidity. Thus, continuously
exploring business model innovation, such as through servitization and
digitalization, is critical for survival.
The final section presents the papers included in this special issue.
In addition to this introductory article, the special issue comprises 10
studies of servitization and product-service offerings in ecosystems,
many of which embrace theories of the firm, digital servitization, ser-
vice transformation, and ecosystems.
M. Kohtamäki, et al. Journal of Business Research 104 (2019) 380–392
390

Introduction to the special issue
Bustinza, Lafuente, Rabetino, Vaillant, and Vendrell-Herrero (2019)
study firm boundary configurations (e.g., make-or-buy decisions) in
manufacturing companies. Using fuzzy-set qualitative comparative
analysis, they show that optimal performance is achieved by collabor-
ating with value-added service providers for basic and intermediate
services (buying) while developing advanced services within the com-
pany (making).
Baik, Kim, and Patel (2019) analyze the role of human resource
practices, namely high performance work systems, and environmental
effects such as industry dynamism and industry complexity as drivers of
employees' service-providing capability. According to their longitudinal
study, high performance work systems have a positive effect on the
service-providing capability of the workforce. This effect is stronger
when influenced by environmental complexity and dynamism.
Hedvall, Jagstedt, and Dubois (2019) combine interorganizational
perspectives with a process view of solutions, studying the provision of
solutions in business networks. Their case study provides insight into
how firms are involved in solution provision and how firms play various
roles in the process and engage in interdependencies, creating what the
authors refer to as “networks of solutions.”
Hullova, Laczko, and Frishammar (2019) study independent dis-
tributors in transition toward advanced services. Their study presents
problems experienced by companies under service transformation such
as conflicting interests, misalignment of strategy and managerial at-
tention, and ineffective knowledge management across firm bound-
aries. The study provides a servitization-readiness decision tree to
identify the factors that hamper the servitization journey.
Garcia Martin, Schroeder, and Bigdeli (2019) conduct a systematic
review to analyze how value is understood in the servitization litera-
ture. They create a value architecture model to conceptualize value at
the triadic, network and system levels in the servitization research.
Sklyar, Kowalkowski, Tronvoll, and Sörhammar (2019) focus on the
transition toward digital servitization and the role of the service eco-
system. Their study presents the organizational change processes,
highlighting the key role of organizational integration, centralization,
and service-centricity in implementing digital servitization.
Reim, Sjödin, and Parida (2019) analyze servitization and the re-
quired transition in the manufacturers' service network. The study
provides insight into how service network actors approach servitization
in various conditions. Identifying major capability- and market-related
challenges, their analysis reveals four servitization strategies (service
extension, service benchmarking, digitalization, and customer co-
creation). The authors suggest a contingency model to fit matching
strategies to achieve servitization of the service network.
Jovanovic, Raja, Visnjic, and Wiengarten (2019) study 10 cases to
identify three paths for capability development: 1) sequential devel-
opment, 2) the challenge of capability replication, and 3) retrenchment
and service dilution. They argue the need to create an enabling internal
ecosystem.
Palo, Åkesson, and Löfberg (2019) take a practice theoretical per-
spective to study the servitization process as a contestation of business
models. According to their research, such contestations may provide
insight into how to develop practices to support servitization. The study
adds to the discussion about servitization as an emergent process.
Morgan, Anokhin, and Wincent (2019) bridge the strategy, in-
novation, servitization, and new service development literature. Their
results emphasize the importance of customer participation in new
service development, particularly in contexts of complex customer
needs and low competition.
Lütjen, Schultz, Tietze, and Urmetzer (2019) use a survey and in-
terviews from eight energy utilities to understand ecosystem-related
dynamic capabilities. According to their results, a high level of service
innovation is linked to ecosystem-related capabilities. Dynamic cap-
abilities enable effective reconfiguration of ecosystems.
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