Sunday, January 30, 2011

Service-oriented business models: Service as process

This post is part of a series that explores service-oriented business models based on different perspectives on service. In a previous post we discussed the service as product perspective. In this post we address the service as process perspective.

Subsequent to the service product approach and the IHIP characteristics, many newer definitions emphasise services as processes and focus more on the interactions between the customer and provider and the role of the customer as co-producer. Grönroos (2007) and Johnston and Clark (2004) stress state that, from the customers’ perspective, service is the combination of the customers’ direct experience of the service process and their perception of the outcome of that process. Grönroos (2006) defines service as ‘a process consisting of a series of more or less intangible activities, that normally, but not necessarily, take place in interactions between the customer and service employees and/or physical resources or goods and/or systems of the service provider, which are provided as solutions to customer problems.’ Teboul (2006) differentiates between processes in the front-stage (service) where the interaction with the customer takes place, and processes in the back-stage (production).

Frequently, the service encounter is the service from the customer’s point of view (Bitner, Booms, & Tetreault, 1990). This makes it the moment of truth for the provider. While some service marketing use a broad definition for service encounter encompassing any interaction element (e.g., Shostack, 1985), many focused on the personal interactions between customers and employees in the service encounters (e.g., Bitner et al., 1990). However, nowadays this ‘high-touch, low-tech’ paradigm is expanded to include technology-based (enabling employees) and technology-supported (enabling customers) services (Bitner, Brown, & Meuter, 2000). The service as process perspective also has a strong relation with the customer relation as the provider-customer interaction offers opportunities for building a relationship, even in a single encounter (C. Grönroos, 2007).

For business models based on the service as process, the Value Proposition is more targeted at the interaction as perceived by the customer, for example, the service quality and the customer experience. This has also a strong relation with the Key Activities and Key Resources of the core organization, as these have to be targeted at delivering the Value Proposition. The Key Activities and Key Resources are also affected by the role of the customer as co-producer. This means taking into account the Activities and Resources of the Customer Segments and the opportunities and challenges that come with this kind of customer involvement. Moreover, because of the role of the service encounter and the customer relationship in the service as process perspective, the Channels and Relationship elements will also be important for business models based on this perspective.

According to Grönroos (2007) the basic service package (as discussed in the service as product above) is not the same as the service offering from the customer’s viewpoint. The service package considers primarily what the customer receives from a service in terms of outcome related features. However, it neglects how the customer receives the service in terms of process related features. The latter should be seen as an integral part of total service offering. Grönroos refers to the ‘augmented service offering’, which includes next to the outcome features (i.e. the service package consisting of core, enabling and enhancing services), three process related features: accessibility of the service, interactions with the service organization, and customer participation. This augmented service offering can the starting point for a business model pattern that provides an integrated approach to service-oriented business models with respect to the outcome and process features of a service offering.

In addition, the different aspects of service as a process in relation to the business model framework, customer experience, customer relationship and co-production, can also be used as service-oriented business model patterns. For example, a customer experience pattern can support in envisioning a business model for an online service where the value proposition is based on, or enhanced by, the experience, design-based activities and resources that enable developing and delivering this experience, and, if possible, a revenue model based on or levering the experience (e.g. using freenium). A well-known example on an organization having a strong customer experience pattern in its business models is Apple.

Moreover, the growing importance of the Internet has opened up new opportunities and requires rethinking traditional service logic based on the ‘high-touch, low-tech’ paradigm. In particular we see a growing rise of the technology-enabled self-service model at the expensive of the traditional, people-focussed full service model. However, there may also be a rise in new, technology-enabled full service model, as the SaaS example introduced earlier.


Bitner, M. J., Booms, B. H., & Tetreault, M. S. (1990). The Service Encounter: Diagnosing Favorable and Unfavorable Incidents. Journal of Marketing, 54(1), 71-84.
Bitner, M. J., Brown, S. W., & Meuter, M. L. (2000). Technology Infusion in Service Encounters. Journal of the Academy of Marketing Science, 28(1), 138-149.
Grönroos, C. (2006). Adopting a service logic for marketing. Marketing Theory, 6(3), 317-333.
Grönroos, C. (2007). Service Management and Marketing: Customer Management in Service Competition (3 ed.). Chichester, UK: Wiley.
Johnston, R., & Clark, G. (2004). Service Operations Management (2 ed.). Harlow, UK: Prentice Hall.
Shostack, G. L. (1985). Planning the Service Encounter. In J. A. Czepiel, M. R. Solomon & C. F. Surprenant (Eds.), The Service Encounter: Managing employee/customer interaction in service businesses (pp. 243-254). Lexington, MA: Lexington Books.
Teboul, J. (2006). Service is front-stage. New York: Palgrave Macmillan.

