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Kohtamäki, M., Parida, V., Oghazi, P., Gebauer, H., Baines, T. (2019)Digital servitization business models in ecosystems: A theory of the firmJournal of Business Researchhttps://doi.org/10.1016/j.jbusres.2019.06.027

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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 Kohtamäkia,b,⁎, Vinit Paridac,d, Pejvak Oghazie, Heiko Gebauerf,g,h, Tim Bainesi

aUniversity of Vaasa, School of Management, PO Box 700, FI-65101 Vaasa, FinlandbUniversity of South-Eastern Norway, USN Business School, Norwayc Luleå University of Technology, Entrepreneurship and Innovation, 97187 Luleå, SwedendUniversity of Vaasa, School of Management, Finlande School of Social Sciences, Sodertorn University, 141 89 Stockholm, SwedenfData Mining and Value Creation, Fraunhofer IMW, Neumarkt 9-19, 04109 Leipzig, Germanyg International and Strategic Management, Linköping University, Swedenh Bosch IoT-Lab, University St. Gallen, SwitzerlandiOperations Strategy, Advanced Services Group, Aston Business School, Aston University, Birmingham B4 7ET, UK

A R T I C L E I N F O

Keywords:DigitalizationIndustry 4.0EcosystemsDigital servitizationProduct-service systems (PSS)Firm boundariesBusiness model innovationPlatforms and sustainability

A B S T R A C T

This study extends the discussion of digital servitization business models by adopting the perspective of thetheory 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 firmsin the context of ecosystems. Digitalization transforms the business models of solution providers and shapes theirfirm boundary decisions as they develop digital solutions across organizational boundaries within ecosystemssuch as harbors, mines, and airports. Thus, digitalization not only affects individual firms' business models butalso requires the alignment of the business models of other firms within the ecosystem. Hence, business modelsin 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 isincreasingly 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 andsoftware 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 haveused a variety of sensor-based technologies to enable product-service-software systems and smart solutions (Grubic, 2018; Rymaszewska,Helo, & Gunasekaran, 2017). However, software was underemphasizedin the early servitization research (Coreynen, Matthyssens, & VanBockhaven, 2017). It is now time to shed light on the role of digitali-zation in servitization and let digitalization rewrite the servitizationnarrative—a narrative that may diverge from the original servitizationstory (Luoto, Brax, & Kohtamäki, 2017).

Studies have started documenting multiple industrial cases of thetransition toward digital servitization (Cenamor, Sjödin, & Parida,2017). Business models for smart solutions entail the combination ofvarious products, services, software, and analytics (Porter &Heppelmann, 2014). Companies are moving from remote monitoring tooptimization, control, and, ultimately, autonomous systems with ad-vanced functionalities based on artificial intelligence. While somecompanies 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 theimplementation 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 interms 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 onlyimproved preventive and proactive maintenance but also more effectiveand 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).

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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/).

Please cite this article as: Marko Kohtamäki, et al., Journal of Business Research, https://doi.org/10.1016/j.jbusres.2019.06.027

components. Yet the typical challenges faced by many servitizingcompanies remain: Customers expect smart solutions to be customizedto 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 firmboundaries as smart solutions interact with product-service-softwaresystems 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 thecreation 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 thesolutions offered by many other manufacturers, used by customers,delivered by distributors, maintained by different service partners, andoperated by third parties. Therefore, the integration of smart solutionsacross firm boundaries is crucial. This rapid transformation requirestechnological innovation as well as business models and collaborativeinnovations when manufacturers struggle to configure their businessmodels and practices to enable smooth collaboration.

The present study takes stock of the servitization literature andanswers 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 andplatforms? This study taps into the discussion of digital servitizationbusiness models from the perspective of the theory of the firm. Thisreview establishes what types of business model configurations arediscussed in the servitization literature and how the digital shapesservitization 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 costapproach) to understand digital servitization business models withinecosystems. We use these theories of the firm to understand config-urations of the following five specific business models drawn from theliterature: 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 thebusiness models of solution providers and shapes their firm boundarydecisions as they develop digital solutions across firm boundarieswithin ecosystems such as harbors, mines, and airports. Through thisconceptual essay and critical review, we address the digital transfor-mation in manufacturing that is shaping business models, enabling newstrategic configurations, and providing new opportunities for digital

servitization research. This study therefore also makes a significantmanagerial contribution by highlighting the configurations of digitalservitization business models, thereby enabling managers to designInternet-of-Things-related digital servitization business models andpractices 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 toachieve 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 ResearchAssessment 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 inhigh-impact journals in relevant research areas. We used the Scopusdatabase to conduct the search. The first search without the journalfilter returned 465 servitization-related studies in all journals. Of these,161 studies were published in AJG3 and AJG4 journals. In terms of theevolution of citations of the 465 studies in all journals, Fig. 1 shows thatthe number of citations per year and the number of studies per year inservitization increased over the period 2010 to 2018 (Kowalkowskiet 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 thatexplicitly 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 multiplekeywords to identify these areas in the 465 servitization studies. Forinstance, we used several keywords when searching the titles, abstracts,and keywords of the servitization articles to understand the presence ofdigitalization in the servitization literature. These keywords includedthe IoT, smart solutions, digitalization, and Industry 4.0. We separatelyperformed a similar process with relevant keywords for each of thestudied topics. Relevant alternative keywords for each topic weregathered from highly impactful studies. Table 1 shows the number ofarticles that had addressed the topics of interest in the servitizationliterature at the time of the search (early 2019).

One limitation is our decision not to conduct a general review ofservitization 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 businessmodels, any of the firm boundary theories, or the digital or softwarecomponent in servitization. Table 1 shows the number of servitizationstudies 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).

