Coevolving Innovations

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Productionization of services: a post-services direction?

I recently attended the Service Engineering and Management (SEM 2007) summer school at the Helsinki University of Technology. One of the more interesting themes that came up was on “Improving Competitiveness and Performance through Service Productization?” by Katriina Valminen and Marja Toivonen. The workshop brought up some discussions on the question mark in the title, but the paper is still under development, so maybe there will be some small modifications of the content still coming.

The focus of the paper is on KIBS (Knowledge Intensive Business Services), but the theoretical work provides a broader foundation. Here’s some excerpts from an early section of the paper:

What is productization in services?

A systematic development of services is becoming increasingly important when the improvement of companies’ competitiveness is pursued. [….]

Productization is one possible tool to systematise both the development and the production of services so that continuous innovation, cost efficiency and customer orientation become a part of everyday life (Jaakkola et al., 2007). There is not one commonly accepted definition for the productization of services. Usually the term refers to making the service offering more or less ‘product like’, i.e. defining the core process and its outcome so that they become more ‘stable’ and visible. Individual needs of customers may be taken into account as small variations in the core service, or through modularisation. In the latter practice, customisation is achieved through different combinations of modules, each component being provided in a systematic manner. Besides the service elements that are visible to the customer, productization may concern the service company’s internal processes. [….]

Productization can be restricted to the more accurate defining of already existing services, but more commonly the term includes also some renewal of the service. Because of this, productization can be a factor that stimulates the service company to produce new innovations [….]

Through productization, service companies mostly aim at improving competitiveness and performance. Defining, systematising and concretising a service make its production more profitable and efficient. When the production process is well-defined, the quality of the service becomes more stable. In addition, the possibilities to accumulate knowledge systematically are improved. Productization often intensifies the transfer of knowledge and enables the division of work. Finally, productization makes the pricing of the service easier. [….]

All these impacts lead not only to better competitiveness, but they also open possibilities for better management. The producer knows better what he is selling and the customer knows better what he is purchasing. Thus, the customers also benefit from productization. It becomes possible for them to compare the outcome of the service with the service promise and to compare the benefit received with the price of the service. In other words, productization facilitates the evaluation of the service. [….]

[….]

Each productization process is different depending on the company’s aims as well as its strategy. Jaakkola et. al (2007) stress that companies should plan and carry out their service development project on their own basis and starting from their own needs. According to Jaakkola et al., the productization process consists of seven different stages:

  • 1) assessing the clients’ needs and the ways in which they are answered;
  • 2) defining the structure, contents and process of the service;
  • 3) specifying the degree of standardisation;
  • 4) concretising the service (service description, brochures etc.),
  • 5) selecting the principles of pricing;
  • 6) following-up and measuring the success of the service;
  • 7) and anticipating the needs for continuous development.

The paper continues with a description of the challenges of productionizing services specifically for KIBS, and then describes empirical studies on four company cases.

At the workshop, I commented that I had heard a talk by Val Rahmani, the General Manager at IBM Infrastructure Management Services at the SSME Conference at Palisades, NY in October 2006. Revisiting that digest led to me finding the “IBM Pushes Service Products” article in Business Week.

Tech services are labor intensive. New applications are often built from scratch or highly customized. As a result, companies pay about four times as much for services as they do for the software products and computer gear associated with those services. [….]

IBM is about to roll out a new way of delivering services that it hopes will light a fire under its slow-growing services business …. On Sept. 26, Big Blue launches its strategy to create a sizable catalog of “service products.” Two are to be announced immediately, and 28 more are supposed to go public in the next two months.

The idea is to make services as easy to buy, consume, and pay for as products. “It’s not just a people service. We combine people services, software, and our knowledge of business processes—and we deliver it around the globe at prices that are more attractive than the cost of companies doing it themselves,” says Mike Daniels, senior vice-president of IBM Global Technology Services, which, at $32 billion in revenues last year, is the biggest chunk of IBM’s service business.

There’s a lot of interest in IBM’s transformation from a product-oriented company into a services-oriented company, but to me — as someone who joined IBM Consulting Group in 1994 — that’s an old story. The presentation last fall, combined with this new research, suggests to me that there may be a new movement towards “post-services” orientation. I’m not entirely sure what that means … but that’s why we have academic research!

It’s nice to see academic research that is current with trends happening in business. Katriina and Marja were taking the paper for a more formal presentation at the RESER 2007 meeting in Tampere. It will be worth looking out for this publication as it moves to completion.


References

  • Katriina Valminen and Marja Toivonen, “Improving competitiveness and performance through service productization? A case study of small KIBS companies participating in a productization project”, Service Engineering and Management Summer School (SEM 2007), Helsinki University of Technology, September 10, 2007
  • Elina Jaakkola, Markus Orava, Virpi Varjonen, “Competitiveness through productization. Guide to the companies”, Tekes 2007 (downloadable in Finnish)
  • Steve Hamm, “IBM Pushes Services Products”, Business Week, September 26, 2006, accessible from businessweek.com.

5 Comments

  • We’ve been doing it inside GTS for the last year. It’s underfunded, understaffed, and overburdened with short-termed thinking as these things are, but we continue to figure it out as we go. :) Read about it here.

  • Aneel, at your post on the business of services: against productization, you make a lot of good points.

    When I speak about research into services (a la services science, management and engineering — SSME), I make the point that the challenges in services are something that we should be thinking about on a horizon of 10 years, not 2 years.

    The transition as we learn won’t be painless.

  • Thanks for leaving the comment to my articles refereing yo this artciles. I have revised the contents as you sugguested and added some additional post that indicate my areaes of interest.
    http://jisi.dreamblog.jp/blog/1251.html

    I wish you continue covering this topic. Best regards.
    Tomoaki

  • David, thank you for additional pointer to Jim Spohrer’s blog. Yes I will keep an eye on that Blog. And I found photo of you at
    http://rendez.org and draft of your dissertaion paper.
    Appreciate your coverage of your activities regarding “International Service Business Management” in your BLOG. Regards.

  • Hi David and others, I know that you had this conversation a long time a go, but I couldn’t help posting a comment. I was happy to notice that the concept of service productization had attracted your attention. I’m the author of the “Jaakkola et al.” publication that was cited in the text. I recently wrote a conference paper on the topic so if you are still interested in the topic, please contact me and I’ll send it to you.

    best regards,
    Elina


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