Service business models and digitalization

Question 1

What are incremental budgets?

Answer 1

Based on last year budgets with incremental changes like inflation, volume changes etc.

Question 2

What are zero-based budgets?

Answer 2

Starting from scratch – meaning you must justify all expenses every year.

Question 3

What is a business model?

Answer 3

How a firm creates value, delivers this value to customers, and entices customers to pay

Question 4

What is the 2 main feature of a business model?`

Answer 4

• Value creation and value capture:
  1) Defines a series of activities, that yield a new product or service in such a way that there is net value created

2) Captures value from a portion of those activities for the firm

Question 5

What is a great tool for creating a business model and what does it entail?

Answer 5

The business model canvas.
1) Key Partners
2) Key Activities
3) Key Ressources
4) Value Proposition
5) Customer Relationships
6) Channels
7) Customer Segments
8) Cost structure
9) Revenue streams

Question 6

What is a service?

Answer 6

An experience, time saving, energy saving, an action somebody does for us, does not have a fixed value, services can vary in intensity (think normal bar vs. rooftop bar), has a human element to it (we can influence the service we get and they can influence the service they give).

Question 7

What is a finance and accounting service problem?

Answer 7

Cannot attach property rights to a service from a finance and accounting standpoint

Question 8

What is the IHIP model?

Answer 8

It defines the characteristics of services
1) Intangibility – Service can’t be seen, tasted, felt before they are bought.

2) Heterogeneity – Quality of service depends on who provides them, when where and to whom

3) Inseparability – Produced and consumed simultaneously, often involving an interaction between provider and customer.

4) Perishability – Cannot be stored = challenges when demand fluctuates

Question 9

What is the unique timing of a service?

Answer 9

The offering and demand has to meet up at the same point in time.

Question 10

Which three criteria can gauge a service?

Answer 10

1) Search Qualities - Searchability
2) Experience Qualities – Vacations etc. -> Experiences
3) Credence Qualities - Credibility

Question 11

Are products high in search qualities easy to evaluate?

Answer 11

Yes! This includes most goods and a few services.

Question 12

Are service high in Experience Qualities easy to evaluate?

Answer 12

Medium, these are some goods like restaurants and a big portion of services

Question 13

Are service high in Credence qualities easy to evaluate?

Answer 13

No, these are hard to evaluate, think medical diagnosis.

Question 14

What is nice about having models to evaluate a service?

Answer 14

You can find the shortcomings of a service.

Question 15

What is the gap model?

Answer 15

A model that allows us to find the shortcomings of a service. There a five main gaps like:
Expected service vs. perceived service
Expected service vs. managements perception of consumer expectations.

Question 16

Is a product just a product?

Answer 16

No, there’s almost always a service underlying the product. Think: a pen, you like the way it feels, writes, that you can write and communicate, NOT the physical objective.

Question 17

What is an issue if you’re product works perfect all the time?

Answer 17

People will not want to pay the service fee. If it works all the time, you start valuing it less. You need to “bother” customers once in a while and repair stuff, as people will value it more “we’re getting good service”.

Question 18

Why should we care about Servitization?

Answer 18

Financial standpoint: service revenues offer attractive margins as well as smaller, but more stable, revenue streams than large-scale equipment sales

Sustainability: Repair and maintenance preferable to scrapping, design for durability and maintainability, efficiency gains

Question 19

What is Servitization?

Answer 19

Offering services combined with a product. Think Novopen that also has an app.

Question 20

What are some (4) Servitization drivers?

Answer 20

1) Mature companies feel economic pressure to find new profit streams.

2) Offsets commoditization of a company’s traditional product offerings.

3) Increased competition makes it a competitive edge (customers demand it)

4) Exploits new technology / legislation / collaborative opportunities available.

Question 21

What are SLA?

Answer 21

Service-Level Agreement

Question 22

What is CLV?

Answer 22

Customer Lifetime Value – the total amount of revenues/profits over a given time horizon of transacting with a customer.

Question 23

What is the standard narrative/trajectory when it comes to implementing Servitization?

Answer 23

Start by offering a “basic” service, learn and become better organize ending up in more “advanced” client centric services. Shift from selling product to offering a value.

Often thought of as the “N-step model” learning in each step, which doesn’t necessarily fit reality.

Question 24

What is the Matthyssens-Vandenbempt implementation model/trajectory for Servitization?

Answer 24

A grid of Added customer value in the offerings (Mainly product -> mainly service) vs. Degree of customization (standard -> Customized)

Question 25

What are the two natural combinations in the Matthyssens-Vandenbempt model for servitization?

Answer 25

(1) standardized service addition might be followed by or combined with tailored service addition

(2) product-focused customization turns out to be very compatible with the follow-up strategy of customer process optimization.

Question 26

What four standard trajectories are there for services/products?

Answer 26

1) Standardized service addition (Product  Include a service)
2) Product-focused customization (Product  More customized product)
3) Customer process optimization (Customized product  Customized service)
4) Tailored service addition (Service based product  Customized service)

Question 27

What are some challenges companies face when implementing Servitization?

Answer 27

1) Lack of deep customer insight
2) Customers’ unwillingness to collaborate and share vital information
3) Service-for-free attitude
4) Requires a long-term, proactive view on relational development with customers
5) Lack of technical competences
6) Limited network competences
7) Internal resistance (engineering, sales force) Internal processes inhibiting service delivery
8) Trouble scaling / “fit” with the existing business model
9) Standardization and direction of processes are difficult to realize

Question 28

What is CLV?

Answer 28

Customer lifetime value – measures how profitable a customer, is by showing the total amount of revenue over a certain time period transacting with the customer.

Question 29

What is the core idea of CLV?

Answer 29

Develop a rank order of customers and recommend spending more resources to customers with higher ranks.

Because: Typically, the top 20% of a firm’s customers generate about 200-300% of the annual profits, whereas the remaining 80% are said to often even ‘destroy’ profits  don’t keep unprofitable customers

Question 30

Why is CLV important?

Answer 30

1) Don’t loose money on unprofitable customers
2) Important for decision-making: Internal profitability, M&As, company valuations

Question 31

How do you calculate CLV?

Answer 31

CLV = {(annual revenue – annual costs) x Years as customer} – Initial acquisition costs

Other options available like Real Options or Present Value

Question 32

What is the relationship between firm performance and Servitization & digitalization?

Answer 32

Its good! Both digitalization and servitization increases firm performance.

1) Servitization is positively associated with digitalization.
2) Digitalization is positively associated with firm performance
3) Servitization is positively associated with firm performance
4) Digitalization positively mediates the relationship between Servitization and firm performance.

Question 33

What is MSP?

Answer 33

Maintenance Service Plans

Question 34

Is it always good to make services?

Answer 34

1) No! In the medical equipment study they found that the full-protection contract leads to more failures and increased service costs.

2) The full-protection contract underperforms the basic contract because of added costs of visiting the companies instead of helping them remotely

3) Reliability deteriorates and costs increase when the service provider assumes more responsibility for equipment failure.