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resource-based view in the servitization literature (85 studies) and themultiple discussions related to servitization mindset, orientation, cul-ture or identity (19 studies). Notably, very few studies actually usedindustrial organization (five studies) or the transaction cost approach(four studies). The data on servitization studies show that 43 studiesfocused on digital servitization or related concepts. In addition, 96studies used the concept of business models. A key conclusion from thisdescriptive review is that servitization and digital servitization studiestend 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 modelsextends operations beyond the boundaries of a single firm. Hence, it isimportant to define the concepts in the context of a local industrialecosystem (from the perspective of Wärtsilä, Rolls-Royce, Sandvik, orCaterpillar) such as harbors, airports, mines, and the like. The strategyliterature 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 canbe found for these terms. For a manufacturing company, it is typical todefine 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 withinthe value system and ecosystem. For example, Fig. 2 illustrates thevalue 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 operatorlevel separates manufacturing from end-customers. This is only onedescription from a solution provider's perspective. Other businessmodels are discussed in the next section. Firms vary in their degree ofvertical integration—that is, how they define their firm boundaries. Thevalue system as a concept refers to the system extending from rawmaterial suppliers to end-customers (Porter, 1980). Ecosystems canexist within the value system. They operate using market or networkedorganizational forms. These systems are organized as hierarchies,markets, or networks (Kohtamäki, Rabetino, & Möller, 2018; Thorelli,1986; Williamson, 1985). An interorganizational network is typicallydescribed as an organizational form between markets and hierarchies,suggesting that a network is more integrated than the market but lessintegrated than a hierarchy (Thorelli, 1986). This is important whenbusiness models are conceptualized within ecosystems, acknowledgingthe 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 tounderline the intermediate organizational form between market andhierarchy. Newer concepts of ecosystems and platforms can be definedagainst the pre-existing concepts in the literature. The ecosystem as aconcept emphasizes the value creation and capture between inter-related firms. The use of the concept in the literature varies, as does theempirical landscape of different studies, thereby hampering definitionof the concept (Möller & Halinen, 2017). Business ecosystems aredriven 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 ofan 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 exampleof a local ecosystem, where technologies and business model config-urations of multiple firms must combine to create an autonomous

Table 1Firm boundary theories, digitalization, and business models in the servitizationliterature.

Firm boundary theories Number of studies

Servitization 465Resource-based view 85Industrial organization 5Organizational identity 19Transaction cost approach 4Digital servitization (IoT in servitization) 43Business model 96

Fig. 2. Digitalization effects throughout value system/ecosystem (developed based on Rabetino & Kohtamäki, 2018).

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harbor. This approach is to extend the use of the ecosystem concept in alocalized, highly specific setting (in contrast to global settings, whichare also relevant). Thus, an example is a harbor, where companiesdevelop new autonomous operations. In contrast to the concept of aninterorganizational network, the concept of an ecosystem is indifferentto whether exchanges are coordinated through markets or network-typemechanisms. This would at least separate ecosystems from inter-organizational networks. This point is important because, in digitalservitization, the development of smart solutions moves beyond single-firm boundaries. Hence, the development of, for example, autonomousor semi-autonomous harbors requires the development of smart solu-tions, technologies, and business model configurations that go beyondfirm boundaries. When firms develop connected smart solutions andthere 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 toconceptually 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 technologiesthat act as a foundation upon which external innovators, organized asan innovative business ecosystem, can develop their complementaryproducts, technologies, or services.” Hence, platforms enable connec-tions between actors (e.g., multiple suppliers and customers) within anecosystem. In practice, a platform can refer to a webstore that linksmultiple suppliers and customers (multi-sided markets) and that ismanaged by a manufacturer. Uber and Airbnb are prominent examplesof platform business models. Hence, this type of platform is a businessmodel.

When moving toward a digital servitization business model, firmsmust redefine their business model configurations. To do so, firmsshould 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 manypotential activities depend on technologies and other capabilities ofother companies, implementing strategies is always limited by colla-boration with other actors within the ecosystem. Thus, the focus onecosystems remains a key condition for digital servitization. We call forresearch from this ecosystem perspective in digital servitization.

4. Conceptualization of a digital servitization business model

In the last three decades, the servitization-related literature hasgrown 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 onservitization-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 arguethat digitalization is inherently embedded in servitization becauseservitization builds on integrated product-service-software systems.Thus, servitization is the transition from products and add-on servicesto integrated product-service-software systems. Because the digitalservitization literature is in its infancy, a commonly accepted definitiondoes not yet exist.

We define digital servitization as the transition toward smart pro-duct-service-software systems that enable value creation and capturethrough monitoring, control, optimization, and autonomous function.To gain value from digital servitization, firms must capitalize on threedimensions of digital offerings (i.e., products, services, and software),which should work together. Thus, the concept of digital servitizationreshapes 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 comprisesmultiple equifinal business model configurations that lead to optimaloutcomes (Sjödin, Parida, & Kohtamäki, 2019). Thus, there are variouspathways to building a digital servitization business model, and onepressing issue is which dimensions should be used. There are severalbusiness 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 serviceprovider, 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 businessmodel (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 assumptionholds in servitization as well as digital servitization. In other words,several configurations can lead to optimal outcomes: There is no singlepath or trajectory to success (Fiss, 2007; Forkmann, Ramos, Henneberg,& Naudé, 2017; Sjödin, Parida, & Kohtamäki, 2016).

To conceptualize digital servitization business models, we start withthe product-service-software offering that reflects well the company'ssolution 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. Avariety of dimensions can be used to construct offerings in digital ser-vitization. We use three dimensions: 1) solution customization (fromstandardization 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 autonomoussolutions; Porter & Heppelmann, 2015; Fig. 3). These are the corecharacteristics of smart solutions that digital servitization businessmodels are built on.

First, solution customization refers to the value created by tailoringthe product-service-software solution to customer needs. The solutionofferings 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 valuecapture) of the business model, and the tension between effectivenessand efficiency may be paradoxical (Kohtamäki, Rabetino, & Einola,2018).