Sunday, January 23, 2011

Service-oriented business models: Service as a non-product offering

This post is part of a series that explores service-oriented business models based on different perspectives on service.

Early service definitions are influenced by a strong need to differentiate services from products as market offering. This resulted in defining services based upon the ‘IHIP’ characteristics for services: Intangibility, Heterogeneity (or non-standardisation), Inseparability (of production and consumption), and Perishability (or exclusion from inventory) (Zeithaml, Parasuraman, & Berry, 1985). However, nowadays this approach is heavily criticized because it provides a contra-view of service (e.g. as non-goods), overly emphasizing the view of the provider (Vargo & Lusch, 2004), and it does not capture the essence of services; in particular their process and interactive nature (Edvardsson, Gustafsson, & Roos, 2005). Moreover, goods and services should not be seen as two extremes, it is more a continuum comprising a range of hybrid offerings (Shostack, 1977).

Service as a specific kind of (non-product) market offering is important because it directly relates to the Value Proposition, the core of the business model. It will affect the other elements, such as the Revenue Streams, for example, it may come with a subscription fee. The IHIP characteristics can also be assessed in terms of their impact on the business model and its elements. In addition to the Value Proposition there will be other specific relations with elements, for example, intangibility will affect the Relationship and Channels and the inseparability will affect the Costs (e.g. it is harder to synchronize supply and demand). This has similarities with many traditional publications about strategy and management in service organizations addressing the impact of the IHIP characteristics on managerial and organizational elements (e.g., Bowen & Ford, 2002).

Service as a non-product offering would mean that there are two archetypical business models: product models and service (non-product) models. These should be seen as extremes on a continuum where different combinations of product and service are possible, maybe giving rise to other, hybrid business models based upon specific kinds of combinations, e.g. a ‘core product with added value services’ model. This also opens up opportunities for business innovation with respect to transforming products into services (‘servitization’) and the industrialization of services (‘productization’). A business model perspective is important here as these kind of radical business innovations affect the whole business model, not just the market offering, as for example the ‘Power by the Hour’ model Roll Royce uses for its aircraft engines and the ‘Care for Life’ model KONE uses for its elevators. In the IT industry we see servitization in the rise of ‘as-a-Service’ business models addressing the delivery of IT services over the Internet, such as ‘Software-as-aService’ (SaaS). The idea of SaaS is that that instead of buying the software as a product and deploying it yourself, the user can use the software on demand via the Internet, for example CRM software form Salesforce. With service as market offering, there is also the option of bundling services, i.e. offering and selling services as a package. A common example of a service bundle model can be seen in the telecommunication where a triple play offer includes telephone, TV and Internet.


Bowen, J., & Ford, R. C. (2002). Managing service organizations - Does having a “thing” make a difference? Journal of Management, 28(3), 447–469.
Edvardsson, B., Gustafsson, A., & Roos, I. (2005). Service portraits in service research: a critical review. International Journal of Service Industry Management, 16(1), 107-121.
Shostack, G. L. (1977). Breaking free from product marketing. Journal of Marketing, 41(2), 73-80.
Vargo, S. L., & Lusch, R. F. (2004). The Four Service Marketing Myths: Remnants of a Goods-Based, Manufacturing Model. Journal of Service Research, 6(4), 324-335.
Zeithaml, V. A., Parasuraman, A., & Berry, L. L. (1985). Problems and Strategies in Services Marketing. Journal of Marketing, 49(2), 33-46.

Different perspectives on service-oriented business models

For some time I have been interested in business models for services and service innovation (see also here) and service-oriented business models (see also here and here). However, understanding the business models of services requires first understanding what services are and there is little agreement on that in literature. Based on an extensive exploration of service marketing and, to a lesser extent, service operations literature, I came to the following five perspectives on service:

  1. Service as non-product offering
  2. Service as process
  3. Service as benefits
  4. Service as capabilities
  5. Service as value logic
In the following weeks I will be posting on an exploration of service-oriented business models based on these perspectives. For each perspective I will explore firstly how they affect the different building blocks of the The Business Model Canvas, as described in Business Model Generation by Osterwalder and Pigneur (2010). Secondly, I will try to identify different business model patterns related to that perspective.