Wednesday, March 05, 2008

A service-oriented business model

Earlier I wrote about the relation between the business model and the service concept. To continue this line of reasoning, it may be useful two distinguish between two extreme business models: a service-oriented and a product-oriented business model.

One could, for example, take the work of Grönroos (2007) on service management as starting-point for a service-oriented business model. Service marketing addresses how to manage an organization and its customer relationships in service competition. According to Grönroos, this requires appreciating the ‘service perspective’ as a strategic approach and developing a ‘total service offering’. Service management provides a good starting-point for a service-oriented business model because of its focus on service and the customer. A service-orientation means supporting customers’ activities and processes and results in overlapping service production and consumption. The most important characteristic of services is their process nature and the interaction between provider and customer in the service process.

A service-orientation impacts the full business model: the value proposition, the value configuration, and the financial model. A product-oriented value proposition, for example, implies that the core solution is a product that supports providing value-supporting resources, while a service-oriented value proposition implies that the core solution is a service supporting the customer’s value generating processes. Moreover, while a product-orientation focuses on the core solution, the service-orientation takes the total service offering into account. A focus on the core solution implies that additional services may be necessary but are not perceived as being of strategic importance and hidden services are not recognized as value-enhancing. A service-orientation means that an enhanced offering is required to support the customer’s value generating processes, a core solution is necessary but not sufficient.

Finally, note that in reality a business model can be a mix of product and service-orientation and these orientations are more different kinds of logic then different characteristics of the offering. So a physical product can have a service-oriented business model, while a service can have a product-oriented business model.

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