Second, solution pricing represents the core of value capture. Thelevels of this dimension represent the archetypal characteristics ofsomething 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 beproduct oriented, agreement oriented, availability oriented, or outcomeoriented (Gebauer et al., 2017; Huikkola & Kohtamäki, 2018).

The third dimension is solution digitalization. From the early daysof servitization, the digital or software dimension has been consideredcentral. 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 interplaybetween 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

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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 digitalservitization, the IoT, and smart products. They also include featuressuch as monitoring, control, optimization, and autonomous function(Porter & Heppelmann, 2014). These are the core digital features insmart solutions today. The description of these characteristics is notconclusive, 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 digitalservitization business models using the characteristics of solution of-ferings as a starting point. Fig. 3 simplifies the ideal typical businessmodels based on the three dimensions that define the characteristics ofsolution offerings. Any individual firm may apply a variety of businessmodels with different customer segments or business lines. The ideal ortypical descriptions of business models based on these three dimensionsprovide a starting point for the analysis of business model configura-tions in digital servitization. Different business units may also followdifferent business models and strategic configurations. Thus, a businessmodel 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, whichthen affect companies beyond firm boundaries within ecosystems, af-fecting component manufacturers, system suppliers, system integrators,solution providers, operators, distributors, and customers. Changes inone firm's business model can have a significant impact on other firms'

operations. For example, when companies change their businessmodels, value propositions, organizational structures, and IT-systems,changes in one firm affect others within the ecosystem. Thus, theconcept of the business model should be understood as a dynamic one,something that is continuously constructed and reconstructed. Many ofthese changes take place at the micro-level when a firm changes itsactivities. Changes in micro activities often shape the macro-levelecosystem because the micro-level activities together constitute themacro-level environment (Kohtamäki, Baines, Rabetino, & Bigdeli,2018; Seidl & Whittington, 2014). In this setting, changes to a firm'sbusiness model configuration may influence other firms' businessmodels at the ecosystem level.

We use four theories to study the optimal digital servitizationbusiness model configurations within platforms and ecosystems andthus understand these configurations. We use the theory of the firm tocraft the business model configurations of digital servitization (Santos &Eisenhardt, 2005). The theory of the firm provides four theoreticalperspectives to analyze how digitalization affects servitization withinplatforms and ecosystems. Typically, strategy theory provides fourtheories to conceptualize the theory of the firm: industrial organization,the resource-based view, organizational identity, and the transactioncost approach (Santos & Eisenhardt, 2005).

We use these theories to provide insight into competitive advantagein digital servitization. How do companies use different businessmodels to generate competitive advantage and increase power? Wherein the ecosystem do firms create the highest profits and how? Who isour 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 boundariesrefer to make-or-buy decisions—so-called outsourcing or insourcingdecisions. From the macro perspective, changes in firm boundaries

Fig. 3. Understanding the characteristics of solution offerings in digital servitization business models.

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affect the organization of the value systems, roles, capabilities, andcollaborative 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 manypressing questions for future studies to address.

Servitization research has often used these theories separately whenstudying servitization or digital servitization. When used together, theycreate a powerful diagnostic tool to understand different businessmodels. Prior studies tend to explain why these theories should be usedtogether 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 theoriestogether to delimit firm boundaries (Salonen & Jaakkola, 2015). Theselected theories provide grounds for advancing the discussion on theorganization of ecosystems, value systems, relationships, and compa-nies when firms change their business models. Business model changesshape firm boundary decisions, leading to outsourcing or insourcingupstream or downstream.

Research Direction 1a: The literature on digital servitization shouldstudy the interplay between servitization, the IoT, and differenttheories of the firm.Research Direction 1b: The interplay between theories of the firmmay 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 organizedresources (VRIN/O) can generate competitive advantages for a firm(Barney, 1991; Penrose, 1959). Competitive advantages emerge ascombinations 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 todevelop processes and capabilities for better value creation and capture,increased customization efficiency, more efficient order delivery, andmore effective resource reconfiguration when moving toward newbusiness opportunities such as new customer markets (even blueoceans), novel projects, and smart solutions. The advantage is createdthrough processes and activities, through which technology companiescreate value from competencies and resources located internally orexternally (Ardolino et al., 2018; Coreynen et al., 2017; Huikkola &Kohtamäki, 2017; Visnjic et al., 2018).

To achieve the benefits of digital servitization, companies needsoftware capabilities where their business models become dependent onthe 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 tothe capability requirements of companies. Adding advanced service andsoftware capabilities to the capability portfolio will not remove theneed for product engineering and manufacturing capabilities as shownby previous servitization research. Ulaga and Reinartz (2011) identifiedunique resources such as 1) installed base product usage and processdata, 2) product development and manufacturing assets, 3) productsalesforce and distribution network, and 4) field service organization

and distinctive capabilities. Such capabilities include 1) service relateddata 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 differentiationor cost leadership. Huikkola and Kohtamäki (2017) identified criticalresources and strategic processes that create strategic capabilities andcompetitive 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. Intheir empirical study of 17 cases, Gebauer et al. (2017) identified theorganizational capabilities required for pay-per-use services. These in-clude capabilities related to 1) financing, 2) aligning costs withequipment usage, and 3) customer collaboration. Hasselblatt et al.(2018) studied manufacturers' capabilities in the IoT and found fivebundles 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 IoTseems 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 shouldexplain how digital capabilities in servitization generate competitiveadvantage and what types of configurations of resources and pro-cesses they require. We call for studies on strategic capabilities indigital servitization.Research direction 2a: Research is needed on the role of dynamiccapabilities in resource reconfiguration for digital servitization.

5.2. Organizational identity

Building on the cognitive perspective of strategy, organizationalidentity is concerned with who we are as an organization. Hence, or-ganizational identity as a theory highlights the role of identity andculture 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 solutionprovider? These are the key questions when the firm intends to makesense of its existence, boundaries, identity, and mindset. Identity in-forms strategic and organizational decisions and both vertical andhorizontal boundaries. As a theory, organizational identity builds onmanagerial and strategic cognition as well as sensemaking (Gioia,Patvardhan, Hamilton, & Corley, 2013).

Our analysis of the servitization and digital servitization literatureshows that few studies have directly used the identity approach. In theservitization literature, 19 studies have used related concepts such asservice culture, mindset, and service orientation, but studies havemainly used service culture as one of many concepts without actuallyfocusing on identity as such or the micro processes or underlying me-chanisms of solution provider identity—that is, servitization identity. Interms of digital servitization, we found very little research on the shiftfrom a manufacturing firm to a software company. Töytäri et al. (2018)study was one of the rare studying the role of mindset and capabilitiesin adoption of smart services. This is a meaningful shift beyond pureservitization, combining manufacturing, service, and software en-gineering identities. An interesting and potentially paradoxical questionis how can manufacturing, service, and hacker identities be combinedto 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 ofdigital servitization on the organizational identity and culture of

M. Kohtamäki, et al. Journal of Business Research xxx (xxxx) xxx–xxx

6

Table2

Firm

boun

dary

theo

ries

inservitization.

Resou

rce-ba

sedview

Power-dep

ende

ncyap

proa

chOrgan

izationa

liden

tity

Tran

sactionco

stap

proa

ch

Cen

tral

object

ofan

alysis

Com

petitive

adva

ntag

ePo

wer

position

Strategicco

gnition

Mak

e-or-buy

decision

Corelogic

Build

oncapa

bilities

Firm

build

sco

mpe

titive

adva

ntag

eby

reco

nfigu

ring

resourcesan

dproc

essesforVRIO

(N)co

mbina

tion

Con

trol

theexch

ange

relation

ship

Firm

sshou

ldad

just

position

throug

hbo

unda

ryad

justmen

tforim

prov

edba

rgaining

power

Focu

son

theco

reFirm

sshou

ldde

fine

thebo

unda

ries

toalignthe

orga

nization

almindset

andactivities

Minim

izeco

sts

Ifou

tsou

rcingcreatesco

stad

vantag

es,firm

sshou

ldou

tsou

rceactivities

asop

posedto

own

prod

uction

.Coretopics

-Criticalresources

-Strategicproc

esses

-Strategiccapa

bilities

-Ba

rgaining

power

towardup

stream

and

downstream

-Dep

ende

ncybe

tweenbu

yeran

dsupp

lier

-Th

reat

ofen

tran

tsan

dco

mplem

entarities

-Se

rvice-oriented

vs.e

ngineering

-orien

ted

orga

nization

aliden

tity

-Organ

izationa

lstrategy

-Organ

izationa

lcu

lture

-Organ

izationa

lstructure

-Opp

ortunism

-Bo

unde

dration

ality

-En

vironm

entalun

certainty

-Relationship-specificinve

stmen

ts-Num

berof

tran

sactions

Tools,

orcriteria

toiden

tify

VRIN

/ODescription

oftheva

luesystem

Five

forces

Cog

nitive

map

sDisco

urses,

narratives

Environm

entalun

certainty

Relationship-specificinve

stmen

tsNum

berof

tran

sactions

Cen

tral

question

forthefirm

Wha

tco

nstitutesyo

urfirm

'sco

recapa

bility?

How

canweim

prov

eou

rinflue

nce?

Who

areweas

anorga

nization

?Will

thesum

ofprod

uction

cost

andtran

saction

cost

achiev

edafterou

tsou

rcingbe

less

than

the

totalco

stsachiev

edwithinthefirm

before

outsou

rcing?

Cen

tral

question

sin

servitization

Which

factorsco

nstitute

ourco

mpe

titive

adva

ntag

ewhe

nwemov

etowarddigitalservitization?

How

canresourcesan

dcapa

bilitiesbe

reco

nfigu

red

fordigitalservitization?

How

does

digitalservitizationinflue

nceou

rba

rgaining

power?How

does

digitaliz

ation

chan

gepo

wer

position

swithinou

rindu

stry

and

across

indu

stries?

If/w

henwemov

etowarddigitalservitization,

who

will

webe

comeas

anorga

nization

?How

does

digitalservitizationinflue

nceou

rmak

e-or-buy

decision

s?How

does

digitaliz

ation

affecttran

sactionco

stsacross

custom

eran

dsupp

lierrelation

ships?

Theeff

ectof

digitaliz

ationon

firm

boun

dary

delin

eation

Man

ufacturing

tech

nology

compa

nies

beco

memore

likesoftwareco

mpa

nies.C

apab

ility

requ

irem

ents

chan

gesign

ificantly

withem

phasis

onda

taacqu

isition,

wareh

ousing

,an

alytics,

and

implem

entation

.

Digitalizationen

ablesinform

ationsearch

onalternativeop

tion

s,de

creasing

inform

ation

asym

metries.D

igital

econ

omyrequ

ires

new

way

sof

differen

tiation.

Iden

tities

chan

gefrom

prod

uctman

ufacturing

toservitization,

adva

nced

services,a

ndsoftware.

From

pure

prod

uction

anden

gine

eringto

custom

eran

dserviceorientation.

Digitalizationan

dIoTen

ablesmoreeff

ective

data

acqu

isition,

analytics,

andim

plem

entation

,de

creasing

tran

sactions

costs.

Num

berof

stud

iesin

servitization

855

194

Num

berof

stud

iesin

digital

servitization

132

11

Autho

rsin

strategy

Barney

,Peteraf,W

erne

felt

Porter

Weick,G

ioia,

Coa

se,W

illiamson

Autho

rsin

servitization

Visnjic,B

aine

s,Kow

alko

wski,Geb

auer,P

arida,

Koh

tamäk

i,Kow

alko

wski,Kindström

Neely,Martine

z,Ba

ines,R

abetino

Bowen

,Kow

alko

wski,

Geb

auer

Bustinza,B

igde

li,Rab

etino,

Sjöd

in,P

arida,

Koh

tamäk

i

M. Kohtamäki, et al. Journal of Business Research xxx (xxxx) xxx–xxx

7

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 theresource-dependency approach (Pfeffer & Salancik, 1978), the powerapproach builds on the long tradition of studies that explore the impactof 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 seekthe highest profits (Ezzamel & Willmott, 2004). Under this approach,the theory and operational criteria are used to determine how a firmcan build an optimal position within the industry, strategic group, orvalue system, where this position should be optimized for growth andbargaining power. To operationalize the approach, Porter (1980) de-veloped five forces to define an optimal market position. Porter's FiveForces have since been used in a variety of contexts to describe anddetermine the attractiveness of a market position with respect to otherpositions. 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 andcompetitive scope. The theory and its main conceptual tools are stillrelevant today when considering competitive advantage in the age ofdigitalization (Porter, 2001; Porter & Heppelmann, 2014).

The analysis of the literature reveals a lack of empirical studies thathave used industrial economics in servitization. Few studies have em-ployed industrial organization and related models. In a single casestudy, Rabetino and Kohtamäki (2018) presented a case in point, ar-guing that, in some cases, such as the propulsion industry, servitizationrequires repositioning and direct engagement with the operator to selland deliver integrated solutions. They used Porter's Five Forces toanalyze positioning in the propulsion industry. Davies, Brady, andHobday (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 onservitization, organizational structure, and value chain position,Bustinza et al. (2015) found that manufacturing firms in the UK useservitization to differentiate and move upstream to improve control andenhance performance. Hence, value chain position plays an importantrole 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 betweenvalue drivers should improve a firm's position when using the outcomebusiness model. Hou and Neely (2018) cited dependency as a criticalfactor that increases commercial risk in outcome-based services. Thus,some studies have applied the power approach to servitization, butnone have actually focused on the interplay between digitalization, theecosystem architecture, and positioning. Further research is needed tostudy the effect of digitalization on firms' power position in differentparts of the ecosystem, also acknowledging Rabetino and Kohtamäki's(2018) observation that manufacturers need some bargaining power tosell integrated solutions and enable data acquisition, analytics, andimplementation (i.e., digital servitization). Moreover, power positionsplay an important role in shaping ecosystems for autonomous opera-tions. Collaborative efforts are often needed when seeking a balancebetween different players within the ecosystem. Further research onthese topics is needed.

Research direction 4a: Digital servitization studies should examinehow digitalization transforms bargaining power in different sectionsof value systems and ecosystems and how manufacturers increasetheir power using digitalization.

Research direction 4b: Future research is needed to explore not onlyhow 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 buildson 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 todevelop a theory on make-or-buy decisions and the conditions thatdetermine 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 oftransactions as important decision-making criteria. According to thetheory, environmental uncertainty, relationship-specific investmentsand 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 ofmarket mechanisms (i.e., outsourcing activity to markets). Accordingly,in conditions of high environmental uncertainty, relationship-specificinvestments, and a large number of transactions, a company shouldmake instead of buy because buying products or services under ex-anteuncertainties would increase the sum of resulting production andtransactions costs over the overall costs of producing the same outputswithin the organization (Williamson, 1985). Williamson's genericmodel emphasizes pure governance models instead of intermediateones, whereas some scholars claim that, as intermediate hybrid formsexist 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, transactioncosts can be significant because of the sales and delivery of highlycomplex, customized smart solutions. Delivering smart solutions alsoincurs significant transaction costs because of upstream interactionswith 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, anyconsiderations are based on general transaction cost theory. In theirconfigurational study, Sjödin et al. (2019) identified governance con-figurations used in governing advanced service partnerships. Theydiscuss the management of partnerships in the context of advancedservice innovation, identifying three relational or network governancetactics: innovation governance strategy, relational governance strategy,and market-based governance strategy. Bigdeli, Bustinza, Vendrell-Herrero, and Baines (2018) identified the key role of supply chaincollaboration in mitigating the risk of implementing advanced services.Kamp, Ochoa, and Diaz (2017) emphasized the importance of trustbuilding between users and producers to share data. So far, no studieshave focused on the effect of digitalization on transaction costs, soempirical research from this perspective is needed.

Research direction 5a: The servitization literature lacks studies ofthe role of transaction costs in servitization. The digital servitizationliterature has so far neglected the effect of digitalization on trans-action costs in downstream and upstream interactions. We call forstudies that explore how digitalization transforms collaboration inservitization ecosystems.Research direction 5b: The creation of ecosystems for autonomoussmart solutions entails significant transaction costs as developersmust configure and integrate technologies, routines, and business

M. Kohtamäki, et al. Journal of Business Research xxx (xxxx) xxx–xxx

8

models between multiple firms within the ecosystem. More researchis needed on the role of transaction costs in these collaborations andon 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 configurationsbased 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 modelsthrough the different lenses, identifying the central characteristics ofthe business model configurations.

Product-oriented service provider reflects the business model of a firmthat 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 stillbased 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 basicofferings—so-called add-on services (Parida et al., 2014). Product-or-iented service providers have faced the commoditization trap that theyoften try to evade through improved service offerings and new digitalservices. Often, power is on the customer side, particularly in the caseof simpler products and services where the manufacturer switching costis low. Product manufacturers build on product and manufacturingidentity. Transaction costs are reduced by offering standard productsand add-on services that are fairly easy to sell and purchase.

Research direction 6a: Because the digital servitization researchdomain lacks empirical studies of smart solutions and advancedservices, digital servitization scholars should analyze the role ofdigitalization in developing these companies, their offerings, andcapabilities, as well as the role of digitalization in developing thesecompanies.Research direction 6b: Considering the product-oriented focus ofthese companies, studies should focus on how IoT applications canshape future business models and how the IoT affects the role ofservices in the future.

Industrializer emphasizes product and service modularity to improveefficiency despite increasing demands by customers to customize of-ferings to their needs. Hence, in this business model, the companyemphasizes modularity to increase efficiency of product-service de-livery and cope with the paradox of effective provision of customizedsolutions (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 customizationwith efficient order delivery. To achieve this goal, an industrializershould 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 softwareshould also be considered. Digitalization builds on offerings and cap-abilities that can be integrated into modular offerings. The bargainingpower of industrializers is based on relatively low prices with somecapacity 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 manyof these companies, engineering plays an important role in companyculture. Effective modularity can reduce transaction costs in down-stream and upstream interactions.

Research direction 7a: The digital servitization literature fails toprovide detailed micro-level empirical evidence of the role ofTa

ble3

Con

nectingbu

sine

ssmod

elsan

dfirm

boun

daries

indigitalecosystem.

Prod

uctprov

ider

Indu

strializer

Integrated

solution

sprov

ider

Outco

meprov

ider

Platform

prov

ider

Description

ofthe

busine

ssmod

elEm

phasis

onstan

dardized

prod

ucts

andad

d-on

services

Mod

ular

prod

uctoff

erings

andservice

agreem

ents

Customized

/mod

ular

prod

uct-service

system

swithsomepe

rforman

cegu

aran

tees

orop

erationa

lservices

Prov

isionof

availability

Customized

/mod

ular

prod

uct-service

system

sow

nedby

theman

ufacturer,

pred

ominan

tlype

rforman

cepricing

Service-do

minan

tbu

sine

ssmod

elwhe

rethe

platform

prov

ider

enab

lesprov

ider-customer

interactions

andsharingservices

Therole

ofdigitaliz

ation

Somesm

artfeatures

basedon

remotediag

nostics

Efficien

tuseof

someremote

diag

nosticsfeatures,typ

ically

related

tomon

itoring,

diag

nostics,

and

proa

ctivemainten

ance

Rem

otediag

nosticsen

ablin

gprov

isionof

availabilityrequ

iringeff

ective

mon

itoring,

control,an

dop

timization

Rem

otediag

nosticsen

ablin

gmon

itor,

control,op

timization,

andau

tono

mou

sop

eration(insomehigh

lyad

vanc

edcases

such

asmov

ingve

hicles)

Digital

platform

enab

lingeff

ective

interactions.Ope

ratormay

mon

itor,c

ontrol,

optimize,

andprov

ideecosystem

enab

ling

autono

mou

sprod

ucts

(e.g.,ve

hicles)

Resou

rce-ba

sedview

Cap

abilities

relatedto

prod

uct

selling

,man

ufacturing

,distribu

tion

,and

deliv

eryas

wella

sbran

dman

agem

ent.

Cap

abilities

tomasscu

stom

izewhile

maintaining

high

prod

uction

capa

city.

Particular

emph

asis

onmod

ularity-

basedeffi

cien

cies.

Solution

ssalesan

dde

livery,

remote

diag

nostic,p

reve

ntivemainten

ance,

adva

nced

services,IoT

.Inc

reasing

emph

asis

onprojectman

agem

ent

capa

bilities

Value

-based

selling

,deliveryof

outcom

e-ba

sedservices,IoT

,AIsolution

sDigital

platform

,userinterface,

andlarge

numbe

rof

prov

idersan

dcu

stom

ers.

Bran

dde

velopm

ent.IoTto

enab

lemon

itoring,

control,op

timizationan

dau

tono

mou

sprod

ucts

Power

approa

chProd

uctdifferen

tiationor

cost-

adva

ntag

eProd

uct-servicestrategy

relie

son

cost-

adva

ntag

ean

dscaleecon

omies

Customized

prod

uct-servicesystem

,ad

vanc

edservices,c

ustomer

lock-in

Ease

ofbu

ying

anduse,

custom

erlock-in

Strong

prov

ider

holdssign

ificant

power

gene

ratedby

know

ledg

eab

outa

ctorsan

dthe

ecosystem

Organ

izationa

liden

tity

Prod

uctman

ufacturing

Tech

nology

andMan

ufacturing

orientation

Solution

prov

ider,c

ustomer

orientation,

balanc

ingbe

tweentech

nology

and

custom

erorientation

Performan

ceprov

ider

Fully

custom

eroriented

,yet

also

evolving

tech

nology

orientation

Interest

inplatform

andtrue

service-

dominan

tlogic.

“Sav

estheworld”throug

hsharingbu

sine

ssmod

elan

dwaste

redu

ction

Tran

sactionco

stap

proa

chLo

wrelation

ship-spe

cific

inve

stmen

tsMorestab

lean

dsimplebu

sine

ssen

vironm

ent

Interm

ediate

relation

ship-spe

cific

inve

stmen

tsDyn

amic

andco

mplex

busine

ssen

vironm

ent

Highrelation

ship-spe

cificinve

stmen

tsVerydy

namic

andco

mplex

busine

ssen

vironm

ent

Highrelation

ship-spe

cificinve

stmen

tsVerydy

namic

andco

mplex

busine

ssen

vironm

ent

Digital

platform

enab

lingcreation

ofsharing

services.D

igital

platform

save

stran

saction

costs

M. Kohtamäki, et al. Journal of Business Research xxx (xxxx) xxx–xxx

9

modularity in digital servitization or servitization in general. Futureresearch should provide more detailed empirical findings on mod-ularity and related routines in digital servitization, particularlyconcerning industrializers.Research direction 7b: The configuration of the product, service,and software modules to ensure better service and digital contentneeds clarifying. What should constitute a core module and how is itpossible to benefit from such a modular approach?

Customized integrated solution provider refers to companies that offerintegrated product-service solutions. Under this model, provision ofavailability 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 ofavailability sets relatively high standards of remote diagnostics, re-quiring accurate data acquisition, analytics, and implementation.However, the customers of companies that apply this business modelmay still want to purchase integrated solutions with performanceguarantees and availability instead of pure outcomes (e.g., cost-per-ton-contracts; Rabetino, Kohtamäki, Lehtonen, & Kostama, 2015). Somecompanies using this business model may move toward autonomousfeatures in their solutions by providing monitoring, control, optimiza-tion and crewless autonomy as a service. This requires the developmentof capabilities in digitalization (e.g., capabilities in monitoring, control,optimization, and autonomous vehicles). These capabilities build onsales, design, and delivery of integrated lifecycle solutions. Develop-ment of integrated solutions requires in-depth knowledge of not onlycustomers but also other partner company equipment and processes, aswell as the integration of technologies (e.g., software beyond firmboundaries). Hence, in many ways, the bargaining power of thesecompanies is increasingly based on knowledge integration to create andcapture value from customers or customers' customers. Organizationalidentity of an integrated solution provider is based on a paradoxicalcombination 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 broadlyneglects changes in business model configurations of customizedintegrated solution providers. More empirical evidence is requiredto understand how digitalization shapes the ability of customizedintegrated solution providers to engage with other ecosystem actorsto 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 possibleto co-create and capture value over extended contracted duration ofthe solution?

Outcome provision refers to solution providers that sell outcomesinstead of products or services (Visnjic et al., 2017). Thus, instead ofselling products, providers retain ownership and sell the value createdby the product. Examples are the power generated by engines, as inRolls-Royce's iconic power-by-the-hour concept (Ng, Parry, Smith,Maull, & Briscoe, 2012; Smith, 2013). Offering such solutions requiresthe capability of accurately measuring the generated performance,often entailing accurate monitoring and control of the product or fleetof products. Being able to continuously measure and optimize theequipment or processes is a critical underlying requirement of outcomeproviders. The company needs strategic capabilities to sell and imple-ment outcome-based contracts, suggesting capabilities in detailedmonitoring, control and optimization of even autonomous solutions.Implementation of these systems, require also in-depth collaborationbetween ecosystem actors. Thus, the outcome-based business modelsets 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 aparadoxical tension between the customer and the technology mindset(Kohtamäki, Rabetino, & Einola, 2018). In many ways, these companiesmust maintain technological development to provide performance inthe future too. Provision of performance can potentially decreasetransaction costs at the fleet level, but this decrease is related to factorssuch 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 customizedintegrated solutions (Grubic & Jennions, 2018). Currently, descriptionsof outcome-based contracts may be ideal-typical, while in the empiricalworld, different hybrid-models prevail. This conclusion of course holdsto any conceptual business model description, and description ofbusiness model configurations. More empirical evidence is needed onoutcome-based business models, with detailed empirical data.

Research direction 9a: The literature on outcome-based businessmodels is still relatively scarce, and the role of digitalization in thesemodels seems to be understudied. Thus, more empirical research onthe role of digitalization in outcome-based business models isneeded. There is a need for further research on outcomes in thesebusiness models (e.g., energy savings) and the increasing role ofsustainability 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., threeor more years of contracts). There is currently a poor understandingof how to manage digitalization-enabled governance mechanismsduring this implementation phase.

Platform provider refers to a fully-fledged digitally enabled servicebusiness model where the company is a platform provider that connectsvarious providers and customers. For instance, consider a car manu-facturer that transforms its business model to a car-sharing platformbusiness model. This transformation entails a full transition from carmanufacturer to provision of car sharing services and may require asoftware platform for multiple different providers and customers.Similar models may take place and disrupt multiple industries. Thesebusiness models are related to sustainability and waste reduction. Thus,instead of only providing performance (e.g., moving from A to B), thesemodels may combine sustainability and energy saving arguments.People support the sustainability movement by not owning a vehicleand instead using ride-sharing services when required. Thus, platformbusiness models may be aligned with sustainability arguments by re-ducing energy consumption and waste by effectively using economiesof scope. Platform providers need the digital platform, numerous pro-viders and customers, and, to achieve this, a strong brand name. Adigital platform is needed not only to share information and facilitateexchanges but also to monitor, control, and optimize services andproducts. The power position of platform providers is potentially strongbecause of the data they collect on the usage of services. Platformproviders 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 oforganizational identity, platform providers are likely to have a service-dominant identity, as the core operational model builds on interactionbetween potentially large number of customers and providers. Theplatform reduces transaction costs involved in the exchanges by usingeffective applications. Existing platforms provide good example of howdigital technologies hold potential to minimize transaction coststhrough automation. Yet, the literature on digital servitization andservitization provide very little detailed empirical evidence on platformbusiness models. The study from Eloranta and Turunen (2016) is one ofthe rare examples of platform studies in servitization. In the near future,we may see these types of models to emerge also in manufacturing andintegrated solutions. Perhaps the digital servitization literature can

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provide necessary conceptual models and tools to develop platformbusiness models in companies.

Research direction 10a: The literature on platform-based businessmodels is modest or almost nonexistent in the digital servitizationliterature. Thus, we call for the digital servitization literature to tapinto platform business models. Further research is also needed onthe role of sustainability in the provision of platform-based businessmodels.Research direction 10b: The management or orchestration of multi-actor business models needs further investigation. We also call forempirical studies that capture process insights into how providerstransition toward becoming platform providers.

7. Conclusions

7.1. Theoretical conclusions

The four theories of the firm used in this study provide opportunitiesto create novel insights into digital servitization business model con-figurations and offer a good starting point for strategizing in the era ofdigitalization. When crafting the concept of digital servitization, theheritage of the servitization literature should be acknowledged. Sinceits infancy, software has been included in the research on servitizationand 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 discussedin the servitization literature, how the digital component shapes ser-vitization business models, and how digital servitization is defined andconstructed in the servitization literature. To craft a series of businessmodel configurations, we use four theories of the firm. This studycontributes 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 adefinition 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 otherdefinitions, 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 literaturesince its infancy, its role has been undermined (Coreynen et al., 2017).We present some key characteristics of digital servitization in relationto the need to consider the digital dimension, which is an inherentcomponent 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 athree-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 productbusiness model, 2) industrializer, 3) integrated solution provider, 4)outcome provider, and 5) platform provider. A key message of thisstudy is that companies may choose between the digital servitizationbusiness models and that each of them could provide performance gainsfor the company. We also contribute to the digital servitization researchby listing numerous avenues for further research as a result of using thetheory-of-the-firm to conceptualize digital servitization business modelconfigurations.

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 servitizationbusiness models. Table 3 shows the five business model configurationsinterpreted using the four theories of the firm. These theories provide abasis 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 proposedchallenge, we provide numerous suggestions for how the theoreticalperspectives can be adopted in future studies of digital servitization.

Finally, as the number of studies of digital servitization increase inthe coming years, we call for more studies to adopt an ecosystem orvalue system perspective. Most studies are firm centric, and few studieshave taken a dyadic view of servitization (Forkmann, Henneberg,Witell, & Kindström, 2017) and digital servitization. However, as firmsmature in their ability to combine servitization with digitalization, theyadvance in their monitoring, control, optimization, and automationcapabilities. This would imply that digital servitization business modelswill require value system actors' involvement and that this platform andecosystem would be critical.

In conclusion, a core argument throughout this study and the entirespecial issue is the effect of digitalization on solution providers' businessmodels and firms' boundary decisions as companies develop digitalsolutions across firm boundaries to monitor and operate a fleet. Theevolution of digitalization requires increasing emphasis beyond theboundaries of a single firm to align the business models and technolo-gies of different firms within the ecosystem. Hence, the business modelsin digital servitization should be considered in the context of a valuesystem or ecosystem. Based on this discussion, we provide suggestionsfor future research.

From a practical perspective, this paper sheds light on how digitalservitization can emerge within an ecosystem from the perspective of afirm boundary. This could be of significance as digitalization becomesmore and more central to success within industries and markets. Morespecifically, we provide three key contributions to managers re-sponsible for digitalization and servitization initiatives within manu-facturing companies. First, we recommend that managers recognize thelinkages between servitization and digitalization because they workbest together. We foresee challenges and missed opportunities for valuecreation and value capturing if firms overlook the use of these conceptstogether. For example, service delivery benefits from digitalizationcapabilities for logistic management. Similarly, remote monitoringtechnology would need service contacts to capture the value it gen-erates for customers. Second, we present five digital servitizationbusiness models. These business models are unique in relation to thelevel of offer configuration, servitization, and digitalization. We re-commend that managers critically evaluate which business model bestfits their internal capabilities and external market environment becauseall these business models have the potential to generate revenue andgrowth. However, for long-term competitiveness, we foresee the needto 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 turbulentmarket environments, they must work and experiment with multiplebusiness models. Being locked into a single business model, no matterhow profitable, can create deep-rooted rigidity. Thus, continuouslyexploring business model innovation, such as through servitization anddigitalization, 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 10studies of servitization and product-service offerings in ecosystems,many of which embrace theories of the firm, digital servitization, ser-vice transformation, and ecosystems.

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Introduction to the special issue

Bustinza, Lafuente, Rabetino, Vaillant, and Vendrell-Herrero (2019)study firm boundary configurations (e.g., make-or-buy decisions) inmanufacturing companies. Using fuzzy-set qualitative comparativeanalysis, they show that optimal performance is achieved by collabor-ating with value-added service providers for basic and intermediateservices (buying) while developing advanced services within the com-pany (making).

Baik, Kim, and Patel (2019) analyze the role of human resourcepractices, namely high performance work systems, and environmentaleffects such as industry dynamism and industry complexity as drivers ofemployees' service-providing capability. According to their longitudinalstudy, high performance work systems have a positive effect on theservice-providing capability of the workforce. This effect is strongerwhen influenced by environmental complexity and dynamism.

Hedvall, Jagstedt, and Dubois (2019) combine interorganizationalperspectives with a process view of solutions, studying the provision ofsolutions in business networks. Their case study provides insight intohow firms are involved in solution provision and how firms play variousroles in the process and engage in interdependencies, creating what theauthors refer to as “networks of solutions.”

Hullova, Laczko, and Frishammar (2019) study independent dis-tributors in transition toward advanced services. Their study presentsproblems experienced by companies under service transformation suchas 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 toidentify the factors that hamper the servitization journey.

Garcia Martin, Schroeder, and Bigdeli (2019) conduct a systematicreview to analyze how value is understood in the servitization litera-ture. They create a value architecture model to conceptualize value atthe triadic, network and system levels in the servitization research.

Sklyar, Kowalkowski, Tronvoll, and Sörhammar (2019) focus on thetransition 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 studyprovides insight into how service network actors approach servitizationin various conditions. Identifying major capability- and market-relatedchallenges, their analysis reveals four servitization strategies (serviceextension, service benchmarking, digitalization, and customer co-creation). The authors suggest a contingency model to fit matchingstrategies to achieve servitization of the service network.

Jovanovic, Raja, Visnjic, and Wiengarten (2019) study 10 cases toidentify three paths for capability development: 1) sequential devel-opment, 2) the challenge of capability replication, and 3) retrenchmentand service dilution. They argue the need to create an enabling internalecosystem.

Palo, Åkesson, and Löfberg (2019) take a practice theoretical per-spective to study the servitization process as a contestation of businessmodels. According to their research, such contestations may provideinsight into how to develop practices to support servitization. The studyadds 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. Theirresults emphasize the importance of customer participation in newservice development, particularly in contexts of complex customerneeds and low competition.

Lütjen, Schultz, Tietze, and Urmetzer (2019) use a survey and in-terviews from eight energy utilities to understand ecosystem-relateddynamic capabilities. According to their results, a high level of serviceinnovation is linked to ecosystem-related capabilities. Dynamic cap-abilities enable effective reconfiguration of ecosystems.

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